Social Security surplus expected to vanish much sooner than expected
The U.S. recession may soon erase the Social Security surplus Congress has used each year to reduce the deficit. The surplus was supposed to be around for at least another ten years, but with so many people being laid off the Social Security Administration's projected tax collections now fall way below earlier estimates.The layoffs are also prompting more people near retirement to take benefits early, further depleting the SSA's coffers.
The Social Security Trustees originally predicted an $80 billion surplus this year, but that number is expected to drop to $16 billion this year and just $3 billion next year, according to a report in The Washington Post. For years, Congress has used the Social Security surplus as its personal piggy bank, overspending in each budget cycle and covering it up with the Social Security surplus funds.
Congress thought it was going to have at least until about 2019 to fix the problem, but it looks like the day of reckoning has been sped up considerably. Sen. Judd Gregg, senior Republican on the Senate Budget Committee, told the Post, "It suggests we better get working on Social Security and stop burying out heads in the sand." Christian Walter, a public policy professor at the University of Massachusetts in Boston, had a slightly different view: "This is not a problem for Social Security, it's a problem for fiscal responsibility." Peter Orszag, President Obama's budget director, is inclined to agree with the latter assessment, believing the best way to protect future Social Security payments is to reduce deficits.
There is one possible "dividend" of the recession that could help forestall the inevitable a bit: Some people are delaying retirement (and their start date for drawing benefits) because their investment portfolios have been hit so hard by the stock market crash. The Social Security Trustees will sift through these various conflicting trends and issue their annual report in May. They have the final word on Social Security's financial future based on current inflows and outflows.
President Obama did promise to address the financial problems of Social Security during his campaign, but other even more pressing financial crises have taken precedent. Maybe this case of the vanishing surplus will get Congress to start looking at the problem sooner than later. One quick fix that has been discussed is an increase in the amount of earnings subject to the Social Security tax. In 2009, the maximum amount is $106,800. Obama has talked about raising the ceiling to over $250,000. This latest wake-up call might impel him to do it now.
Lita Epstein has written more than 25 books, including the Complete Idiot's Guide to Social Security and Medicare and Working After Retirement for Dummies.