Shell game

May 12, 2009

My last post dealt with basic understanding of government proposals. I’m not surprised that more people don’t understand what is going on when I read stories like this: Report: Medicare fund eight years from insolvency

The opening line (emphasis mine):

Spurring new demands to overhaul the nation’s healthcare system, Medicare trustees announced Tuesday that the program’s biggest fund for serving the elderly would run out of money in just eight years.

Run out of money? Who are you kidding?

Someone needs to tell the LA Times that there isn’t a stash of money in the Medicare Trust Fund that will “run out” anytime soon (same goes for the Social Security Trust Fund). Both “trust funds” consist entirely of government bonds ie debt.

Here is the difference between now and when the trust fund “runs out of money”:

Now: Tax payments to Medicare by current taxpayers don’t cover cash payments to retirees. The balance due is paid by the general fund or borrowing.

After the trust fund is depleted: Tax payments to Medicare by current taxpayers don’t cover cash payments to retirees. The balance due is paid by the general fund or borrowing.

The trust funds are political fiction.

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5 Responses to “Shell game”

  1. superdave524 Says:

    Trust funds? Maybe. Trust the gummit? Never!

  2. John in IL Says:

    OK, Sybil.

  3. superdave524 Says:

    Yeah, Sybil disobedience is the Shibboleth.


  4. I wonder what exactly they use to value those bonds.

    After all, they’re only worth something if someone wants to buy them, and right now, it doesn’t look like many people want to buy Treasuries.

  5. John in IL Says:

    I wonder what exactly they use to value those bonds.

    It doesn’t matter. The effect on the budget is the same.


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