Laurie Young

(WOMENSENEWS)–Cut taxes or fund programs that serve a disproportionate number of older women?

That’s the choice that many women’s groups see in current funding debates over Social Security and Medicare, the public health insurance program for the nation’s elderly.

No surprise, they choose Social Security andMedicare and say that last week’s annual reports from the trustees of both programs onlystrengthen the case against tax cuts.

“Instead of trying to scare the American people into believing Social Security and Medicare are unstable programs on the verge of collapse, we should focus on the disastrous effects of making tax-cuts permanent,” says Laurie Young, executive director of the Older Women’s League, a Washington, D.C., advocacy group. “If the tax cuts of 2001 and 2003 are made permanent, the loss in revenue over the next 75 years will be approximately the same as the projected shortfalls in Social Security and Medicare.”

Payroll Taxes Start Running Short in 2018

In its annual report, the Social Security board of trustees, which oversees the trust fund of the program, showed little change over the past year in projections about when the trust fund reserves are expected to run out. Tax revenues are projected to fall below program costs in 2018 and funds to run out in 2042.

The report also shows that the trustees’ projection of the size of Social Security’s 75-year financing shortfall–measured both as a percentage of payrolls and as a percentage of the economy–has decreased very slightly from the projection of a year ago. Over the 75-year period, the trust funds require additional revenue equivalent to $3.7 trillion in today’s dollars to pay all scheduled benefits. This unfunded obligation grew $200 billion from last year.

In a separate report, Medicare trustees said the public health insurance program for the elderly had deteriorated significantly due in part to rising health costs and a new Medicare law. The forecast is particularly troubling for women who, because of statistically longer life expectancies, depend more than men on Medicare payments.

“The real concern for women is that older women have fewer resources,” says Young. “And, the older they get, the more costs there are associated with health care, the more they have to spend on out-of-pocket expenses and the less likely they are to get the kind of care they need, because they have to make difficult choices.”

Debate Heats up over Benefits, Tax Cuts

The reports come amid widely publicized concerns that the Social Security system will run out of money as the baby boom generation begins hitting retirement age in 2011.

Such fears of a potential insolvency have prompted various groups, as well as the Bush administration, to push changes to the current Social Security system, including partial privatization through the creation of self-managed retirement accounts.

In February, Federal Reserve Board Chair Alan Greenspan heated up the debate by urging Congress to cut future benefits in Social Security and Medicare to ensure tax cuts remain permanent at a time of rising budget deficits.

Many women’s groups have since been striking back, arguing that tax cuts enacted in recent years will, if made permanent, substantially increase long-term budget deficits, reward higher-income people and make it more difficult to find resources to transfer to Social Security as part of solvency plans.

“The federal government is already tapping every penny of the extra payroll taxes going into the Social Security Trust Fund to pay for tax cuts that primarily benefit the wealthiest Americans and to keep the government running,” says Joan Entmacher, vice president and director of Family Economic Security at the National Women’s Law Center.

Privatization Not an Easy Answer

Proponents of private Social Security accounts–in which workers would be able to individually invest their Social Security contributions–are seeing no reason to view the situation as less of a crisis.

“The unfunded liability, in present value terms, went up about $200 billion last year, so we have lost another year of solvency in the Social Security system,” says Michael Tanner, director of the Cato Institute’s Project on Social Security Choice.

Furthermore, he says, tax cuts are cuts in general revenue taxes and are not used to fund Social Security. General revenues could be used to fill in the future gaps, he says, but views other reforms as preferable.

“You can argue that you can fill in the gap with general revenues and that there would be more general revenues without the tax cuts, but the situation within the Social Security system is due to the demographics. You cannot deny the fact that Social Security has fewer workers and more retirees and that is leading to a gap between what is promised and what is paid in.”

Women’s groups agree that changes are needed to ensure the long-term viability of both Medicare and Social Security. But most oppose any kind of privatization to a system they say largely supports elderly and low-income women. Privatization, they say, would subject Social Security benefits to market risk and would be difficult for people with few resources and little or no investing experience or education to manage. They also say last week’s report showing the public retirement system does not face a near-term crisis should allay fears that benefits are going to run out when the baby boom generation starts hitting retirement age in 2011.

“These are manageable issues that we can deal with if we don’t insist on tax cuts at the same time,” says Entmacher.

Melissa Favreault, senior research associate at the Urban Institute, a Washington, D.C. based social, economic and government research organization, agrees the system needs fixing and that fixing it would be a better alternative than privatization.

“Social Security is salvageable and the sooner we fix the program the better,” she says. Looking at numbers compiled by the Center on Budget and Policy Priorities, Favreault said the administrations’ tax cuts–if made permanent and not replaced by an alternative minimum tax–will cost $10 trillion to $12 trillion. This is about three times the projected size of the Social Security imbalance over the next 75 years, and is about the same size as the projection of the shortfall in Social Security and Medicare Hospital Insurance combined.

Marianne Sullivan is a New York-based freelance writer who writes frequently on economics and finance.

For more information:

Cato Institute–
Project on Social Security Choice:

Older Women’s League: