In 2005 President Bush made a big deal for the need to reform Social Security and then proposed a change that would make the problem of paying the promised benefits to the 78 Million Baby Boomers more not loess of a problem. Now for the second year in a row the Medicare Trustees have issued a warning that the REAL problem is with Medicare.
This finding by the Medicare trustees will require Bush to submit a proposal to Congress to deal with the impending problem with Medicare funding. The Trustees have said that starting this year the payout of Medicare benefits will exceed the tax revenue from the Medicare Payroll taxes. This is primarily because the Bush Administration and Congress passed the Prescription drug benefit without providing the funding to pay for this new entitlement.
The problem of how to pay for Medicare with the prescription drug plan was outlined to the President as early as 2003 but Bush and Congress ignored the warning. Now the reality is upon us and we will begin seeing the need for the Medicare trustees to begin liquidating the Treasury IOU’s to make up the difference between tax collections and benefits unless Congress acts to provide added tax revenue for Medicare. If it becomes necessary to begin asking the Treasury to repay the IOU’s held in the Medicare Trust Fund, the problem of where the funding will come from to refund these IOU’s. Given the fact we are running an annual, deficit of between $ 500-600 Billion, the Treasury looks to sell MORE bonds not begin repaying previously issued debt.
Bush is now faced with a mandate to come up with a solution to the REAL problem which is Medicare not Social Security. It will be another 10 years before Social Security is at the same place as Medicare is at today when it will begin requiring the Treasury to make good on the IOU’s held in the Social Security Trust Fund. It will be very interesting to see what Bush does with this potentially explosive issue!