Taking into account the recent news, it is possible that it has been lost that the 2025 Trusts reports for Social Security and Medicare They are out. Once again, they confirm what we have known for decades: both programs are running directly towards insolvency. The Social Security Retirement Trust Fund and the Insurance Fiduciary Fund of the Medicare Hospital are in the rhythm to dry in 2033.
When that happens, older people will face an automatic cut of 23% in their benefits of Social Security. Medicare will reduce payments to hospitals by 11%. These cuts are not theoretical. They are baked in the law. If nothing changes, they will be done.
I have nothing against the cuts of this size. In fact, if it were for me, I would cut myself more deeply. Medicare is a terrible source of distortions for our complicated health market and must be reign. Social Security was created when he was too old to work meant being poor. That is no longer the case for so many people.
Thanks to decades of compound investment growth, the widespread property of housing and the increase in assets values, the elderly are no longer the systematically vulnerable group that once were. The highest income quintile includes a growing number of retirees that attract substantial income from pensions and investment portfolios with social security benefits in layers at the top. These programs have become a wealth transfer of the relatively poor to the relatively rich and old.
Of course, the United States still has some poor people, so cutting into all areas is bad. That is why the cuts must be attacked, not the automatic effects in 2033. And Congress should begin now.
The problem size is amazing. The Social Security deficit is now equivalent to 3.82% of the taxable payroll or approximately 22% of the programmed benefits obligations. Avoiding insolvency within eight years would require an immediate reduction of 27% benefits, according to the former Social Security and Medicare administrator Charles Blahous.
Alternatively, legislators could increase payroll tax from 12.4% to 16.05%. That is an increase of 29.4%. Or they could restructure Social Security so that only people who need money receive payments. But because facing this problem honest is politically toxic, legislators are ignoring it.
Kag does not rest with Congress. The American public has made it very clear that they do not want reforms. They do not want benefits or tax increases, and they certainly do not want longer retirement. So politicians pretend that everything is fine.
Congress deserves new criticism for worsening things. Last year, legislators approved the “Innovative Social Security Education Law”, which gives benefits to unexpected gain to government workers who did not pay in the system, which expands the deficit. This year, the Chamber proposed extended tax exemptions for the elderly in the “law of a Big Big Beautiful bill”, which would further worsen the problem.
The cost of political gifts is high. The unpaid obligation of 75 years of Social Security has now reached $ 28 billion, compared to $ 25 billion only one year ago.
Medicare is not better. Its costs are expected to increase 3.8% of the gross domestic product today to 6.7% for the end of the century (8.8% under more realistic assumptions). Most of the additional expenditure will be financed through general income, which means more loan and more pressure on the federal budget.
Like Romina Boccia of the Cato Institute has documentedOther countries have taken significant measures to address similar challenges. Sweden and Germany implemented automatic stabilizers that slow down the growth of benefits or increase taxes when their systems become unsustainable. New Zealand and Canada have moved towards more modest and poverty poverty systems that offer basic support without banking the State. A few weeks ago, Denmark increase The retirement age to 70.
These are serious reforms. The United States has done nothing.
There are options. Policy formulators could gradually raise retirement age to reflect modern, healthier and longer lives. They could limit the benefits to $ 2,050 per month, preserving income for 50% lower of the beneficiaries, while progressively reduce the benefits for the upper half. They could reform the fiscal treatment of retirement income to encourage private savings, as Canada has done with their tax free savings accounts. Any combination of these reforms would help.
But that would require admitting that the current route is unsustainable. I would need to tell the voters the truth. It would require courage. Until now, these admirable traits have missed our politicians.
The trustees of the programs have made clear the bets: the only alternatives to the reform will be cuts of drastic benefits or increases in mass taxes. Waiting until the trust funds are empty will not leave room for gradual and specific solutions. It will force the Court in mode of crisis that will damage the most vulnerable.
The best guilt is with voters who continue to reward politicians to promise the impossible. A functional democracy cannot survive if the electorate insists on the voting benefits for themselves to the point of insolvency. At some point, reality affirms itself. That moment comes quickly.
Veronique de Rugy He is a senior research member at the Mercatus Center of the George Mason University. This article was produced in collaboration with the creators Syndicate.
