Americans and their elected leaders in Washington have put off changes to the Social Security and Medicare systems for years. But a new report from the trustees of each program make it clear that it’s finally time to do something.
The American Action Forum, a center-right think tank that advocates free-market economic solutions, reports that Social Security trustees estimate the old-age trust fund will use up its cash reserves by 2032. If that happens, every recipient’s benefits will be cut by 22%.
Meanwhile, the Medicare trustees say the Part A hospital insurance trust fund will be insolvent a year after that, in 2033, at which point spending on the health care program for seniors will be reduced by 11%.
If you’re thinking the obvious solution is an increase in Social Security and Medicare payroll taxes, the news is grim. Especially for Medicare.
Because Social Security has been taking in less than it’s paid out every year since 2010, that has helped run up a $1.4 trillion cash deficit. Payroll tax increases to erase that deficit would reduce every worker’s paycheck and every employer’s bank account.
Workers today give 6.2% of their pay to Social Security, and employers match that. The report estimates by 2034, the payroll tax for both workers and employees would have to rise to 8.65% to maintain the current level of benefits.
That increase would be tolerable if it fixes the finances of Social Security. It’s Medicare that’s in far worse financial shape, and without creative solutions, what senior citizens pay for medical treatment will soon go way up.
Some Medicare background: The program’s revenue has run short of expenses for every year of its existence except two, in 1966 and 1975. It has spent $8.5 trillion more than it’s taken in during its six decades, and today is responsible for 29% of the entire national debt.
Medicare’s 2025 budget shows how badly the program is out of balance. Last year, it spent $1.2 trillion on medical services for senior citizens — but only took in $568 billion, or less than half of the spending, from payroll taxes and retiree monthly premium payments.
Despite future concerns, Medicare Part A, the hospital trust fund, is doing OK right now. It had a cash surplus in 2025. But Part B, physician payments, spent $434 billion more than it took in last year. Part D, for prescription drugs, overspent by $166 billion.
The worst news is what would happen to senior citizen Medicare premiums if nothing is done. The report estimates the typical Part B premium for physician care would nearly quadruple, from $2,220 to $8,630. And the typical Part D prescription drug premium would increase by a multiple of 12, from $441 to $5,376.
Washington has waited too long to deal with these imbalances. The only good thing about that is there soon will be nowhere left to hide.
Whoever wins the presidency in 2028 will have to lead the way in addressing insolvencies that are very likely to occur during his time in office. Both parties of Congress also will have to be creative. Yes, the reforms will involve tax increases. But that’s better than large Social Security cuts and expensive Medicare premiums forced on voters because of inaction.
Another possible positive to this dilemma is that fixing it may give our timid leaders in Washington the courage to figure out ways to start paying down the $40 trillion the government has run up, most of it in the past two decades.
That is an awful lot to ask, true enough. But the clock is running out on our deficit spending. Now it’s time to start discussing solutions.
