In seeking to avoid the ‚??fiscal cliff,‚?Ě President Obama and congressional Democrats say they want a ‚??balanced approach‚?Ě to deficit reduction. But to the President, ‚??balance‚?Ě apparently means $7 in tax hikes and fees for every $1 in actual spending cuts. He must see that if we go over the cliff, the impacts will be starkly uneven. The defense budget will be disproportionately affected‚??$492 billion in cuts from defense (accounting for 43 percent of sequestration cuts), $322 billion from non-defense discretionary spending (28 percent of cuts) and $171 billion from entitlement spending (15 percent of cuts), according to The Heritage Foundation.
Not only is Social Security ‚?? one-fifth of the federal budget ‚?? exempt from sequestration, even in negotiations to avoid sequestration, Democrats have taken it off the table. ‚??We are not going to mess with Social Security,‚?Ě says Senate Majority Leader Harry Reid (D-W.V.) That’s because ‚??Social Security is not currently a driver of the deficit,‚?Ě according to White House spokesman Tim Carney.
‚??Social Security does not add one penny to our debt — not a penny,‚?Ě agrees the Democrats’ Senate Whip, Dick Durbin.
The Congressional Budget Office reported in October that Social Security has been increasing the deficit since 2010, and its net cost will grow ever larger in the future. Even President Obama‚??s own fiscal 2013 budget shows (see page 208) that Social Security will add more than $100 billion to the deficit this year, rising to more than $200 billion by 2022. According to these figures, Social Security will contribute $1.6 trillion to deficits (and thus the national debt) over the next decade.
Reid, Durbin and other Democrats argue that these shortfalls are paid out of the $2.6 trillion accumulated in the Social Security ‚??trust fund‚?Ě since Ronald Reagan‚??s Social Security reform of 1983. The problem is that there is no money in the trust fund.
As the Social Security Administration (SSA) explains: ‚??Tax income is deposited on a daily basis and is invested in ‚??special-issue‚?? securities. The cash exchanged for the securities goes into the general fund of the Treasury and is indistinguishable from other cash in the general fund.‚?Ě
Special issue securities are ‚??certificates of indebtedness‚?Ě or bonds available only to the trust funds. When SSA redeems these special issues, the money must come from somewhere: The federal government must (1) raise taxes, or (2) cut other spending, or (3) borrow from the public, including foreign investors such as China. The last option doesn‚??t actually pay off the debt; it merely transfers it from off-budget ‚??intra-governmental debt‚?Ě to on-budget public debt.
The Government Accountability Office reports that intra-governmental debt now totals $4.7 trillion, of which 57 percent is held by the Social Security trust funds. In other words, Social Security currently accounts for about $2.7 trillion of the gross national debt.
This figure may understate the problem: A Working Paper published by the National Bureau of Economic Research found that ‚??an additional dollar of surplus in the trust funds is associated with a $1.50 decrease in the federal funds surplus.‚?Ě That 2004 study concluded that ‚??workers 15 years from now will have to pay off the obligations in the trust fund through increases in other taxes and cuts in other government services.‚?Ě
Even that situation will last only as long as the trust fund itself. In 2004, the Social Security Trustees projected that that fund would last another 40 years ‚?? until FY 2044; in 2012, the Trustees reported that it would be exhausted by FY 2033 ‚?? just 20 years from now (FY 2013, which began last October). In just 8 years, the estimated date of exhaustion moved 11 years earlier. If the projected date of exhaustion continues to collapse at that rate, the trust fund won‚??t last another decade.