Tuesday, March 31, 2009
Among the plethora of new ills plaguing the U.S. economy as it goes stumbling toward its uncertain future is a problem that, until very recently (meaning two days ago), was believed to be one reserved for the latter half of the next decade - the dwindling social security surplus.
Recall that, for decades, incoming payroll taxes have gone directly to government expenditures while IOUs piled up in a filing cabinet somewhere, famously visited by former President George Bush in early 2005 after an election win compelled him to boldly go into his second term as a reformer before he began quacking like a duck.
The initiative to reform the nation's second largest entitlement program and undo the marvelous mid-1980s accounting change that would make the U.S. budget deficit look deceptively small for decades was a resounding failure and the quacking started long before most had ever dreamed.
In retrospect, if the nation couldn't forge some sort of fundamental reform to its entitlement programs back in early 2005, when household wealth had soared to once unimaginable levels just before the housing bubble met its pin, is there any realistic possibility that substantive reforms will ever come voluntarily?
In any event, word now comes from the CBO (Congressional Budget Office) that yet another fallout of the recent economic tailspin is that payroll taxes have fallen off a cliff along with home values and stock prices leading to the real possibility that the Social Security surplus will turn into a deficit much sooner than originally thought, all but vanishing next year according to the most recent calculations.
Last year, the CBO figured the surplus would be $80 billion this year and next, rising from those levels before falling to zero in about ten years. The most recent projections are for a slim $16 billion surplus this year and just $3 billion next year but, given the rosy predictions that usually come out of Washington, a deficit is certainly within the realm of possibilities.
While this will have no impact on current recipients as incoming funds will about equal the monthly payments to more than 50 million senior citizens, it will have an untoward impact on funding the government's budget deficit, a shortfall that has been masked by these surpluses for years.
In what some refer to as the biggest Ponzi scheme of them all, the Treasury Department has been borrowing money from the Social Security trust fund to pay today's bills leaving behind just slips of paper stored in that file cabinet above.
When the surplus eventually turns into a big deficit as retiring Baby Boomers start collecting their checks sometime in the next decade, someone has to make up the difference, but since the surplus has already been spent, this leaves only a few options for the government - borrow more money, print more money, raise taxes, or cut benefits.
This was the least of our short-term problems up until yesterday.
In theory, the Treasury Department is supposed to repay the money borrowed from the trust fund (with interest) in order to provide what two-third of all retirees count as their primary source of income - it now looks like they'll have to start doing that a lot sooner than expected.
For the first time in 25 years, the government will have to start subsidizing social security instead of the other way around.