Thursday, March 25, 2010

NY Times: Social Security in the red

The New York Times' Mary Walsh reports on CBO projections that Social Security will run a cash deficit of nearly $30 billion this year:

This year, the system will pay out more in benefits than it receives in payroll taxes, an important threshold it was not expected to cross until at least 2016, according to the Congressional Budget Office.

Stephen C. Goss, chief actuary of the Social Security Administration, said that while the Congressional projection would probably be borne out, the change would have no effect on benefits in 2010 and retirees would keep receiving their checks as usual.

The problem, he said, is that payments have risen more than expected during the downturn, because jobs disappeared and people applied for benefits sooner than they had planned. At the same time, the program's revenue has fallen sharply, because there are fewer paychecks to tax.

Click here to read the whole story.


James said...

Somewhat amazing just how quickly this came upon us AND very few predicted it. It makes one wonder just how reliable the models are and what really lies ahead.

That aside, perhaps I'm missing something, but didn't the administration's recent budget proposal (Table S-3):

show shortfalls (Social Security outlays less receipts) even greater that what the CBO is now projecting:

2010 thru 2020, billions

703 730 762 801 846 894 947 1,004 1,067 1,133 1,204
635 674 720 764 810 854 908 949 994 1,038 1,077
-68 -95 -88 -81 -82 -84 -93 -96 -118 -95 -127


Finally, I see some of your fellow bloggers here:

are pointing out just how straightforward the solution is:

"A quick fix is to gradually increase the taxable earnings base from current coverage of just 85 percent of earnings to 100 percent by 2045. That would solve the entire predicted Social Security deficit for 75 years. Done."

I think what gets lost in these simple schemes is that there will be fierce competition for our tax dollars, whatever their source, in the years ahead in view of our soaring deficits and that very little will be simple, either fiscally or politically. And I might also add that the person who is providing us with that quick fix above probably never anticipated the shortfalls we're now seeing even two years ago, for what that's worth.

Andrew G. Biggs said...

I think those numbers omit revenues from income taxes levied on benefits, but I'm not sure. I'd be surprised if the administration's numbers are worse than CBO's, although my guess is they're very close.

You hit on a good point regarding taxes: Social Security isn't the only program that's going to be looking for extra cash. One way to think about it is through the public finance economics finding that the dead-weight loss of a tax rises with the square of the tax rate. If taxes are already high -- as income tax rates rise, the Medicare payroll tax is increased, etc. -- then there's more economic damage from a further increase of Social Security taxes. If we didn't have all those other problems then tax increases would be a better option.