By 2017 Social Security will begin paying out more in benefits than it collects in taxes and will have to begin redeeming bonds from the Social Security Trust Fund. Worse, Medicare is expected to cross the same line later this year, resulting in a massive fiscal crisis.
The annual report (PDF) of the Social Security trustees released Monday puts it plainly: “Annual cost will exceed tax income starting in 2017 at which time the annual gap will be covered with cash from redemptions of special obligations of the Treasury that make up the trust fund assets, until these assets are exhausted in 2041.”
There’s just one problem: Those trust fund assets aren’t what you and I would think of as assets.
“The Trust Fund is not a pile of money that can be used to pay Social Security benefits,” explains Michael Tanner, director of health and welfare studies at the Cato Institute. “It is simply an accounting measure of how much money the system owes, a collection of IOUs.”
And in this case, it’s not the government owing you, it’s you owing the government. As President Bill Clinton’s 2000 budget message explained it:
These Trust Fund balances are available to finance future benefit payments . . . but only in a bookkeeping sense. . . . They do not consist of real economic assets that can be drawn down in the future to fund benefits. Instead, they are claims on the Treasury that, when redeemed, will have to be financed by raising taxes, borrowing from the public, or reducing benefits or other expenditures. The existence of large Trust Fund balances, therefore, does not by itself have any impact on the government’s ability to pay benefits. — Budget of the United States Government, Fiscal Year 2000 (PDF)
In other words, ordinary Americans are going to get squeezed, harder and harder, as the Social Security program implodes on itself beginning just ten short years from now.
Both programs will be in trouble soon, with the baby boomers about to enter the system. The first baby boomers begin retiring next year, accelerating benefit payments while reducing the number of workers paying into the system.
“Without change, rising costs will drive government spending to unprecedented levels, consume nearly all projected federal revenues and threaten America’s future prosperity,” Treasury Secretary Henry Paulson said. — Associated Press
But, ordinary Americans, you don’t have ten years to avoid getting soaked. It’s going to start this year, as the Medicare program begins the same sort of fiscal implosion. Its trust fund bookkeeping tricks, which will soak even more trillions out of you, will be gone by 2019.
Treasury Secretary Henry Paulson, who has engaged in months of talks with members of Congress, said the new report underscored a need for action.
“If we do not take action soon to reform Social Security and Medicare, the coming demographic bulge will jeopardize the programs’ ability to support people who depend on them,” Paulson said in releasing the report. “Reform is needed and time is of the essence.” — Associated Press
For reasons unfathomable, someone at the AP actually thought this was good news.
The Trustees and the Clinton administration are hardly the first to warn that these entitlement programs will cause the government’s finances to collapse. Federal Reserve chairman Ben Bernanke warned Congress last month that the “expansion of debt would spark a fiscal crisis . . . sort of like a snowball rolling down the hill.” The Government Accountability Office has been making the same warnings since 1992.
With over half of all Americans benefiting from government largess, it was hard not to see this coming. One would have to have put blinders on, covered one’s ears and said, “La la la, there’s no fiscal crisis!” As somebody once said, “A democracy cannot exist as a permanent form of government. It can only exist until the voters discover that they can vote themselves largess from the public treasury.” Whoever said it, it has happened, and now we all get to witness its collapse.
Take notes this time around, and make sure they get passed on to future generations, so that hopefully they may learn where we did not.