As if the Nation hadn’t
enough economic difficulties, onward comes the Social Security shortfall.
Only one year ago,
projections were that Social Security taxes would exceed costs by $87 billion
this year. On May 12, however, the annual
Social Security Trustees’ report revealed that over three-quarters of this
projected surplus was evaporating. This would leave the program with only a
thin $19 billion cushion -- a mere 0.5% of its tax base -- for the year. Next year’s surplus is expected to be even
Whither the Social Security surplus? The program is now being buffeted by the
equivalent of a “perfect storm.”
Retirement benefit claims are surging, as long predicted, as the Baby
Boomers hit the retirement rolls. Meanwhile, the struggling economy means that
payroll tax revenues are lagging severely behind previous expectations. On top of that, disability claims have
increased (as they nearly always do in a down economy), while the program is also
paying out its largest COLA increase (5.8%) since 1982.
Put these together, and poof!
There goes most of the Social Security surplus. The Trustees now project the arrival of
permanent deficits in 2016. Worse yet, the
Trustees’ supplemental analyses show that this critical date is far more likely
to arrive sooner than later, and could even arrive as early as next year.
None of this should cause anxiety
to current seniors. Social Security is
still solvent, and they’ll get their checks.
But it is a major headache for federal budgeteers, who now face the
threat of Social Security adding to the deficit for the first time in a
quarter-century, as well as the virtual certainty of needing to rapidly forge a
consensus on how to fix the program’s unsustainable trajectory.
Social Security’s story is a
nearly perfect illustration of why one should fix the roof while the sun is
shining. President Bush tried to do so, as
did President Clinton before him. Delay
has added greatly to the costs of repair; added costs that we surely do not
need in our current economic difficulties.
For too long, we have had a
“shoot the messenger” attitude toward Social Security. Rather than heed the longstanding warnings of
the Trustees, we have instead fostered a cottage industry of specious attacks
on the projections. Rarely have so many
people seized an opportunity to be so spectacularly wrong. Social Security analysts have pointed
out for years that the problem was just as likely to be bigger than the Trustees projected, as it was to be smaller.
Unfortunately, we were more right than we knew.
There is still good news in
all of this. Even with the downturn, we
can fix the program without reducing benefits for current seniors. We can even do it without raising taxes, and
without causing a decline in the real value of benefits from one retiree class
to the next. But we can only do so if we
In only a few years this
luxury of choice will no longer exist.
We will face a dilemma between raising taxes, imposing a real decline in
benefit levels, and cutting benefits for those already in retirement. These choices would be unpalatable at any
time, and are almost unthinkable in the current economic environment. Our window for avoiding them
The Administration’s budget
advertised a “new era of responsibility.”
We cannot claim to inhabit such an era so long as politicians win office
by promising not to reduce the growth in Social Security benefits, not to raise
the retirement age, not to pre-fund future obligations through funded accounts,
and not to raise Social Security taxes for 99% of the population. The numbers behind such pledges never added
up, and now they are even further removed from reality.
Obviously, the first priority
of this Administration and of this Congress must be to restore the financial
and credit markets to health, and to get the American economy moving
again. Doing so will brighten the near-term
picture for Social Security and for the rest of the federal budget.
But when the storm lets up,
we need to get back up on the roof, and fix it – fast.
Chuck Blahous is a Senior
Fellow at the Hudson Institute. He
previously served as Deputy Director of the National Economic Council, and as
Executive Director of the President’s Commission to Strengthen Social
Security. He is currently writing a book
entitled, “Social Security: The Unfinished Work.”