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  • Sayonara Social Security Surpluses

    The federal budget deficit is set to quadruple in 2009 to $1.75 trillion and President Barack Obama’s budget will add another $4.9 trillion in public debt from the beginning of 2010 through 2016. But our fiscal future is in even worse shape than that. As PBS’s Nightly Business Report noted last night, the recession is rapidly making our entitlement crisis worse:
    [youtube]http://www.youtube.com/watch?v=1pqGMzjlN6Y[/youtube]
    Darren Gersh finds that due to slower projected payroll tax receipts combined with higher payments for early retirements and cost of living adjustments, “the era of large Social Security surpluses is over.” According to the Congressional Budget Office, the Social Security surplus will only be $16 billion this year, and only $3 billion next year. In total the recession will shave $150 billion off of the surplus over next three years.

    Last year the trustees estimated that Social Security would have a negative cash flow by 2017. But analysts expect that number to move up significantly in this year’s trustees’ report. Gersh then talked to National Committee to Preserve Social Security and Medicare President Barbara Kennelly who claimed there is $2.5 trillion in the Social Security trust fund, and that there is therefore nothing to worry about. Problem is, as Heritage scholars David John and Brian Riedl explain that $2.5 trillion is pure fantasy:

    Although it has existed since the 1930s, [the trust fund] got a new purpose back in 1983, when the Greenspan Commission came up with an idea to pay for baby boomers’ future retirements by raising the Social Security tax well above the amount currently needed to fund the program, and putting the extra money in the trust fund. Between 2018, when the program begins running a deficit, and 2042, the trust fund is expected to provide $5.7 trillion, about $100,000 per family, to pay benefits.

    One problem: the federal government wasn’t allowed to actually save this money. Since 1939, federal law has required Social Security to “invest” its extra money in Treasury bonds. In other words, the government lends the money to itself. Those funds are then mixed in with all other tax revenue and spent on programs such as education, foreign aid and defense.

    So in 2018, when the Social Security program tries to redeem these bonds, the Treasury (having already spent that money over the previous 35 years) won’t be able to repay Social Security from any pre-existing store of cash. Taxpayers will be forced to pay extra taxes in order to fund Social Security’s 40 million retiring baby boomers.

    It’s like a family that borrows money from its retirement fund each year to pay for vacations and expensive dinners. When they finally retire, their retirement fund consists of nothing more than paper IOUs.

    The recession has materially hastened Social Security’s day of reckoning. Congress can’t duck it muchlonger. It needs to be fixed. Now.

    Posted in Economics [slideshow_deploy]

    38 Responses to Sayonara Social Security Surpluses

    1. Spiritof76, New Hamp says:

      The Social Security is the biggest Ponzi scheme several thousand times worse than that of Madoff. No body will be brought up on charges for the systematic theft, all sanctioned by laws. We are a nation of laws. Only thing is laws are all perverted. How else would you explain Andrew Cuomo's mob-like extortion ploy against the AIG executives? Think again, a state AG is threatening not a law suit but threatening an individual law-abiding citizen to out his name if he doesn't come forward with the bonus that he had received from AIG legally. Mind you the family of this executive is getting death threats already.

    2. Claude Cornell says:

      How long are we going to put up with this foolishness ? For many years the American people were wise enough not to put the control of the White House and Congress in the same party.

      If we don't fix that in 2010, then we're sunk.

      We have to get the foxes out of the henhouse.

    3. persiflage, New Jers says:

      It's not just that the SS annual "surplus" is ending (as it was bound to do), but that the surplus money was all immediately spent by congress each year. Thus, even if congress came up with a new budget that spends NOT ONE PENNY MORE than the 2008 budget, higher taxes will still be called for – due to the failure of SS to produce a "surplus" that congress can raid. They've been treating the SS surplus like it was extra revenue!

    4. DontTreadOnMe, Texas says:

      Its been obvious to anyone who paid attention since the beginning of Social Security that its a Ponzi scheme. There is no trust fund. The executives of any private company whose pension plan was managed this way would be in jail.

      I'm been assuming since I was 18 years old (1970) that I would never get a dime back from Social Security, and I still expect that to be the case. There may be a payment, for political cover, but it will be taxed away.

      However, the real elephant in the room is Medicare. Much, much larger than Social Security, the unfunded liability from Medicare is tens of Trillions of dollars – I've seen estimates as high as $50 trillion. This will be, or course, impossible to pay.

