It turns out I was right. SS turned a tremendous corner in 2009. That was the last year of cash surpluses. We will never see them again. When I first made this observation I got rained on hard. Liar, charlatan, bond vigilante, "chicken-little" and a few other things were tossed at me. This week the Congressional Budget office took me a bit by surprise and proved what I have been saying all along.
Consider this slide from the CBO. This is their estimate of the surplus at SS all the way out to 2021.
The CBO’s definition of “surplus” includes script interest from Treasury. This script is not a cash item. All other flows into and out of SS are actual cash receipts and disbursements. Therefore the CBO surplus minus non-cash interest is equal to net cash flow. The Social Security Trust Fund projects this interest surplus in their report to congress. Of all of the variables, the interest income is the easiest to forecast. The SSTF estimate for script interest minus CBO surplus produces these results:
That’s right. SS will run a cash deficit forever. They will run up a trillion dollar (+) cash deficit over the next decade. All of it must be borrowed in the public market. This big nut must be added to the trillion dollar deficits that have to be financed. Even worse is the trend. It starts off slow but then explodes. It is truly a slippery slope that we are now on.
IMHO even the CBO numbers will not be realized. It will be worse. The CBO assumes that there will no economic recessions over the next ten years. History says that is a very unlikely outcome. SS gets killed in periods of low relative employment and high relative inflation (AKA: Stagflation). This economic condition will be the result of ZIRP and QE. Those policies will bring us inflation, but very few new jobs.
The SSTF told Congress, the press and the American people that the SSTF was a 2037 problem in their 2010 report. That date has been used repeatedly in defense of the program. Supporters point to something that is far into the distant future and say, “Worry about something else”. Wrong! The CBO has confirmed it. The future is today.
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well done
ReplyDeleteI don't understand this. While there may not be an ANNUAL cash surplus ever again, there already exists a huge surplus accumulated over the past 25 years, which will help sustain S.S. in its current form for years to come. Sure, maybe the 2037 date needs to be adjusted forward a few years, but the situation is not as dire as you make it seem. You appear to be implying that the entire fund is now in deficit, but it isn't. Yes, a fix to the system will be needed (higher contribution rates, extended salary cap, means testing for recipients, etc) and that is an active debate but the sense of panic you project is completely unwarranted.
ReplyDeleteHasn't that "...huge surplus accumulated over the past 25 years..." already been spent? After all, there's no such thing as a "social security trust fund", consisting of separate and inviolable assets, is there?
ReplyDeleteTake the long view. Raising SS taxes in any way, shape or form amounts to drawing more money out of the productive economy by discouraging saving and investment.
Same as any tax rise, same as expanding government programs, regulation, costs, fees, minimum wages or payouts...
Whatever the solution is, it has to consist of cuts to entitlement benefits only, and must start from the standpoint of ruling out any tax/cost increases...
There is no formal SS fund AFAIK, the payroll taxes are simply part of general govt revenues. However, the SS program actuaries for 70 years have based all their calculations on the payroll tax stream, past, present and projected, so they ought to know something about the true fund valuation. If the US Full Faith and Credit clause means anything (and it better!) the putative SS fund is safe. After all, Bernanke and his pals can just print more money and inflate away the problem.
ReplyDeleteRedford,
ReplyDeleteI'm not panicked about SS. There other things I am panicked about, not this, yet.
The deficits are five years earlier than was estimated just six months ago. This train is off the track. Can it be fixed? Maybe. But this is not an easy one. Significant cuts or significant tax increases are required. We can't do that now. It would be too painful to take the needed medicine.
If you really think the solution is for Ben to continue with his monetary madness you are in for an unpleasant surprise. Things CAN"T be fixed with QE. QE only makes the problem worse and kicks it down the road.
SS has the potential to take this country down big time. We only have a few years left before it will be too late to do anything and our economic demise will become inevitable.
adjust $106,800 income limit upwards
ReplyDeletethrow some money towards fund from reduction of money hog wars in afghan/iraq and it should be ok..
http://www.zerohedge.com/article/social-security-will-have-change-cbo
ReplyDeleteWhat about the payroll tax holiday being factored in? That's about $120B shortfall
ReplyDeleteon top of the SSTF cash deficit. The real
SS deficit for 2011 looks more like around
$170B.
No ca$h deficit, just time for the Federal gov't. to honor the IOUs.
ReplyDeletePlenty of IOUs to be paid-in-full, if the electorate thought differently they should have voted for politicos that would have invested FICA payments instead of spending it to cover their deficit spending...
Time for America to stop living like a drunken sailor with a wallet full of stolen credit cards and start paying their own way!
Plenty of tax revenue if you shut down the 1000+ US military bases around the globe and end redundant programs like Dept. of Education, et al...
Just ignore the trust fund altogether. Focus solely on the payroll tax and the outgo. Those are the only two numbers that matter in the present and future. That difference is what has to be made up by some combination of tax raising, spending cutting, or public borrowing.
ReplyDeleteMake sure that you are regularly paying your monthly contributions so that once you retire, there's no problem in getting your pensions or other fund services by Social Security.
ReplyDeleteBruce,
ReplyDeleteWhat is off-track is the economy and employment. The FICA tax is a direct tax on employment and it has declined as employment has declined. What effect would full employment have on your analysis?
Your comment about "script interest" is bogus. Interest paid by the treasury is paid in dollars -- not script -- and the interest received by the Trust Fund is fully equal to the interest paid to China and the banks.
Ron Alley
ReplyDeleteThe interest is script. Even the Trust Fund considers it as such. CBO as well. Interest is a non cash item for SSA.