Social Security and Medicare update (or lack thereof :)

Up there with climate change on my list of major public policy concerns is the status of Social Security and Medicare. The annual Trustees Report came out in March last year but has yet to come out this year. Medicare can actually change quite a bit from year to year based on changing cost estimates, so until the new report comes out let's focus on Social Security, which changes very little from year to year.

I have a handy coloring book that outlines the major issues, but in a nutshell: Social Security is primarily based on the world's best acronym---Pay-As-You-Go (PAYGO)---meaning that it relies on current workers to pay for the retirement benefits of current retirees. Because the Baby Boomers (born between 1946 [Dolly Parton] and 1964 [Keanu Reeves]) are still mostly in the workforce, Social Security is currently running a surplus, a surplus that may or may not be accumulating in the Social Security Trust Fund. (It's tempting to focus on the Trust Fund, but it's now mostly a $2 trillion sunk cost, so don't worry about it too much :)

Here's what you should worry about: in about 2017 enough Boomers will have retired that Social Security taxes will not be enough to cover the benefits promised to retirees, and even if the Trust Fund exists there will not be enough money in it to cover all benefits after 2040, and (this is the really big thing to worry about) even after the Boomers are gone promised benefits will remain at about 5.8% of GDP, up from 4.3% today and well above payroll tax receipts. Hence the gap between the red and blue lines at the top of the graph. (The red line is expenditure, the blue line is tax revenue.) The red and blue lines at the bottom of the graph are for Medicare, which is in much worse shape... but that's a story for another day.