Benefits Don't Depend On "Trust Funds"
July 18, 2001
Democrats claim the Bush tax cut is eating into the Social Security and Medicare surpluses, implying that seniors' benefits are at risk. In fact, there is essentially no relationship between the size of the Social Security and Medicare trust funds and the payment of benefits.
With respect to Medicare, there is a "surplus" only in Part A of the program, which is financed by payroll taxes and pays only for hospital costs.
- Medicare Part B, which pays for physician services, is in perpetual deficit.
- Part B is financed by "premiums" paid by beneficiaries that cover only 25 percent of costs, with the balance -- in effect a deficit -- covered by general tax revenues.
- This year, taxpayers will pay $70 billion to cover Medicare Part B's deficit, and the overall Medicare program will run a deficit of $56 billion.
Social Security and Medicare benefits are established by law and have no relationship to the trust funds. That is why the federal government has been able to reduce Social Security benefits, relative to taxes paid, for decades, even as the Social Security trust fund grew.
As a new Congressional Research Service report explains, the number of years it takes a worker to recover his payroll taxes in the form of benefits has risen every year and will continue rising in the future.
- In 1980, an average worker got back all his and his employer's taxes plus interest in 2.8 years worth of benefits after age 65.
- This year it will take 16.8 years and by the year 2030, it will take 23.5 years.
Source: Bruce Bartlett, senior fellow, National Center for Policy Analysis, July 18, 2001.
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