According to this article, Social Security will run a deficit over the next two years, as revenue from workers will fall short of the payments to retirees. The system is expected to run “surpluses” again in 2012 until 2016, at which time it will run perpetual annual deficits unless Congress fixes it.
What made me comment on the article is a falsehood about Social Security. The reporter wrote:
The deficits–$10 billion in 2010 and $9 billion in 2011–won’t affect payments to retirees because Social Security has accumulated surpluses in previous years totaling $2.5 trillion. But they add to the overall federal deficit.
There is no Social Security “surplus”. If the Social Security Administration (SSA) takes in more revenue than it paid out in retirement checks, it is required by law to “invest” the extra revenue in special U.S. Treasury securities. In other words, one segment of the federal government loans the money to the rest of the federal government, which in turn spends it on defense, medicare, agricultural subsidies, etc.
The way the article presents things is when the SSA runs a deficit, all they have to do is dip into their surplus by cashing in some of the the U.S. securities it owns. Yet it is the federal government which is responsible for repaying the principle on these securities. In order to make good on the loan, the federal government has to do one of three things: cut spending; raise taxes; or print money.
It really doesn’t matter if the SSA runs an annual surplus or deficit. The payroll tax is just another type of tax, similar to the tax on income, dividends, and corporate profits. All revenue received by the government goes to the U.S. Treasury and is used to pay the expenditures of the federal government.
The president and Congress do a great disserviceto the American people when the talk about a Social Security “surplus”, as if the money was invested in say a Bank of America CD earning interest. Over the past two decades, the surplus revenue taken in by the SSA has been used to mask the true size of the government’s annual deficits.
As well, reporters like the one who wrote this article do a great disservice by relying on government press releases for their information. It is the job of the press to hold politicians accountable, but they can’t do it if they don’t understand how the federal budget process works.