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  • Trustees Show Permanent Deficits for Social Security

    How Will This Report Affect the Social Security Debate?

    The debate about whether Social Security faces a problem and needs to be fixed is over. The 2011 trustees report, which was released this afternoon, shows that the program already faces massive permanent annual deficits. In 2010, Social Security spent $49 billion more in benefits that it took in from its payroll tax. This year, that deficit will be approximately $46 billion.

    Now is the time to focus on solutions. Instead of just blindly defending the current program, both Congress and the Obama Administration should propose comprehensive programs that permanently fix Social Security. It is one thing to oppose a solution; it is another to come up with a plan and fix the problem.

    Social Security Problem $1.2 Trillion and One Year Worse

    In net present value terms, Social Security owes $9.1 trillion more in benefits than it will receive in taxes. The 2011 number consists of $2.6 trillion to repay the special issue bonds in the trust fund and $6. 5 trillion to pay benefits after the trust fund is exhausted in 2036—a year earlier. This is an increase of $1.2 trillion from last year’s report, which also reflects several changes to assumptions and methodology.

    A key change in this year’s report is that Social Security is predicted to run cash-flow deficits from now on. The immediate cash-flow deficits are largely due to the effects of the recession on its finances. The recession increased the amount of benefits paid out by Social Security as older workers who have lost their jobs choose to file for benefits earlier than they might have otherwise. Meanwhile, younger unemployed workers are unable to pay Social Security taxes, while workers who suffer a drop in their income pay lower amounts.

    Net present value measures the amount of money that would have to be invested today in order to have enough money on hand to pay deficits in the future. In other words, Congress would have to invest $9.1 trillion today in order to have enough money to pay all of Social Security’s promised benefits through 2085. This money would be in addition to what Social Security receives during those years from its payroll taxes.

    The trustees report’s perpetual projection extends beyond the usual 75-year planning horizon. In net present value terms, the perpetual projection is $17.9 trillion, including money necessary to repay bonds in the trust fund. Last year’s number was $16.1 trillion. If the assumptions and other details were the same as last year, this year’s number would still have grown to $16.9 trillion.

    This means that the net present value deficit of Social Security after 2085 is $8.8 trillion. These projections show that Social Security’s total deficit continues to grow well beyond the 75-year projection period. Any reform that eliminates deficits over the 75-year window must also solve the program’s problems beyond then, but not all proposals do.

    Many opponents of reform claim that raising payroll taxes by about 2 percent (the average percentage difference between revenues and outlays over the 75-year period) would solve Social Security’s problems. The reality, however, is that the program’s future deficits are projected to be large and growing, so this tax increase would still leave a huge shortfall. These new projections should end the claims that Social Security’s impending financial crisis can be resolved with modest changes to the current system.

    In actuarial terms, Social Security’s long-term financing declined sharply from a 75-year deficit of 1.92 percent of taxable payroll in last year’s report to a deficit of 2.22 percent. This 0.3 percent change resulted mainly from increased longevity projections for workers over the age of 65. However, another cause was the economy’s continued weakness.

    Social Security spending started to exceed projected tax collections in 2010. These deficits will quickly balloon to alarming proportions. After adjusting for inflation, annual deficits will reach $81.5 billion in 2020, $288.4 billion in 2030, and $343.6 billion in 2035.

    Is the Important Year to Consider 2036 or 2010?

    Starting in 2010, Social Security began to permanently spend more than it takes in. This is by far the most important year. From now on, Social Security will require large and growing amounts of general revenue money in order to pay all of its promised benefits. Even though this money will technically come from cashing in the special issue bonds in the trust fund, the money to repay those bonds will come from other tax collections or borrowing. The billions that go to Social Security each year will make it harder to find money for other government programs or require large and growing tax increases.

    Compared to these two dates, 2036—the year that the Social Security trust fund is projected to run out of its special issue bonds—is of little importance. Even though the end of those bonds will require approximately a 25 percent benefit reduction, Congress would have been paying about $250 billion a year (in 2011 dollars) to repay those bonds for about seven years by the time the trust fund runs out. Congress will have to do this through some combination of other spending cuts, new taxes, or additional borrowing. These are the same choices Congress would face without the trust fund.

