The Social Security and Medicare Boards of Trustees said Social Security released their 2007 Report yesterday (summary HERE), and despite the occasional headline by the liberal or economically ignorant (was that redundant?) media about the two programs going bankrupt one year later than the prior report guessed, the big news was still bad news: Medicare will become insolvent in 2019. For those of you who haven't paid close attention to the coming Medicare disaster, you have probably just heard some of the discussion, especially early in President Bush's first term, about how to reform/save Social Security. Here's what you need to know: The size of the Medicare problem is much larger...roughly double in the fairly short term...than Social Security. The one year extension in its insolvency date comes from a combination of increased revenue into the system from payroll taxes because of our strong economy and lower than expected costs of the prescription drug plan because of the competition among plans built into the system's design. Both of these factors are likely to worsen. Payroll taxes will probably decline sometime soon simply because our economic expansion is already long in the tooth. Add on top of that the anti-growth policies of the new Democrat-controlled Congress and it is hard to imagine our economy not slowing down. Similarly, the Democrats talk about allowing the government to negotiate prices for Medicare Part D, the prescription drug benefit. But what they really mean is the government setting prices. Given the lessons of history in government's ability to purchase at the best price (remember the $500 hammer and $700 toilet seat?), and the obvious success of letting the private markets do the negotations as they do currently, any change to the program (particularly a change made by Democrats) is likely to increase the program's costs. The report contained a warning that at least 45% of the cost of Medicare will come from General Revenue (i.e. income taxes) rather than payroll taxes by 2013. Since this warning came two years in a row, it triggered a mandatory provision in law that requires the President to propose, and Congress to take up expeditiously for consideration, new laws for "remedial action" to help save the system. But don't hold your breath. President Bush caved in early and completely on Social Security reform, which is a MUCH easier fix than Medicare. Our best hope is that younger voters realize that the AARP and the Democrats are bankrupting our futures by obstructing reform to these systems (even reform which leaves all benefits for current retirees and near-retirees intact).

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I Am John Galt
Politics, economics, current events, philosophy and more, with a focus on free minds, free markets, and free people.

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