NU Online News Service, March 23, 2004, 6:40 p.m. EST – The federal government might have to raise the payroll tax rate 5.01% percentage points, to a total of 20.31%, to maintain current Social Security and Medicare hospital insurance benefit levels.[@@]
The increase would amount to an increase of about 33% in Social Security and Medicare payroll tax revenue.
The trustees of the Social Security and Medicare trust funds delivered that warning today in their annual report on the trust funds’ financial status.
The government now charges workers and their employers 10.6% of total payroll for Social Security old-age, survivors and disability benefits and another 2.9% of payroll for Medicare hospital insurance, the trustees write in the report.
If Congress and administration officials stand still, the Social Security trust fund will be gone by 2042, and the Medicare trust fund will be gone by 2019, the trustees write. The exhaustion date has moved up, from an estimated date of 2026 in the 2003 trust fund report, because medical costs have been rising faster than hoped and tax income has been growing more slowly, the trustees write.
The government would have to increase the Social Security payroll tax 1.89 percentage points, to 14.29%, and the Medicare payroll tax 3.12 percentage points, to 6.02%, to bring the trust funds back into actuarial balance over the next 75 years, the trustees warn.
The trustees also expect the U.S. economy to grow, but hospital insurance costs are growing so fast that they could eat up 14% of gross domestic product by 2078, up from 2.7% of GDP today, the trustees predict.
The government uses a different method to fund the cost of Medicare physician visit benefits and the new Medicare drug benefits, but the government might have to allocate as much as 6.2% of GDP to pay for those benefits, up from 0.9% today, the trustees predict.
The trustees note that the Social Security and Medicare systems probably will break down well before 2078 unless the government finds a way to control program costs.
“We do not believe the currently projected long-run growth rates of Social Security and Medicare are sustainable under current financing arrangements,” the trustees write in their introduction to the Social Security and Medicare trust fund reports.
The government has posted links to the reports on the Web at http://www.cms.hhs.gov/publications/trusteesreport/default.asp?