Social Security to face bankruptcy year earlier

WASHINGTON -- The trust fund for Social Security will go broke in 2041 -- a year earlier than previously estimated -- the trustees reported Wednesday. Trustees also said that Medicare, the giant health care program for the elderly and disabled, faces insolvency in 2020.\nThe new projections made in the trustees' annual report were certain to be cited by both sides in the massive battle to overhaul Social Security, which President Bush has made the top domestic priority of his second term.\nThe go-broke date for Medicare was delayed by one year, compared with the estimate trustees gave a year ago.\nThe insolvency dates represent when both trust funds will have exhausted the government bonds that have been building up to take care of the pending retirement of 78 million baby boomers.\nHowever, the more important dates are when Social Security and Medicare begin paying out more in benefits than they are receiving in taxes because that represents the time the government must start redeeming the bonds in the trust fund. To do that, the government will have to increase its borrowing on financial markets, raise taxes or divert money from other government programs.\nFor Medicare, the threshold when benefits exceed program income occurred last year.\nFor Social Security, that threshold will be crossed in 2017, one year earlier than the 2018 date projected in last year's report.\nThat change is certain to be cited by the administration as a sign of the urgency to act to deal with Social Security's funding woes. Democrats argue that the immediate funding crisis is in Medicare, a problem they charge Bush is ignoring.\nTreasury Secretary John Snow, chairman of the six-member board of trustees for both programs, said the estimates "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."\nThe trustees said Social Security's unfunded obligations total $4 trillion over the next 75 years, an increase from last year's projection of $3.7 trillion in unfunded liabilities.\nSnow said to meet that shortfall, Social Security payroll taxes would have to be raised by 3.5 percentage points or benefits would have to be cut by 22 percent.\nBush has said he will not raise payroll taxes to deal with the funding problem, although he has left the door open to raising the $90,000 cap on incomes subject to the payroll tax.\nIn the report, the trustees said "the projected trust fund deficits should be addressed in timely way to allow for a gradual phasing of the necessary changes and to provide advanced notices to workers. The sooner adjustments are made, the smaller and less abrupt they will have to be."\nThe report said in 2017, the new date for Social Security's insolvency, payroll taxes will be generating enough income to cover 74 percent of benefit payments. That represented an increase from last year's projection that only 73 percent of benefits would be covered in the year that the trust fund went broke.\nFor Medicare, the trustees estimated that taxes will be sufficient to cover 79 percent of the program's cost in 2020, when the Medicare trust fund is exhausted. Last year, when the insolvency date was projected to be 2019, tax income was estimated to be sufficient to pay 81 percent of the program's costs.\nSocial Security provides retirement, survivors and disability income for 47.6 million Americans and Medicare provides health care for 41.7 million seniors and disabled people.