Operating Results (excludes restatements in Billions):
Payroll tax receipts: 655
Tax on benefits: 24
Interest Income: 118
Total In: 797
Benefits Paid: 702
RR Interchange: 4
Overhead: 7
Total Out: 713
Net 2010 Surplus: 84
Net 2010 Cash Position (surplus minus interest): -34
Adjustments:
SSA announced in October that they would incur a one-time charge of approximately $25 billion in 2010 to adjust for overstating prior year(s) revenue. Through the third quarter of 2010 they have recognized a total of $16b. Therefore the range of the restatement of revenues could range from 0 to 9 billion in the fourth quarter. These adjustments are reflected in a decrease in payroll tax revenue. Using a mid estimate of $5b as the 4th Q adjustment produces these results:
Net 2010 Surplus: 78
Net 2010 Cash Position (surplus minus interest): -40
(note: Due to the unknown adjustment these numbers have an error factor of +/- $5b)
While the MSM and the politicians in D.C. will point to the accounting ‘surplus’ at SSA as the measure of continuing health, I take a different view. The only thing that matters is the cash position. That is negative for the first time in 27 years and is a harbinger of things to come.
SSA has produced a forecast that has the cash position returning to a small positive number over the next few years before going permanently negative in 2015. The economic assumptions used to produce that forecast are not going to be realized. In my opinion we will never see another cash surplus at SSA in history. 2010 marked the year where Perpetual Deficits started. Unless laws are changed the cash deficit will continue and increase every year for the next 75.
This simple graph tells the story:
Not so hard to see where the problems lie. Revenues have fallen while expenses are rising. SSA is struggling with an employment base that is not producing enough contributors to cover costs.
2010 was an interesting year in that there was no COLA increase. The recession kept the CPI at a level where no increases in benefits were granted. Were it not for this fact the benefit line would have been up by an additional 20-25 billion. However consider that benefits paid increased YoY by $27b. That is not an inflationary increase. This is people living longer and many new entrants receiving benefits. This increase is a function of baby boomers coming into the system. A significant portion of this increase in beneficiaries is involuntary. These are folks who are 62+ and can’t find a job, so they take an early retirement (and a smaller check) from SS.
For benefits to have increased by 4% in a no COLA year blows my mind. This is very clear evidence of the problem the economy is facing with structural employment. There are some significant macro implications of this should this big trend continue in 2011.
-This transition is a big drag on GDP as workers go from “payer” to “taker” status.
-The accelerated trend to retirement should create demand for other younger workers. To date there is no evidence that this is happening. The workforce is just shrinking.
In summary, it was a miserable year at SSA. The worst in their history. The future does not look so hot either. SSA is a slave to the economy. If the economy improves and new jobs are created the picture will improve. But that is not going to happen in 2011. Next year will also be a no COLA year, this should restrain increases in benefit payouts. But, as we have seen this year, the flood of new (forced) retirees will push benefit costs up.
I am going to wait until I see 1st Q 2011 numbers to make hard estimates on full year 2011. Right now I will guess that SS will suffer a cash shortfall of at least $25b. If we get modest inflation and the economy is still in the doghouse the numbers will explode. We could easily see a $60b cash deficit in 2012.
None of this is priced into the market in my view. 2011 will be different. Perpetual cash deficits at SSA will not go unnoticed for long.
Posts
I gather you wrote this without including Obama's proposed 2% cut in FICA payroll tax.
ReplyDeleteI've heard that, because of ZIRP and losses in retirement plans and savings, that many aged 65 and older are not retiring preferring to keep their jobs. However, this anecdotal fact seems to be outweighed, given your numbers, by an even larger cohort who are being pushed into Social Security by their inability to find
work.
Too bad. I had speculated that one way to deal
with prolonged unemployment would be to allow younger workers access to their social security account and either repay it or push back their eligibility on a month for month basis. That is a 40 year old might be allowed to take up to 2 years of early retirement benefit in exchange for retiring 2 years later.
I had thought this might be revenue neutral in that we would expect such a person to be making more in their late 40's or 50's and or be paying a higher percentage into FICA. The former may not be true though the latter probably will be but it may not matter if the whole system collapse in a decade or so!
Brucie, I can't keep making these effusive comments if you just ignore me Brother. Grunt or call me a dirty liberal or something:
ReplyDeleteHey Bruce, I just had one of my Brilliant ideas. We can elect Jeb Bush as our next U.S. President, privatize Social Security, watch the S&P 500 get clobbered 75% then blame it on some "darkie" Democrat who wins the Presidential elections of 2016. That way rich Republicans can keep sucking the value out of Wall Street stocks, paying 17% of their income in federal taxes, while the guy renovating your 3rd home pays 35%+ in taxes while he's trying to figure out how his daughter will go to college. Yes. We have the labourers and factory workers of this country right where you want them now Brucie!!!!!
Bruce,
ReplyDeleteWhere are you going with this story angle?
-Social program done gone negative, increase revenues to make it mostly positive?
-Social program done gone negative, you recipients need to have your benefits cut to make it mostly positive?
Republocrats waging their war on society will end up doing the latter. The problem Republocrats have created is a vastly more unstable, corrupt society.
The Republocrat's sponsors have infinite choices, they don't/won't see the misery they are heaping on others.
Ted K, Sorry if I have been ignoring you. But when you say;
ReplyDeleteWe have the labourers and factory workers of this country right where you want them now Brucie!!!!!
You lose me. You have been reading my stuff for more than a year now. You know damn well from all that reading that i have much more sympathy for real workers than most. Every policy recommendation I have made would either benefit the middle class or their children. At the same time those same recommendations are costing me money. I do it it because it is the right thing to do.
Criticize all like. I am tough. But don't mistake me for what I am not. I have said many times that I am a Commie at heart.
bk
Anon at 5:50 The proposal to cut SS payroll tax by 2% will not affect the SS Trust Fund. The Federal government will pay for this. For SS it will be out one pocket and in the other.
ReplyDelete