, discussions of social security and medicare have been fragmented - there are a sizable number of proposals to reform social security, a few to reform medicare, and none to unify the reforms for both programs. i will propose a joint approach that treats both programs alike and applies to them the same retirement ages and tax arrangements. this joint proposal fully corrects the long - term actuarial deficit for social security and would also make a start on a solution for medicare. the trustees'report programs such as social security and medicare could in principle be funded in many ways. but the tradition here, and in many other countries, has been to tie these public, defined benefit programs to a trust fund, with the revenues coming mainly from dedicated payroll taxes levied on employers and employees. to economists, the exact split between employers and employees is immaterial, because even the employer share is likely to be shifted back to employees in the form of reduced wages. the trust funds have been financed basically on a pay - as - you - go basis, though it would certainly be possible to pre - fund benefits through accumulations in advance of later spending. to some extent this has been done for social security by reforms made in the 1980s. at that time, the retirement of the large baby boom population was anticipated, and payroll tax revenues were accumulated in advance of benefit payments, steps that created the present - day cash surpluses for the social security component of the overall federal budget. the social security retirement program began seventy years ago, and disability insurance was added fifty years ago. the combined expenses are financed by the old age, survivors, and disability insurance ( oasdi ) trust funds. medicare programs were added forty years ago. part a of medicare, covering hospital insurance is financed, just like social security, out of a payroll tax and trust fund. part b, covering physician and outpatient costs, is optional, with about one - fourth of the costs financed by premiums paid by those who participate in the program and the remainder by general revenues. part d, covering drug costs, was added last year and is also optional, financed by participants, general revenues, and some state contributions. to measure the adequacy of long - term financing, the four government trustees of the social security and medicare trust funds convene every march with two outside members to review the projections. the actuaries make a number of long - term projections for life expectancy, birth rates, economic growth variables, prices, in

, which is financed entirely by general revenues and states, and also growing rapidly because of costs related to the aged. policy approaches despite the fact that the long - term financial problem is far worse for medicare than social security, most policy proposals have focused on social security. there are three reasons for this. one is that with numerous legislated and designated advisory councils, groups are forced to make social security proposals more often than medicare proposals. another reason is that the numbers are less daunting it is hard enough to deal with unfunded liabilities of $ 11 trillion, but it is virtually impossible to deal with unfunded liabilities of $ 70 trillion. the third reason is that changes to social security just involve money - cutting benefits means cutting someone's defined - benefit pension payments. cuts in medicare, on the other hand, while partly mitigating financial burdens on the aged, could also involve the much more difficult question of limiting, or even rationing, health care treatments. medicare cuts could be quite literally a life - and - death affair. i have participated in the social security debate in the past, as chair of the 1994 - 96 social security advisory council, but today i want to look at both programs together. i freely admit that my proposal is only partial, a first step. i will focus only on ages of eligibility and tax rates for both programs, and will leave aside questions about privatizing social security or " carve out " or " add on " individual accounts. i also leave aside difficult questions about the structure of medicare - whether and how to make more use of economic incentives or rationing. my idea on the tax side is relatively straightforward. today, medicare part a is financed by a 2. 9 percent combined payroll tax on all wages, and social security is financed by a combined 12. 4 percent combined payroll tax on wages up to $ 90, 000, a threshold that is increased each year with the growth in wages. one of my goals is to standardize treatment across the programs, and i would do that by removing the $ 90, 000 cap on wages and salaries that are taxable for social security purposes. let's treat both programs alike by taxing all wages for both programs. will this represent a tax increase for social security? of course it will, though in part the removal of the cap merely adjusts for the fact that because of the widening of the income distribution, substantially more wages are above the cap than in earlier