Neil

Social Security is sick and dying

By: Neil Middleton
By: Neil Middleton

Social Security is on track to run out of money by 2037. And the government’s deficit spending will surge to a record $1.5 trillion flood of red ink this year, setting the stage for the raging debate over spending and the size of government to continue.

Social Security is on track to run out of money by 2037.  

The nonpartisan Congressional Budget Office released the dire projections yesterday.  The CBO calculates that this year alone, Social Security will collect 454 billion less in payroll taxes than it pays out in benefits. The CBO says the fund will continue to operate in the red each year until the fund is drained.

The struggling economy and the nation’s soaring deficit are only compounding the problem.  The CBO also projects the government’s deficit spending will surge to a record $1.5 trillion flood of red ink this year.  The CBO blames the slow economic recovery and last month’s extension of the Bush era tax cuts.

The new numbers will give both Republicans and Democrats ammunition in the debate over spending and the size of government.

Click here to read the partial CBO Summary

Click here to read the full CBO Summary

Here is the breakdown as reported on the CBO Director’s Blog.

The Budget and Economic Outlook: Fiscal Years 2011 Through 2021

The United States faces daunting economic and budgetary challenges. The economy has struggled to recover from the recent recession: The pace of growth in output has been anemic compared with that during most other recoveries and the unemployment rate has remained quite high. Federal budget deficits and debt have surged in the past two years, owing to a combination of the severe drop in economic activity, the costs of policies implemented in response to the financial and economic problems, and an imbalance between revenues and spending that predated the recession. Unfortunately, it is likely that a return to normal economic conditions will take years, and even after the economy has fully recovered, a return to sustainable budget conditions will require significant changes in tax and spending policies.

This morning CBO released its annual Budget and Economic Outlook. I will discuss the economic outlook first and then turn to the budget outlook.

CBO expects that production and employment will expand in the coming years but at only a moderate pace, leaving the economy well below its potential for some time. We project that real GDP will increase by about 3 percent this year and again next year, reflecting continued strong growth in business investment, improvements in both residential investment and net exports, and modest increases in consumer spending.

But we have a long way to go on the employment front. Payroll employment, which declined by 7.3 million during the recent recession, rose by only 70,000 jobs, on net, between June 2009 and December 2010. The recovery in employment has been slowed not only by the slow growth in output but also by structural changes in the labor market, such as a mismatch between the requirements of available jobs and the skills of job seekers. We estimate that the economy will add roughly 2.5 million jobs per year over the 2011–2016 period, similar to the average pace during the late 1990s. Even so, we expect that the unemployment rate will fall only to 9.2 percent in the fourth quarter of this year, and 8.2 percent in the fourth quarter of 2012. Only by 2016, in our forecast, does it reach 5.3 percent, close to our estimate of the natural rate of unemployment.

CBO projects that inflation will remain very low both this year and next, reflecting the large amount of unused resources in the economy, and will average no more than 2.0 percent a year between 2013 and 2016.

Economic developments, and the government’s responses to them, have—of course—had a big impact on the budget. We estimate that, if current laws remain unchanged, the budget deficit this year will be close to $1.5 trillion, or 9.8 percent of GDP. That would follow deficits of 10.0 percent of GDP last year and 8.9 percent in the previous year, the three largest deficits since 1945. As a result, debt held by the public will probably jump from 40 percent of GDP at the end of fiscal year 2008 to nearly 70 percent at the end of fiscal year 2011.

If current laws remain unchanged, as we assume for CBO’s baseline projections, budget deficits would drop markedly over the next few years as a share of output. Deficits would average 3.6 percent of GDP from 2012 through 2021, totaling nearly $7 trillion over that decade. As a result, the debt held by the public would keep rising, reaching 77 percent of GDP in 2021.

However, that projection is based on the assumption that tax and spending policies unfold as specified in current law. Consequently, it understates the budget deficits that would occur if many policies currently in place were continued, rather than allowed to expire as scheduled under current law. For example, suppose instead that three major aspects of current policy were continued during the coming decade:

  • First, that the higher 2011 exemption amount for the alternative minimum tax (AMT) is extended and, along with the AMT tax brackets, is indexed for inflation,
  • Second, that the other major provisions in the recently enacted tax legislation that affected individual income taxes and estate and gift taxes were extended, rather than allowed to expire in January 2013, 
  • And third, that Medicare’s payment rates for physicians’ services were held constant, rather than dropping sharply as scheduled under current law.

All of those policies have recently been extended for one or two years. If they were extended permanently, deficits from 2012 through 2021 would average about 6 percent of GDP, rather than 3.6 percent, and cumulative deficits over the decade would be nearly $12 trillion. Debt held by the public in 2021 would rise to almost 100 percent of GDP, the highest level since 1946.

Beyond the 10-year projection period, further increases in federal debt relative to the nation’s output almost certainly lie ahead if current policies remain in place. Spending on the government’s major mandatory health care programs—Medicare, Medicaid, the Children’s Health Insurance Program, and insurance subsidies to be provided through exchanges—along with Social Security will increase from roughly 10 percent of GDP in 2011 to about 16 percent over the next 25 years.

