CBO: Social Security in much worse shape than previous thought

What was supposed to be healthy for the next eight years may suddenly become sickly as soon as next year. What this means to the budget is catastrophic.


I want you to note the extreme deterioration in surplus funds between the 2008 and 2009 forecasts. Can you spot the trend?

Here’s a prediction – these too will be revised to the worse in about 6 months. I base this prediction on my belief that more people will opt for retirement than are currently projected and that entitlement program tax receipts will be below current projections. Also, nearly every prediction by the CBO has been revised to the worse over the past year so I am “riding the trend” with this prediction.

In the projections for the table above, the CBO has assumed no cost of living adjustments (COLAs) in 2010, 2011, or 2012 and a return to economic growth next year. If either of those assumptions proves wrong, the table above gets smoked to the downside. I give that a better than 90% chance of happening.

From a budget-busting perspective, last year where the US government had a $73 billion Social Security surplus to spend, this year it will be a paltry $16 billion and next year it will be a number indistinguishable from zero. It is hard to overstate the importance of this shift.

This means several things. Instead of $703 billion coming in over the next 10 years, the current (overly optimistic) projection calls for only $83 billion. This means at least another $620 billion in fresh borrowing will have to occur.

If this comes to pass, and it looks like it will, the day that the Federal Reserve will have to start monetizing treasuries en mass is right around the corner. I don't think the rest of the world, which has been dragging its feet, can prepare for this dollar meltdown fast enough.

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meanwhile

I noticed that there are the massive "tea bagging" parties going on but behind the scenes are our classic corporate, "attack social safety nets" neocon types.

But what the people are outraged about is very real and I think odds are those who are "conservative" are thumping hard on the same thing we are...but the problem is the message on what's going on, the details get buried to promote "alternative" agendas.

This is amazingly bad news and I really fear that team Obama is going to lead the charge to attack what is left of the social safety nets.

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Fiscal hawks

Yeah, it's going to be a huge problem but mostly because of the Blue Dogs and New Democrats, of which Obama is a self proclaimed member. Sadly, the movement conservatives have always been about destroying all of the social safety nets established in the New Deal and Obama provides the perfect political cover to accomplish that goal. He does appear to be a trojan horse (along with Rahm Emmanuel) and the corporate elites must be tickled pink at what they bought.

I keep thinking that this will not end well, and it doesn't matter whether there is a true populist uprising or not.

Having said that, it should be stated, for the record, that the biggest problem about Social Security at this moment, is that the government is losing its cash cow NOW rather in 2017, when it was forecast that payroll tax receipts would begin to fall short of benefits outlays. Even then, the Social Security Trust Fund is projected to remain solvent until at least 2040 UNLESS the government were to default on all of the Treasury Bonds it had swapped for borrowing of the surplus receipts since 1985!

Bruce Webb at Angry Bear has devoted much of the past two years to dispelling the myths of the "impending doom of Social Security". The fiscal hawks use very clever tactics in trumpeting "common sense" alarm about our "entitlement" programs. If you are not sure about what is happening with Social Security then Bruce's series of reports (I think there are more than 60 now) are a must read before making final judgement.

In conclusion, I am not arguing with midtowng's report. I only caution that, on a current accounts basis the CBO projections are alarming, but mostly due to their impact on the current projected budget deficit. It does not mean that Social Security is "insolvent" or even "underfunded". The truth is it has been "SURPLUS FUNDED" for almost 25 years and the various administrations have pissed that away in their annual expenditures, year after year after year, all along issuing Treasury Bonds, with the full faith backing of the US Government, as collateral. If the US Government wants to default on these "full faith" obligations and place Social Security and its recipients in jeopardy then fine. But just admit that is what is happening and refrain from all of this fiscal responsibility bullshit.

I leave you with these excerpts from a Time article earlier this week.