    When Will Social Security Begin to Run a Cash-Flow Deficit?

    The short answer is now. According to the 2011 trustees report, Social Security began to spend more in benefits than it receives in payroll taxes in 2010 and will continue to run cash flow deficits from now on. The year the trust fund is exhausted is 2036, one year earlier than in last year’s report.

    What Are the Old Age and Survivors’ Insurance Operating Numbers from the Current Year?

    The trustees report includes detailed information about the aggregate amount of payroll taxes paid in the previous calendar year and the aggregate amount of benefits paid in that year. It also includes data on operating expenses. In 2010, the Old Age and Survivors Trust Fund, which pays for retirement and survivors’ benefits, took in $677.1 billion and paid out $584.9 billion. Its annual surplus was $92.2 billion, but after subtracting out $108.2 billion that came from a paper transaction that credited interest to the trust fund, the trust fund actually lost $16 billion in 2010 alone. Additional losses were suffered by Social Security’s disability program.

    What Does It All Mean?

    Bad News for Younger Workers. Unfortunately, younger workers have a great deal to worry about. Even though their parents’ and grandparents’ benefits are fairly safe, theirs are not. Any worker born after 1970 will reach full retirement age after the trust fund is exhausted. Unless Congress acts soon, younger workers can look forward to paying full Social Security taxes throughout their careers but receiving only about 75 percent or less of the benefits that have been promised to them. In addition, they will have to repay the Social Security trust fund, an expense that will total almost $6 trillion by the time the trust fund is exhausted in 2036.

    Improving Retirement Savings Is a Must. Allowing American workers to save and invest a portion of their income in accounts that they would own is the lowest-cost way to ensure that they have an adequate retirement income. Increasing the ability of workers to save for retirement will reduce their dependence on Social Security for retirement income and enable them to increase retirement security.

    The Crisis Is Here Now

    It takes about 22 years to grow a taxpayer. Almost every new taxpayer who will begin a career after graduating from college in 2033 is living today and can be counted. Similarly, all people who will face approximately 25 percent across-the-board benefit cuts starting in the year 2036 (if Congress does nothing to fix the program) are alive now, and most of them are paying taxes.

    Social Security’s problems are based on demographics, which do not change from year to year. The people who will be hurt if nothing is done to fix Social Security are not unknown people of the future: They are our children and grandchildren of today.

    Posted in Economics [slideshow_deploy]

    29 Responses to Trustees Show Permanent Deficits for Social Security

    1. Gary H Marshall, Tex says:

      Well instead of foreign aid and bailouts for companies too big to fail, perhaps we should bail out Soc Security and Medicaid. Workers INVESTED that money thru taxes…LBJ and Congress changed the rules and have tapped the trust fund and have ever since. How about letting Legislators invest THEIR RETIREMENT Fund into Socical Security and Medicare.

    2. Harriett Fazio, Las says:

      It's time to tax all income, not low incomes. Also, the money taken from SS over the past years needs to be returned. It's time congress and the senate lose their perks and excessive benefits. They need to live like the rest of us. Pay that money back and stop calling SS and Medicare entitlements. We've paid for them over the past 40 years, they are not entitlements. Medicaid and congressional benefits are entitlements.

    3. BILL RUSHING says:

      ONE OF THE THINGS TO REMEMBER IS THAT SOCIAL SECURITY IS NOT AN ENTITLEMENT I HAVE PAID INTO IT WELL OVER FIFTY YEARS , AND IT WAS SOUND UNTIL CONGRESS LOOTED IT. … NOBAMA 2012 …

    4. Leslie Hanselman; Sp says:

      Is it finally time to fix Social Secuity?

    5. Edward Schilling, Ne says:

      If citizens are truly encouraged to save for retirement and the majority of them do, and those savings are invested in ordinarily sound companies and partnerships, the increase in business activity will result in a big boost in all kinds of commerce, creating more and better jobs and taxes from the business activity and personal incomes will increase federal and state evenues and everyone will benefit, including the happier senior citizens with more retirement income, needing only a smaller social security benefit, if any.

