More bad economic news.
The bursting of the real estate bubble and the ensuing recession
have hurt jobs, home prices and now Social
Security.
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.
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Although Social Security is often said to have a “trust fund,” the term
really serves as an accounting device, to track the pay-as-you-go
program’s revenue and outlays over time. Its so-called balance is, in
fact, a history of its vast cash flows: the sum of all of its revenue in
the past, minus all of its outlays. The balance is currently about $2.5
trillion because after the early 1980s the program had surplus revenue,
year after year.
Now that accumulated revenue will slowly start to shrink, as outlays
start to exceed revenue. By law, Social Security cannot pay out more
than its balance in any given year.
For accounting purposes, the system’s accumulated revenue is placed in Treasury securities.
In a year like this, the paper gains from the interest earned on the
securities will more than cover the difference between what it takes in
and pays out.
Mr. Goss, the actuary, emphasized that even the $29 billion shortfall
projected for this year was small, relative to the roughly $700 billion
that would flow in and out of the system. The system, he added, has a
balance of about $2.5 trillion that will take decades to deplete. Mr.
Goss said that large cushion could start to grow again if the economy
recovers briskly.
Indeed, the Congressional Budget Office’s projection shows the ravages
of the recession easing in the next few years, with small surpluses
reappearing briefly in 2014 and 2015.
After that, demographic forces are expected to overtake the fund, as
more and more baby boomers leave the work force, stop paying into the
program and start collecting their benefits. At that point, outlays will
exceed revenue every year, no matter how well the economy performs.
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