The Social Security & Medicare Trustees Report was released today. Here is the first information I have gathered from it so far:

1. What is the date at which the programs will start running a permanent cash flow deficit, meaning that the taxes we collect in any given year are not enough to pay all benefits for that year? Once we run a permanent cash flow deficit, the Trust Fund will start cashing its IOUs which means that Treasury will have to borrow some money to pay the program back. That adds to our deficit and to our debt.

That’s probably the big news of the day. From now on, Social Security will be permanently running a cash-flow deficit. In 2010 payroll tax revenues alone were no longer enough to cover benefits. My colleague Jason Fichtner. This “cash-flow negative” financing position continued into 2011, but was supposed to return to positive cash-flow in 2012 – 2014 before returning to a permanent negative cash flow. Now, the financing of the system is permanently in a cash-flow negative basis. Also, in order to achieve 75-year actuarial balance in the Social Security program, payroll taxes would have to be raised today by 2.2 percentage points, from the current 12.4% to 16.4%.

How did the cut in payroll tax affect the cash flow deficit numbers? The payroll tax cut that resulted from the tax deal in December between the Republicans and the president means that less money is currently collected than last year to pay for today’s retirees.

What is the date in which the assets in the Social Security and Medicare Trust funds will run dry?

For Social Security, the current projection is that by 2036 the Trust fund would run out of assets (IOUs) to cash out. That’s a year sooner than last year’s projections. It means that by 2036 benefits will automatically be cut by at least twenty percent across the board.

For Medicare, the current projection is that by 2024 the Trust Fund will run out of assets.

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For Social Security – exhaustion date now one year earlier to 2036 from 2037. But biggest news is that the cash-flow problems associated with Social Security financing are now permanent. In 2010 payroll tax revenues alone were no longer enough to cover benefits. This “cash-flow negative” financing position continued into 2011, but was supposed to return to positive cash-flow in 2012 – 2014 before returning to a permanent negative cash flow. Now, the financing of the system is permanently in a cash-flow negative basis. Also, in order to achieve 75-year actuarial balance in the Social Security program, payroll taxes would have to be raised today by 2.2 percentage points, from the current 12.4% to 16.4%. Changes in the actuarial nature of the trust funds usually happen incrementally. However, the gap was 1.92 percentage points in the 2010 Trustees Report. The increase of 30 basis points to 2.2 percentage points in the 2011 Report is the largest single-year increase in decades!

For Medicare, the system will now go insolvent 5 years earlier…2024 from 2029!