Sunday, February 14, 2010

Social Security Fund May Be Running A Deficit By 2011

When then-President Bush proposed allowing younger workers to place a percentage of their social security taxes into private investment accounts, it was argued that social security was not really in crisis, and that Bush’s plan would put it in one. Flashforward to today, where the recession and years of downplaying the effect of millions of baby boomers retiring en masse have put social security on the brink of insolvency.
Social Security has for years been the near-term bright spot in the federal budget. Each year the program has raised $50 billion to $100 billion more in payroll taxes than it paid out in benefits. Sure, deficits were expected far off in the future, but the current program was on sound financial footing.

Those days are, for the moment at least, behind us. According to the latest Congressional Budget Office estimate, the Social Security surplus will be only $3 billion in 2010. That number is almost surely too rosy, and the actual realization next year will be a big deficit. In February, according to data from the Social Security Office of the Actuary, the program paid out more in benefits than it collected in taxes and interest combined.
Social Security is for all intents and purposes a pyramid scheme. Younger workers pay into the system in order to fulfill the government’s obligations to the older generation. When the pyramid gets inverted, the problems start.

The number of retiring workers is outstripping the new wave entering the workforce because the baby boomers are hitting retirement age. Exacerbating the situation is the current recession, which causes many older workers who might not be ready to retire to start claiming benefits as they give up trying to find a job. The inverted pyramid also makes it virtually impossible to revisit the privatization idea, as every penny those younger workers are paying into the system are needed to stave off insolvency.

(Crossposted from Say Anything)

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