The Social Security and Medicare Boards of Trustees released their 2005 annual report which states that "exhaustion" of the trust fund will occur one year earlier than predicted, or in 2041 as opposed to 2042. The report also finds that the amount of tax revenues taken in will fall below the amount the trust fund will pay out starting in 2017. The SSA originally stated this would happen in 2018. Now, they predict that the Social Security program will need to supplement trust fund receipts with general revenues in order to pay be able to pay people full benefits a year earlier. The new report also projects a Social Security shortfall of $4 trillion over the next 75 years. This number is up from the $3.7 trillion figure that economists and politicians have been quoting. Max Sawicky of the Economic Policy Institute notes that the Social Security crisis is not nearly as pressing as the problems being created by our large budget deficits, which were largely due to the administration's tax cuts. These deficits will hinder the government's ability pay for any and all of programs down the road, including Social Security and Medicare. The Congressional Budget Office estimates that in 2042, when the Social Security shortfall will supposedly be 1.37 percent of GDP, the overall budget deficit will be much greater than that --10.7 percent of GDP. Sawicky says, "While the administration tries to fiddle with a relatively small-scale Social Security shortfall, it is creating overall budget deficits that are burning a hole as far as the eye can see. Instead of focusing on a relatively small and distant problem, the administration would better serve the nation by fixing the much bigger and more immediate problem it has created." This is a sentiment echoed widely by economists and policy analysts, many of whom see the large costs of tax cuts and future skyrocketing costs of Medicare as much more serious problems. For more information see this Washington Post article and this report by the Center on Budget and Policy Priorities. For more from the Social Security Administration, click here.

The National Association for Business Economics (NABE) cunducted one of their biannual surveys from February 28th - March 8th of this year. The survey questioned economists, and results showed that a greater percentage of respondents believe the deficit is a greater short-term threat to Americans than terrorism. In the August 2004 survey, 40 percent of respondents named terrorism as the biggest threat, and 23 percent named the deficit the biggest threat. With 2004 deficit levels hitting a record high ($412 billion) and the President and Congress continuing to try to push through new tax cuts and extend old ones, it appears that many economists now view our deficit as a much more serious matter. In this survey, 27 percent of respondents noted the deficit as the largest threat, and 23 percent noted terrorism. The trade deficit, cited by 15 percent, and energy prices, cited by 11 percent, also rose in importance when compared with results from last August. Interestingly, 70 percent of respondents felt that Social Security had problems that need to be resolved, and the solution which received the highest rating (3.7 on a 5 point scale) was raising the retirement age. Privatization of the system received a rating of only 2.7. The rest of the results can be seen here.

Yesterday the House and Senate passed their respective budget resolutions for FY 2006. Both votes were very close with the House passing their resolution 218 - 214, and the Senate passing theirs 51 - 49. One main difference between the two resolutions that could cause problems in conference pertain to cuts in entitlement spending. The House budget resolution includes very steep cuts to medicaid, while the Senate version does not. Yesterday Senators passed an amendment offered by Gordon Smith (R-OR) to strip the budget of Medicaid cuts and instead create a one-year commission to recommend changes in the program. The amendment passed 52 - 48. While the President's budget proposal laid out $51 billion worth of cuts to entitlement programs, the House proposal upped that amount, calling for $69 billion in spending reductions on entitlements. The Senate bill included $17 billion in entitlement reductions after $14 billion in cuts to Medicaid were removed by Gordon's amendment. When Congress returns from recess in two weeks the two chambers will conference to square their budget proposals. Two major issues of contention will be their differing levels of entitlement cuts, as well as the fact that the Senate raised the level of discretionary spending for FY06 by $5.4 billion -- to $848.8 billion. These differences, coupled with the fact that the House already had to pacify unhappy conservatives to get enough votes to pass the budget, means there is a chance no resolution will be passed this year. To read more click here and here.

The budget resolutions currently under consideration in the House and Senate are in line with the President's priorities and propose cuts to Medicaid as well as the extension of tax cuts. The budget resolutions propose to cut funding for Medicaid by approximately $15 billion over five years, and in the same breath propose costs of $23 billion to extend dividend and capital gains tax breaks. As the Center for American Progress notes, "The Medicaid cuts would have important implications for states’ budgets and for health care for the poor. At the same time, the budgets under consideration contains tens of billions of dollars in new tax cuts, which would overwhelmingly benefit those best able to make the sacrifices necessary to reduce the deficit." The Center has compiled state-by-state data which shows how the proposed Medicaid cuts would affect individual states. To contrast these cuts, the Center also has data showing the magnitude of the proposed tax cuts in each state. The report can be read here.