Payroll tax receipts generally hold up much better in recessions than income taxes, but job losses have been so severe that the CBO expects them to decline slightly from 2008, while benefits rise almost 9% because of cost-of-living adjustments and the beginnings of the baby boomer retirement wave. If you count the $17 billion in income taxes expected to be paid on Social Security benefits, the system will still manage to provide a slight surplus for federal coffers in fiscal 2009. But from 2010 through 2012 there are small projected deficits, and after heading back into the black from 2013 to 2015 the program will become a growing drain on federal finances after that, projects the CBO.

Back in 1983, when Social Security last faced deficits, Congress approved a set of Social Security reforms that included a graduated hike in the payroll tax and an increase in the retirement age. Thanks to those changes, payroll tax receipts surpassed benefits in 1985, and the system has been operating at a surplus ever since. The money has been invested in Treasury securities that the Social Security system is supposed to live off in the future. But in the meantime it has provided a significant boost to the federal bottom line for almost 25 years. No more.

[Snip]

There's been some media coverage since then of Social Security's declining revenues, but none clearly makes the point that Social Security is about to cease playing its decades-old role as subsidizer of the rest of the federal government. This is partly because officially Social Security is still running a substantial surplus, and will be throughout the next decade, according to the CBO. A key source of that surplus, though, is interest payments on federal debt held by the Social Security trust fund.

[Snip]
Now, with a budget deficit projected at $1.8 trillion this year, we've got far bigger fiscal issues to worry about. That still leaves the question of Social Security's long-term financing needs, which will be reassessed soon in the system's annual trustees' report. But a couple of years of below-expected payroll tax receipts shouldn't dramatically change that forecast — and whatever long-run deficits the trustees project for Social Security will pale beside those expected for sister program Medicare.

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Bruce Webb has already debunked this

here and here.

Here's the link chain: the American Enterprize Institute, which has been at war with New Deal programs since its inception, writes a new version of its same old tripe, which then gets regurgitated in full by the WaPo Op-Ed page, which itself has been on a dishonest jihad against Social Security for a number of years. From there it goes to the blog you linked to, and thence to your post.

Here's a quick summary of Bruce Webb's counterpunch, but really you should read both pieces in their entirety:

If true this would be a totally 'Holy Crap Batman!' moment, because ... in 2007, [the Social Security trust fund] ... was still projected to be adding assets to the tune of $213 billion in 2017. How could all of that just vanish without anyone noticing?

Answer? It didn't. Hassett is mostly just playing word games....

Hassett has simply redefined this long known crossover point (known as Shortfall) as the time that 'surpluses' vanish. And then piles on by claiming that February numbers show that it had actually moved right up to today. This is totally misleading and verging on outright lying. ...

While commenters and the Trustees alike for most purposes treat the Trust Funds as a combined whole there are legally two different funds, OASI (Old Age/Survivors Insurance) and DI (Disability Insurance). DI is approximately 10% of the size of OAS and has in recent years been much the weaker of the two. While the combined funds are projected to reach Shortfall in 2017 when DI is examined in isolation we can see that it actually hit Shortfall in 2005.... In fact the DI deficit overwhelmed the $525 million OAS surplus for the month [of February] to create a combined OASDI deficit of $1.25 billion and so leading Hassett and his faithful stenographer Montgomery to claim the sky was falling.

This is nonsense, they are simply counting on readers to not know these numbers or the breakdown of them between OAS and DI or how DI actually interacts with OAS. .
....

[T]he hit to DI is temporary while the hit from increased levels of early retirement is offset actuarially by a lower permanent retirement check.
....

.... But a potential crisis in DI is still not a reason to tamper with OAS. What we have here is just another use of crisis conflation, just as a real challenge to Medicare and Medicaid is used to sell 'Entitlements Crisis' so is a problem with DI turned into a crisis for Social Security as a whole. These guys want to kill traditional Social Security and always have.

OASDI cash surpluses were already dropping but the overall surplus is continuing to rise and in fact will continue to do so even after cash transfers from the General Fund start redeeming part of the interest. Only when those transfers exceed the total amount of interest owed and principal starts being paid down can Social Security even plausibly be said to be in deficit....

