For those of you who think that Social Security is doing just fine (cough…Mitt Romney…cough…Harry Reid…cough), I’ve got some bad news for you. The Office of the Chief Actuary has finally caught its financial operations reports up to the present after not updating it for several months. The numbers are, in a word, horrible:
- Except for the “double-taxation” (both quarterly estimated income tax and taxation of benefits) months of January and June, the Old-Age and Survivors Insurance program has not had a monthly positive primary (cash) balance since July 2009.
- The 12-month OASI primary deficit peaked at $20.16 billion in the June 2010-May 2011 period, and isn’t expected to ever become a surplus again by the Social Security Trustees, the Congressional Budget Office, or me. My re-estimation of the 2009 Trustees’ intermediate-case scenario, the last one I have any confidence in, has that never dropping below $10.6 billion (in the February 2012-January 2013 period).
- The last time the Disability Insurance program had a monthly primary surplus, and indeed, the last time it likely will ever have a monthly primary surplus, was April 2009. If it weren’t for the temporary ability to monetize the DI “Trust Fund”, in most months, less than 75% of the scheduled benefits would be able to be paid out as its annual primary deficit has crossed the $34 billion level on annual costs of just over $131 billion.
- Speaking of the DI “Trust Fund”, its book value has dropped below $165 billion, and even with interest paid, its annual “burn rate” has crossed the $25 billion level. That makes it likely the person who serves the next Presidential term will have to deal with an exhausted DI “Trust Fund”.
Ponzi Scheme?
First things first; since it is written as law, Social Security cannot meet the illegality portion of the definition of a Ponzi scheme. Of course, if what Charles Ponzi did was written into law as being lawful, it wouldn’t meet the illegality portion of the definition either.
While a full collapse of a Ponzi scheme is almost always the end result of the process, the point where it collapses with the promoter still around is when that promoter is unable to return what he or she promised to the “investors”. Because it is a compulsory government entity, Social Security will always be taking a lot of money and paying “something” in benefits unless a majority of Congress has the gumption to call “Bravo Sierra” on the wealth-transfer scheme and pull the plug.
It matters not a whit that Social Security is a defined-benefit plan rather than a defined-contribution one. Actually, that’s not quite true; the fact that Social Security is a defined-benefit plan means that when it becomes unable to meet the payments promised, or when the terms are altered for those already in the system (I’ll be generous and say “heavily” invested in the system to cover only those who are at least 55 years old), it also meets the “inability to meet returns” definition of a Ponzi scheme regardless of whether it continues to pay benefits.
As current law stands, the only sources of funding for both the DI and OASI programs are the payroll taxes (supplemented this year by transfers from the general fund to replace the temporary cut in the payroll tax), the taxes on benefits (really, just a recapture of money that has the effect of reducing net benefits and net cost) and the “Trust Funds”. Once the “Trust Funds” run out of money, or the SSA is unable to monetize them, the net benefits paid out in a particular month are limited to whatever comes in via the payroll tax (or more-properly, what is projected to come in via the payroll tax, less any interest due the Treasury on that particular “float”) that month.
That’s where the primary deficits loom large. For 21 of the last 25 months, the OASI program needed additional funding from the monetization of the “Trust Fund” to fully-pay its scheduled benefits, while the DI program needed additional funding from the monetization of its “Trust Fund” for the last 28 months and all but 22 of the last 97 months since its latest (and probably last) dip into the red began in August 2003.
