August 9, 2010

Geithner: Social Security Payments Exceed Revenue for 1st Time

Trustees report legislation improves state of Medicare; Social Security worse short-term, little changed long-term.

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The Boards of Trustees for Social Security and Medicare released their annual financial status reports on the two programs Thursday, August 5, and warned that while the outlook for Medicare has "improved substantially" because of program changes made in the Patient Protection and Affordable Care Act as amended by the Health Care and Education Reconciliation Act of 2010, the outlook for Social Security is "little changed" from last year, with the short term outlook "worsened by a deeper recession than was projected last year."

At the press briefing on August 5 where the reports were released, Secretary of the Treasury Timothy Geithner said that Social Security benefit payments are expected to "exceed tax revenue for the first time this year, six years earlier than was projected last year, but the improving economy is expected to result in rough balance between Social Security taxes and expenditures for several years before the retirement of the baby boom generation swells the beneficiary population and causes deficits to grow rapidly."

He went on to say that "it is projected that tax and interest income will be sufficient to pay benefits through 2024, after which the Trust Fund will be drawn down until depleted in 2037, the same date of Trust Fund exhaustion projected last year. After 2037, it is expected that tax income will be sufficient to finance more than three quarters of scheduled benefits."

The long-run financial challenges facing Social Security and those that remain for Medicare "should be addressed soon," the trustees wrote in their report. "If action is taken sooner rather than later, more options will be available and more time will be available to phase in changes so that those affected have adequate time to prepare."

The Medicare Program is the second-largest social insurance program in the U.S., with 46.3 million beneficiaries and total expenditures of $509 billion in 2009, according to the report. Despite lower near-term revenues resulting from the recession, the trustee report states, "the Hospital Insurance (HI) Trust Fund is now expected to remain solvent until 2029, 12 years longer than was projected last year, and the 75-year HI financial shortfall has been reduced to 0.66% of taxable payroll from 3.88% in last year's report."

Nearly all of this improvement in HI finances is due to the Affordable Care Act, the report says. "The ACA is also expected to substantially reduce costs for the Medicare Supplementary Medical Insurance (SMI) program; projected program costs as a share of GDP over the next 75 years are down 23% relative to the costs projected for the 2009 report."

Meanwhile, while the short-term outlook for Social Security has worsened due to the recession, "the overall 75-year outlook is nevertheless somewhat improved primarily because a provision of the ACA is expected to cause a higher share of labor compensation to be paid in the form of wages that are subject to the Social Security payroll tax than would occur in the absence of the legislation," the report states. The Disability Insurance (DI) Trust Fund, however, "is now projected to become exhausted in 2018, two years earlier than in last year's report. Thus, changes to improve the financial status of the DI program are needed soon."

In his comments at the August 5 press conference, Geithner said that despite the projection that Social Security can continue to pay full benefits for nearly 30 years, "the sooner action is taken the more options for reform will be available and the fairer reforms will be to our children and grandchildren. Now that we have taken meaningful steps to put Medicare on a sustainable path and moved quickly and aggressively to rescue our economy and put us a path to continued future growth, we must work to address the other intermediate- and long-term fiscal imbalances that the federal government faces as well."

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