An intense battle over Social Security is brewing and TSCL is gearing up for major Congressional action. Recently retired Federal Reserve Chairman Alan Greenspan waded back into the fray to tell Congress “Our choices right now are not between good and better; they’re between bad and worse. The problem we now face is the most extraordinary financial crisis that I have ever seen or read about. Irrespective of what you say should be done on the tax side, you still have to cut some benefits on the expenditure side.” The statement is chilling considering Greenspan oversaw the largest single overhaul of the program in history, chairing the National Commission on Social Security Reform in the early 1980’s.
On the heels of Greenspan’s recent statement, President Obama’s Fiscal Commission is due to release its plan to solve the growing U.S. deficit by December 1st of this year. The Commission is eyeing major cuts to Social Security — including cost-of-living adjustments (COLAs) cuts that would affect 53 million current beneficiaries.
This year, for the first time since the early 80’s, the Social Security Trust Fund that pays retirement and survivors benefits fell into deficit and is paying out more than it receives in payroll taxes and taxes on Social Security benefits. In years in which there was an excess of Social Security taxes, the federal government used the surplus revenues for other purposes and then credited the Trust Fund with special non-marketable government bonds representing IOUs. (For details see “Ask the Advisor — Is It Legal For The Government To Use Social Security For Every Day Operations?” page 7.) But with the recession and prolonged economic recovery, the taxes that fund Social Security plunged. At the same time, enrollment is soaring as seniors who have lost their jobs turn to Social Security early. When the Trust Funds don’t receive enough tax revenues, then the government must find the cash to redeem the IOUs to pay benefits. The only options Congress has is unsustainable levels of borrowing, tax increases, or cutting benefits.
Complicating matters, even though the Social Security retirement and survivors trust fund still holds IOUs that at least provide the promise to pay benefits, the Social Security disability program is in much more critical condition. The Social Security Trustees recently warned that the SSDI program may run out of IOU “assets” and become fully insolvent as early as 2015. TSCL believes that estimate is overly optimistic because the Trustees may be assuming there are more payroll taxes than the program is actually taking in. The Trustees assume that unemployment will be only 6.5% over the next few years — but today it’s actually far higher — 9.6%. Advisor editor and Social Security policy analyst Mary Johnson estimates that the insolvency date for the Social Security Disability Insurance program could arrive as early as 2013.
With the insolvency of the Social Security Disability program imminent, TSCL believes that lawmakers will be forced to take action, and soon, to enable the program to continue to pay benefits on time. “Don’t let anyone lull you into thinking your benefits are safe ,” warns TSCL’s Executive Director, Shannon Benton. “Congress has no plan in place to ensure that they are.”
Sources: “Greenspan Calls For Repeal Of All The Bush Tax Cuts,” Sewell Chan, The New York Times, August 6, 2010.