Social Security Shortfall Arrives
2010 brings earlier than expected cash flow deficit
Veronique de Rugy, a senior research fellow with the Mercatus Center at George Mason University, released an update on the fiscal status of Social Security last week. Her finding suggests the costs of the United States’ more than $200 trillion federal debt, accounting for unfunded liabilities such as Social Security, have arrived.
“Social Security will pay out more than it takes in this year, sending out $41 billion more in benefits than it will collect. This is the first time since 1983 that benefit payouts have outstripped collections, and according to CBO data, the finances of the Social Security system are deteriorating more rapidly than even the CBO expected…
The crossing of this deficit threshold was not unexpected, but even as recently as last year, the CBO didn’t think that it would happen so soon. In 2008, the CBO projected that outlays would exceed revenues in 2019; in 2009, CBO projected that Social Security would cross the threshold in 2016.
The rapid onset of Social Security deficits is due partially to the recession shrinking the size of the taxable payroll. However, even if the economy recovers, the unsustainable deficits in Social Security will continue due to the large number of retirees entering the system. In fact, each projection has found larger deficits extending into the future, far beyond the reach of any single recession.”
Back in 2004, Larry Kotlikoff, an economics professor at Boston University, wrote about the ominous financial shortfall facing the United States, particularly on account of Social Security and Medicare. Bloomberg recently interviewed the author of The Coming Generational Storm, for him to say the US is “bankrupt” and has an ongoing federal budget gap of equal to 14 percent of the measured economy (Gross Domestic Product).
“The policy response is to get immediate control on the spending, because that’s been exploding.” He then expanded upon approaches to providing medical coverage “subject to budget constraints” and where he would look in terms of revenue.