Remember how we didn’t have to worry about Social Security now because payments from the program wouldn’t exceed revenue for another decade or more? Well, the CBO has revised its estimates. It’s still projecting a tiny surplus for next year–tiny–but Chris Martenson thinks those estimates will quickly be revised down:
[I]t was only last year that I was writing about the impeding fiscal calamity that was awaiting us all in 2017 when the outlays for Social Security were slated to exactly match receipts. Now that date could be as early as 2010, apparently.
In the chart above (source), I want you to note the extreme deterioration in surplus funds between the 2008 and 2009 forecasts. Can you spot the trend?
Here’s a prediction – these too will be revised to the worse in about 6 months. I base this prediction on my belief that more people will opt for retirement than are currently projected and that entitlement program tax receipts will be below current projections. Also, nearly every prediction by the CBO has been revised to the worse over the past year so I am “riding the trend” with this prediction.
In the projections for the table above, the CBO has assumed no cost of living adjustments (COLAs) in 2010, 2011, or 2012 and a return to economic growth next year. If either of those assumptions proves wrong, the table above gets smoked to the downside. I give that a better than 90% chance of happening.
This, of course, will have implications far beyond the Social Security system.
The Social Security “trust fund,” you’ll recall, isn’t a trust fund at all. It’s just another source of annual government financing and a future liability. Today’s receipts are used to pay current payments to retirees and, in the case of a surplus, whatever else the government is spending money on. As the Social Security surplus shrinks, therefore, the government loses a source of funding. If it wants to keep spending at its planned rate, it therefore has to borrow the difference.
When Social Security goes into deficit, meanwhile, the government will have to borrow even more money to pay current SS recipients. Chris Martenson:
From a budget-busting perspective, last year where the US government had a $73 billion Social Security surplus to spend, this year it will be a paltry $16 billion and next year it will be a number indistinguishable from zero. It is hard to overstate the importance of this shift.
This means several things. Instead of $703 billion coming in over the next 10 years, the current (overly optimistic) projection calls for only $83 billion. This means at least another $620 billion in fresh borrowing will have to occur.
More importantly, this means that the United States eventual date with bankruptcy has been moved forward by about 8 years or so. It also means that instead of being some future problem, a few administrations down the road, it is a near certainty that the current administration will have to confront some very difficult funding decisions that will be forced by the inability to borrow enough to pay for everything.