Social Security and Medicare trustees issued dire warnings in their annual reports about the financial problems that both programs face in the very near future. From the Washington Post:

The trustees, issuing a once-a-year analysis, said the resources in the Social Security trust fund will be depleted by 2041. The reserves in the Medicare trust fund that pays hospital benefits were projected to be wiped out by 2019.

But the problems dates are really much earlier than the two dates listed above. Since Social Security has a “book surplus” you might think that we have a little time to deal with the problem. But that surplus is made up of government bonds, which the sytstem would need to start redeeming once the payroll tax no longer covered annual expenses. The federal government has been utilizing the social security surplus to mask the true size of the federal deficit, and since that surpluis is now made up of government securities the real problem date comes when the payroll tax will have to be supplmented by these “redeemed securities”.

Both those dates were the same as in last year’s report. But the trustees warned that financial pressures will begin much sooner when the programs begin paying out more in benefits each year than they collect in payroll taxes. The first year that payments will exceed income for Social Security will occur in 2017, just nine years from now, reflecting growing demands from the retirement of 78 million baby boomers. Medicare is projected to pay out more than it receives in income starting this year.

At that point, the government will have to start replacing the money it has borrowed from the Social Security trust fund. It can do that only by increasing borrowing from the public, raising taxes or cutting other government programs. The elimination of the Social Security surplus is a key reason that experts are projecting sizable budget deficits in future years.

Treasury Secretary Paulson gave a severe warning:

Treasury Secretary Henry Paulson, one of the trustees, warned that the country was facing a fiscal train wreck unless something is done. “Without change, rising costs will drive government spending to unprecedented levels, consume nearly all projected federal revenues and threaten America’s future prosperity,” Paulson said in releasing the new report. “Our nation needs a bipartisan effort to strengthen both programs for future retirees.”

And both Republicans and Democrats continue to talk past each other, with no real effort to solve a major fiscal problem for our country. Not only is Washington dithering over this fiscal train wreck, they continue to act as if there is no upper limit on federal deficit spending. They continue to borrow billions to finance the Iraq war and the general operations of government while our dollar falls and Washington pols just try to gain some partisan advantage from these disasters. When will we get some grown up leadership in Washington?