Just in case there was any doubt that Social Security won't be able to keep the promises it is making to anyone younger than, say, 55, the Congressional Budget Office now projects that Social Security will start operating at a deficit next year. Neither the CBO nor Social Security itself had expected the red ink to start flowing before 2016, but the recessionary surge in unemployment and early retirements changed the outlook. The CBO's updated forecast, reported by the Associated Press, now sees costs pushing above tax revenues by $10 billion in 2010 and $9 billion in 2011, before the system goes temporarily back into the black again until 2016.
As a practical matter, you won't notice. Because of the trust fund, the system will be able to pay all its checks on time.
But that doesn't mean it doesn't matter. For the first time Social Security will start to add to the deficit rather than subtracting from it. And while adding $19 billion over two years to the federal debt doesn't sound like much in this era of $787 bailouts, it's just the first trickle of a red ink flash flood that starts in earnest in 2016. This is a big deal.
Remember, the trust fund isn't like a pile of money in a bank vault that Social Security can just open when it needs cash. It's actually just a stack of IOUs from Uncle Sam. It means, in essence, that Social Security has the authority to order the Treasury to pay beneficiaries. Where the Treasury gets the money -- by raising taxes, cutting benefits elsewhere in government or borrowing more from the Chinese -- is up to Congress.
After a while, we're going to get tired of this. Social Security's authority to boss the Treasury around doesn't run out until the trust fund is exhausted decades from now. Way before then we will have to face the fact that Social Security's costs are unsustainable. Some combination of tax hikes or benefit cuts are going to have to be put in place. And the longer we wait to face reality on Social Security, the more painful those measures will be. Obama has said that fixing Social Security is on his agenda for next year. Let's hope so.
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