Social Security and Medicare Go in the Red

From my previous blog post–The State of America’s Private Sector XX: April 2011–I noticed a disturbing trend in some of the underlying data.  But first I had to hit the personal income methodology books at the Bureau of Economic Analysis to make sure I understood all the definitional issues involved.  Now I’m satisfied that what I saw is, in fact, disturbing.

The chart below shows, on a monthly basis, the contributions paid into Social Security and Medicare (red line) via the payroll tax versus the benefits paid-out by Social Security and Medicare (green line).  Prior to the “Great Recession,” contributions paid-in almost always exceeded the benefits being paid-out.

However, beginning around 2007, contributions began to level off.  The decline in contributions was exacerbated by the recent extension of the Bush tax cuts which included a one-year reduction of 2 percentage points in the payroll tax.

On the other hand, benefit payments have the looks of becoming an exponential function.  I’ll have to do some more digging around, but I’m guessing a lot of the new growth was due to the Medicare Part D expansion which went into effect in 2006 which coincides with a large lurch upwards in benefit payments.

At any rate, if you do a quick mental projection of the two lines you get one ugly picture.  And this is on top of a runway federal budget deficit and exponentially growing interest rates . . . ugh, Calgon take me away!

Growing Gap Between Contributions and Benefits for Social Security and Medicare