    5. Becky, Pinconning, M says:

      Will it finally be a relief when it goes broke? Or will it be AIG deja vu?

    6. leishman, littleton, says:

      In the modern Obama redistributionist paradigm, you know Medicare and Social Security will be means tested–probably sooner rather than later. The "fix" will be similar to rewarding mortgage-defaulters while stiffing those who kept up their payments. Hmmm–how soon until the thanatoria and Soylent Green?

    7. rhhardin says:

      There can be no Social Security trust fund, whether you want one or not.

      The government must instantly return to the economy any money it collects, lest the money supply fall. The mechanism used to do this happens to be buying a bond with the money, which money the government then spends with general revenue. It can't be a real transaction in any case.

      The hard fact is that future goods and services will be supplied by future workers, and piling up money won't help with arranging that if there aren't enough future workers to willingly support the future retirees.

      The solution is quite easy : raise the retirement age to keep the demographics in balance.

      Treat the social security tax as a general revenue source, as it in fact is.

      Incidentally privatizing social security works no better. Everybody can't save at once, any more than the government can. The mechanism is that there will be too many sellers of stock and too few buyers when those people want to retire, and that lowers the return to savings. How much does it lower it? Just enough to raise the retirement age to balance the demographics.

      Raising the retirement age just means that if you want to retire sooner, do it on your own dime.

    8. 8 says:

      See this link: <a>Same Old Saw on Social Security, a Krauthammer column from 2005. Since the SS surplus is spent, what matters is when they peak because Congress will have to cut spending or raise taxes to close the gap in funding. The surplus was set to peak in 2009 under a rosy economic scenario.

    9. don ruhter, aurora, says:

      When calculating the new day of reckoning for social security, did "they" take into account the probability that the current financial apoclaypse is probably pushing retirement dates back by five or ten years for tens of millions of baby boomers… and thus saving the system buzillions of dollars over the next five to ten years?

    10. D.R., Orlando, FL says:

      What the pushed back retirement age doesn't save the budget, Mr. BO's healthcare plan will. It's only good for girls age 12 and over who want an abortion, or treatment if you're young enough to still give to BO's tax pool. If you're pushing retirement age, well, the sources can best be used elsewhere. They can, and knowing them they will, use the healthcare system to decide who lives and who dies.

    11. Dan, Nashville says:

      Bush burned his political capital to try to push Congress to reform this disaster after the 04 election.

      The Democrats congress told him to shove it.

      They said the system was solvent.

    12. MarkD, Syracuse NY says:

      rhhardln is at least not explicitly acknowledging that there are potentially other buyers of US assets, namely foreigners. However, China's demographics are terrible and the countries with young populations tend to be Islamic. I don't see a big market there for US equities.

      When trends can no longer continue, they stop.

    13. Pingback: Instapundit » Blog Archive

    14. Pingback: Recession busting Social Security Ponzi scheme too

    15. Flubber says:

      It's obscene for them to even suggest raising the SS retirement age if there will be no concomitant change in government retirement ages. Currently many are at 55, and in some cases as low as 52.

      And government pensions are completely insulated from SS problems. In fact, any SS contributions that come in can and will be redirected to fund the government pensions, if needed.

    16. Roger Godby, Japan says:

      I agree with MarkD. Chinese demographics are terrible indeed and (to mine eyes) make it much like a paper economic tiger. Japan's population began shrinking last year; Italy's will this year, I believe. Much of the rest of Europe (and Russia) is dying off as well. Who will pay the bills for the elderly whose savings were taken to pay previous government bills?

      Those young Islamic populations tend to be poor performers economically, too. Turkey might be different, and a mullah-free Iran might be a surprisingly good trade partner. The exhaustion of easy oil might force changes on petro-nations in the Persian Gulf, too.

    17. Frank W, Pennsylvani says:

      The first problem with Social Security was the false labeling of the Social Security Trust Fund as "surplus."

      It was never a surplus. It was all the money that was supposed to be collecting for our retirements. By calling it "surplus," Congress implied to us that this was extra cash, beyond what accountants and actuaries calculated was necessary. But it wasn't extra or excess in any way.

      Today, there is supposed to be more than $2 trillion in the Social Security Trust Fund. There is nothing there. Why? Congress called it "surplus" and spent it on everything but Social Security.

