Is the era of large Social Security surpluses over?
REPORTER: Well, as President Obama works to pass his budget, his job will be complicated by a big change in the government’s math. Based on numbers from the President’s budget and the Congressional Budget Office, it appears that the era of large Social Security surpluses is over. Darren Gersh examined the numbers and found that Social Security’s finances are facing the same headwinds hitting the overall economy.
DARREN GERSH: The Great Recession has brought great changes to Social Security with unemployment rising. Analysts say there are fewer workers paying into the system, pushing Social Security payroll tax revenues down.
In tough economic times, disability claims also tend to rise and more workers retire early, driving up benefit costs. And remember those high-energy prices of last year? They raised energy and food costs, boosting payments to beneficiaries in a 5.8 percent cost of living increase. That’s the largest in 25 years.
Chuck Blahous was executive director of President Bush’s Social Security Reform Commission. He says the tend is clear.
CHUCK BLAHOUS: You see, with the higher COLA payments, the higher disability benefit claims, the higher retirement benefit claims, in combination with the lower payroll tax revenue, then most of your surplus is gone.
DARREN GERSH: Last April, the Social Security surplus was projected to be $83 billion this year and almost $90 billion next year. Using figures from the President’s budget and the Social Security Actuary, Nightly Business Report calculates this year’s surplus is now likely to fall to $30 billion and $27 billion next year.
But the Congressional Budget Office is more pessimistic. It expects the surplus will be $16 billion this year, but only $3 billion next year. All together, the recession has shaved more than $150 billion off the Social Security surplus over the next three years.
Mark Warshawsky, a member of the Social Security Advisory Board, thinks the news could be even worse. He says the economy is now weaker than the program expected, and its likely benefits will exceed tax revenues this year for the first time in a quarter century.
MARK WARSHAWSKY: The margins are so small that even small changes in the economy, small changes in the way the program is operated, could easily put it in the deficit situation.
DARREN GERSH: The Social Security Actuary tells Nightly Business Report that is unlikely, putting the odds of a cash deficit this year at well under 50 percent. But the outlook has clearly worsened.
Last year, the program’s trustees estimated Social Security would go cash flow negative in 2017. Blahous thinks that date will now change.
CHUCK BLAHOUS: It’s clear that that’s going to come nearer. We don’t know how much, maybe 2016, 2015. It’s hard to say. But clearly the surplus is going to be much smaller going forward than it has been in the past.
DARREN GERSH: A negative cash flow does not mean Social Security is in crisis. The program has built up an enormous trust fund over two decades.
Barbara Kennelly is president of the Committee to Preserve Social Security and Medicare. She says the trust fund is more than enough to cover any short-term financial hit.
BARBARA KENNELLY: The trustees look at it every single year. The report is going to come out at the end of this month and you are going to still see that we can still pay those benefits until way out, if it’s not, let’s say, 2041, it’s 2040 or 2039, but we have that money. There is $2.5 trillion in the trust fund for Social Security.
DARREN GERSH: The bigger problem may be the rest of the budget. A former member of Congress, Kennelly says Social Security’s smaller cash surpluses will raise the fiscal pressure on Capitol Hill.
BARBARA KENNELLY: What that does is, guess what, members of Congress? Your deficit is even bigger than you’re wanting anybody to know.
DARREN GERSH: Were Social Security’s cash flow to turn negative, the impact on the federal budget would be immediate.
CHUCK BLAHOUS: If the tax revenues fall short of the cost of paying benefits, the federal government has to find additional money to redeem the bonds in the trust fund and it has a cost. It will add to the deficit and given where we are in the budget with enormous deficits across the board, that’s a great concern.
DARREN GERSH: For now, members of Congress have been in no hurry to add another reform effort to an overflowing agenda, but some supporters believe that dramatic decline in the Social Security surplus is a clear call to address the future of a vital program.
Darren Gersh, Nightly Business Report, Washington.
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