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Snapshot for March 16, 2005.
Implications of the Bush budget for people over 55
I have a message for every American who is 55 or older: Do not let anyone mislead you; for you, the Social Security system will not change in any way.
— President George W. Bush, State of the Union address, February 2, 2005
Contrary to the president’s assurances in his State of the Union speech, workers currently age 55 and over have every reason to worry about President Bush’s budget proposals. The permanent reduction of revenues he has proposed would deny government the resources to maintain Social Security and medical benefits that those over 55 now expect. The experience of the last several decades shows that there will no be crisis for Social Security or Medicare so long as government officials are committed to pay scheduled benefits.
The Social Security trustees have projected that Social Security benefits will exceed revenues in 2018 and beyond. The president has portrayed this cross-over point as the beginning of a crisis. Yet both the Social Security and Medicare trust funds have repeatedly had periods when cash benefits exceeded new tax revenues. (See Figure 1 and Figure 2 below and the new EPI Briefing Paper Collision Course: Bush Budget and Social Security.) Although the Medicare trust fund has had a cash deficit for the last two years, it has not been declared to be in a crisis by people who declare that Social Security will be in crisis in 2018.
As shown in the figures, the level of cash in the Medicare and Social Security funds has fluctuated without crisis because scheduled benefits have continued to be paid. However, as long as budget deficits remain large, with no serious prospect of coming within sustainable bounds, there is an increased risk that officials will decide to substantially cut scheduled benefits.
Over the last four years, the president has slashed revenues to the lowest level since the 1950s. In this year’s budget, he has proposed new or extended tax cuts of $1.3 trillion over the next 10 years. Under the president’s policies, the deficit will improve little, if any, over the in the next decade and will become much larger in following decades. As a practical matter, this enormous deficit sets the stage for cuts to Social Security and medical benefits.
The federal government provides an estimated $385 billion in Social Security benefits to people over 65. For two-thirds of the population 65 years old and older, Social Security checks provide more than half of their cash income (see the Snapshot for November 18, 2004 titled Social Security and Income). The federal government is also providing people over 65 with an additional $310 billion in medical care benefits. With the cost of medical care rising rapidly, the financial relief provided to the elderly by Medicare and Medicaid will soon surpass their benefits from Social Security.
People who are 55 years old today can expect to live for another 25 years and are counting on the federal government for support in retirement, not only through Social Security checks but also with medical benefits. Enacting the president’s budget proposals effectively denies the government enough revenue to continue current income support to retirees through 2030. It would guarantee a serious financial loss to many of those 55 and older, whether this loss takes the form of smaller Social Security checks or an equivalent reduction in medical benefits.
Today’s Snapshot was written by EPI Research Director Lee Price with research assistance from David Ratner.