Trustees Revise Fiscal Forecasts for Social Security and Medicare

Using what was described as the likeliest economic and demographic assumptions, the annual report of the programs' trustees says Social Security's substantial annual surpluses will turn into deficits in 2017 because of the number of baby boomers who will be drawing benefits from the program rather than putting their payroll taxes into it.

If no action is taken in the meantime, the trustees said, the reserves in the Social Security trust fund will be used up by 2041. That would leave only the annual payroll taxes as a source of benefit payments, which would have to be cut by 26% for all recipients, they said.

Medicare, the government's healthcare program for the elderly, is already spending more annually than it is collecting in payroll taxes, the trustees said. Its trust fund is on course to run out of money in 2020 -- a year later than last year's report estimated, thanks to higher tax revenue and slightly lower spending last year. Unlike Social Security, Medicare is already spending more this year than it will collect from its 2.9% payroll tax.

Unlike previous annual reports, this one immediately became the center of political attention, because President Bush has placed Social Security at the top of his second-term domestic agenda.

Most experts described as statistically insignificant the trustees' revised estimations of 2017, rather than 2018, as the year when Social Security would begin running annual deficits and 2041, rather than 2042, as the time the trust fund would run out of money.

"The further out in time you project, the more speculative the numbers become," said Kenneth Apfel, the Social Security commissioner under President Clinton.

Nevertheless, the report provided fodder for advocates and detractors alike of Bush's proposal for private Social Security accounts.

Social Security, said Treasury Secretary John W. Snow, one of its six trustees, is on an "unsustainable course

The answer, Snow said, is to leave benefits unchanged for people born before 1950 but offer younger workers investment accounts with potential stock market profits to offset expected benefit cuts -- all without raising the payroll tax rate.