The current media hype is that Social Security is on the brink of bankruptcy. Why? Because the economic recession has resulted in reduced revenue for social security this year and more people than expected opted to collect social security.
“CBO projects that revenues from payroll taxes credited to the trust funds will be $12 billion lower in 2010 than in 2009, while benefit payments will be $37 billion higher. This year, for the first time since the Social Security reforms of the early 1980s, benefit payments from the trust funds will exceed the trust funds’ receipts from the public (which consist mostly of revenues from payroll taxes and exclude interest on Treasury securities held by the trust funds).”
However, more money has been collected for social security than spent over time and CBO states that Social Security –also known as the Old Age and Survivors Insurance (OASI) trust fund– had “a balance of $2.3 trillion at the end of fiscal year 2009; CBO estimates that the OASI trust fund will continue to maintain a positive balance for more than 30 years.” This means that that there will be enough money to meet obligations until at least 2040.
However, it also means that the trust fund will have to use up its reserves including interest. Social Security is currently invested in U.S. Treasury bonds. At that point (30 years from now), Social Security will still be able to provide benefits based on revenues collected each year but those benefits will have to be reduced by 20 percent unless changes are made.
Possible actions to reduce the need to touch the trust fund balance include: lowing benefits, raising retirement age, taxing all income (currently taxes are only collected up to $106,800; and bringing more people into the social security system (state and local government employees).
Some have focused on Social Security as a primary cause of the exploding federal debt—which has gone from $5 trillion in 2000 to $13 trillion in 2010. However, Social Security, has not increased much during that time period and is not the causal factor. The exploding debt has been caused in large part by funding the wars, the bailout and the economic stimulus packages without the necessary increases in taxes to pay for them (we stopped the pay-as-you-go approach in 2000) along with the tax cuts in 2001 and 2003.
One has to wonder why Social Security is being targeted as the scapegoat for the debt.
Back in 1980, some believed that if you could break the bank—that is, create so much debt—the federal government would be forced to cut entitlement programs like social security because they are “socialist.” Clearly, tax cuts coupled with spending increases would break the bank if done consistently over time. And that is what we have seen.
This is not to say that social security should not be changed. My point here is that the data to support the belief that social security is in crisis just does not exist. Nor is there evidence that making these changes to social security would have much impact on reducing the annual budget deficit or the debt. The changes have to attack the root causes of the debt. And yes, taxes that should have been increased when expenditures increased will have to be raised now if we do not want to pass along a $50,000 debt to each new child born in the United States.
Sources: CBO Blog: http://cboblog.cbo.gov/?p=595