CQ TODAY ONLINE NEWS
Updated April 23, 2012 – 10:44 p.m.
Parties Find Own Message in Social Security Report
By David Harrison, CQ Staff
Congressional Democrats and Republicans drew different conclusions from Monday’s annual report from Social Security’s trustees, but both sides interpreted the findings as support for their policy prescriptions.
Democrats emphasized that Social Security is expected to remain solvent for two more decades without reductions in benefits. Republicans said the report’s finding that the retirement program’s trust fund will be exhausted three years earlier than previously projected indicates the need to overhaul the New Deal-era program.
“Today’s report confirms what Republicans have long said: The biggest threat to Medicare and Social Security is doing nothing, and the refusal of the White House and congressional Democrats to address our fiscal challenges will have devastating consequences for America’s seniors,” said House Speaker
Likewise, House Budget Chairman
For decades, Social Security was considered politically untouchable. But with the budget deficit at record levels, some lawmakers in both parties — but particularly Republicans — have begun to advocate changes including an increased retirement age, limiting wealthy retirees’ benefits and revising the formula used to determine cost-of-living increases.
The fiscal 2013 budget resolution adopted by the House (
Senate Budget Chairman
But to many Democrats, the annual trustees’ report indicated that Social Security is in good shape.
“After 77 years and 13 recessions, Social Security continues to prove itself time and again as the most effective public program in our nation’s history,” said Rep.
Nancy LeaMond, executive vice president of AARP, said the trustees’ report is a sign that last year’s extension of the payroll tax cut “has had no impact on the program’s solvency, as the Treasury has repaid all borrowed funds.”
“However, the trustees also make clear that Social Security’s long-term financial challenges much be addressed,” she said. “While Social Security is not in crisis, it will require modest changes to ensure current and future generations will receive the benefits they’ve earned.”
Running Out of Money
Parties Find Own Message in Social Security Report
According to the trustees’ report, the combined Social Security and disability trust fund will run out of money three years earlier than previously projected because of higher-than-expected inflation and the sluggish economic recovery.
The Social Security trustees’ annual report forecast that the combined trust fund will be empty by 2033. Last year, the trustees found that the trust fund would be insolvent by 2036.
Considered separately, the disability trust fund will run out much sooner, in 2016, and the Social Security trust fund will run out in 2035. In order to preserve the disability trust fund, Congress would have to shift money into it from the retirement trust fund, something it did in 1994.
“The projections in this year’s report are somewhat more pessimistic than last year’s projections,” said Treasury Secretary
That’s because inflation boosted the cost-of-living adjustment paid to beneficiaries more than actuaries had anticipated, said Charles Blahous, one of the public trustees and a senior research fellow at George Mason University’s Mercatus Center. Payrolls have also not increased as much as projected, he said.
Social Security paid out more in benefits during 2011 than it received in payroll tax revenues, even though tax revenues were supplemented by the Treasury Department’s general fund to make up the revenue lost from the temporary Social Security payroll tax cut (PL 112-78) passed by Congress in December.
The gap between benefits payments and payroll tax revenues amounted to $45 billion, down from $49 billion in 2010, and was bridged by interest payments on the $2.7 trillion combined trust fund. The gap is projected to grow, averaging $66 billion a year between 2012 and 2018, according to the trustees.
Despite the gap, the trustees expect the trust fund to continue growing until 2020 thanks to interest payments. Benefits payments will then start eating into trust fund reserves. By law, the Social Security and disability trust fund is separate from other government funds. All of its assets are in interest-bearing Treasury bonds. In 2011, interest payments accounted for 14.2 percent of the trust fund’s total receipts.
Once the trust fund is empty, tax revenues will only cover roughly 75 percent of scheduled benefits, meaning that retirees would see smaller monthly checks. Although Congress has two decades until the trust fund is insolvent, any changes to the program should be enacted soon, the trustees said.
“It is critical that reforms are slowly phased in over time so current beneficiaries are not affected and future beneficiaries do not experience precipitous changes,” Geithner said.
According to the report, Social Security and disability payments totaled 4.9 percent of gross domestic product in 2011, up from 4.4 percent in 2008. Those costs are expected to increase over the next few decades before settling at slightly more than 6 percent of total output. But the program’s non-interest revenues will top out at slightly less than 5 percent of GDP, leaving the program with an annual shortfall of a little more than 1 percent of GDP starting in the mid-2030s.
The shortfall is largely due to the bulge of baby boomers who will be retiring over the next couple of decades, medical advances that keep people alive and drawing benefits longer, and fewer workers anticipated in the years ahead whose taxes will finance the retirements of the previous generation.
The program faces $8.6 trillion in unfunded liabilities through the next 75 years.
First posted April 23, 2012 4:26 p.m.