Copley News Service

April 1, 2002 Monday

SECTION: PRIME TIME; AGING LIFESTYLES

Social Security outlook may be better, but it's far from good

By John A. Cutter

In political circles, they call it "spin." I guess that sounds better than saying you are lying, fibbing, misrepresenting, falsifying, deceiving and just plain not telling the whole truth to the public.

Republicans and Democrats are working hard to put the best spin on our perception of the reports on the Social Security and Medicare trust funds, which were released on March 26.

Since the reports showed the financial outlook for the programs actually improved in 2002, Democrats are hammering Republicans, who see a "crisis" that requires dramatic changes in Social Security and Medicare. But since the reports continue to show a long-term deficit for the nation's two largest social programs, Republicans still are calling for change now to prepare for the swelling ranks of retirees to come once the boomers start turning 65 in 2011.

As with most things, the truth is somewhere between the extremes. But truth, as they say, is the first casualty of war, and the battle over the future of Social Security and Medicare is war.

To understand all this, we need a little background and a few facts. First, however, here are a few words of caution: Even I could be guilty of "spinning" just by what background and which facts I choose to cite.

Those wanting to make their own conclusions should look for the trustees' reports; the Social Security report is online at www.ssa.gov; the Medicare report is online at www.hcfa.gov/pubforms/tr/.

Background: Money from taxes for Social Security and Medicare goes into trust funds. Money to pay benefits comes out of these funds, which are administered by trustees - four cabinet members and two others from the general public. Each year, the trustees report on the state of the trust funds for the previous year, basically saying how much comes into the funds and how much went out. They also look at the short- and long-term financial outlook for the Social Security and Medicare, factoring in such things as inflation, costs and demographics.

The goal is to come up with a 75-year scenario for both programs. The most watched figures each year are the dates when the programs begin to run a deficit - that is, the dates when the taxes coming into the trusts funds can't pay all the benefits. The other important dates are when the programs need to start spending the excess taxes they are collecting right now - taxes invested in Treasury bonds that help fund a lot of other government activities.

Facts (or what I see as facts): The reports on March 26 said that the short-term financial outlooks for Social Security and Medicare improved in 2002. The trustees added three years to the life of the Social Security trust fund, saying now that it will run out of cash in 2041. After that Social Security would be able to pay only about 75 percent of benefits to retirees through 2077.

Medicare's hospital insurance trust fund is projected to run out of cash in 2030, which is one year later than projected last year. (Note: Other expenses for Part B of Medicare go into a Supplementary Medical Insurance Trust Fund, which is in good shape because so many of its costs are covered by your monthly Part B deduction, co-payments and general tax revenue. These costs, however, are rising rapidly.)

These Social Security and Medicare financial improvements came despite a souring economy. A major reason is a bit technical: The trustees altered their assumptions about how productive workers will be in coming decades. Higher productivity translates into higher average wages, which means the government gets more taxes.

As I said, Democrats want you to believe everything is pretty rosy, especially for Social Security.

Republicans want you to believe there are dark clouds on the horizon.

It is the extreme nature of those views that make me think this is a war. Neither leaves much room for compromise. If Democrats have their way, we will do little to Social Security now and we will find a way to make Medicare bigger with a drug benefit. If Republicans win, we will see private investment accounts in Social Security and a bigger role for the private market in Medicare reform.

We all could be the losers of such a war. There is no denying Social Security and Medicare need financial help for the long-term. And, the GOP is right in this aspect - we should be thinking about it now and not later, when the choices will be harder and more costly.

E-mail questions, comments, or column suggestions to John A. Cutter at jcutter(at)tampabay.rr.com or send them to P.O. Box 2276, Clearwater, FL 33757-2276.