If we did decide to fix [DI] we are faced with an long term actuarial gap projected at 0.24% of payroll in the 2008 Report, which translates to $120/year for a median household earning $50,000. Hassett is just trying to make a mountain out of a mole hill.

Moral of this story: when any issue re Social Security pops up, the very first thing to do is to click on over to Bruce Webb at Angry Bear for the Truth.

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Good reply

I wouldn't have known that judging from the raw numbers being presented. It's a good reason for EP to exist.

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This will be short because I

This will be short because I have appointments to attend.

Personally I don't have a problem with safety nets. I do have a problem when those safety nets become giant fishing nets. Giant nets that make and catch not just those that need help but the entire society. Add to it social insurance programs that have hardly any actuarial design to them.

The multiple workers to a few is upside down and something will need to change. How will we ever do it because everyone feels it is their net. The rich, the poor and everyone is in the fishing net. Just as the massive gill nets are an extremely destructive fishing method, so is the social fishing net that catches "All" people. So now that all people are in the net, the net will eventually fail.

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URDRWHO

I see you posting comments almost daily.

You might want to create an account on the upper right and login to comment.

Then all of the "type the letters in to prove you are a human" goes away and account features, which allow you to track who replied to your comments, appears. A host of other features appear too when folks are logged in.

Welcome to EP.

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OK....I did so this morning.

OK....I did so this morning.

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Hey URDRWHO

Welcome to EP!

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Tea bagging & financial history

Mr. Oak mentioned those "tea bagging" parties being promoted by various neocon outfits. There is someone named Andrew Langer who is promoting them (I forget which, of the numerous, neocon "stink tanks" he belongs to).

I believe this is the same Andrew Langer who is the son of the tax attorney, Marshall Langer, responsible for setting up those tax havens in the Bahamas.

Avoidance of corporate taxes - how unAmerican can you get????

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corporate lobbyists tapping into Populist Rage

This hits both sides of the political spectrum. They spend millions to make "seemingly" grassroots campaigns appear and really manipulate people to get behind whatever they are up to.

I've seen ads on TV now trying to stop any sort of health care reform and they are using the TARP, bail out, deficits to get people upset.

So, hopefully EP can work to shed light on these bastards, get the real details out on where the Populist rage should really be directed.

I've seen this on the left too, get people's panties in a bunch over say discrimination when the issue is more enabling further domestic diversity discrimination in reality...

Lots of fun in misinformation, manipulation, public relations, marketing land!

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A proposal of sorts.

I have always thought that the readers here at EP do a fine job of digging for the truth and exposing the frauds. And, true to its namesake, I think we are all populist by nature.

One of the things I like most about Naked Capitalism is the daily links that Yves provides. They are wide ranging, only sometimes graphical or analytical, but always apropros to the bigger picture.

So I was thinking if there is a way of doing something similar here at EP. Provide links to other reports, essays, analyses without paraphrasing and just invite general discussion or further original blog posts.

For instance, I came across this article by Mike Whitney at Counterpunch today, which presents a scathing argument that the efforts to fix the financial crisis, to date, have done nothing more than exacerbate the chasm between the Wall Street economy and the real economy. Please check it out, I think Mike makes a very compelling case and I doubt many of the readers here would disagree.

Likewise, I read this mesmerizing account of what is happening in Dubai right now, revealing all of its worts and accomplishments. This, I think, is Pulitzer Prize worthy stuff that causes one to reflect on the truth that surrounds them, no matter where they live. It is a microcosm of our domestic situation here, and a cautionary tale taken to the extreme.

I know that instapopulist is really set up to accomplish what I am suggesting here. I guess what I'm really proposing is some sort of mechanism for just quick posting links to articles that require no further explanation. It is another way for each of us to expose others to what we, individually, think is important. And from those individual suggestions, it is possible that collectively, we can actually create a narrative for others to ponder.

Anyway, its just a thought and I hope you can find the time to read and comment on the articles I have linked to.

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blog series

It's been sporadic but we've talked about someone doing a series pulling up the "best of the week" of other blog posts around the web, with links and quotes, highlights from the other posts.

