Social Security
Payouts to Exceed Revenue This Year
Published: March 24, 2010, New York Times
The bursting of the real estate bubble and the ensuing recession
have hurt jobs, home prices and now Social
Security.
This year, the system will pay out
more in benefits than it receives in payroll taxes, an important threshold
it was not expected to cross until at least 2016, according to the Congressional
Budget Office.
Stephen C. Goss, chief actuary of the Social
Security Administration, said that while the Congressional projection would
probably be borne out, the change would have no effect on benefits in 2010 and
retirees would keep receiving their checks as usual.
The problem, he said, is that payments have risen more than expected during
the downturn, because jobs disappeared and people applied for benefits sooner
than they had planned. At the same time, the programfs revenue has fallen
sharply, because there are fewer paychecks to tax.
Analysts have long tried to predict the year when Social Security would pay
out more than it took in because they view it as a tipping point — the first
step of a long, slow march to insolvency, unless Congress strengthens the
programfs finances.
gWhen the level of the trust fund gets to zero, you have to cut benefits,h Alan
Greenspan, architect of the plan to
rescue the Social Security program the last time it got into trouble, in the
early 1980s, said on Wednesday.
That episode was more dire because the fund could have fallen to zero in a
matter of months. But partly because of steps taken in those years, and partly
because of many years of robust economic growth, the latest projections show the
program will not exhaust its funds until about 2037.
Still, Mr. Greenspan, who later became chairman of the Federal Reserve Board,
said: gI think very much the same issue exists today. Because of the size of the
contraction in economic activity, unless we get an immediate and sharp recovery,
the revenues of the trust fund will be tracking lower for a number of years.h
The Social Security Administration is expected to issue in a few weeks its
own numbers for the current year within the annual report from its board of
trustees. The administration has six board members: three from the presidentfs
cabinet, two representatives of the public and the Social Security commissioner.
Though Social Security uses slightly different methods, the official numbers
are expected to roughly track the Congressional projections, which were one page
of a voluminous analysis of the federal
budget proposed by President
Obama in January.
Mr. Goss said Social Securityfs annual
report last year projected revenue would more than cover payouts until at
least 2016 because economists expected a quicker, stronger recovery from the
crisis. Officials foresaw an average unemployment rate of 8.2 percent in 2009
and 8.8 percent this year, though unemployment is hovering at nearly 10 percent.
The trustees did foresee, in late 2008, that the recession would be severe
enough to deplete Social Securityfs funds more quickly than previously
projected. They moved the year of reckoning forward, to 2037 from 2041. Mr. Goss
declined to reveal the contents of the forthcoming annual report, but said
people should not expect the date to lurch forward again.
The long-term costs of Social Security present further problems for
politicians, who are already struggling over how to reduce the nationfs debt.
The national predicament echoes that of many European governments, which are facing
market pressure to re-examine their commitments to generous pensions over
extended retirements.
The United Statesf soaring debt — propelled by tax cuts, wars and large
expenditures to help banks and the housing market — has become a hot issue as
Democrats gauge their vulnerability in the coming elections. President Obama has
appointed a bipartisan
commission to examine the debt problem, including Social Security, and make
recommendations on how to trim the nationfs debt by Dec. 1, a few weeks after
the midterm Congressional elections.
Although Social Security is often said to have a gtrust fund,h the term
really serves as an accounting device, to track the pay-as-you-go programfs
revenue and outlays over time. Its so-called balance is, in fact, a history of
its vast cash flows: the sum of all of its revenue in the past, minus all of its
outlays. The balance is currently about $2.5 trillion because after the early
1980s the program had surplus revenue, year after year.
Now that accumulated revenue will slowly start to shrink, as outlays start to
exceed revenue. By law, Social Security cannot pay out more than its balance in
any given year.
For accounting purposes, the systemfs accumulated revenue is placed in Treasury
securities.
In a year like this, the paper gains from the interest earned on the
securities will more than cover the difference between what it takes in and pays
out.
Mr. Goss, the actuary, emphasized that even the $29 billion shortfall
projected for this year was small, relative to the roughly $700 billion that
would flow in and out of the system. The system, he added, has a balance of
about $2.5 trillion that will take decades to deplete. Mr. Goss said that large
cushion could start to grow again if the economy recovers briskly.
Indeed, the Congressional Budget Officefs projection shows the ravages of the
recession easing in the next few years, with small surpluses reappearing briefly
in 2014 and 2015.
After that, demographic forces are expected to overtake the fund, as more and
more baby boomers leave the work force, stop paying into the program and start
collecting their benefits. At that point, outlays will exceed revenue every
year, no matter how well the economy performs.
Mr. Greenspan recalled in an interview that the sour economy of the late
1970s had taken the program close to insolvency when the commission he led set
to work in 1982. It had no contingency reserve then, and the group had to work
quickly. He said there were only three choices: raise taxes, lower benefits or
bail out the program by tapping general revenue.
The easiest choice, politically, would have been gsolving the problem with
the stroke of a pen, by printing the money,h Mr. Greenspan said. But one member
of the commission, Claude Pepper, then a House representative, blocked that
approach because he feared it would undermine Social Security, changing it from
a respected, self-sustaining old-age program into welfare.
Mr. Greenspan said that the same three choices exist today — though there is
more time now for the painful deliberations.
gEven if the trust fund level goes down, therefs no action required, until
the level of the trust fund gets to zero,h he said. gAt that point, you have to
cut benefits, because benefits have to equal receipts.h
Stephanie Strom contributed reporting.