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February 25, 2011
Democrats Deny Social Security’s Red Ink
Some claim it doesn't contribute to the federal deficit, but it does.
Summary
Some senior Democrats are claiming that Social Security does not contribute "one penny" to the federal deficit. That’s not true. The fact is, the federal government had to borrow $37 billion last year to finance Social Security, and will need to borrow more this year. The red ink is projected to total well over half a trillion dollars in the coming decade.
President Barack Obama was closer to the mark than some of his Democratic allies when he said that Social Security is "not the huge contributor to the deficit that [Medicare and Medicaid] are."
That’s correct: Medicare and Medicaid consume more borrowed funds than Social Security, and their costs are growing more rapidly.
But Obama’s own budget director, Jacob Lew, was misleading when he wrote recently that "Social Security benefits are entirely self-financing." That’s not true, except in a very narrow, legalistic sense, and doesn’t change the fact that Social Security is now a small but growing drain on the government’s finances.
Payroll taxes exceeded benefit payments regularly until 2010. But the fact is that Social Security has now passed a tipping point, beyond which the Congressional Budget Office projects that it will permanently pay out more in benefits than it gathers from Social Security taxes.
The imbalance is made even larger this year by a one-year "payroll tax holiday" that was enacted as part of last year’s compromise on extending the Bush tax cuts.
The lost Social Security tax revenues are being made up with billions from general revenues that must all be borrowed. The combined effect is to add $130 billion to the deficit in the current fiscal year.
It’s important to note that benefit payments are not in immediate danger. Under current law, scheduled benefits can be paid until about 2037, according to the most recent projections.
But keeping those benefits flowing is already requiring the use of funds borrowed from the public. So we judge the claim that Social Security is not currently contributing to the deficit to be false.
Analysis
As always, we take no position on whether Social Security should be changed, either to reduce the deficit or to shore up its troubled finances for future generations. Our job here is simply to establish facts and hold politicians accountable for any misinformation.
We’ll start with the basic numbers. The nonpartisan Congressional Budget Office issued its most recent projections for Social Security’s income and outgo Jan. 26, along with its twice-yearly "Budget and Economic Outlook."
What those numbers show is that Social Security ran a $37 billion deficit last year, is projected to run a $45 billion deficit this year, and more red ink every year thereafter.
Source: CBO "Combined OASDI Trust Funds; January 2011 Baseline" 26 Jan 2011.
Note: See "Primary Surplus" line (which is negative, indicating a deficit)
Matters are even worse than this chart shows. In December, Congress passed a Social Security tax reduction. Workers are temporarily paying 2 percentage points less, from 6.2 percent to 4.2 percent, in Social Security payroll taxes this calendar year.
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