    6. Jane Lokan, Milwauki says:

      You outline the problem very well, but what are your solutions?

    7. Roger Davis, Ventura says:

      Your email indicated that this article would include recommendations as to what Heritage would suggest for solutions to the Social Security problem, but I did not find any such thing. Where are these possible solutions?

    8. Amos Wright, Provo, says:

      Everybody, apparently Heritage Foundation too, is afraid to call Social Security what it is. A pyramid scheme, or a Ponzi scheme. It has all the characteristics of such a scheme. It takes money from investors via the payroll tax, does not set up an account for each investor, it pays others with your money and uses the money left over for anything the Govt desires. You don't get your own money back when you retire, it comes from current receipts. It is going broke like all Ponzi schemes eventually do except that in private schemes investors can opt out. In Social Security, workers cannot opt out. What happens to Ponzi schemes when they go broke? The schemers are put in jail and their assets confiscated and paid to investors as far as possible. SS should be stopped immediately. The govt should pay people whose money has been taken. Savings from firing all the employees, selling buildings, and other assets should go to workers who have paid in. Ponzi schemes should never be allowed to perpetuate themselves! It would be nice if those who established it and those who are now keeping it going could be put in jail like Bernie Madoff. Please gather up your courage and call it what it is!

    9. Thelma Wright, Dalla says:

      I, a senior citizen, believes that all entitlement needs to be phased out. Dependence on government is not good for anyone; people begin to believe they are 'entitled' and will not do anything to take care of themselves.

    10. Pamela Digardi says:

      Some reform measures that need to be considered:

      Sending SS checks out of the country to people who were never US citizens.

      It is a very popular practice among legal immigrants, who do not become citizens,

      to work and then return to their homeland and collect Social Security. One may argue that they paid into the system and therefore are entitled to it, but what they

      receive far excedes their contribution. Also, the money that leaves our country is money that is not circulated into our economy, resulting in a double negative.

      Another gross over-payment in Social Security is to a parent whose spouse/partner has died and left behind one or more children without financial support. The gov't. pays SS for each child. I don't know the amount currently paid but twenty years ago it was about $800. per month per child. It's common

      for some of these households to receive $3000.-$4000. a month! They live better that most working people. And they get food stamps, too. And some illegals

      get SS payments, and prisoners and I'm sure there are many others.

      Social Security is broke and we've been robbed! I look at all the money that

      has been taken out of our paychecks and what a waste. We can't even deduct the loss from our tax returns!

    11. John Trice says:

      Said this til I'm blue in the face. Only fair way to wean this country off Soc Sec is by doing the following: Those 60 and up are guaranteed 100% of their Soc Sec, but a 3% reduction for those every year under 60. Ex of a 59 yr old gets 97%, 58=94%, etc. While it is true a 40 yr old would only get 40%, he (or she) has 25 or 30 working yrs left to make up the difference by investing elsewhere. Better the gradual transition now than the much more painful one later if we keep putting our heads in the sand like ostriches. For those truly needy with legit reasons for being unable to make the alternative investments, states could have funds on hand to catch those (disabled, etc.) who fall thru the cracks. What in God's name is wrong/unfair w/ this??? No one can tell me! 1 day, politicians will embrace this idea, and I'll be saying "I told ya so!"

    12. Edward Kimble, 46725 says:

      The best argument against socialism and communism ever! A hundred thousand corporations can do it right, not mismanage retirement funds, But these guys have raided your pension fund, your Social Security! They commingled the funds, they didn't invest your money responsibly. They labeled YOUR money as their gift or entitlement from the Gods of capitol hill and suddenly they say "you're not entitled". While accruing a 4T$ debt per year funding "Porkomania 2011" and bank loans to loan sharks everywhere they whine and snivvle and complain that they need 9T$ over the next 85 years to bail things out. Oh my, how unfortunate, and by the way, you can't retire until after the average death date for the people of planet earth!!.If I was a company and did this, wow, I'd be a bunk mate of Bernie Maddoff.

      After age 60 most people start to need retirement, their bodies don't work, their minds dim, their will isn't enough. Not 70, not 80, not 90. Medicine has not turned back the clock, it has only put a bandaid on a billion age spots. Fix this or it is written in the DNA cards, it will fix you! .

