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# Highlights from the 2007 Social Security and Medicare Trustees Report

Yesterday, the Social Security and Medicare Trustees released their
annual report on the long-term health of the federal government\'s two
largest retirement programs. The report puts the financial difficulties
facing the Social Security and Medicare programs in perspective using a
number of different measurements.

The Trustees conclude: "The longer we wait to address these challenges,
the more limited will be the options available, the greater will be the
required adjustments, and the more severe the potential detrimental
impact on our nation."

**[Unfunded Liabilities:]{.underline}**

-   Social Security is facing a projected 75-year (present value)
    unfunded obligation of \$4.7 trillion. Over the infinite horizon,
    Social Security's unfunded obligations come to \$13.6 trillion.

-   Medicare\'s financial difficulties are substantially worse with a
    projected 75-year (present value) unfunded obligation of \$34.2
    trillion. Over the infinite horizon, Medicare's unfunded obligations
    come to \$74.6 trillion

**[Exhaustion of Trust Funds:]{.underline}**

-   Social Security's trust fund is projected to be exhausted by 2041.
    This date was moved back one year from the 2006 report. The Social
    Security trust fund balance reflects past Social Security surpluses
    that were spent on other items in the federal budget. Those
    surpluses from previous years have no relevance to the ability of
    the federal government to finance Social Security obligations in the
    future. In short, they are merely a collection of IOUs recording the
    federal government's debt to the Social Security system--- they do
    not speak to the federal government's [ability]{.underline} to
    *[pay]{.underline}* these debts.

-   In 2017, the Social Security system will begin running deficits.

-   The Medicare Hospital Insurance fund (Part A) is projected to be
    exhausted in 2019. This date was moved back one year compared to the
    2006 report.

**[Growth in Spending as a Percentage of GDP:]{.underline}**

-   Social Security spending is projected to increase from 4.2 percent
    of GDP in 2006 to 6.2 percent of GDP in 2030. After that, it grows
    more gradually rising to 6.3 percent of GDP in 2081.

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-   Medicare spending is expected to increase from 3.1 percent of GDP in
    2006, to 6.5 percent of GDP in 2030, to 11.3 percent of GDP in 2081.

-   Medicare and Social Security spending combined will equal 17.6
    percent of GDP in 2081, which is close to the average amount the
    federal government has collected in federal revenue over the
    previous 40 years (18.2 percent of GDP).

**[Impact on the Federal Budget:]{.underline}**

Another way to examine this issue is to look at how the Trustees project
these two programs will crowd out funding for all other federal
spending.

Currently less than 10 percent of federal income tax revenue---the
primary source of funding for most functions of the federal government
with the exception of Medicare and Social Security---is dedicated to
Medicare and Social Security spending. By 2030, that figure is projected
by the Trustees to reach 49 percent of income taxes; by 2040, the figure
is projected to reach 63 percent of federal income taxes; and, by 2081
that figure is projected to reach 93 percent of federal income taxes.

**[Medicare Funding Warning:]{.underline}**

The report also included a Medicare funding warning, triggered by a
finding for the second year in a row that Medicare funding from general
revenues (non-payroll taxes) is projected to exceed 45 percent of
Medicare spending.

This Medicare funding warning causes a "cost containment" provision
included in the Medicare Prescription Drug, Improvement, and
Modernization Act of 2003 (P.L. 108-173) at the behest of the RSC to
become effective, which requires the President to propose, and the
Congress to consider, legislation to put Medicare financing below the 45
percent general revenue threshold. Thus, according to the Trustees, the
President will have to propose such reforms next year.

**[RSC Staff Contact]{.underline}**: Brad Watson,
<brad.watson@mail.house.gov>, (202) 226-9719