No Need for Social Security Fright on This Halloween
The Washington Post says that because Social Security will pay out more in benefits this year than it collects in payroll taxes, the program has gone “cash negative” and will add $46 billion to the deficit in 2011. This claim, which we’ve dealt with before, ignores a huge source of income to Social Security — interest on its portfolio of Treasury bonds — to make it sound like the program faces imminent crisis.
Social Security’s interest earnings on its holdings amassed over the decades are expected to bring in $115 billion this year (as the trust fund reaches $2.7 trillion), leading the program overall to run a $69 billion surplus — not a deficit. Those funds are invested in U.S. Treasuries, which (as my colleague Paul Van de Water notes) are regarded as the world’s safest investments.
The story’s heading, “Payroll tax holiday depriving Social Security of revenue,” isn’t correct, either. The temporary payroll tax cut that Congress enacted last December to help support consumer spending in the face of a weak economy — and that President Obama proposes to extend — is being financed from general revenues, not Social Security.
The economic downturn has taken a toll on Social Security, by depressing payroll-tax revenues and leading some older workers who can’t find jobs to file for retirement or disability benefits. The graying of America’s population adds to the program’s challenges, though policymakers have anticipated that demographic shift for decades. In fact, the drafters of the 1983 Social Security reform law built up the trust fund in order to pre-fund some of the costs of the baby boomers’ retirement.
The trust fund’s principal and interest earnings — on top of Social Security’s annual payroll taxes and other receipts — will enable Social Security to keep paying full benefits until 2036, and about three-fourths of scheduled benefits after that, even if Congress makes no changes to the program.
That certainly doesn’t mean we should sit on our hands till 2036, though. As the Center’s president, Bob Greenstein, and Charles Blahous (an economic advisor to President George W. Bush, now at Stanford University’s Hoover Institution) agree, we should act well before then to spread any changes fairly across generations and allow today’s workers to plan their work, saving, and retirement.
Policymakers also must act before 2018 to restore solvency to the Social Security disability program, even if only to reallocate tax revenues between the disability and retirement programs.
But there’s no crisis, and plenty of time to get Social Security reform right.