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SSTF Shocker - $6B August Deficit
The Social Security Trust Fund reported an August net deficit of $5.865 Billion. This is the largest monthly deficit in nineteen years. Base on recent years data it was not surprising the Fund ran a deficit in August. But the magnitude of the shortfall was a surprise to me. This deficit is now the seventh in the past twelve months. That pace has never been seen before.
We deal with very big numbers these days. 100rds of billions and trillions are how we measure things. So a $6b monthly deficit for the Fund would appear to be a ho-hum. That is not correct. This is an important number.
The Actuarial analysis of the Fund is misdirected. Their focus is based on the future value. It should be focused on the here and now. In the June annual report the Trustees concluded that the Fund would be broke in 2037. This conclusion is so far into the future that it is easy for everyone involved to say, “this is a next year problem, health care comes first”. Stephen Goss the Fund’s head honcho said as much in a recent interview.
While there is a political case that we have to prioritize health care as an issue, it is wrong on a purely economic basis to ignore the exploding problems at the Fund. Every month that the status quo is allowed to continue makes the cost of the ‘fix’ that much larger. Based on the past twelve months performance I now estimate that the Net Present Value of future committed liabilities is in deficit by $7 trillion. To plug this sized hole would require a significant increase in payroll taxes. That isn’t going to happen. Raising payroll taxes by 4% would kill the economy. No White House economist would advocate that. The alternative of cutting benefits would be very unpopular. There are currently 52 million beneficiaries of the system. A lot of them vote. To shore up the fund would require across the board cuts greater than 20%. While that may not be a hardship for some it most certainly will be for others. The only way to address this inequity will be a means test.
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Social Security could face a deficit within two years, according to U.S. Rep. Spencer Bachus who met with The Tuscaloosa News editorial board Tuesday.
“The situation is much worse than people realize, especially because of the problems brought on by the recession, near depression,” said Bachus, R-Vestavia Hills, in an interview with the Tuscaloosa News editorial board.
Bachus, the ranking member of the House Committee on Financial Services, said most people seem unaware of the impending crisis. He initially said Social Security could face "default" within two years, but his staff responded later saying the Congresssman intended to say "deficit."
Social Security won't have enough money to pay promised benefits in 2041 but there is another crunch much, much sooner, the result of the the federal government relying on Social Security to pay for its annual spending.
A MESSAGE TO THE PUBLIC:
Each year the Trustees of the Social Security and Medicare trust funds report on the current and projected financial status of the two programs. This message summarizes our 2009 Annual Reports.
The financial condition of the Social Security and Medicare programs remains challenging. Projected long run program costs are not sustainable under current program parameters. Social Security's annual surpluses of tax income over expenditures are expected to fall sharply this year and to stay about constant in 2010 because of the economic recession, and to rise only briefly before declining and turning to cash flow deficits beginning in 2016 that grow as the baby boom generation retires. The deficits will be made up by redeeming trust fund assets until reserves are exhausted in 2037, at which point tax income would be sufficient to pay about three fourths of scheduled benefits through 2083. Medicare's financial status is much worse. As was true in 2008, Medicare's Hospital Insurance (HI) Trust Fund is expected to pay out more in hospital benefits and other expenditures this year than it receives in taxes and other dedicated revenues. The difference will be made up by redeeming trust fund assets. Growing annual deficits are projected to exhaust HI reserves in 2017, after which the percentage of scheduled benefits payable from tax income would decline from 81 percent in 2017 to about 50 percent in 2035 and 30 percent in 2080. In addition, the Medicare Supplementary Medical Insurance (SMI) Trust Fund that pays for physician services and the prescription drug benefit will continue to require general revenue financing and charges on beneficiaries that grow substantially faster than the economy and beneficiary incomes over time.
The drawdown of Social Security and HI Trust Fund reserves and the general revenue transfers into SMI will result in mounting pressure on the Federal budget. In fact, pressure is already evident. For the third consecutive year, a "Medicare funding warning" is being triggered, signaling that non-dedicated sources of revenues—primarily general revenues—will soon account for more than 45 percent of Medicare's outlays. A Presidential proposal will be needed in response to the latest warning.
The financial challenges facing Social Security and especially Medicare need to be addressed soon. If action is taken sooner rather than later, more options will be available, with more time to phase in changes and for those affected to plan for changes.
