Social Security to run a deficit this year

27 Mar

The U.S. social security system is predicted to run a deficit this year. The government will pay out more money in benefits than they will take in taxes.

Social Security has two main functions: a retirement system for the elderly and a support system for the disabled. Throughout my adult life two things have been ongoing. First, social security has been taking in extra money. Second, people have been predicting a time when the number of “baby boomers” retiring would put the system into a deficit sometime in the future. The problem arises that the extra money taken in hasn’t really been saved. It has been “borrowed” by the rest of the government.

So, again with the two things theme: for parents of disabled children, we have two things to look forward to. First, a retirement when our social security benefits will likely be dramatically reduced. Second, a retirement where we get to watch the social security support for our children be dramatically reduced.

The Atlantic Online has a story Social Security is Not in Crisis, and We Don’t Need to ‘Fix’ It. The crisis is years away, we don’t need to do anything now:

In any case, there is really no reason to do anything about Social Security this year, for at least three reasons. First, this deficit isn’t even projected to last five years. Second, Social Security is an entitlement, but it’s also a ‘stimulus.’ It is money paid to retired folks who are likely to spend because the old have a lower savings rate and many of their savings have been gutted by the downturn. Third, fixing Social Security will always be tough politics, but delaying, cutting or reforming benefits the same year you’ve announced half a trillion in Medicare cuts is downright crazy.

We are not in a crisis yet, you see. That’s because the current deficit is due to the bad economy. No, the real red ink won’t start to flow until 2016, according to Atlantic Online writer Derek Thompson.

Some of us are looking a bit farther down the road than 2016. Try 2080, for example. Somehow I’d like to think that my disabled kid will have support well after I am gone.

5 Responses to “Social Security to run a deficit this year”

  1. Michael Kingsford Gray March 27, 2010 at 08:44 #

    The Military ran to a deficit.
    The Police ran to a deficit.
    The Congress ran to a deficit.
    The Courts ran to a deficit.

    Need I continue to make my point?

  2. RAJ March 27, 2010 at 14:07 #

    Partly true. There is a myth that the surpluses of income to benefits payed is spent and the social security trust fund is an empty safe with an IOU in it.

    In fact, the social security trust fund is the biggest purchaser of US Treasury notes used to finance the federal deficit. The social security viability extends to 2037 at which point payments exceed receipts AND the US Treasury notes held by Social Security will be depleted.

    This years deficit is mainly caused by reduced Social Security tax revenues caused by increased unemployment and an unexpected rise in beneficiaries under 65 years of age who opt to enter the social security before age 65. If, and its a big if, the economy fully recovers this should be a one year blip.

    When Social Security and Medicare are indeed in trouble, Social Security in 2037 and Medicare in 2017, the programs will be extended by what Ronald Reagen did in 1987, raise the FICA tax slightly with the usual howling from the supply siders.

    Social Security taxes are the most reggresive tax system ever designed by trickle down supply siders. All people who are employed pay the same 6 1/2% social security taxes on earnings. The tax is capped on the first 100K of income. Warren Buffet who pays Social Security Taxes on his salary pays a relative tax of a tiny fraction of one percent(.00001%) of his total income while a minimum wage earner in one of his companies pays 6 1/2% of his income.

    Among the changes that will be legislated when the time comes, is eliminating the cap on earnings with all taxpayers paying the same flat rate.

    Social Secuity and Medicare will never be eliminated. The Republican plan is to repeal Healthcare, Social Security, Medicare and Medicaid and replace it with a ‘voucher’ system.

    Good luck with voters endorsing that plan.

    • Sullivan March 27, 2010 at 16:43 #

      RAJ–what are treasury notes other than an IOU from the government? The government pays those notes from future revenues and those revenues are going down.

  3. Ian MacGregor March 27, 2010 at 16:00 #

    RAJ, while I agree that payroll taxes are regressive, I don’t think FDR would be considered a supply-sider. The problem with social security is that one is faced with a growing population of recipients vis-a-vis the workforce. Steps are being taken such as raising the retirement age to try to address it. We know that’s not enough. $100,000 a year is not that much in certain parts of the country, and repealing the cap at that level would hurt a lot of people. So I think we may see a gap where social security taxes are not collected, and then the tax kickback in at at a higher level. One has to be careful however not to drive wealth out of the country, or have taxes curtail the economy.

    We are probably headed for a national consumption tax as well. We also need to look at where we can overhaul the entitlement system to make it better. We do need to throw more money at the problem, but we also need to look at structural changes.

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