    13. Guy C ,New York says:

      the loss of jobs is mainly responcible for the shortage of funds for Social Security,along with workers disabled before reaching 65 and collecting Social Security.To aid in correcting the problem is to get Americans back to work,Creating Jobs that are not Government sponsored will aid SS and help reduce the US debt. As far as US debt goes,all I hear on the news is cut school aid,cut Medicare,but never to I hear cut aid to other countries.If I don't have any money,I can't pay my bills or loan money if I don't have it,so why does the Federal government keep giving away money we don't have.Its time to say no,we don't have it to give

    14. Steven, Louisiana says:

      It's unfortunate that our ancestors chose to believe that individuals couldn't be responsible for saving for their own retirement, leaving the state to be the sole provider of life in our golden years. The problem is that these weak, dependent ideals have been passed on from the 1930's to future generations that believe in the same nonsense. Yes, people may not save for their retirement. They will see the misery that causes them when they are the most fragile. Capitalism requires a person to rely on their mind to live and flourish. To me, this is a sad lesson that the founding people of the Social Security Act have to learn. They are responsible for ruining the individualistic nature of this country and destroying their children's and grandchildren's lives. Thanks for voting for FDR grandpa!

    15. Steven, Louisiana says:

      Gary, LBJ didn't start Social Security. Harriet, it is an entitlement, because I am forced to subsidize you. Bill, the same as Harriet. Entitlements are programs that coercively force, by taxation, me to give you some of my paycheck to support you, because you couldn't use your own minds to invest for your retirement. If you are solely living off of Social Security, that is your fault, not mine. Buck up! Your lack of understanding of capitalism has caused you this misery. The government is doing what every government in history has done – lied and stolen your money. It is not future generations faults that you can't understand or follow history.

    16. Steven, Louisiana says:

      Edward, I agree. It is an individuals responsibility to provide for themselves. If you are whining and complaining that the government didn't make good on their promise, then I have to say, " did you really believe they would?" If you answered yes, than you are the problem, not the solution. Get government out of private enterprise; let entrepreneurs start up businesses and provide jobs. In turn, our economy will grow and our purchasing power will increase.

    17. Steven, Louisiana says:

      Jane and Roger, read between the lines. Heritage says that we need to allow people to invest in PRIVATE retirement funds that actually provide a return on your investment. Heritage, can you make a Social Security solutions for Dummy's book?

    18. Frank Candido Bloomf says:

      The solution to Social Security is Paul Ryan's Budget Plan. This plan makes NO CHANGE to Social Security FOR AMERICANS 55 AND OLDER. The solution detailed in Ryan's Plan will allow Social Security to be saved and provide benefits to future generations of Americans when they retire. Without action, the Social Security Trustees report that beneficieries will either see a 22% benefit cut or a corresponding hike in payroll taxes. READ RYAN'S BUDGET REPORT!!!

    19. Bobbie says:

      Paul Ryan's budget plan is what America needs! It isn't set up (as Obama plan) to fall into crisis. And if democrats could show some kind of sign in favor of America's principles and work together period, we'd have alot less to worry about.

      Harry Reid. "There's nothing wrong with social security." STAND HIM UP AND MAKE HIM PROVE IT!!!!!!!

      Barney Frank "there's nothing wrong with fannie and freddie." STAND HIM AND MAKE HIM PROVE IT!!!!!!!…and then throw them both in jail for falsifying information!

      Paul Ryan's budget is the answer to move on, to get ahead, to clean up this pig stye democrats built. There's only one reason for the stalling and the hesitance from this administrations actions. It's not in THEIR best interests.

      Remember, when it's in government's control, they work for OUR INTERESTS!

    20. Tom Doyle, Connectic says:

      Everyone keeps going on about Social Security going broke, however, I don't hear anything about how various government entities robbed the Social Security reserves. If they had let it alone I believe this would not be an issue.

    21. Steven, Louisiana says:

      Frank, I agree with Mr. Ryan's budget because his underlying tone suggests a dismantling of Socialist Security. He is smart because he simply knows that letting capitalism and free market principles take over in the form of private investment for retirement will succeed and make FDR's plan, just like his presidency, a laughing stock.

