Social Security and Medicare finances worsen

Less being paid into funds
Fewer people working means less being paid into the trust funds for Social Security and Medicare.

The Congressional Budget Office recently projected that Social Security will collect just $3 billion more in 2010 than it will pay out in benefits. A year ago, the CBO had projected that Social Security would have a much higher $86 billion cash surplus for the 2010 budget year, which begins Oct. 1.

The trustees report projected that Social Security's annual surpluses would "fall sharply this year," then remain at a reduced level in 2010 and be lower in the following years than last year's projections. The report said that the Social Security annual surplus would be eliminated entirely in 2016, reflecting increased demands from the wave of 78 million baby boomers retiring.

That means Social Security will have to turn to its trust fund to make up the difference between Social Security taxes and the benefits being paid out beginning in 2016. The trustees projected the trust fund would be depleted in 2037, four years earlier than the 2041 date in last year's report.

At that point, the annual Social Security taxes collected would be enough to pay for three-fourths of current benefits through 2083. To tap the trust fund, the government would have to increase borrowing or raise taxes because Social Security bonds exist only as bookkeeping entries.

Video   No cost of living adjustment on Social Security May 4: Budget officials say the low inflation rate makes it unlikely that there will be any cost of living adjustment on Social Security checks this year. NBC's Brian Williams reports. Nightly News

While the smaller surpluses that will begin this year will not have any impact on Social Security benefit payments, the government will need to borrow more at a time when the federal deficit is already exploding because of the recession and the billions of dollars being spent to prop up a shaky banking system.

Medicare's condition is more precarious
Medicare's condition is more precarious, reflecting the pressures from soaring health care costs as well as the drop in tax collections.

The options available to deal with the Social Security shortfall include raising the payroll tax that funds Social Security, such as removing the cap on income subject to the tax, or cutting benefits in some fashion such as raising the retirement age.

The administration is pushing Congress to pass legislation this year to extend health care coverage to some 50 million uninsured Americans, preferring to tackle health care before Social Security.

The trustees report is likely to set off renewed debate over Social Security and Medicare. Critics have charged that the Obama administration has failed to tackle the most serious problems in the budget — soaring entitlement spending.

The administration on Monday revised its federal deficit forecasts upward to project an imbalance this year of $1.84 trillion, four times last year's record, and said the deficits will remain above $500 billion every year over the next decade.

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