N AT I O N A L C E N T E R F O R P O L I C Y A N A LY S I S

Social Security and

Medicare Projections: 2009
Brief Analysis No. 662 by Pamela Villarreal June 11, 2009

The 2009 Social Security and Medicare Trustees Reports show 16.6 percent payroll tax, one-third
the combined unfunded liability of these two programs has greater than today’s rate.
n When Medicare Part A is included,
reached nearly $107 trillion in today’s dollars! That is about the payroll tax burden will rise to
seven times the size of the U.S. economy and 10 times the size 25.7 percent — more than one of
of the outstanding national debt. every four dollars workers will
earn that year.
The unfunded liability is the difference n If Medicare Part B (physician
between the benefits that have been services) and Part D are included,
promised to current and future retirees the total Social Security/Medicare
and what will be collected in dedi- burden will climb to 37 percent
cated taxes and Medicare premiums. of payroll by 2054 — one in three
Last year alone, this debt rose by $5 dollars of taxable payroll, and
trillion. If no other reform is enacted, twice the size of today’s payroll
this funding gap can only be closed in tax burden!
future years by substantial tax increas- Thus, more than one-third of the
es, large benefit cuts or both. wages workers earn in 2054 will
Social Security versus Medi- need to be committed to pay benefits
care. Politi­cians and the media focus promised under current law. That is
on Social Security’s financial health, before any bridges or highways are
but Medicare’s future liabilities are built and before any teachers’ or po-
Dallas Headquarters: lice officers’ salaries are paid.
12770 Coit Road, Suite 800
far more ominous, at more than $89
Dallas, TX 75251 trillion. Medicare’s total unfunded li- Impact on the Federal Budget.
972.386.6272 ability is more than five times larger The combined deficits of both pro-
Fax: 972.386.0924 than that of Social Security. In fact, grams now require about 14 percent
www.ncpa.org the new Medicare prescription drug of general income tax revenues [see
benefit enacted in 2006 (Part D) alone Figure I]. As baby boomers begin to
Washington Office: adds some $17 trillion to the project- retire, however, that number will soar,
601 Pennsylvania Avenue NW, ed Medicare shortfall — an amount and it will be increasingly difficult for
Suite 900, South Building greater than all of Social Security’s the government to continue spending
Washington, DC 20004 unfunded obligations. on other activities. In the absence of
202.220.3082 a tax increase, if the federal govern-
Future Payroll Tax Burdens.
Fax: 202.220.3096 ment keeps its promises to seniors
Currently, a 12.4 percent payroll tax
on wages funds Social Se­curity and a and balances its budget:
2.9 percent payroll tax funds Medi- n By 2020, in addition to payroll
care Part A (Hospital Insurance). But taxes and premiums, Social
if payroll tax rates rise to meet un- Security and Medicare will require
funded obligations: more than one in four federal
n When today’s college students income tax dollars.
reach retirement (about 2054), n By 2030, about the midpoint of
Social Security alone will require a the baby boomer retirement years,
Social Security and Medicare Projections: 2009

the programs will require nearly Figure I

half of all income tax dollars.
n By 2060, they will require nearly
General Revenue Transfers to Social Security and Medicare
(percent of income tax revenues)
three out of four income tax 89%
dollars. 82%
Impact on Federal Revenues. 74%
On average, every year since 1970, 67%
Medicare and Medicaid spending per 61%
beneficiary has grown 2.5 percent-
age points faster than per capita Gross 49%
Do­mestic Product (GDP). In the
future, Medicare spending may rise
even faster than the Trustees estimate. 27%
According to the Congressional Bud-
get Office (CBO), if Medicare and 14% 13%
Medicaid spending continues grow-
ing annually at 2.5 percentage points
2009 2010 2020 2030 2040 2050 2060 2070 2080
above GDP growth:
Source: 2009 Social Security and Medicare Trustees Reports.
n By 2050, Social Security,
Medicare and Medicaid (health
n The 25 percent marginal tax rate only if the next generation of workers
care for the poor) will consume agrees to pay even higher taxes.
would increase to 66 percent.
nearly the entire federal budget.
n The current highest marginal tax What about the Trust Funds?
n By 2082, Medicare spending
rate (35 percent) would rise to 92 The Social Security and Medicare
alone will consume nearly the
entire federal budget. percent! Trust Funds exist purely for ac-
counting purposes: to keep track of
Can Higher Taxes Solve the Additionally, the top corporate surpluses and deficits in the inflow
Prob­lem? The CBO also found that income tax rate of 35 percent would and outflow of money. The accumu-
if federal income tax rates are adjust- increase to 92 percent. lated Social Security surplus actu-
ed to allow the government to con- ally consists of paper certificates
tinue its current level of activity and Pay-As-You-Go. Social Secu- (non-negotiable bonds) kept in a fil-
balance its budget: rity and Medicare are in trouble ing cabinet in a government office in
n The lowest marginal income tax precisely because they are based on West Virginia. These bonds cannot
rate of 10 percent would have to pay-as-you-go financing. Every dol- be sold on Wall Street or to foreign
rise to 26 percent. lar of payroll taxes is spent. Noth- investors. They can only be returned
ing is saved, to the Treasury. In essence, they are
Figure II and nothing is little more than IOUs the government
Social Security and Medicare invested. The writes to itself.
Unfunded Liabilities payroll taxes
(trillions of dollars) Conclusion. The Social Security
contributed by and Medicare deficits are on a course
2008 2009 today’s work- to engulf the entire federal budget.
Social Security $ 15.8 $ 17.5 ers pay the If our policymakers wait to address
Medicare Part A 34.7 36.7 benefits of these growing debts until they are out
today’s retir- of control, the solutions will be dras-
Medicare Part B 34.0 37.0 ees. However, tic and painful.
Medicare Part D 17.2 15.6 when today’s
Total $ 101.7 $ 106.8 workers retire, Pamela Villarreal is a senior policy
Source: 2009 Social Security and Medicare Trustees Reports.
their benefits analyst with the National Center
will be paid for Policy Analysis.

Note: Nothing written here should be construed as necessarily reflecting the views of the National Center for Policy Analysis or as an attempt to aid or hinder the passage of any legislation.
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