      Once we get done borrowing $2 trillion or $3 trillion for the current mess and related "stimulus," who do you think is going to lend us another $2 trillion to replenish the looted Social Security fund? No one.

      And Medicare is in worse shape.

    18. Pingback:   "Backed By The Full Faith And Credit Of The United States Government" — Just Some Poor Schmuck

    19. fed up says:

      Ever since the Congress decided that it was okay to blend SS surplus into the General Treasury, SS has been a target of running short of funds. How about the US government pay back SS all the surplus is commandeered to help "balance" the federal budget? It's about time they did. It would have a better use of taxpayer monies than all of the bail-outs handed out with more apparently to come.

      Talk about smoke, mirrors and ball bearings…

    20. George Fulmore says:

      The federal deficit went from about $5.5 trillion to about $11 trillion and counting under George W. The announced annual deficits untruthfully told to us were higher than announced, as they were being lowered by the amount of the SS surplus each year. (Such was reportedly about $190 billion in 2007, alone.)

      Social Security is not the problem. Sure, real money should be in the Trust Fund to the tune of about $5 trillion, instead of the IOUs. But the real issue is getting back to a total federal surplus, not a deficit.

      Leaving the country $11 trillion in debt, George W. left town and left the new President with a real mess. Hopefully, we will be out of it soon, but harping about the "solvency" of SS at this point is more politics than anything else.

    21. Mike, Houston says:

      Basically, the American people have been lied to by the government again. We are forced to pay a tax for something we will never receive. The question is…what can we do about it? I'm not smart enough to know the answer. Short of a second American Revolution what can the average citizen do to get the attention of this group of self-serving bureaucrats?

    22. Patricia, Boise says:

      If you are not a part of the solution, you are a part of the problem. Shame on Russ Limbaugh and others who express the hope that the Obama Administration's efforts will fail.

    23. Pingback: BizzyBlog » Social Security Surpluses Are Near Their End; Bloomberg’s Hassett Notes After Two-Week Media Slumber

    24. Pingback: Social Security Surpluses Are Near Their End; Bloomberg’s Hassett Notes After 2-Week Media Slumber | Latest Technology News - Business News And Expert Advice

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    26. Ted New Orleans, LA says:

      This story like many others is BS. Think people, do you believe that in 2017 or whatever, that the US government will redeem bonds for Chinese, Japanese, Arabs and everyone except Americans. That is totally ridiculous.

    27. james modesto ca says:

      ss was in a trust fund until 1969 when the democrat congress voted to place it into the general fund where it was used to hide the messes that were made by incompetents

    28. Pingback: BizzyBlog » Social Security’s Crisis Will Arrive Six Years Early

    29. Aaron, Indiana says:

      Patricia from Boise, those people who say that they hope Obama will fail are not saying that they want America to fail. If you are reading anything on this site you will see that the agenda that liberals are promoting is continuing to lead the United States down the road to destruction. None of us want to see our economy collapse. No one who loves this great country would rejoice to see unemployment rates go up or see people losing their homes.

      When a conservative says they want Obama to fail it means they want his liberal agenda to fail. Although our government is self serving and feeds upon it's citizens in order to grow at least we have a semblance of participation and opportunity to enact change. Obama's agenda will encourage unchecked growth in our government in an effort to make it big enough to save us all.

      The democratic agenda has always been one of "group" vs. "individual". America was founded on individual freedoms as well as responsibility. When we sacrifice those freedoms to the group in order receive some benefit we are giving up what makes this country strong. Anyone who has read any history can tell you what happens to a people who give up their rights in order to gain more comforts. Look what happened to Rome when it's citizens quit defending themselves and started paying mercenaries to defend them.

      Obama's policies seem to be directed at making anyone who is successful responsible for everyone who is not. There is nothing wrong with helping out the less fortunate. It becomes a problem when you require people to help the less fortunate. At this point charitable donations have become a tax and there is no longer any positive feeling connected with helping others. This tax is controlled by the government and of course becomes dispersed with no actual concern as to how effectively it is used.

    30. Bob Sprinkle says:

      Social Security and Medicare…..FAIL?????

      Whaddaya mean FAIL…They are TOO BIG to fail. The goobermint will just have to bail 'em out.

