18 November 2017

Social Security: It’s Still in the Woods

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The Social Security trustees recently released their new report. Hours later, Huffington Post writer Nancy Altman made a declaration. The “2015 Trustees Report Confirms That Expanding Social Security Is Fully Affordable.” Altman is co-founder of Social Security Works. The organization has the laudable goal of expanding Social Security rather than shrinking it. As defined-benefit pensions disappear, the safety net of Social Security will become essential. Note the word “essential.” It’s different from “important.”

Unfortunately, right there at the bottom of page 4 in the overview, under the heading “Conclusion,” the trustees warn: “Under the intermediate assumptions, the trustees project that annual cost for the OASDI (Old Age, Survivor and Disability Insurance) program will exceed noninterest income in 2015 and remain higher throughout the remainder of the long-range period.”

Our Social Security program has several income sources. The largest, by far, is the employment taxes we pay. For 2014, it was a whopping $756 billion. After that, the program has revenue from the taxes retirees pay on their benefits ($29.6 billion). It is also credited with interest earned by the securities in the $2.7 trillion trust fund ($96.2 billion).

But crediting interest isn’t the same as receiving cash. It’s just a book entry. And that’s where the crunch comes. Social Security collected cash of $785.6 billion from the employment tax and the taxation of benefits last year. But it paid out $848.5 billion in benefits — cash benefits that people spent. It also paid the $6.1 billion cost of operating the program.

Nominally, the difference came from interest on the trust fund. As a practical matter, the cash money came from the U.S. Treasury. That’s where we have a minor problem today. But the Social Security trustees say retirees will have a much bigger problem tomorrow. Social Security costs, they write, will exceed “noninterest” income in every future year. So the program will become ever more dependent on general tax revenues or future Treasury borrowing. The deficits will deplete the trust fund by 2035, only 20 years from now.

Graphic shows projections for when trust funds for Social Security and Medicare will run out. After that, the trustees tell us, benefits would drop to 79 percent of current levels. Even today, Social Security depends on cash from the federal government. Here’s what the trustees say on page 2: “The 2014 deficit of tax income relative to cost was $74 billion, and the deficit of noninterest income relative to cost was $73 billion.” That’s not a crushing amount, but it sure doesn’t say that Social Security is good to go for expansion. In fact, the Medicare trustees have examined the increasing need for support from nonprogram revenue sources every year since 2004. Why? They are concerned about the long-term effects of Social Security and Medicare needing ever more money from general revenue.  

This year, you can find those figures on page 210 of the 2015 annual report of the Medicare trustees. It’s called Appendix F. It reconciles the happy talk of trust accounting with the rubber-meets-the-road cash accounting of the federal budget. It tells us that while the assets of the Social Security trust funds increased by $27.1 billion in trust accounting — the happy talk of Altman — the actual cash cost of the program to the federal budget was $73.3 billion. That’s a little less than a quarter of the combined cost of Medicare programs and Social Security to the broader federal budget: $331.9 billion for 2014.

Click here to access the full article on San Antonio Express News.

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