As fiscal-cliff negotiations heated up, the White House signaled it wouldn't give ground on Social Security because, as press secretary Jay Carney said, it "is not currently a driver of the deficit. That's an economic fact.
Well, to paraphrase former Democratic Sen. Patrick Moynihan, facts are not an entitlement and the facts say otherwise — even more so in the wake of the fiscal-cliff tax hike.
The Congressional Budget Office projects that over the next decade Social Security's annual cash deficit will rise by nearly $100 billion, reaching $155 billion a year. The cost of servicing the extra public debt tied to cashing in $1 trillion worth of Social Security's intragovernmental IOUs over the 10 years would add $40 billion to the deficit in 2022 alone, an IBD analysis finds.
Overall, Social Security would account for nearly $200 billion in annual deficits or nearly 20% of the $1 trillion-plus deficit that would occur under current policies, including fiscal-cliff tax hikes.
Then, over the following decade, the retirement program's impact on deficits would really balloon.
Major Deficit Driver
An IBD analysis finds that current Social Security law — paying all benefits until the trust fund expires — would raise debt to GDP by 18 percentage points by 2032. At that point, the yearly cost of paying benefits and interest tied to trust fund redemptions would exceed Social Security revenue by 2.4% of GDP.
Fiscal-cliff talks nearly broke down at the 11th hour as Senate Democrats charged that Republicans were insisting on Social Security cuts.
The GOP beat a quick retreat, demonstrating why Social Security change is often said to be too politically perilous to undertake unless both parties hold hands and jump together. Apparently, on the edge of the fiscal cliff, with Republicans ready — at least for a minireform — Democrats offered not a grip, but rather a push.
What the current debate ignores is that President Clinton put Social Security legislation at the top of his agenda 15 years ago — when its finances were in far better shape.
"It would be unconscionable if we failed to act and act now,"Clinton said in April 1998 at the first of four town hall meetings scheduled to build support for a Social Security overhaul.
Back then, the Social Security trust fund wasn't projected to run out for 34 years, providing the authority — though not the resources — to pay full benefits until 2032.
Now the trust fund is projected to be spent in just 20 years, after which a nearly 25% benefit cut on all beneficiaries would be needed to bring costs and program revenues in line.
Back then, the disability insurance portion of the trust fund had more than two decades until its special Treasuries — really government IOUs — would be spent.
Now the disability insurance trust fund will run out in just three years.
At that point, Congress would have to take action to avert an automatic 19% cut in benefits for some of Social Security's neediest beneficiaries.
Any way you slice it, Social Security's financing problems are much deeper than they were when Clinton saw fit to make it the No. 1 national priority.
Back then, it would have taken an immediate 2.2 percentage point payroll tax hike to fully fund benefits over the next 75 years.
Now, closing the trust fund gap would require a 2.7 percentage point payroll tax hike.
Even that underestimates the real financing gap because it treats the $2.7 trillion trust fund as money in the bank, even though it contains no resources to help pay for benefits.
The full cash shortfall, which could have been filled with a 2.5 percentage point payroll-tax hike in 1998, would now take an immediate hike of 3.3 points.