Washington: Sick and getting sicker, Social Security will run at a deficit this year and keep on running in the red until its trust funds are drained by about 2037, congressional budget experts said on Wednesday in bleaker-than-previous estimates.
The massive retirement program has been suffering from the effects of the struggling economy for several years. It first went into deficit last year but had been projected to post surpluses for a few more years before permanently slipping into the red in 2016.
This year alone, Social Security will pay out $45 billion more in retirement, disability and survivors' benefits than it collects in payroll taxes, the nonpartisan Congressional Budget Office said. That figure nearly triples — to $130 billion — when the new one-year cut in payroll taxes is included.
Congress has promised to replenish any lost revenue from the tax cut, but that's hardly good news, either, adding to the federal budget deficit. In another sobering estimate, the congressional office said government red ink this year will increase to $1.5 trillion, the most in U.S. history.
More than 54 million Americans receive Social Security benefits, averaging $1,076 per month.
The outlook for the program has grown more sour as the nation has struggled 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 the 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 projected deficits add a sense of urgency to efforts to improve Social Security's finances. For much of the past 30 years, the program 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 benefits.
"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."
President Barack Obama said in his State of the Union address on Tuesday night that he wanted 'a bipartisan solution to strengthen Social Security for future generations.'
The president however has not embraced recommendations from a debt commission he appointed last year, including one that would gradually increase the full retirement age, from 67 to 69, over the next 65 years.
But Obama did lay down some markers for making Social Security closer to solvent.
"We must do it without putting at risk current retirees, the most vulnerable, or people with disabilities, without slashing benefits for future generations and without subjecting Americans' guaranteed retirement income to the whims of the stock market," Obama said.
The program has been supported by a 6.2 per cent payroll tax, paid by both workers and employers. In December, Congress passed a one-year tax cut for workers, to 4.2 per cent. 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 per cent 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 taxes are not going to pay for the spending, so it's got to come from somewhere else," said Eugene Steuerle, a former Treasury official who is now a fellow at the Urban Institute. "We can go through long arguments about whether its owed money by the trust funds or not, but that doesn't alleviate the simple fact that it's got to come from somewhere."
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.
"Its' 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."