To prevent debt from becoming unsupportable, the Congress will have to substantially restrain the growth of spending, raise revenues significantly above their historical share of GDP, or pursue some combination of those two approaches. The longer the necessary adjustments are delayed, the greater will be the negative consequences of the mounting debt, the more uncertain individuals and businesses will be about future government policies, and the more drastic the ultimate policy changes will need to be. But changes of the magnitude that will ultimately be required could be disruptive. Therefore, Congress may wish to implement them gradually so as to avoid a sudden negative impact on the economy, particularly as it recovers from the severe recession, and so as to give families, businesses, and state and local governments time to plan and adjust. Allowing for such gradual implementation would mean that remedying the nation’s fiscal imbalance would take longer and therefore that major policy changes would need to be enacted soon to limit the further increase in federal debt.

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Here are some of the headlines from across the country

Social Security Fund to Be Empty by 2037

Bleak deficit outlook looms

 

Record $1.5 trillion deficit throws gasoline on the fiscal fire

America the Broke

 

Deficit Outlook Darkens: Stark Warning for 2011 Fuels Battle Over Government Spending and Taxation

 

Morning Bell: Conservatives Must Lead Where Obama Has Failed

 

 

Deficit Forecast Nears $1.5 Trillion, Fueling Partisan Battle on Federal Spending

 

 

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WASHINGTON (AP) -- Social Security's finances are getting worse as the economy struggles to recover and millions of baby boomers stand at the brink of retirement.

New congressional projections show Social Security running deficits every year until its trust funds are eventually drained in about 2037.

This year alone, Social Security is projected to collect $45 billion less in payroll taxes than it pays out in retirement, disability and survivor benefits, the nonpartisan Congressional Budget Office said Wednesday. That figure swells to $130 billion when a new one-year cut in payroll taxes is included, though Congress has promised to repay any lost revenue from the tax cut.

The massive retirement program has been feeling the effects of a struggling economy for several years. The program first went into deficit last year, but the CBO said at the time that Social Security would post surpluses for a few more years before permanently slipping into deficits in 2016.

The outlook, however, has grown bleaker as the nation struggles to recover from the worst economic crisis since Social Security was enacted during the Great Depression. In the short term, Social Security is suffering from a weak economy that has payroll taxes lagging and applications for benefits rising. In the long term, Social Security will be strained by the growing number of baby boomers retiring and applying for benefits.

The deficits add a sense of urgency to efforts to improve Social Security's finances. For much of the past 30 years, Social Security has run big surpluses, which the government has borrowed to spend on other programs. Now that Social Security is running deficits, the federal government will have to find money elsewhere to help pay for retirement, disability and survivor benefits.

"It means that Social Security is increasingly adding to our long-term fiscal problem, and it's happening now," said Eugene Steuerle, a former Treasury official who is now a fellow at the Urban Institute think tank.

It's a bad time for the nation to be hit with more financial problems. The federal budget deficit will surge to a record $1.5 trillion flood of red ink this year, congressional budget experts estimated Wednesday, blaming the slow economic recovery and a tax cut law enacted in December.

A debt commission appointed by President Barack Obama has recommended a series of changes to improve Social Security's finances, including a gradual increase in the full retirement age, lower cost-of-living increases and a gradual increase in the threshold on the amount of income subject to the Social Security payroll tax.

Obama, however, has not embraced any of the panel's recommendations. Instead, in his State of the Union speech this week, he called for unspecified bipartisan solutions to strengthen the program while protecting current retirees, future retirees and people with disabilities.

Senate Republican leader Mitch McConnell of Kentucky said he is ready to work with Obama on Social Security and other tough issues.

"I take the president at his word when he says he's eager to cooperate with us on doing all of it," McConnell said.

Social Security experts say news of permanent deficits should be a wake-up call for action.

"So long as Social Security was running surpluses, policymakers could put off the need to fix the program," said Andrew Biggs, a former deputy commissioner at the Social Security Administration who is now a resident scholar at the American Enterprise Institute. "Now that the system is running deficits, it simply becomes clear that we need to act on Social Security reform."

More than 54 million people receive retirement, disability or survivor benefits from Social Security. Monthly payments average $1,076.

The program has been supported by a 6.2 percent payroll tax paid by both workers and employers. In December, Congress passed a one-year tax cut for workers, to 4.2 percent. The lost revenue is to be repaid to Social Security from general revenue funds, meaning it will add to the growing national debt.

Social Security has built up a $2.5 trillion surplus since the retirement program was last overhauled in the 1980s. Benefits will be safe until that money runs out. That is projected to happen in 2037 - unless Congress acts in the meantime. At that point, Social Security would collect enough in payroll taxes to pay out about 78 percent of benefits, according to the Social Security Administration.

The $2.5 trillion surplus, however, has been borrowed over the years by the federal government and spent on other programs. In return, the Treasury Department has issued bonds to Social Security, guaranteeing repayment with interest.

Social Security supporters are adamant that the program will be repaid, just as the U.S. government repays others who invest in U.S. Treasury bonds.

"It's an IOU that is backed by Treasury bonds and the faith and credit of the United States government," said Sen. Bernie Sanders, I-Vt. "It is the same faith and credit that enables us to borrow from rich people and from China and from other countries. As you well know, in the history of this country, the United States has never defaulted on one penny owed to a creditor."

 

 

 

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God Bless America!
 
Neil Middleton <><
WYMT Mountain News
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