Social Security turns 75 on Aug. 14, but don’t expect a celebration. Social Security’s balance sheet turned negative this year. That means Social Security won’t collect enough from payroll taxes to cover all benefits, and will need to tap its trust fund to cover the shortfall.
This isn’t a temporary hiccup in Social Security’s financial health. The program’s future prospects are bleak, with larger and larger deficits expected. The revered program’s crisis should be a wake-up call that Washington needs to get its fiscal house in order.
The Social Security Board of Trustees is required to publish a detailed report on the financial health of both Social Security and Medicare. It was supposed to come out between mid-April and mid-May, but this year it was postponed until Aug. 5. The trustees justified the delay as necessary to account for the new health care law and promised the report by June 30.
That deadline passed. Perhaps generating the estimates was more complicated this year, but one can’t help but wonder if the numbers were so bad they were reluctant to release them for political reasons.
The new trustees’ report revealed the magnitude of Social Security’s problems. The actuaries projected a $41 billion deficit for 2010, with much larger deficits on the horizon as the baby boomers retire.
The trustees’ 2008 report said Social Security would run a surplus until 2016, but then have a shortfall of $68.5 billion by 2020, exploding to nearly $300 billion by 2035. The new report estimates that Social Security will be in the red this year and next — the first time the program has run a deficit in three decades. The program will then be solvent until 2015, but will thereafter remain permanently in the red.
When I was serving in Congress during the 1990s, there was a lot of talk about the Social Security trust fund and what Vice President Al Gore and lawmakers referred to as the Social Security “lock box.” We are finding out today just how meaningless that “lock box” is for taxpayers. It’s true that for years Social Security had excess revenues it lent to the general treasury in exchange for government bonds.
Today, the Social Security Administration can use those bonds to cover the shortfall.
Yet the trust fund is little comfort to taxpayers. When the Social Security Administration cashes in a bond, the money comes from the treasury. In other words, taxpayers are still on the hook. One government agency owing money to another is like your left pocket owing money to your right: all the money ultimately comes from you.
Social Security’s long-term financial challenges are another reason Congress needs to get serious about reducing deficits. The federal government projects a deficit of $1.5 trillion in 2010. Under the president’s budget, the nation would add nearly another $1 trillion in debt each year for 10 years. This overspending will have serious consequences. By 2020, interest payments will almost quintuple. In fact, by then Social Security, Medicare, Medicaid and interest will consume 90 percent of the federal budget — and that is before Social Security’s worst financial problems hit. This should be of great concern to all of us.
This is not an acceptable outcome. Congress needs to act to get Social Security costs under control as well as to rein in other spending.
Undoubtedly, some in Washington will argue the way to fix Social Security and reduce deficits is to raise taxes. Yet taxpayers know the problem isn’t that they pay too little; it’s that Washington spends too much.
Between 2000 and 2008, tax receipts increased by nearly $500 billion. Yet government spending increased by nearly $1.4 trillion. Since 2008, our books have become even more out of balance. Federal government spending exploded to $3.7 trillion (up from less than $3 trillion in 2008) while tax receipts fell.
Washington justifies the recent spending splurge as necessary to address the recession. That can’t explain why this administration includes the new spending in its baseline.
Today, the government accounts for 25 percent of the nation’s gross domestic product; that’s up from the historic norm of under 20 percent. Under the president’s budget, from 2024 on, long after this crisis has passed, the federal government will consume more than 24 percent of GDP.
Washington’s deficit problem is pure and simple a spending problem. Taxpayers should visit www.bankruptingamerica.com to find out more about just how dire our fiscal situation is becoming because of this reckless overspending.
The bottom line is politicians shouldn’t ask more of taxpayers and take more from the private sector. Doing so will only make our problems worse, because higher tax rates discourage investment, work, and job creation — the very foundations of economic growth, which is key to our long-term financial health.
Forget cutting a cake to celebrate Social Security’s birthday. Washington needs to give a gift to the American people that will last: commit to reducing spending and getting our fiscal house in order.
J.C. Watts (JCWatts01@jcwatts.com) is chairman of J.C. Watts Companies, a business consulting group, and the former chairman of the Republican Conference of the U.S. House, where he served as an Oklahoma representative from 1995 to 2002. He writes twice monthly for the Review-Journal.