Social Security Faces Uncertain Future
June 9, 2011
Social Security is currently running a deficit of tax income relative to annual expenditures. One of the headline findings of this year's Social Security and Medicare Trustees' Report is that this deficit will be a permanent feature of program finances, growing enormously in the future under current law, says Charles Blahous, a research fellow with the Hoover Institution.
This operating deficit emerged last year.
- Total program costs were $713 billion while $664 billion in tax revenues were collected, for a total deficit of $49 billion.
- This year, dedicated tax revenues will lag a full $151 billion behind payment obligations, meaning that Social Security's operations will add $151 billion to the federal deficit.
- This is much bigger than last year's shortfall primarily because the Social Security payroll tax has been temporarily reduced from 12.4 percent to 10.4 percent.
- The legislation that cut the payroll tax is also transferring $105 billion in (debt-financed) general revenues to the trust funds, making up part of the shortfall.
- The rest of the deficit will be made up with interest payments from the general fund to the trust fund.
Going forward, Social Security costs will rise markedly as the baby boomer generation enters the retirement rolls.
- Over the very long run, costs will rise somewhat further as Americans continue to live longer, but the vast majority of the cost growth straining Social Security will be manifested by 2035.
- The cash deficits the program will experience in the years ahead under current law far exceed anything that Social Security has weathered in the past.
- Even by 2020, annual shortfalls would be greater than in the so-called "crisis" years of 1977 and 1982, and would yet be followed by still larger deficits.
Source: Charles Blahous, "A Primer on the Social Security and Medicare Trustees' Reports: Part II -- Quantitative Findings," Economic Policies for the 21st Century, June 3, 2011.
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