After last week’s report on Social Security and Medicare spending, Paul Krugman says that “the data suggest that we can, if we choose, maintain social insurance as we know it with only modest adjustments.”
“The latest projections show the combined cost of Social Security and Medicare rising by a bit more than 3 percent of G.D.P. between now and 2035, and that number could easily come down with more effort on the health care front. Now, 3 percent of G.D.P. is a big number, but it’s not an economy-crushing number. The United States could, for example, close that gap entirely through tax increases, with no reduction in benefits at all, and still have one of the lowest overall tax rates in the advanced world.”
But James Hamilton notes that the idea that Social Security and Medicare trust funds are “adequately funded” is off the mark.
“The Social Security trust fund ended 2012 with $2.6 trillion in assets… But the $2.6 T in current assets consist of nothing more than a big I.O.U. from the U.S. Treasury to the Social Security trust fund… Taxes will have to be raised, other programs cut, or the Treasury will have to borrow more from the public in order to deliver the funds that Social Security is assuming it’s going to be receiving from the Treasury between now and 2035.”