Did you know Social Security is already in the red?

by Eric Shierman

Few people do. Right before Mitt Romney made his now famous point that people own corporations, he was challenged on the need to involve Social Security in current deficit cutting solutions because, as the heckler claimed, Social Security is not adding to the deficit.

Most people who watch this exchange assume the heckler was technically right. Most people believe Social Security continues to take in more revenue than it sends out. They know this will change some day, but their imagination assumes “some day” is a long time from now. The last estimate I remember paying attention to was made in 2007 which forecasted this positive cash flow to end in 2017. At the time I expected that forecast could have been overly optimistic as they always are, but I was never pessimistic enough to predict that Social Security would be in the red by 2009. Surprisingly it has been. Now, for FY2011, Social Security has added $151 billion to our deficit; FY2012 it will be $267 billion, and like Flintstones Kids it will keep growing.

SSI goes negative

The future is here folks. We have been talking about this for years, but 2017 seemed so far away didn’t it? Now that Social Security has to tap into that $2.6 Trillion in Treasury Bonds that government accountants credit to its books, the date in which even this budgeting gimmick expires approaches us even sooner. The problem with these Treasuries, however, is that they are not in circulation. When the Social Security Administration needs to “sell” a bond it “owns”, the US Treasury holds an auction just like any other debt offering, increasing the total amount of US sovereign debt relative to our GDP. This is going to get really ugly really fast.

Eric Shierman is a partner at Creative Destruction Investment Partners, writes for the Oregonian under the pen name “Portland Aristotle” on the MyOregon blog, and is the author of the forthcoming book: A Brief History of Political Cultural Change. His articles can be read at:http://connect.oregonlive.com/user/PortlandAristotle/posts.html

  • valley person

    The last I read the trustee account on this, the projected income plus the income from the Tbills keeps Social security fully solvent until 2036.  I’d like to know if there are any other federal programs that can claim anything close to this level of funding asurance.

    The disagreements over how well SS is funded use different accounting methods to support whatever one’s ideology happens to be. If you want to scare the sh*t out of people and try to talk them into eliminating social security because you are a Hayek devotee who thinks SS is leading us down the socialist road, then you make a case that the Tbills are a fiction, nothing more than a line item on a ledger, not “real money.” Of course then you have to  extend that concept to EVERY Tbill in circulation, held by banks and insurance companies and investors all across the world. You have to tell them their Tbills are no good. The US has no obligation to redeem them. And since we refuse to bring spending in line with revenues (or the other way around) sooner or later we simply have to default. We can’t just print money (even though we can and do, year after year).

    If you are on the left (like me) you say the trust fund does exist. It exists as the full faith and credit of the US Government, which has never once defaulted on a financial obligation. And then you (we) hope that the crazies who believe their own rhetoric about government finance don’t actually get full control of government and stop paying bills because we don’t have enough gold in the vault.

  • Bob Clark

    Wonder how much Obama’s payroll tax cut is undermining Social Security Administration revenues last year, this year and next?  Doesn’t seem to be helping the fiscal health of social security.  Not many folks were actually clamoring for a payroll tax cut.

    • valley person

      First, the Republicans in Congress backed a payroll tax cut as a stimulus measure when Obama was first elected as being better than a government spending program. Second, from an accounting standpoint, the payroll tax cut was offset by filling the gap with general fund revenues, so from an actuarial standpoint nothing changed in the SS accounts. In other words, the government backfilled the SS account with general funds, meaning normal Tbills.

      Also Bob, it was not “Obama’s” payroll tax cut. This tax cut was passed by Congress AFTER the 2010 election. The Republicans totally signed off on it as part of the deal that extended all the Bush tax cuts for 2 years.   

  • This author is really ignorant and confused on this subject. The SSA trust fund bonds are non-marketable, meaning that when redeemed at maturity they recover full face value (and interest is not lost.) Also, the SSA has already had 11 years in which it was “cash negative” (payouts higher than revenue) and it must have made all its payments in timely fashion or you’d have heard about it in the media. See


  • HBguy

    Thanks for the info. Can you explain the graph more?

    If we hadn’t been running deficits for something like 28 of the last 30 years, it wouldn’t be as bad. But, the flat tax increase on low and middle income wage earners (the payroll tax that saved SS in the early 1980’s) made it so much easier to cut income taxes and grow spending at the same time over the next 28 years. It would be like me doing a 10% payroll deduction for an IRA, then borrowing half the money out of it, using that for current spending, and claiming I was saving 10% of my pay for my retirement. AND, having a wonderful time at the beach and buying a new car every 2 years. Then trying to figure out how I was going to earn enough money in retirement to pay back my retirement account.

    Of course using those payroll taxes was a lot easier than cutting benefits, restricting new programs or increasing taxes to pay for the promises made by the politicians when they bought votes over the past 30 years. And both parties are guilty. Everyone saw it coming, and they did nothing, because doing something would make you toast in the next election. How do you preach austerity or tax increases when your opponent promises benefits and ever lower taxes.

    So what now? If the feds change retirement age, or reduce calculated benefits, what they will be doing is to retroactively change the SS payroll tax into a flat income tax on people who paid those taxes. Mostly low and middle income wage earners. Some of that may be fair, since certainly over the last 30 years, that cohort enjoyed lower taxes, mortgage interest and other deductions, and financial support like food stamps. 

    But if increasing retirement age, increasing tax rates or reducing benefits are the only changes in the program, then those that earned more than the maximum income subject to SS tax, and those that earned income from interest, dividends and cap gains during the low taxes high benefits period, will have enjoyed the lower tax rates that SS surplus allowed, but will not be contributing their part in restructuring of the program. 

    So, any change, besides changing retirement age, rates or benefits, also has to include either a means test for recipients, or better yet,  an income tax surcharge on all income. That surcharge would be dedicated to repaying the SS tax surplus the feds borrowed over the past 28 years. That way, everyone who enjoyed increased benefits, reduced income taxes or both during the past 30 years contributes to cleaning up this mess. 

    Reform will occur only when the voters finally coalesce around a plan to reform SS into a fair and sustainable program. Because only when it becomes better job security for pols to reform it will they do so. 

    Unfortunately, as this is sorted out, politicians and parties will continue to take advantage of peoples fears and resentments to position themselves in primaries controlled by the more radical elements of the parties. Because that is in their personal self interest. 

    And they will continue to get away with it until the voter’s fear of economic collapse becomes greater than the unwillingness to compromise.