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By Scott B. Elkind, Esq.

Unsatisfactory Condition of Social Security in 2014

The 2014 Summary of the Status of the Social Security and Medicare Programs from the Social Security and Medicare Boards of Trustees points to many program funding problems.

The Social Security Disability Insurance (DI) program fails to satisfy the Trustees’ long range financial testing with a more, immediate potential for a shortfall in short-range funding. The DI Trust Fund reserves declined to 62% at the beginning of 2014 with trust fund depletion anticipated by 2016. After 2016, automatic reductions will go into effect if new legislation to increase funding is not enacted, slashing benefits to 75% of current payments.

Costs for Social Security program in general have exceeded income since 2005 with the trust fund ratio in decline since 2003. Social Security’s total expenditures have exceeded its non-interest income since 2010 with no relief projected for the next 75 years. Annual cash flow deficit from 2014 – 18 is expected to average $77B yearly before rising steeply as income growth slows and beneficiary numbers surge. After 2019, for the DI program to remain solvent will require redemption of Treasury bills issued by the General Fund of the Treasury for monies removed to pay for other government operations “borrowed” from the Social Security Program. (As there is no fund for this purpose, such a redemption is a fiction.) Even if the money were available for redemption, this source of funding would only carry Social Security to year 2033 at which time tax income would only be sufficient to pay 75% of scheduled benefits through 2088.

Medicare fund depletion has been projected to occur four years later than previously determined. Funds are now projected to last until 2030 as a result of reduced spending in 2013. At that time, dedicated revenues will only be able 85% of costs. Fortunately, the 75 year outlook is not as bleak as that of Social Security. General revenues will only be able to finance 75% of the prescription drug benefit with beneficiaries paying the remaining 25%. Without legislation for additional funding, this fund will also be depleted with only 75% of all benefits paid as of 2030 forward.

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