    22. Pingback: Can we save Social Security? | NewsMobius

    23. Dave W., Huntsville, says:

      Get over it, we old folks are NOT draining social security. It's a bogus argument and complete misdirection.

      So, who IS? Go to the local social security office, take a look around…and come to your own conclusion. Years after implementing the program, the rules were changed and the floodgates were opened to create an entire sub-class of nothing more than welfare recipients from kids getting parents entitlements to disability from obesity. In its original form, social security was for the aged. It has become so bastardized as to become another welfare class.

      We are bombarded with the notion that we need to cut SS because it is not sustainable. We are told it's a matter that the number of people receiving SS outnumber the number of people paying into the system. That's a fact BUT…the breakdown of recipients is more than revealing.

      When you think of somebody drawing social security you think AGE, old farts over 65, maybe 62 with reduced benefits. Let's look at the number of people receiving SS who are NOT old farts. According to the Social Security website, 36% OR 21 Million people, receive social security benefits for reasons totally unrelated to age.

      The population of Huntsville, AL is about 160,000 people. 21 million divided by 160,000 is ONE HUNDRED AND THIRTY ONE cities with the population of Huntsville, AL are ALL receiving Social Security and they are NOT over 65. Consider New Orleans with a population of 500,000. 21 million divided by 500,000 is approximately FORTY TWO cities the size of New Orleans!! Pick a city…any city…do the math and compare!!

      Welfare by any other name is welfare. People receiving benefits from social security for reasons other than AGE should be re-categorized as WELFARE. Many of these people have NEVER worked a day in their life or will NEVER work a day in their life. We should absolutely NOT blame or penalize old folks! This is Social Security's dirty little secret…a hidden category of welfare recipients.

      Before we mandate ANY person over 65 to take a cut or before we ever raise the age of eligibility, let's take a hard look and cut the benefits of those who have NEVER contributed to social security. If you are eligible by virtue of age, there is no fraud or abuse. So, where should we look to make cuts? HMMMM….

      Surely Heritage or any reasonable person can figure it out…if Social Security needs reform, let it revert back to its original intent; force the people that are nothing more than welfare recipients into the welfare class; and any program cuts can be focused on the purely entitlement programs.

      It is not an entitlement program if you pay into it with the justifiable expectation of getting back what you paid into it.

    24. Scott Brown, Tulsa O says:

      Social Security must be ended now! Ill give up the money I have already paid, if I don't have to pay anymore!

    25. Linda Bullard Temple says:

      How can something that people paid into all there working life be an entitlment? SSI is an enititlement program medicade is also.

      How can a country that is so broke they can't afford to pay out social security budget 56.8 billion for foreign aid. Spend billions of dollars taking over the countries health care. There are many things that need to be cut out but Social Security is not one of them.

    26. Steven, Louisiana says:

      Dave, old folks aren't the targets here. Americans are simply tired of being forced to pay bits of their paychecks to government organized programs, plain and simple. If my paycheck is paying for social security for others, and by 2036 the funds are exhausted, causing me to eat the money I have put into the program, the only word I have to describe social security as is an entitlement. I should have the choice to put my money elsewhere. You don't get interest by using social security for retirement purposes; you get scammed.

    27. Steven, Louisiana says:

      Tom, you are exactly right, but you didn't expect the government to use social security as a slush fund?

    28. Bryan, Knoxville TN says:

      I would gladly consider paying money for healthcare (which I can use now) instead of social security (which chances are I may not live to see or will be gone when of retirement age). Gubment should not be in the "retirement planning" business anyway. I mean the whole concept of "retirement" is probably no more than 100 years old in the grand scheme of history.

    29. Don & Shirley Wa says:

      Dave W. is exactly right. Social security was never intended to be some kind of life insurance policy or worse, a welfare program. I won't judge here if the government should be sending money to young people because a parent died. Right or wrong it shouldn't come out of SS funds.

      The sad truth is once Washington creates a way to take some of our money they then figure a way to spend it to their advantage. When that's gone they'll figure a way to come back for more and call us greedy if we resist.

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