At last! A cause for celebration. Feel free to dance in the streets. April 22 was a great day for people hoping to live beyond 2034. The Social Security Trustees 2019 report told us that the program would remain solvent through 2035.
That’s an entire additional year!
Glass-half-full types such as Nancy Altman, president of Social Security Works writing for Forbes, reported this with joy.
Glass-half-empty observers reported the dim side. After 2035, they assured us, benefits would need to be cut by about 20 percent.
Either way, half-full or half-empty, there is no need for concern if you are 85 today.
For the rest of us, the prospects are less exciting. That’s a whole lot of people. More important, the difficulty with paying full benefits is going to be a problem long before 2035.
I have a suggestion. Don’t pay attention to the Social Security Trustees reports. Their reports, while valuable, are based on trust fund accounting.
The real action, as always, is in the day-to-day, year-to-year cash. Follow the money. Fortunately, as I’ve reported before, there is a way to do exactly that. It’s easy to find.
It’s in the Medicare Trustees report. More precisely, read Appendix F, “Medicare and Social Security Trust Funds and the Federal Budget.”
The trustees added this appendix to the fiscal 2003 report, and they’ve done it every year since. They compare how things look from a trust fund and federal budget perspective.
And guess what?
The federal budget perspective is very different from the trust fund perspective. The difference is that the federal budget perspective reflects actual cash flows. And that just happens to be how bills are paid.
How we got here
In 2003, Social Security had a $72 billion cash surplus for federal budget accounting. This was the difference between dollars in and dollars out. The trust fund reported a still-higher number, $155.5 billion. The $72 billion cash surplus nearly covered the entire cost of Medicare. So the net cost of Social Security and Medicare was a piddling $18.5 billion. Every other part of government, meanwhile, lost a whopping $356.3 billion.
Basically, the surplus in Social Security employment tax collections covered virtually the entire Medicare spending that Congress was committed to pay out of general revenue. Members of both parties loved it.
In fiscal 2018, Social Security showed a tiny $4.7 billion surplus in trust accounting. But the federal budget cash accounting was a cash loss of $79.2 billion. It was a continuation of the losses that began in 2010. Now, even the Social Security Trustees report foresees unending deficits beginning in 2020 as the $2.9 trillion of U.S. Treasury securities in the trust fund is spent down.
But there’s a problem with spending down that trust fund. It isn’t cash stuffed in a drawer. To raise the cash to pay the bills, Treasury securities will be redeemed. The usual way to do this is for the Treasury to borrow money in the open market. Basically, the entire $2.9 trillion trust fund is new borrowing that the Treasury will have to do between now and 2035.
Every year going forward, the cash cost of Social Security and Medicare is going to increase. Worse, the deficit for operating all other government hit a low in 2015. Then it was only $83.9 billion. That compares with a $354.5 combined cost of Social Security and Medicare in that year. Today, the deficit for all other government is rising steadily.
How steadily? The net deficit of all other government in 2018 was $405 billion, nearly five times what it was only three years earlier.
Combined, the two deficits brought the total government deficit to $779.1 billion, the highest figure since 2012.
What happens now?
So here we are, living in the best of all possible worlds. Anyone who can fog a mirror is employed. Pay is rising. Capital gains are bursting. Real estate is soaring. Even with the entire economy on hyperdrive, our government still runs a $780 billion deficit. What happens when less-happy days arrive?
Let’s hope it won’t be anything like the financial crisis of 2008-09. Back then, we went from a Social Security and Medicare cash accounting surplus of $80.1 billion to only $19.4 billion. And the deficit of all other government soared from only $67.3 billion to a staggering $1,214.7 billion between 2007 and 2009.
Following the money tells us that something will happen before 2035.
Is there a solution? You bet.
Will we get that solution? Not until both of our political parties pay attention.