P.I.S.S.D. — Personal Injury, Social Security Disability. Dallas Texas Lawyers

According to a CNN story today, Treasury Secretary Henry Paulson is warning about the same dangers I mentioned in a January post on this blog — we’re about to run out of money for Social Security and Medicare. Here are excerpts from the article:

Treasury Secretary Henry Paulson, saying that Social Security is
"financially unsustainable," called Tuesday for quick action to keep
the system strong and released a report detailing the program’s funding
shortfalls.

The federal government will have to start paying back
what it owes the Social Security trust fund in 2017 so the program can
continue paying 100% of benefits. By 2041, if the system is left
unchanged, Social Security will only be able to pay out 78% of benefits
promised to future retirees.

Shoring up Social Security
is one of the main economic issues that will face the next president.
Most proposals involve raising taxes or reducing benefits. Democrats
typically have opposed benefit reductions while Republicans have
opposed tax increases. 

"This year’s Social Security
Report again demonstrates that the Social Security program is
financially unsustainable and requires reform," Paulson said at a
briefing. "The sooner we take action … the less drastic needed
changes will be."

Borrowing from the future

For
years, the Social Security program has been taking in more in payroll
taxes from existing workers than it needed to fund benefits. The
government borrowed that surplus and promised to pay it back with
interest by issuing special issue bonds to the program.

But the
proceeds from those bonds are finite, which is why the trustees
estimate that the trust fund will run dry by 2041. Without that
cushion, Social Security would only be able to pay out the money it
collects in payroll taxes.

Demographics are a major reason for
the funding shortfall. The number of workers, compared to retirees, has
begun to shrink. That means the system will produce a smaller surplus, then none at all, and eventually it won’t be able to pay out all benefits promised to future retirees.

Last year, the trustees also
estimated that the government would need to start paying back the
program in 2017, and that the Social Security trust fund would be
exhausted by 2041.

Currently, the first $102,000 of wages are
subject to the 12.4% payroll tax that funds Social Security. Typically,
half the tax is paid by workers, and the other half is paid by
employers.

To keep the system solvent over the next 75 years,
the trustees estimated that the Social Security payroll tax rate would
need to increase to 14.1%, up from the current 12.4%. Or lawmakers
could bring it into balance by cutting benefits by 12%.

Nonpartisan experts say the pain of fixing
Social Security can be lessened in two ways: Make changes soon so that
they affect more people but in a less dramatic manner, and implement a
combination of tax increases and benefit reductions so that neither is
particularly steep.

Medicare a bigger problem

Medicare, which was also addressed in Tuesday’s report, has an even larger and more immediate funding deficit to address.

The
Medicare program is already taking in less than it has committed to pay
out, and the trustees forecast that the Medicare trust fund will be
depleted by 2019, at which point Medicare would only be able to pay out
78% of costs.

Medicare was designed to be funded by three
sources: payroll taxes; Medicare premiums paid by beneficiaries; and
general revenue or money from income taxes.

The payroll tax
portion of that funding comes from a 2.9% tax on all wages – half of
which is paid by workers and half by their employers. To make Medicare
solvent over the next 75 years, the trustees estimate that 6.44% of
wages would need to be taxed.