Social Security Trustees Report That The Program Is In Permanent Deficit
The Congressional Budget Office reported back in January that the Social Security program was in permanent deficit back in January. On Friday that calculation was backed up with a report issued by the Social Security Trustees who conclude that a gap between the program’s revenues and payouts will be “a permanent feature of the program’s finances going forward.”
Social Security will run a permanent yearly deficit when looking at the program’s tax revenues compared to what it must pay out in benefits, the program’s trustees said Friday in a report that found both the outlook for Social Security and Medicare, the two major federal social safety-net programs, have worsened over the last year.
Medicare’s hospital insurance trust fund is now slated to run out of money in 2024, or five years earlier than last year’s projection, while Social Security’s trust fund will be exhausted by 2036, a year earlier than the prior projection.
Social Security began running an annual deficit in 2010 when looking at tax income and benefit payments. The gap right now is made up by payments from the trust fund, which in theory has built up over the years when the program ran an annual surplus.
Charles Blahous, one of the trustees, said the gap between tax revenues and benefit payments is now “a permanent feature of the program’s finances going forward.”
Apologists for the Social Security status quo will respond by pointing to the trust fund, which theoretically can pay out benefits through 2036. The problem is, there is no trust fund. The US Treasury has borrowed from the Social Security Trust Fund to the point where that fund is now depleted.
Here’s how it worked:
To borrow, the Treasury Department issues a bond to the Social Security Trust Fund promising to pay back the borrowed money with interest at a later date.
For a long time, thanks to the baby boomers, Social Security was able to collect more in revenues than it paid out in benefits. Thus there was no need to dip into the trust fund. Indeed, it meant there was more in the trust fund for the federal government to spend elsewhere.
But now those revenue surpluses are gone. In order to continue paying benefits Social Security must use its trust fund. Only the trust fund doesn’t have cash in it but rather bonds (IOU’s if you will) issued by the federal government, meaning that now there is no choice but to have the Treasury borrow funds to make good on the bonds to continue making SS benefit payments.
In practical terms, this means that every dollar of the deficit between what the SS program collects in revenues and what it must pay out in benefits adds directly to the national debt. Because the Treasury will have to pay back the bonds that are in the trust fund before the trust fund can dispense funds to pay benefits, and since the national budget is permanently in deficit the only way for the Treasury to do that is through borrowing.
If a private company ran its pension fund like this people would be in jail. But this is the US government, so it’s different.
Tags: deficits, national debt, social security