Then also including a section of "best comments of the week" to link and quote from EP.

JV started to do this but didn't keep it up.

I'm already doing all of the admin, plus doing two series, the Friday Night Videos and the Sunday Morning Comics.

If you want to commit to such a post, say for Th-S time frame (pick a day) it would be nice.

I can also tell you the huge "reader days" are M-Th, 7-6 EST, so you probably want to post it for the more low read times and leave the "big read" times for the original blog posts that we all are writing here so they are top on the front page.

I can tell you for me, while the FNV and the SMC's seem fairly simple and trivial, I have to hunt high and low to find those plus watch them first to see if they are worth a damn. So, it's kind of a personal hunt of what I can dig up that takes all of the time.

I imagine it would be the same to do a "best of the week around the Internets" or whatever you catchy title would be for such a series, to do it.

If you want to take it on, I think it would be great.

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Yeah, I think I'd like to do that.

I have time and I read a lot of stuff eminating from all over the place. I enjoy doing it and hopefully, it will bring some other perspectives into consideration. The weekend sounds like a good time to post. It's kind of late this week but I think I can come up with a short list of good stuff. For consistency, I just need to think a bit about when, exactly, to post. Leave it with me and look for the first installment soon.

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the private check box

I don't know if you realize it but there are two features to create drafts on EP and it's really useful in doing reviews for an entire week.

the first is the private checkmark. That's basically a draft for only you will be able to see your post.

Then, under authoring information you can set the timestamp of publication. Timestamps are set upon the first "submit" (i.e. save) but you can modify that field so you can publish the post at a certain time that you want.

Sounds very good, glad to see you taking it on.

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I think we are going to see

I think we are going to see more informal gatherings much like the flash mobbing flash pillow fight. The internet has allowed individuals to paste together real grass roots efforts and a central controlling figure is a thing of the past. Maybe there is an Acorn hiding in the Tea Party or a George Soros. The Tea Parties were so disjointed I don't see how there could be a kabal behind them.

Now people are prone to conspiracies and I'm ready to jump in with the best of them but I just don't see the concerted effort from some ka-zillionaire. There have been so many names floating on the internet that it should make the Snopes.com list.

I am in the 15% fed tax bracket. My property taxes (paid with after tax money) equals 16% of after tax annual pay; I am self employed so I pay the full social security and mediare; I pay a 1% local earned income tax and State tax is 2 percent. You add them all together and you get 49% in taxes. I am no were near the $250,000 earner that the government banters about, I am a little wage guy. I didn't even try to add in all the sales taxes and hidden taxes they call fees.

If people were not such sheep they could add up the figures for themselves and I think they would start scratching their heads. Maybe it would be a soft scratch but at least they would start to go hm?

You don't need a $billionaire to figure out that 49% is a lot of tax to pay for someone earning the USA median wage. I have few doubts that to pay back the $trillions that GWB ran up and the $trillions that Obama is running up that taxes and fees will at some point in the future rise. The game politicians play is to keep the nasty stuff from hitting on their watch.

I no longer participate in the politician's games.

Have people forgotten about the September 25, 2008 protest outside Wallstreet against George bush?

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Don't forget

sales taxes!

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The Tea Party, as an

The Tea Party, as an anti-tax demonstration, was innane. As an expression against huge deficit spending...yes, one could see its merit given our general concern and doubts. But these are doubts more aimed at Keynesian remedies than government or taxation itself. hence, the entire endeavor was a joke.

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tea parties

Honestly I think how the media portrayed it versus what people are really pissed about are two different things. I also think they are trying to misdirect the rage building up with the people.

So, in other words, they do a rally about "high taxes", when people are really pissed about what they are doing with their money. They said it was about the Stimulus, when the real rage is over the TARP, PPIP, the Federal Reserve financial commitments.

So, in other words, our little neocons trying to funnel Populist outrage to their own agenda and since people want to speak out but the grassroots isn't effectively organizing, they get swayed to this instead.

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