WASHINGTON (AP) — As the U.S. recovery slowly gathers steam, federal deficits are finally coming down from their nosebleed $1-trillion-plus heights. That will postpone until fall a new budget showdown between Congress and the White House — and also will probably delay the days of reckoning, feared by millions of aging Americans, when Social Security and Medicare could become insolvent.
Why does it matter? If those programs’ money dries up, benefits must be reduced.
Some answers on future financial prospects should come today when trustees overseeing the two popular programs issue their annual report. Last year they projected that Medicare funds would run dry in 2024 and Social Security’s trust funds would follow in 2033.
The trustees have steadily been moving those dates closer, even as almost 10,000 baby boomers a day have been reaching retirement age and qualifying for benefits.
What next? Ahead of the new report, here are some central questions and answers about deficits, the national debt and the outlook for the government’s two biggest “entitlement” programs.
Q: What if no agreement is reached between the White House and Congress to guarantee the future solvency of Social Security and Medicare?
A: If funds become exhausted, the two programs will find themselves collecting only enough money in payroll taxes to pay partial benefits to the millions of American recipients. Payroll taxes are in addition to — and collected along with — your federal income taxes.
Q: What will forced reductions mean in dollar terms for those receiving benefits?
A: The Social Security trustees have suggested that once the reserves are gone, incoming payroll taxes will cover roughly 75 percent of the program’s promised benefits. So that could mean an immediate 25 percent cut in benefits. That would reduce the average monthly Social Security check — now $1,266 — to roughly $950 a month. Medicare’s giant hospital fund could pay only 87 percent of costs.
Q: How likely is this to happen?
A: Such deep mandatory cuts seem highly unlikely, given the political heat that would be sure to rise to unbearable levels as the deadline neared and if the White House and Congress still failed to act. A compromise of some sorts to avoid a cut in benefits seems inevitable. But as recent events have shown, finding common ground is becoming increasingly difficult in partisan and polarized Washington.
Q: Will the report show an improvement in light of the government’s budget advances?
A: It may but perhaps only a small one, given continued general weakness in the economy. “I think the relatively good news on the budget front could well translate into at least slightly better projections,” says Paul Van de Water, an analyst with the Center on Budget and Policy Priorities, a liberal-leaning think tank. “There’re so many moving parts to these projections that I never want to go out on a limb. But there is certainly some reason to be slightly optimistic.” In the meantime, the economy is far from healed, with still-sluggish growth and a 7.5 percent unemployment rate that is still way above pre-recession levels of around 5 percent.