FROM THE OFFICE OF PUBLIC AFFAIRS
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March 23, 2005
JS-2332
Treasury Secretary John W. Snow Statement on the 2005 Social Security and Medicare Trust Fund Reports
Welcome to the Treasury. The Social Security and Medicare Board of Trustees met here earlier today to complete the annual financial review of the trust funds and to transmit the Trustees' Reports to Congress.
The numbers published today leave no question that Social Security reform is needed, and it is needed soon. Reform of this system, for the sake of our children, grandchildren and the financial future of our country, is a very real and pressing matter.
For Social Security, this year's report shows a small deterioration from last year's report. It once again demonstrates that the Social Security program is seriously under-funded and financially unsustainable in the long run. Cash flows peak in 2008 and turn negative in 2017, and the trust fund itself will be exhausted in 2041. The latter two dates are one year earlier than last year's report due to slightly higher benefit expenditures and slightly lower revenue than anticipated. The unfunded obligation, that is, the difference between the present values of Social Security inflows and outflows plus the existing trust fund, is $11.1 trillion on a permanent basis, and $4.0 trillion over the next 75 years. The actuarial imbalance as a percent of taxable payroll is -1.92 percent over 75 years and -3.5 percent over the indefinite future. This means that taxes would have to be raised immediately by 3.5 percentage points, or benefits reduced immediately by 22 percent, to make the system whole on a permanent basis.
As you well know, the President has called for bipartisan efforts to create a permanently sustainable system. His leadership has been the catalyst for a terrific national dialogue. Ideas are coming forward. As the President has continued to say, we can preserve benefits for current and near retirees and offer great hope to younger workers without raising the payroll tax rate. And we need to enact these reforms this year.
Since March 3rd, Administration officials – from President Bush and Vice President Cheney to Cabinet members and policy experts – have been traveling throughout the country as part of a coordinated 60-day tour of at least 60 stops to discuss the President's message of strengthening Social Security with the American people.
We passed the 20 day mark this week, and so far Administration officials have traveled to 52 events in 22 states to talk about the need for a permanent fix to save Social Security for future generations. We'll hit the 60 stop mark this week – after less than 30 days on the road – and the final number of stops will be much higher than anticipated.
Since the President started this national dialogue, membership of both parties have agreed that a permanent solution is needed. Both parties are discussing possible approaches to reform and substantial progress is being made.
I look forward to sharing the news of today's report when I am on the road tomorrow, and for the next several weeks. Because this report once again confirms that the sooner action is taken, the better for all concerned. Each year that passes without reform makes the ultimate resolution more difficult and the required changes more severe.
As this report shows, a 3.5 percent payroll tax rate increase would achieve long-term balance. But we don't think that's the way to go because it is an economically damaging solution. Payroll taxes have been raised some 20 times since Social Security was established and those increases have failed to make the system solvent. Raising the payroll tax will harm our economy and hurt job growth. Even the most resilient economy can be devastated by dramatic tax increases.
For future generations of retirees, the President believes an awful lot of hope lies in personal accounts – something that would allow younger workers to build a nest egg that they own and control, something the government could never take away from them, and that would tap into the great force of compound interest.
Albert Einstein believed, and the President and I agree, that compound interest is one of the most powerful forces in the universe. It's why a personal account nest egg would give workers the prospect of a retirement that is far better than the rapidly-weakening promise of Social Security benefits.
The national dialogue on Social Security has put wind in the sails of reform. The stark numbers in this report remind us that we need to stay the course. Now is the time to take the steps necessary to preserve and protect Social Security so that commitments to our seniors are kept and the retirement prospects for our children and grandchildren can be improved.
Let me now offer a few words on the 2005 Medicare Trustees' Report. Although the 2005 Medicare Report shows a slight improvement over last year's report, more fundamentally it reveals even greater challenges. While Medicare faces the same demographic challenges as Social Security, it is additionally burdened by sharp increases in underlying health care costs.
Cash flow for the Hospital Insurance (HI) Trust Fund is projected to be negative again this year, as in 2004. Taking interest into account, total trust fund income is projected to exceed expenditures through 2012. The Hospital Insurance Trust Fund is projected to become insolvent in 2020, one year later than projected in last year's report and the 75-year actuarial imbalance as a percent of payroll is -3.09, a 0.03 percent improvement from last year's report.
The Supplementary Medical Insurance (SMI) Trust Fund, including expenditures associated with the prescription drug program, is financed in large part by general revenues. SMI expenditures are projected to increase rapidly, resulting in increasing pressures on future federal budgets. General revenue financing for SMI is expected to increase from 0.9 percent of GDP in 2004 to 6.2 percent in 2079. The projected growth in SMI expenditures poses serious issues for the federal budget and, in turn, the U.S. economy.
Controlling health care costs is the real key to the long run fiscal sustainability of both Medicare and in turn the federal budget. Indeed, according to this year's Trustees' Report, reducing the projected growth in per beneficiary health care costs to one percentage point lower would reduce the 75-year actuarial imbalance for the HI program by two thirds.
The Administration is addressing the issue of rising health care costs through the creation of Health Savings Accounts (HSAs) – already available and gaining in popularity – reducing the lawsuit abuse that increases costs and reduces access to necessary medical services, creating Association Health Plans to increase the affordability and availability of health insurance for small-business owners and their employees, and modernizing medical technology with new investments in health information technology. It is estimated that a national health information network, for example, could save about $140 billion per year through improved care and reduced duplication of medical tests.
Starting in 2006, for the first time all seniors will be guaranteed access to affordable prescription drug coverage under Medicare. Further reforms to Medicare should be considered in light of experience with other reforms contained the 2003 Act which are just starting to be implemented.
The weighty concerns raised by the Trustees' Reports demand the attention of America's policymakers and the public. Those who depend on Social Security and Medicare urgently need the best efforts of those of us in public life and in the private sector to address the long-term funding issues. Successful reform of these programs should be seen as a shared responsibility, not an opportunity to engage in partisan politics.
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