After years of huge surpluses, the Social Security trust funds appear to be moving toward a critical tipping point, where more money is being paid out in benefits to retirees and disabled workers than is coming in through payroll taxes.
The latest sign of this is a Congressional Budget Office (CBO) analysis of President Obama’s budget proposal issued this week that projects a nearly $30 billion disparity this year between tax revenue income and program expenditures.
Experts have been warning that the surplus was shrinking, a casualty of one of the worst recessions in history, which has driven down payroll tax collections and prompted many who couldn’t find work to take early retirement. But the CBO report comes as a surprise in light of a previous report by the Social Security Board of Trustees projecting that spending would not exceed income until 2016.
Stephen C. Goss, the chief actuary of the Social Security Administration, told The New York Times yesterday that even if the CBO forecast turns out to be right, the change would have no effect on benefits in 2010 and that beneficiaries would receive their checks as usual. The system -- with assets of $2.5 trillion -- remains capable of paying benefits in full for decades to come, and experts said the shortfall projected by CBO would be more than offset by the interest the trust funds are owed by the government.
White House Press Secretary Robert Gibbs said Obama “is committed to ensuring the security of Social Security, to pay out benefits for current and future retirees.”
“The latest actuarial report puts the Social Security Trust Fund solvency to 2037,” he added. “And certainly we’ll get in the not-too-distant future updates on that solvency, but the president is committed to keeping Social Security strong and solvent for current and future retirees.”
James Horney, director of federal policy at the Center on Budget and Policy Priorities, said that while the long-term solvency of Social Security is a legitimate concern, revenue shortfalls in the midst of a historic recession are relatively meaningless, particularly when interest is factored in. “You’ve got to take interest into account,” Horney said. “It doesn’t make sense to claim the trust funds are an important way to look at the problem and ignore the interest.”
Since the mid-1980s, the Social Security trust funds have collected more in payroll taxes and other income than they have been required to pay in benefits and administrative costs, according to a study by Horney’s group. That surplus was invested in Treasury bonds -- over $2.5 trillion worth at the end of fiscal 2009, bearing an average interest rate of 4.7 percent. CBO expects the trust funds to earn $120 billion in interest income in 2010, far eclipsing the $29 billion projected revenue shortfall.
The combined old-age, survivors, and disability insurance trust funds -- commonly called Social Security -- provide benefits for more than 50 million people, including retired workers and dependents, survivors of deceased workers, and disabled workers and their dependents. The last time the system faced a major financial crisis was in 1983, when Congress and the Reagan administration agreed to a package of savings and revenue increases recommended by a commission headed by Alan Greenspan, who went on to become chairman of the Federal Reserve Board.
While the trust funds are expected to remain solvent for years to come, costs will increase more rapidly than tax income between about 2012 and 2030 because baby boomers' retirement will cause the number of beneficiaries to rise much faster than the labor force, according to the trustees' report.
Social Security's financial problems have received scant attention in the past year, as Obama and Congress focused largely on the recession and enacting major health care legislation. However, Obama and congressional leaders have signaled that “everything will be on the table” when a bipartisan commission to reduce the mounting national debt begins its work later this year. That almost certainly will mean close scrutiny of Social Security for potential savings.