Social Security and Medicare: The promise America made and the bills we postponed

• The question is not whether America can afford to fix Social Security and Medicare. The question is whether America will choose to do so before the choices become far more painful than they need to be.

Every few years, Washington issues another warning about Social Security and Medicare, and Americans react in one of two ways. Some insist the sky is falling. Others shrug and note that politicians have been predicting trouble for decades. The truth lies somewhere in the uncomfortable middle.

Social Security and Medicare won’t go broke tomorrow. Checks are still going out. Hospitals are still being paid. But neither program is financially sound over the long haul. According to the latest trustees’ reports, the Social Security retirement trust fund can pay full scheduled benefits until late 2032, while Medicare’s Hospital Insurance Trust Fund can pay full benefits until 2033.

If Congress does nothing, Social Security will still pay about 78 percent of scheduled benefits, and Medicare Part A would still cover about 89 percent of projected costs.

When Social Security was created in 1935, America was a younger nation. Life expectancy was shorter. Relatively few people collected benefits, and those who did generally received them for only a handful of years. A large workforce supported a comparatively small retired population.

Today, Americans live longer and have fewer children. The Baby Boom generation is moving into retirement while the generations that follow are smaller. In simple terms, fewer workers pay into the system for every retiree drawing benefits.

Medicare faces the same demographic pressures, compounded by rising health-care costs and medical advances that allow Americans to live far longer than lawmakers imagined when they enacted the program in 1965.

Another part of this story deserves an honest explanation. Many Americans believe Congress “raided” Social Security. Politicians have repeated that charge so often that it has become accepted wisdom. The reality is more complicated.

For decades, Social Security collected more in payroll taxes than it paid out in benefits. Those surpluses flowed into the Social Security Trust Fund, where federal law required they be invested in special U.S. Treasury securities. In plain English, Social Security loaned its surplus cash to the federal government and received Treasury bonds in return.

The government then used that cash as it does other borrowed money, financing government operations and reducing the amount it otherwise would have borrowed from financial markets.

Those surpluses generated cash that was spent years ago. What remains are Treasury obligations that must now be redeemed as benefit payments exceed payroll-tax collections. To repay those obligations, the federal government must raise taxes, reduce spending elsewhere, borrow more money, or pursue some combination of all three.

Every realistic solution requires somebody to sacrifice something. There is no painless answer.

If taxes are raised, workers and employers will pay more. If benefits are reduced, retirees will live on less than expected. If the retirement age rises, future workers will remain on the job longer. If the government uses general revenues, taxpayers will finance these programs from a different pocket. Politicians in both parties know these realities, but election-year politics reward promises more readily than arithmetic.

Still, solutions exist. A responsible reform package would likely include several elements. Congress could gradually raise the earnings base subject to Social Security payroll taxes. Lawmakers could slowly increase the full retirement age for younger workers while protecting current retirees. Medicare could continue reforms that reward value over volume and reduce wasteful spending.

Congress should act sooner rather than later. Addressing these challenges now would allow changes to be phased in gradually. Waiting until trust-fund reserves approach exhaustion in 2032 and 2033 would force lawmakers into far more painful choices. Every year of delay narrows the range of manageable options.

Americans understandably become nervous when they hear that Social Security and Medicare face financial problems. Yet we can still keep the promise made to generations of Americans. Doing so will require honesty from elected officials and realism from the public. The bill is coming due whether Washington acknowledges it or not.

The question is not whether America can afford to fix Social Security and Medicare. The question is whether America will choose to do so before the choices become far more painful than they need to be.