According to a new report from the Social Security trustees, the behemoth entitlement program’s trust fund will run a negative balance some time in 2035, but that’s a bit misleading.
First, the program’s obligations are more than the program’s tax collections, meaning that the entire program is running in the red. This means that in order to pay out benefits, the Social Security administrators must dip into the trust fund. As I’ve already mentioned, that’s projected to last until 2035, but there’s another wrinkle.
The trust fund itself is just US Treasury bonds. Every time Social Security dips into the trust fund, the US Treasury must make good on some of those bonds. To do that, they have to borrow money, adding to the national debt.
As the gap between Social Security revenues collected and Social Security benefits paid grows, the program will become a larger burden on the nation’s budget.
If nothing is done by 2035, and the trust fund runs out of treasury bonds to cash in (which may be a moot point as I think our national budget will have collapsed by then if we’re still on our present spending trajectory), this would mean that Social Security could only pay out benefits based on current revenues. That would mean massive benefit reductions.
What can be done to fix it? We could force Americans to pay more for Social Security by raising payroll taxes (it should be noted that Obama’s payroll tax is making all of this worse by taking money away from the program), or we could ensure they get less from the program by raising the retirement age.
But those solutions would only kick the can down the road. They are temporary solutions. Future generations would still find themselves where we are now.
The only real solution is to means-test Social Security, so that it becomes more of a safety net program as opposed to a universal pension, or to eliminate the program entirely.
Unfortunately, in today’s political climate, if you mention reforming Social Security you get accused of wanting to throw old people off of cliffs.