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Discuss Question 11

11. FISCAL KNOWLEDGE: Social Security is adding to current federal deficits.

ANSWER: True – The Social Security program is contributing to current federal deficits. Social Security’s spending consists mostly of payments for retired workers and their families, but also includes payments for those on disability and certain other survivor’s benefits. Social Security has two primary sources of revenue – payroll taxes on workers and employers, and income taxes on Social Security benefits.  According to the non-partisan Congressional Budget Office (CBO), and the Social Security Board of Trustees, in 2010, Social Security ran its first primary deficit since 1983. This means its annual outlays for the program exceeded its annual revenues (not including interest credited to the trust funds earned on previous surpluses).  Since the total federal budget is calculated on a cash flow basis and because Congress has used Social Security’s past surpluses to pay for other parts of the federal budget, Social Security’s current cash flow deficit contributes to the overall federal deficit and it is projected to continue to do so for the foreseeable future. In fiscal year 2011, CBO estimated that total program tax revenue was approximately $687 billion versus $733 billion in outlays.  Although this $46 billion deficit is small relative to an overall federal deficit of $1.3 trillion in fiscal year 2011, it does contribute to it nonetheless.  Despite the previously mentioned cash flow deficits, it is estimated that there will be sufficient government bonds in the Trust Fund to pay for full benefits until the year 2036.  However, because the redemption of the bonds in the Social Security Trust Fund will require issuance of additional public debt, the impact on the federal budget will be felt a lot sooner.  In addition, the earlier structural reforms are made, the more transition time we can have and the less dramatic the changes will have to be for both beneficiaries and taxpayers.  For more information on illustrative reforms for Social Security, view the Comeback America Initiative’s Restoring Fiscal Sanity Report.

 

1 Responses to “Discuss Question 11”

  1. rand frazer says:

    I agree with Roger and Denis also. Roger says: “Any accounting methodology that considers current program expenditures in excess of current program revenues as a deficit but does not consider prior year revenues in excess of expenditures as a surplus is bogus.”

    Denis says: “It seems to me that the real problem is that Congress has drained the surpluses of the SS Trust Fund dry. Had they left the surplus funds alone, wouldn’t the Social Security program would still be viable?”

    I knew that social security ran its 1st deficit in 2010 (or around that time), but that fact seems to ignore the bigger picture. I’m not an accountant, but here is my way of looking at it. Presently, social security, on its own, is doing just fine if you look at how much money it has taken in and how much it is paying out. Only when you factor in the fact that politicians raided social security and did not keep its funds in a “lockbox” would you be able to say that social security added to the deficit. Social security on its own is still in surplus territory. It is only the government’s practice of taking money from social security to pay for other discretionary expenses and then paying that money back in the future that pushes social security into deficit territory. So in my view, social security in itself is NOT adding to federal deficits. The government’s practice of taking money from SS and then paying it back is what in reality IS adding to the federal deficit.

    I think the question should really be reworded so that people who really understand social security’s finances aren’t tripped up.

    (If I’m missing something in my description of social security’s finances, please let me know.)

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