New Tactics in an Old War: Vanishing the Social Security Surplus

[girl gone mad]

This may be a bit wonkish, but I thought it was a good read. The comments were also interesting. Note that Senator Gregg is pushing heavily for SS reform. There is speculation that it was push back related to his desire for control over SS, and not conflicts over the census, that caused Gregg to decline the Commerce post. I get nervous when I read about bi-partisan "concern" and hope Dems stay committed to protecting SS. That should go without saying, but with all of the accusations flying around here lately, maybe it's best to state the obvious.

New Tactics in an Old War: Vanishing the Social Security Surplus
by Bruce Webb

A new front was opened Monday in the war on Social Security. The first shot came from Kevin Hassett of AEI who wrote a piece for Bloomberg http://www.bloomberg.com/apps/news?pid=20601039&refer=columnist_hassett&sid=asbiybVqsYC0">Recession Bites Into Social Security’s Surplus

We have all been so busy whining about bonuses at American International Group Inc. and arguing about the so-called card- check legislation that we forgot to watch the Social Security surplus. While we were looking away, that surplus disappeared, eight years ahead of schedule.

This was immediately picked up by the Washington Post stenographers in a piece from Lori Montgomery on Tuesday http://www.washingtonpost.com/wp-dyn/content/article/2009/03/30/AR2009033003291.html">Recession Puts a Major Strain On Social Security Trust Fund: As Payroll Tax Revenue Falls, So Does Surplus

With unemployment rising, the payroll tax revenue that finances Social Security benefits for nearly 51 million retirees and other recipients is falling, according to a report from the Congressional Budget Office. As a result, the trust fund's annual surplus is forecast to all but vanish next year -- nearly a decade ahead of schedule -- and deprive the government of billions of dollars it had been counting on to help balance the nation's books.

If true this would be a totally 'Holy Crap Batman!' moment, because per the 2008 Report Social Security ran a positive balance of $190 billion in 2007, was projected to run a $196 billion positive balance in 2008 and $212 billion in 2009 http://www.ssa.gov/OACT/TR/TR08/IV_SRest.html#253691">Table IV.A3.—Operations of the Combined OASI and DI Trust Funds, Calendar Years 2003-17. In fact it was still projected to be adding assets to the tune of $213 billion in 2017. How could all of that just vanish without anyone noticing?

Answer? It didn't. Hassett is mostly just playing word games. If we back up and examine the http://www.ssa.gov/OACT/TR/TR08/VI_cyoper_history.html#159726">Historical Operations of the Combined OASI and DI Trust Funds, Calendar Years 1957-2007 we can see combined balances in the Trust Funds at the end of 1993 of $378 billion dollars with a Trust Fund ratio of 107, which is to say just over one year of reserves. In the years since that balance has grown to $2.4 trillion and a TF ratio above 350. The increase in the fund balance is normally called the 'Social Security surplus' and is scored as such when calculating the Unified Budget deficit or surplus. But in point of fact Social Security does not extract the full amount of the fund increase from the current year economy, a big part of the annual surplus is from accrued interest on the Trust Fund which in 2003 accounted for more than half of that surplus and the percentage is increasing all the time. So if we examine Table IV.B3 and look at the projections for 2017 we can see that of a total fund increase of $213 billion that $238 billion is the result of interest. Or in other words the amount of dollars extracted from the economy via FICA payroll tax and tax on benefits will be $25 billion less than is needed to pay then current benefits, an amount that will have to be made up by a PARTIAL payment of interest due on the Trust Fund.

Hassett has simply redefined this long known crossover point (known as Shortfall) as the time that 'surpluses' vanish. And then piles on by claiming that February numbers show that it had actually moved right up to today. This is totally misleading and verging on outright lying. To see why follow me below the fold.

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