As we reported last year, Medicare's financial difficulties come sooner—and are much more severe—than those confronting Social Security. While both programs face demographic challenges, rapidly growing health care costs also affect Medicare. Underlying health care costs per enrollee are projected to rise faster than the earnings per worker on which payroll taxes and Social Security benefits are based. As a result, while Medicare's annual costs were 3.2 percent of Gross Domestic Product (GDP) in 2008, or about three quarters of Social Security's, they are projected to surpass Social Security expenditures in 2028 and reach 11.4 percent of GDP in 2083.
The projected 75-year actuarial deficit in the Hospital Insurance (HI) Trust Fund is now 3.88 percent of taxable payroll, up from 3.54 percent projected in last year's report. The fund again fails our test of short-range financial adequacy, as projected annual assets drop below projected annual expenditures within 10 years—by 2012. The fund also continues to fail our long range test of close actuarial balance by a wide margin. The projected date of HI Trust Fund exhaustion is 2017, two years earlier than in last year's report, when dedicated revenues would be sufficient to pay 81 percent of HI costs. Projected HI dedicated revenues fall short of outlays by rapidly increasing margins in all future years. The Medicare Report shows that the HI Trust Fund could be brought into actuarial balance over the next 75 years by changes equivalent to an immediate 134 percent increase in the payroll tax (from a rate of 2.9 percent to 6.78 percent), or an immediate 53 percent reduction in program outlays, or some combination of the two. Larger changes would be required to make the program solvent beyond the 75-year horizon.
The projected exhaustion of the HI Trust Fund within the next eight years is an urgent concern. Congressional action will be necessary to ensure uninterrupted provision of HI services to beneficiaries. Correcting the financial imbalance for the HI Trust Fund—even in the short range alone—will require substantial changes to program income and/or expenditures.
Part B of the Supplementary Medical Insurance (SMI) Trust Fund, which pays doctors' bills and other outpatient expenses, and Part D, which pays for access to prescription drug coverage, are both projected to remain adequately financed into the indefinite future because current law automatically provides financing each year to meet next year's expected costs. However, expected steep cost increases will result in rapidly growing general revenue financing needs-projected to rise from 1.3 percent of GDP in 2008 to about 4.7 percent in 2083-as well as substantial increases over time in beneficiary premium charges.
It is expected that about one quarter of Part B enrollees will be subject to unusually large premium increases in the next two years. This occurs because it is projected that the other three-quarters of Part B enrollees will not be subject to premium increases in those years due to low projected Social Security benefit COLAs and a "hold-harmless" provision of current law that limits premium increases to the increase in Social Security benefits.
The annual cost of Social Security benefits represented 4.4 percent of GDP in 2008 and is projected to increase to 6.2 percent of GDP in 2034, and then decline to about 5.8 percent of GDP by 2050 and remain at about that level. The projected 75-year actuarial deficit in the combined Old-Age and Survivors and Disability Insurance (OASDI) Trust Fund is 2.00 percent of taxable payroll, up from 1.70 percent projected in last year's report. This increase is due primarily to the recession, slightly lower estimates for real GDP after the economy recovers in 2015, and faster reductions in mortality rates. Although the combined OASDI program passes our short-range test of financial adequacy, the Disability Insurance Trust Fund does not; DI program costs have exceeded tax revenue since 2005, and trust fund exhaustion is projected for 2020. In addition, OASDI continues to fail our long-range test of close actuarial balance by a wide margin. Projected OASDI tax income will begin to fall short of outlays in 2016, and will be sufficient to finance 76 percent of scheduled annual benefits in 2037, after the combined OASDI Trust Fund is projected to be exhausted.
Social Security could be brought into actuarial balance over the next 75 years with changes equivalent to an immediate 16 percent increase in the payroll tax (from a rate of 12.4 percent to 14.4 percent) or an immediate reduction in benefits of 13 percent or some combination of the two. Ensuring that the system remains solvent on a sustainable basis beyond the next 75 years would require larger changes because increasing longevity will result in people receiving benefits for ever longer periods of retirement.
The financial difficulties facing Social Security and Medicare pose serious challenges. For Social Security, the reform options are relatively well understood but the choices are difficult. Medicare is a bigger challenge. Its cost growth can be contained without sacrificing quality of care only if health care cost growth more generally is contained. But despite the difficulties—indeed, because of the difficulties—it is essential that action be taken soon, particularly to control health care costs.
Originally posted by GreenBicMan
Do you know how many credits you have to have to get full SS benefits?
So like person X works for 30, and he is entitled to basically the same as other that worked for 30-10 years or something to that effect, as well as the richer you are, the less you get of course, which makes sense in a weird way I guess..lol
If someone could fill in my blanks..