Final answer:
The main issues facing Social Security and Medicare are the long-term budget outlook and sustainability of these programs. The growing number of elderly Americans will increase spending on these programs, but the current payroll tax will not be enough to cover the expected costs. Some mix of changes must occur to address this, including increasing taxes, cutting other spending, adjusting the retirement age or age of receiving Medicare benefits, or running large budget deficits.
Step-by-step explanation:
Summary:
The main issues facing Social Security and Medicare are the long-term budget outlook and sustainability of these programs. The growing number of elderly Americans will increase spending on these programs, but the current payroll tax will not be enough to cover the expected costs. As a result, some mix of changes must occur, including increasing taxes, cutting other spending, adjusting the retirement age or age of receiving Medicare benefits, or running large budget deficits.
Long-Term Budget Outlook:
Long-term projections indicate that Medicare and Social Security spending combined will rise significantly in the coming years. These programs' spending is expected to increase from 8.3% of GDP in 2009 to about 13% by 2035 and 20% in 2080. Without corresponding increases in tax collections, the options to address this include increasing taxes, cutting other spending, increasing the retirement age or age of receiving Medicare benefits, or running large budget deficits.
Sustainability of Social Security:
Currently, the structure of Social Security is unsustainable in the long run. The shortfall in the long run amounts to 4.6% of taxable payroll. To ensure its long-term sustainability, reforms are needed. These reforms may include reducing benefits, adjusting the age of receiving benefits, or changing payroll taxes.