Social Security and Medicare : the impending fiscal challenge

Social Security?and the solvency of its Trust Fund?have increasingly become a focus of discussion in the media and policy circles. The basic problem is that promised benefits will soon exceed program revenues. Without changes in benefits or funding, the Trustees of Social Security project that assets in the Trust Fund will be depleted in 2041. While Social Security is a serious problem for taxpayers and beneficiaries, Medicare poses an even greater challenge. Together, the two programs? benefits currently amount to about 6 percent of GDP. By 2080 they are projected to swell to 20 percent. With spending on these two programs projected to grow faster than the nation?s GDP, the Board of Trustees of Social Security and Medicare have concluded that ?We do not believe the currently projected long-run growth rates of Social Security and Medicare are sustainable under current financing arrangements.? To keep the programs solvent without slashing benefits or increasing tax revenues, the federal budget deficit would need to grow drastically. Thus changes will likely be needed to the structure of the two programs. In fact, any viable solution is likely to involve changes in government spending and taxes. Hakkio and Wiseman provide a framework for understanding the nature of the fiscal challenges posed by Social Security and Medicare?a prerequisite for finding specific solutions