Fiscal Cliff 2013: These Fiscal Crises Are Even Worse
America needs this fiscal crisis. We need this wake-up call from decades of self-indulgence with no consideration taken to the implications of our fiscal irresponsibility. Unfortunately, I am not referring to the much hyped fiscal cliff. The fiscal cliff actually pales in comparison to the true scope and depth of our nation’s pending insolvency of basic entitlement programs, or possible default on our national debt.
Time is running out and the bill for literally generations of political pandering is coming due. America’s national debt now exceeds $16 trillions as the U.S. debt clock www.usdebtclock.org proves. Whether you realize it or not, if America was paying the same interest rate on her debt as we did during the Clinton era, that payment would equal basically every dollar of personal income tax collected!
Our entitlement programs are facing insolvency beginning with Social Security Disability Insurance depleting in 2016, Medicare in 2024 and Social Security by 2037. Yet during our just completed presidential election, neither candidate proposed a long-term solution to save our entitlement programs while beginning to address our ongoing trillion dollar annual deficits.
You were not alone in never hearing a solution proposed about the pending insolvency of SSDI, which now covers over 10,000,000 Americans. Yet SSDI’s insolvency has been the topic of countless articles by both liberal and conservative writers. It was the topic of a 2012 report from the Congressional Budget Office (CBO) showing SSDI benefits will increase 70 percent over the next ten years. This report led Sen. Jeff Sessions (R-AL) to raise the alarm that SSDI’s trust fund will go bankrupt by 2016.
"[This] report from the Congressional Budget Office reveals a dramatic increase in applications and awards for Social Security disability, placing the disability trust fund on a fast-track to insolvency in just four years,” said Sen. Sessions, the ranking Republican on the Senate Budget Committee."
The disability insurance program, as the Washington Examiner’s Joel Gehrke noted, paid out $119 billion to 8.3 million recipients in fiscal year 2011, accounting for approximately 18 percent of all Social Security spending. It is projected to pay out $140 billion to now over 10 million Americans by the end of 2012. “The department expects that number to jump to $204 billion — an increase of 71 percent, approximately — as the number of disabled workers and dependents receiving money increases to 12.3 million by 2022,” Gehrke reported.
The expansion of the disability trust fund has also driven up Medicare expenses due to the fact that all disability applicants automatically receive Medicare benefits after two years. Here’s an infographic from the CBO that helps makes sense of it all:
The trustees of the Medicare program have released their annual report on the solvency of the program through 2011. They calculate that the program is “expected to remain solvent until 2023, the same as last year’s estimate.”
But if you read what Medicare’s own actuary, Richard Foster writes, the program’s bankruptcy could come even sooner than that. Here’s how the Centers for Medicare and Medicaid Services summarize the findings, which carry the formal title, “2012 Annual Report of the Boards of Trustees of the Federal Hospital Insurance and Federal Supplementary Medical Insurance Trust Funds”:
[Medicare Hospital Insurance Trust Fund] expenditures have exceeded income annually since 2008 and are projected to continue doing so under current law in all future years. Trust Fund interest earnings and asset redemptions are required to cover the difference. HI assets are projected to cover annual deficits through 2023, with asset depletion in 2024. After asset depletion, if Congress were to take no further action, projected HI Trust Fund revenue would be adequate to cover 87 percent of estimated expenditures in 2024 and 67 percent of projected costs in 2050.
I’m sure you were not aware when you voted last week, Medicare will only be able to fund 87% of the benefits recipients are counting on.
Which brings us to our most financially sound entitlement program, Social Security.
The 2012 Social Security Trustees Report — the authoritative source on the program’s finances — states the “trust fund assets” will continue to grow through 2020. That is the good news while the bad news is the report notes on pages 10-11 of the overview, beginning in 2033 the fund will only be able to pay 75% of benefits which would be sustainable over the next fifty years.
However, included in the 252 page report is a baseline assumption on the effects of inflation which is at best optimistic. Should inflation replicate its weighted mean over the past decade, SS trust asset will begin to decline by 2017 accelerating the programs’ insolvency by potentially half a decade.
This is the true fiscal crisis America must come to grips with.
We are looking at a future where 12 million SSD recipients will need to have their benefits funded solely through general revenue, 65 million Medicare recipients will receive 87% of their current benefits and Social Security will see their monthly checks cut by 25%.
Conversely, we are looking at a future where, today’s millennials as well as today’s youth and future generation yet unborn will be asked to fund all of the above from increased taxes.
This isn’t the future you deserve.
But this future does not need to occur. There are multiple options available for President Obama and Congress to pursue which present long-term solutions to address our debt crisis as well as ensure the solvency of our entitlement programs.
One such path toward resolving our fiscal crisis is was developed over two years ago by the Simpson-Bowles commission. It is a recommendation I support and presented here at PolicyMic several weeks ago.
America can put her financial house in order, or at least we can if we unite in accepting the responsibilities that goal entails. Our fiscal crisis must be addressed. Our nation’s future hangs in the balance.