In 1965, the first year Medicare was enacted, Lyndon Johnson asked government officials to project 25-year costs for the program. In a typical federal computation, the cost for the program by 1990 was estimated to be in the neighborhood of $12 billion - not an insignificant price tag, to be sure, considering that it was calculated in 1965 dollars.
To exactly no one's surprise, the actual cost of that Great Society program exceeded government projections. How much? Well, how about by almost $100 billion?
I could cite infinite examples of gross underestimates of federal programs, but that would consume far more space than I'm allotted here and sort of obfuscate the point of this issue's missive. But it does dovetail nicely with the recent announcement that this year, Social Security will pay out more in benefits than it receives in payroll taxes. In total, the shortfall will be about $29 billion.
But wait - if I recall correctly, that was not supposed to happen until at least 2016, according to the Congressional Budget Office.
To be fair to the CBO, there were a number of factors at play here other than optimistic and arithmetically challenged forecasts. Officials at the Social Security Administration explained that the number of payments has risen more than initially expected, a result of massive job losses that prompted more people to apply for benefits earlier than planned. In fact, applications for retirement benefits have risen 23 percent over the year-ago figures. And let's face it - there were a lot fewer paychecks to tax.
I've written more than a few times in this space about the declining ratio of payees to benefit recipients, which when the program began was roughly 16:1, but now hovers at a more-than-a-little-concerning 3:2, thanks to the imminent retirement of nearly 77 million Baby Boomers.
For years, predictions from various agencies and economists have tried to gauge just when Social Security would pay out more than it took in, but rest assured that not many put their bets on 2010.
There have been several initiatives to fix the Social Security system, once under then-Federal Reserve Chair Alan Greenspan in the 1980s, and more recently under former President George W. Bush. Bush proposed reforming the system to a combination of public and private accounts, but that idea was quickly rebuffed in a highly charged thumbs-down from the other side of the aisle.
Again to be fair, even a shortfall of $29 billion appears somewhat miniscule versus the $700 billion or so that passes through the Social Security system annually, and remember, the program overall has a balance of $2.5 trillion. Even that would take a long time to deplete. For those keeping score at home, that date is supposed to occur in 2037 - for now.
Recently, President Obama appointed a bipartisan panel to examine the widening debt, and the agenda reportedly will have Social Security as one of the front-burner issues. The commission's recommendations are supposed to be filed in December.
I'll let far brighter minds than mine tackle the problem of how to fix Social Security, but from what I've read, you can do it one of several ways: lower benefits, adjust them contingent on income levels, raise the retirement age, raise taxes, or simply print more money.
But if past government projections are any indication of future accuracy, the time to do something had better be a lot sooner than later.
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