Social Security and Medicare are now and have been for some time substantial cash flow drains on the federal budget and causes of rising deficits – their benefit payments have exceeded their dedicated tax revenues for many years. Nonetheless, the conventional political wisdom is that no changes can be made to these massive popular programs until their separate Trust Funds, which represent (in an accounting sense) past program surpluses, are exhausted. These exhaustions are legally forcing events because afterwards no benefit payments can be made beyond contemporary taxes being collected into the Trust Funds, so significant benefit cuts would ensue, including to current beneficiaries.

The official and common view has been, based on the Trustees’ Reports and the Congressional Budget Office’s (CBO) projections, that Medicare will go bankrupt soon and first by several years before Social Security. Yesterday, however, CBO released its new budget and economic outlook report, highlighting a large deterioration in the projected federal government deficits and increase in debt. Deep within the supporting material, another significant shift has occurred – CBO has moved up the projected exhaustion date for Social Security by a year (to 2032), and pushed it back for Medicare by three years (to 2033), so that Social Security will have to be dealt with first.

The table below provides more detail. In the first block, titled “CBO (2023),” the just-released projection shows that the OASI Trust Fund (which covers Social Security retirement and survivor benefits) will be exhausted in 2032. Although the DI Trust Fund (which covers Social Security disability benefits) is projected to continue to grow, its balances (which are separate legally but in fact always combined with OASI when either Social Security Trust Fund approaches exhaustion) appear to be insufficient to overcome the shortfall in 2032 and certainly in 2033. The HI Trust Fund (which covers hospital and other health care benefits in Medicare) will be exhausted in 2033.

As seen in the second block, titled “CBO (2022),” this represents a significant change in view since last year, where the OASI Trust Fund would be exhausted in 2033 (and DI would not cover the shortfall) and HI would be exhausted in 2030. By contrast, the Trustees last year were considerably more optimistic about Social Security, projecting that combined OASI and DI Trust Funds would not be exhausted until 2035 (I explained the dubious sources of this optimism last year), while they were more pessimistic about Medicare, where the HI Trust Fund would be exhausted in 2028.

According to CBO, its projections have changed because Social Security outlays increased due to substantially higher inflation and average wages than forecasted last year; this increase was more than the projected increase in payroll taxes. For Medicare, several technical changes reduced outlays, while its payroll taxes increased somewhat more than previously expected.

By law, the Trustees’ Reports are due out on April 1. In the last two years, the Biden Administration has been quite late with the Reports. Their importance, however, has never been greater as the nation must seriously grapple with the programs’ outmoded structure and deteriorating finances. Similarly, the law requires the Administration to submit a budget by the beginning of February. This year, the Biden Administration failed to do so. When the budget is finally submitted, we hope there are substantive proposals there for sustainable solvency and reform to get serious discussions finally commenced among the public and lawmakers, despite the shameful and irresponsible call-and-response on Social Security and Medicare at the recent State of the Union address.

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