The Social Security Trustees recently released their annual report on the state of the Social Security program, and it’s not pretty. For the next 75 years, the liability now stands at nearly $8 trillion. Projected into the infinite horizon, this debt stands at $18.6 trillion. The unfunded liability is the difference between the benefits that have been promised to current and future retirees and what will be collected in dedicated taxes. This means that the government would have to have such an amount in the bank today, earning interest, in order to pay Social Security benefits into perpetuity.
Yet it is a shame that some well-meaning economists choose to shrug off the Social Security shortfall, under the guise that somehow the urgency of the problem is meant to scare seniors and pave the way for taking away their benefits. Columnist Paul Krugman has said that Social Security has been running surpluses for years and that the program is in good shape. But according to the Social Security actuaries, these surpluses are coming to an end. Last year, Social Security benefits paid to retirees exceeded dedicated payroll tax revenues during 7 out of the 12 months. According to the 2010 Trustees report, by as early as 2015, this deficit will be a regular occurrence.
But what about the touted trust fund that will shore up Social Security? The Social Security (and Medicare) trust funds exist purely for accounting purposes: to keep track of surpluses and deficits in the inflow and outflow of money. The accumulated Social Security surplus actually consists of paper certificates (non-negotiable bonds) kept in a filing cabinet. These bonds cannot be sold on Wall Street or to foreign investors. They can only be returned to the Treasury. In essence, they are little more than IOUs the government writes to itself.
The surplus payroll taxes that go to the trust fund are spent on other government programs. By 2037, the so-called trust fund will be exhausted, and taxes will need to be raised, money borrowed, or benefits cut. Even President Obama has recognized the magnitude of the problem and indicated that he is open to some incremental reforms.
If the Social Security entitlement program sounds like a Ponzi scheme, akin to the actions of Bernie Madoff, it is. The only difference is somebody went to jail for their misdeeds.
Pamela Villarreal is a Senior Policy Analyst with the National Center for Policy Analysis.