Here is the real reason that Congress is worried about Social Security & Medicare funding...

Here is the real reason that Congress is worried about Social Security & Medicare funding...

While demographics make it inevitable that Social Security and Medicare will run out of money over time given current funding & benefits there is a dirty secret that no one in Congress talks about that has them running scared. The secret is that the Social Security and Medicare Trust Funds are pure accounting fiction. Let me explain.

Both programs show a huge cash asset on the books, located in interest-bearing Trust Funds. These Trust Funds total over $3 Trillion and are accounted for as follows:

social security accounting.png
medicare accounting.png

You can do the math on the charts above and see that there is nearly $3.2 Trillion in Trust for these two programs.

The problem is that these funds do not exist because Congress has "borrowed" all of it. Remember Al Gore talking about putting these funds in a "lock box"? This is what he was trying to prevent.

It is like you saving $100,000 for your child’s education and then borrowing all the money from your children’s education fund. You can pretend in your mind that you have set aside $100,000 for your child’s future education, but when it comes time to make those payments, you’ll have to pull it out of current income or liquidate other assets.
— Bill Mauldin

So, as these two programs need to dip into these Trust Funds to pay current benefits the reality is that Congress needs to appropriate cash payments to "repay the loans" and provide these programs with the money that is rightful theirs. 

But there is no budget allocation for these payments. So there is $3.2 Trillion of unfunded liabilities that Congress needs to pay, with current cash, to keep these programs afloat.

So...when you hear a member of Congress complain that Social Security and Medicare are a "budget problem" that needs to be addressed this is what they are talking about. They don't know how to pay back the money they borrowed. Of course, they will look to cut benefits rather than deal with the annual budget implications of repaying the loan.

And so it goes.

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