Which, in turn, means that our federal government is going to have to borrow more money, adding more to the national debt, in order to keep Social Security afloat.
Today’s CBO report has some bad news about the deficit. But CBO has some really, really bad news about Social Security: It’s officially broke.
The CBO’s revenue/expenditure estimates now place the program in permanent deficit. There had been some hope that payroll taxes would recover sufficiently post-recession to put the program back into the black (the theoretical black) for at least a few more years, putting off the day of reckoning for an election cycle or more. No more: The new CBO estimates put Social Security in the red for as far as the eye can see.
But there’s a bit of camouflage attached: If you include the “interest” that the federal government “owes” the fictitious Social Security “trust fund,” then the program is in the black. Which is to say, if you think that borrowing another $1 trillion from the bond market to shift money from one government account to another government account makes the nation $1 trillion richer, then everything’s hunky-dory.
For those of you who don’t quite understand how the government has been playing a shell game with social security funds for decades now (and who could blame you if you don’t?), what’s happened is this: Social Security had a trust fund into which excess revenues from payroll taxes were placed. Unfortunately, the federal government has been borrowing from that fund to finance other spending.
To borrow, the Treasury Department issues a bond to the Social Security Trust Fund promising to pay back the borrowed money with interest.
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 is gone, meaning that now there is no choice but to borrow to continue payments through this entitlement program.
This is scary stuff, but keep in mind that even as this is happening the President has touted his payroll tax cuts which are cutting into Social Security severely by reducing the amount of money Americans are paying into the program.
The long and short of it is that we need major Social Security reform, and we need it now.