The financial turmoil created by COVID-19 has drastically accelerated the ticking time bomb of limited funding for key social programs for American retirees.
With 30 million fewer Americans working, the government has less in payroll taxes entering its coffers. Those are the taxes that directly fund Medicare and Social Security.
Even before the pandemic, payments from these programs exceeded the revenues coming in. Now, with revenue disappearing, the available reserves for some of these funds could evaporate entirely as soon as 2023!
According to a study published by the University of Pennsylvania, the Social Security trust fund, which was previously projected to disappear by 2036, now projects to become insolvent by 2032.
The Committee for a Responsible Federal Budget (CRFB), a bipartisan public policy organization, also reported that the Social Security Disability fund, which supports 8.5 million disabled retirees, could be financially ruined in the next ten years.
CRFB believes Social Security’s decline could start to impact retirees as early as next year. According to its report, there might not be an annual cost of living adjustment in 2021.
In 2019, Medicare officials estimated that the Part A trust fund, which pays for inpatient care, would run out by 2026. Now, the CRFB says the trust could be exhausted by 2023 or 2024.
The Part A trust fund has expended much of its budget to support patients hospitalized by COVID-19 symptoms.
Medicare is sustained by a 1.45% percent payroll tax from employers and employees. Again, payroll taxes are directly impacted by the high number of people unemployed during the economic crisis.
It is unclear what moves Congress might make to solidify these trust funds to protect current and future retirees.
Some believe that Congress would need to increase taxes to address the shortfall. Mark Goldwein, senior vice president of CRFB, predicted Social Security and Medicare will simply provide fewer benefits, in order to keep from going under.
Goldwein adds that Medicare and Social Security could become insolvent even sooner if the unemployment rate continues to increase.