The Future of Social Security: Getting Bleaker & Bleaker
On June 21, Charles P. Blahous III and Robert D. Reischauer, Public Trustees of the Social Security and Medicare Boards of Trustees, testified to the House Ways & Means Committee’s Subcommittee on Social Security on the 2012 Social Security Administration (SSA) report on the fiscal health of Social Security. During the hearing, from minute 51:55 to minute 58:42, Representative Kenny Marchant (R-TX) asked several important questions that garnered revealing information about the true fiscal problem Social Security faces in coming years and decades. (Full disclosure: I worked for Rep. Marchant as a staffer in his Washington office from July 2010 through April 2012).
First, Marchant asked Blahous about the expected shortfall in 2016 in the Disability Insurance (DI) portion of Social Security. According to Blahous, his “crude” estimate is that it will be $30 billion for the last six years of the ten-year window Congress typically looks at, or 21% of benefits per year. Marchant then clarified via Blahous that if the DI fund was to maintain full funding of benefits through general fund transfers or tax increases, Congress would have to pass legislation that would be signed by the President. Otherwise, spending cuts would be enacted once that trust fund is depleted in 2016. Given that Congress seems unable to cut $30 billion in 2012 in non-controversial programs, never mind the Social Security “third rail,” and also seems unwilling to raise taxes much or at all, this clarification is fairly important related to the survival of the DI trust fund.
Of greater importance was Marchant’s next clarification. Marchant asked Blahous what the expected spending cut would be in 2033, when the SSA expects the Old-Age & Survivors Insurance and DI combined trust funds to deplete. Blahous said he didn’t “have the precise dollar figure,” but said that “to look at it in today’s terms,” the amount the program would be short would be approximately $200 billion annually, given the current Social Security spending of $790 billion. Blahous further clarified this amount would be higher in 2033 “in nominal terms.”
These last points by Blahous and Marchant are critical to how the public and Congress look at the fiscal situation of Social Security. In particular, four important points arise:
First, Part of Blahous’ testimony is based upon the report’s expectation in the 2012 SSA report that the Social Security trust fund will grow until 2020. However, this expectation fails to account for inflation. As such, the report’s actual data shows the fund’s size will begin to shrink in 2013.
Second, and related to Point 1, the SSA’s annual reports have been inaccurate over the last dozen years, significantly underestimating the 2012 value of the trust fund. Meanwhile, the trust fund depletion date has moved from 2037 in 2010 to 2036 in 2011 and 2033 in 2012 — meaning we don’t have the quarter-century many politicians and pundits say we do. It would not be unfair to say that even the 21 years the SSA estimates we have until the trust fund is entirely empty will be significantly shortened as time goes on.
Third, according to Just Facts President Jim Agresti, who has conducted extensive research on the national debt, Social Security and related issues, the latest SSA projections show that the Social Security shortfall in 2033 is expected to be $630.907 billion in 2033 dollars. This growth is due largely to Baby Boomer retirements, though other factors are included. Accounting for inflation, the actual cut in Social Security spending in 2012 dollars 21 years from now to keep the program at full benefits is $366,806,000,000. This cut would take place in 2033, and a similar-sized cut would take place in each subsequent year. For context, this cut is approximately 4.6 times what we will spend this year on food stamps.
Fourth, and perhaps most importantly, Blahous pointed out that the depletion of the trust fund completely undermines the principles under which Social Security was founded — namely the idea that the program would be completely self-sustaining. According to Blahous:
Now, this cuts to a point I made earlier about the difficulty of the choices Congress would face…Obviously, the path of least resistance at that point [the depletion of the trust fund] is to just turn to the general fund and say ‘Here’s another $200 billion.’ It would be much higher in nominal terms in 2033, but the equivalent of $200 billion and put it into Social Security. Obviously that would end the principle that Social Security was supposed to be financing itself. Now if you wanted Social Security to finance itself, you could raise payroll taxes or cut benefit payments by enough to fill in that gap.
Marchant then pointed out the obvious — that like many states with depleted or raided pension funds, with pension benefits are being given out in appropriations processes, not through trust fund savings, Social Security would be subject to being funded by the general fund of the United States Treasury. Blahous agreed with this assessment, and noted that this would require legislative changes, as under current law Social Security may not receive monies outside of its own funding.
It’s not often that Washington-speak is translated into English, but Marchant and Blahous have made it clear: doing nothing on Social Security is simply not an option. Yet that is what Senate Majority Leader Reid (D-NV) said he wanted to do in January of 2011, and the 2012 House Republican budget proposal does not address any of the financial problems facing Social Security outside of general support for the concept. This failure of Congress to even make small steps toward making Social Security solvent should bother every American — regardless of party — and provide voters the incentive they need to hold Congress responsible this fall for creating what may very well be a fiscal cliff that puts the Debt-Paying Generation into hock for the failures of the past and present.
[Originally published at the Hot Air Green Room.]