The February report from the Congressional Budget Office (CBO) about the inevitable insolvency of Social Security is discouraging enough without checking the CBO’s assumptions. A closer look at the report and those assumptions reveals a Ponzi scheme that is going to crater sooner than expected.
For 2013 the CBO said that beneficiaries will receive $816 billion in benefits while revenues from payroll taxes will be $846 billion, leaving the program with a surplus of $30 billion. By the year 2023, however, the CBO estimates that outgo will exceed $1.4 trillion compared to revenues of $1.3 trillion, a shortfall of about $100 billion.
According to Jed Graham at Investor’s Business Daily, that means that the funds backing Social Security (which include Old-Age, Survivors, and Disability Insurance trust funds) will go to zero by 2031. He estimates that beneficiaries just now becoming eligible for retirement benefits will suffer huge cuts in their checks by the time they turn 80 — just when most of them will need them the most. And “workers 44 years old [today] face the prospect of retiring after the trust fund is bust.”
Chuck Saletta, at The Motley Fool, agrees. He notes that the temporary “surplus” in the funds will peak two years sooner than estimated by the CBO just a year ago and will have $140 billion less in them in 2022 than projected. He says the “collapse date” will be moved back to 2033 or even sooner.
But neither of these picked up the footnote from the original CBO report:
The CBO projects that the DI [Disability Insurance] trust fund will be exhausted during the fiscal year 2016. Under current law the Commissioner of Social Security may not pay benefits in excess of the available balances in a trust fund, borrow money for a trust fund, or transfer money from one trust fund to another.
So what is a good economist to do? They just assume that somehow those DI benefits will be paid from somewhere: “CBO … assumes that the Commissioner will pay DI benefits in full even after the trust fund is exhausted.”
The CBO then calculates the additional shortfall that paying those DI benefits will create: another $1.2 trillion. That brings the total “surplus” remaining in the trust funds in 2023 to a little over $1 trillion. That’s just enough to pay benefits to everyone for about three more years.
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