      I'm eligible in July to start collecting SS. I'd like to work for a few more years. But, I think 2 or 3 years is all SS and Medicaid have left. Actually, I should rephrase….I NEED to work a few more years. So, I'm filing as early as possible to get what I can. Cut back on my hours at work to the minimum to still get med benefits.

      Maybe form a senior citizen suicide bomber brigade when I et down to my last couple of years. Go out with a band and take a liberals with me.

    31. neil davidson los an says:

      WHY ? MUST I ASK DOES GOVERNMENT KEEP EXPANDING AND INCREASING FEDERAL, STATE AND LOCAL SPENDING OF TAX MONEY WITHOUT BEING ABLE TO FUND THEIR JOBS AND HEALTH AND RETIREMENT PROGRAMS WHILE GIVING US THE AXE, EVERYONE SHOULD PAY SOCIAL SECURITY TAXES AND RETIRE UNDER THE SAME PLAN ???? THEY SHOULD NOT BE UNDER SPECIAL RETIREMENT PLANS ??

    32. Andy Phillips, Pacif says:

      Even the people who recognize that the Social Security tax is simply a disguised general revenue tax don't seem to recognize the implications. Hence we get silly statements that the government will have to raise taxes or cut nominal benefits when the "surplus" disappears or starts declining or… No, we have fiat money. The Fed can issue an unlimited number of fiat notes to buy an unlimited number of Treasury bonds at whatever price politics dictates. The result will be inflation and eventually hyperinflation. A few (there are political limits on this) will not get "promised" benefits due to age-of-eligibility creep and means testing, but most voters will get them. But in devalued notes, so they won't buy much retirement. But that's inevitable because of demographics, irrespective of the Ponzi-ness of Social Security or choosing "privatization". The only ball it is worth keeping an eye on is what governments spends or commits. And Obama is a disaster in that regard. But so was Bush.

    33. mackp says:

      Maybe just maybe if the Congress would pay back the loan they took out from Social Security and stop raising their salarys,pork spending,get redd of corrupt organization like Acorn and pay their own taxs maybe Social Security would not be in so much trouble. Just a thought. Semper Fi

    34. mackp says:

      Did anyone give the government promission to take your money out of your retirement the Social Security for other programs. Maybe just maybe if the government paid back this money with interest we could get some extra milage say about 30, 40 years. The mufia has taken over our country. Obama is the Don. Biden is is caption of the mob. The Congress is his Lieutenants and Acorns is he enforcers. Anyone heard of the Rico Act.

    35. Patricia from TN says:

      If OB's government wants SS to be solvent, they can just run the deficit up a little more… no one is watching or stopping this insanity in washington. No individual American Citizen can change this fast moving administration.. they do as they want to whom they so choose to do it to. If SS retirement benefits were just that, without all the welfare programs added to it, it would clearly be a differnet story regarding "surplus" in SS bucket.

      When gov't. borrowed from my SS("my money already having been paid into bucket"), they robbed me of my right to be a gracefully aging senior. They have taken my ability to remain independent as I age.

      When I take out a contract, there are terms to the contract, and if I fail to live up to those legal terms, I get sued. But not true of politicians in washington today.. I signed up to SS when the legal retirment age was 62.. and I have watched it move in step forward with each of my birthdays.. then, earning caps on people legally continuing to work as we have to, then taxing my SS benefit is the final insult.. I now pay taxes on SS twice.

      The hardest hit individuals right now is not the next generation, it is the man and woman over 55

      in this country; savings gone, homes devalued or lost, jobs lost, no cost of living raise to seniors for the next 2 years, no medical coverage from age 62 to 65, and then I have to pay again for this through automatic ss payment debits for medicare (which I already paid for once), plus purchase supplements with co-pays just in case I need them….

      It truly is a sad situation for older citizens…

      and I hear they are proposing raising the full retiremnet age to 72 now. So, we have clearly capped the income of SS reciptients… and we have allowed our gov't. to do it to us!

      With the 2010 election, change better happen if we have any hope of recovering any sanity in washington! Spend, Spend, Spend, and more spending.. abroad as well as at home…

      "It's not what you can do for your country", we have already done it! It is now "what your country can do for you", because they owe it to you dear tax paying seniors!

      Wake up America, our goverment used the money and has never paid it back! And, if you think this free spending current administration has any idea of helping the seniors… forget it! They have already robbed this bucket lady!

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