Thursday, June 2, 2011

Social Security turns an uncomfortable corner

Discussions of Social Security often focus on the a year like 2038, when the mid-range forecast of the Social Security actuaries says that the trust fund will be emptied. But in this year, 2011, Social Security has turned an uncomfortable corner.

The figure, taken from the annual report of the Social Security actuaries released in May 2011, tells the story.  Up until 2011, the "non-interest income" for the Social Security trust fund--which basically means payroll taxes--exceeded the costs of the system. Under the rules of federal budget accounting, Social Security was providing extra funds that could be used to purchase Treasury bonds, and thus reduced the amount size of the budget deficit that needed to be financed by borrowing from the public.After 2011, however, the costs of the system are slated to exceed non-interest income. Under federal budget accounting rules, now each year the rest of the budget will need to repay the Social Security trust fund. .

Thus, we are switching from a situation where the Social Security system helped to hold down the federal deficit each year, to a situation where the Social Security system will be contributing to a larger federal deficit each year. To be sure, this effect won't be large for a few years. But I suspect that this change will gradually bring changes to Social Security into the debates over reducing budget deficits in a way that they haven't previously been.