|
The Congressional Budget Office projects that the Social Security Administration will experience a cash-deficit in 2010 and 2011, a first since the 1980s.
Both a flood of new retirees and declining tax revenues have brought on this sudden deficit. As a result of declining employment prospects, workers nearing retirement have been forced to claim Social Security benefits earlier than anticipated. New retiree applications are up 23 percent, an increase of 400,000 since last year. Even disability claims are up 20 percent.
As can be seen from the chart below, an expected $10 billion shortfall will occur in 2010 and a $9 billion shortfall in 2011. It is estimated that Social Security will then post small surpluses from 2012-2015, before a long-term deficit that will begin in 2016.
Click to enlarge chart. Data Source: Congressional Budget Office, 2009
This apparent cash-flow problem is not causing widespread alarm. The prevailing logic is that although Social Security is in the red, it has the ability to draw on its trust fund – a fund containing over $2.4 trillion – to cover its cash-deficit. Therefore, Social Security is secure and potential stresses to the system will only occur when the trust fund is exhausted, somewhere in the 2040’s. This logic is deeply flawed.
Social Security’s massive trust fund savings exist only on paper. The money has been loaned to the U.S. Treasury, which in turn has used this money to finance government spending. In exchange, Social Security receives “special issue” government securities. These phantom IOUs are nonmarketable and nothing more than a promise from the government to cover Social Security payments out of future taxation, be it from payroll taxes or elsewhere.
Consequently, the Social Security Administration’s assumed ability to finance future cash-deficits is only as secure as the Federal government’s ability to increase taxes or borrow to fund its already-growing deficits. If foreigners balk at the prospect of lending still more to the U.S. government, tax increases look increasingly likely.
To read more about the topic of Social Security check out What You Need to Know About Social Security, available for $10 from the AIER bookstore.
|
