The economic collapse has led to a marked deterioration in the finances of Social Security and Medicare. The 2010 OASDI Trustees Report, released on Thursday, observes that Social Security will spend more than it takes in this year, the first time since 1983. Economics 21 described the parlous state of the Social Security system in a commentary published last month, responding to an excessively optimistic report from the CBO. And in late May, Economics 21 offered broader context for understanding the debate over Social Security’s future.
In 2005, during the last debate over Social Security reform, the CBO offered an estimate of the cost of introducing personal accounts:
The CBO projected that, even if the Administration’s proposed accounts had been financed entirely with new debt, the total additional pressure on the budget would have amounted to just $12 billion in 2009 and $29 billion in 2010. And even though all of these personal account investments would have been devoted to funding future Social Security benefits, these figures produced howls of anguish about the allegedly devastating effects on Social Security finances.
Now, of course, the pressure on Social Security has increased dramatically:
The 2008 report by the trustees of the Social Security trust fund projected a 2009 cash surplus of $87 billion. Thereafter, that surplus declined by a full $84 billion, resulting in an actual surplus of a mere $3 billion. The same 2008 report projected a 2010 surplus of over $88 billion. Now we’re facing a likely 2010 deficit – and thus possibly a total decline of more than $100 billion in a single year relative to the 2008 projection.
Remember too that any additional near-term fiscal pressures under President Bush’s proposal would have been in the service of improving annual program operations over the long term. The same, obviously, cannot be said of the worsening near-term finances attributable to the current recession, which offers no upside for future Social Security finances.
Even so, there have been very few proposals to tackle Social Security’s long-term imbalance. There have, however, been calls to increase Social Security payments, including from people who couched their objections to President Bush’s reform effort in the name of the defending the program’s long-term viability:
Virginia Reno of the National Academy of Social Insurance (NASI) previously referred to President Bush’s personal account proposal as being part of a “movement to dismantle Social Security”, and fed perceptions that the cost of financing personal accounts would lead to “benefit cuts.” In recent months, however, as Social Security’s finances have been sagging, Ms. Reno has been writing papers about ways to increase Social Security benefits.
To be sure, there might be an argument for temporarily increasing Social Security benefits as a countercyclical measure, yet it should go without saying that this step would have to be paid for somehow. Unfortunately, pre-funding a share of Social Security benefits, the point of the personal accounts proposal, has been deemed politically anathema.