WASHINGTON – Social Security will post nearly $600 billion in deficits over the next decade as the economy struggles to recover and millions of baby boomers stand at the brink of retirement, according to new congressional projections.
This year alone, Social Security is projected to collect $45 billion less in payroll taxes than it pays out in retirement, disability and survivor benefits, the nonpartisan Congressional Budget Office said Wednesday. That figure swells to $130 billion when a new one-year cut in payroll taxes is included, though Congress has promised to repay any lost revenue from the tax cut.
Last year, Social Security posted its first deficit since the program was last overhauled in the 1980s. The CBO said at the time that Social Security would post surpluses for a few more years before permanently slipping into deficits in 2016.
But the new projections show nothing but red ink until the Social Security trust funds are exhausted in 2037.
The outlook has grown bleaker as the nation struggles to recover from its worst economic crisis since Social Security was enacted during the Great Depression. In the short term, Social Security is suffering from a weak economy that has payroll taxes lagging and applications for benefits rising. In the long term, Social Security will be strained by the growing number of baby boomers retiring and applying for benefits.
More than 54 million people receive retirement, disability or survivor benefits from Social Security. Monthly payments average $1,076.
The deficits add a sense of urgency to efforts to improve Social Security's finances. For much of the past 30 years, Social Security has run big surpluses, which the government has borrowed to spend on other programs. Now that the program is running deficits, the federal government will have to find money elsewhere to pay back Social Security, so it continue to issue benefits.
"I've received the lash from those who say, 'Well, you shouldn't have to cut Social Security because there are trillions of dollars of assets,'" said Sen. Kent Conrad, D-N.D., chairman of the Senate Budget Committee. "It is true there are trillions of dollars of assets. It is true that they're backed by the full faith and credit of the United States. It is also true that the only way those bonds get redeemed is out of the current income of the United States."
Other lawmakers said Social Security's financial problems are not that urgent.
"In the last 75 years, in good times and in bad times, Social Security has paid out every nickel owed to every eligible beneficiary at a relatively modest administrative cost," said Sen. Bernie Sanders, who organized the first meeting of the Senate Social Security caucus Thursday.
"We are getting very tired about hearing our Republican and right wing friends telling us about how Social Security is collapsing when the reality is, Social Security today has a surplus of $2.6 trillion," Sanders said. "Social Security can pay out every benefit owed to every eligible American, for the next 27 years."
Social Security has built up a $2.5 trillion surplus since the retirement program was last overhauled in the 1980s. Benefits will be safe until that money runs out. That is projected to happen in 2037 — unless Congress acts in the meantime. At that point, Social Security would collect enough in payroll taxes to pay out about 78 percent of benefits, according to the Social Security Administration.
The $2.5 trillion surplus, however, has been borrowed over the years by the federal government and spent on other programs. In return, the Treasury Department has issued bonds to Social Security, guaranteeing repayment with interest.
It's a bad time for the nation to be hit with more financial obligations. The federal budget deficit will surge to a record $1.5 trillion flood of red ink this year, congressional budget experts estimated Wednesday, blaming the slow economic recovery and a tax cut law enacted in December.
Lawmakers from both parties have vowed to address the nation's financial problems, including such contentious issues as Social Security and Medicare. The political climate, however, has made it difficult. Some Democrats have criticized plans to cut Social Security benefits as secret plots to destroy the program. Many Republicans have refused to consider tax increases.
"We need to get past the politics of the past and deal with this issue, making the hard decisions that have to be made," Sen. Mike Crapo, R-Idaho, said Thursday at a Senate hearing on the budget deficit. "As we move forward in that context, I personally believe strongly that all aspects of the spending and revenue side of the equation must be on the table."
Sen. Chuck Schumer, D-N.Y., accused congressional Republicans of wanting to end Social Security by privatizing it.
"Privatize means end," Schumer said Thursday after the meeting of the Senate Social Security Caucus.
Schumer was referring to a widely distributed plan by Rep. Paul Ryan, R-Wis., chairman of the House Budget Committee. Ryan's plan would offer workers under 55 the option of investing over a third of their current Social Security taxes into personal retirement accounts.
Social Security has been supported by a 6.2 percent payroll tax paid by both workers and employers. In December, Congress passed a one-year tax cut for workers, to 4.2 percent. The lost revenue is to be repaid to Social Security from general revenue funds, meaning it will add to the growing national debt.