Social Security in the woods

The Social Security Trustees released their new report last week. Hours later, Nancy Altman made a declaration: '2015 trustees report confirms that expanding Social Security is fully affordable.”

Altman is co-founder of Social Security Works. The organization has the laudable goal of expanding Social Security rather than shrinking it.

Unfortunately, Altman must have read too fast. Right there at the bottom of page four in the overview, under the heading 'conclusion,” the trustees warn:

'Under the intermediate assumptions, the trustees project that annual cost for the OASDI (Old Age, Survivor and Disability Insurance) program will exceed noninterest income in 2015 and remain higher throughout the remainder of the long-range period.”

Altman missed the significance of a key word: 'noninterest.” The trustees use it 34 times in the 24-page overview.

Our Social Security program has several income sources. The largest, by far, is the employment taxes we pay. After that, the program has revenue from the taxes retirees pay on their benefits. It also is credited with interest earned by the securities in the $2.7 trillion trust fund.

But crediting interest isn't the same as receiving cash. It's just a book entry.

And that's where the crunch comes. Social Security collected cash of $785.6 billion from the employment tax and the taxation of benefits last year. But it paid out $848.5 billion in benefits - cash benefits that people spent. It also paid the $6.1 billion cost of operating the program.

Nominally, the difference came from interest on the trust fund. As a practical matter, the cash money came from the U.S. Treasury.

That's where we have a minor problem today. But the Social Security trustees say that retirees will have a much bigger problem tomorrow. Social Security costs, they write, will exceed 'noninterest” income in every future year. So the program will become ever more dependent on general tax revenues or future Treasury borrowing. The deficits will deplete the trust fund by 2035, only 20 years from now. After that, the trustees tell us, benefits would drop to 79 percent of current levels.

We have 10,000 boomers turning 65 every day. Nearly half of them are expected to live well beyond 2035. I don't read that as good news. I bet you don't, either.

On page four, the trustees estimate a 75-year program revenue shortfall of $10.7 trillion. It sure doesn't say that Social Security is good-to-go for expansion.