Squaring the Culture

Color me shocked. Both Social Security and Medicare have announced that because of the severe recession, they’re both going to be in the red sooner than expected.

Trustees of the two programs said Tuesday that Social Security will start paying out more in benefits than it collects in taxes in 2016, one year sooner than projected last year, and the giant trust fund will be depleted by 2037, four years sooner.

The trustees said Medicare was in even worse shape. They said that the trust fund for hospital expenses will pay out more in benefits than it collects this year and will be insolvent by 2017, two years earlier than the date projected in last year’s report.

Savor that for a moment: Social Security starts being a net negative to the federal budget within 7 years. Medicare is already a net negative to the budget, and will be broke within 8 years. Oh, and that “giant trust fund” they mention? It doesn’t help anything; it’s pretty much nothing but federal T-bonds, not real assets (basically, the government holds a big IOU to itself,) which means that when Social Security starts eating it 7 years from now, the government will have to start paying down it’s debt to Social Security out of the general revenues.

Keep in mind that about half of the famous surpluses of the Clinton years were due to a simple shift in how the government counted Social Security revenues. Before Clinton, they were kept separate from the budget, and Congress borrowed from it on the record. Starting I think in 1993, Social Security revenues were considered part of the general revenue, for which reason Congress didn’t have to borrow it in order to spend it. The great excess of receipts over expenditures in the Social Security system, which was never counted as revenue to the government before 1993 (and never should have been,) is roughly half of the reason for those nice-looking surpluses. This is one of the reasons I think of President Clinton as a sham and a failure; he had an opportunity to fix Social Security, and he chose instead to use it for a smoke-and-mirrors game to enhance his own image. It’s typical of Boy Clinton.

This also reminds us of the game of refusing to include unfunded commitments in federal budget projections. Dire projections from the Congressional Budget Office say the Obama administration could have the nation in as much as $17 trillion in debt by the end of a two-term presidency, but that does not include promises made through government programs to people in the future (an insurance company paying annuities would never be permitted to omit future obligations like this.) Figure in Medicare and Social Security, and the long-term liabilities of the government swell to something closer to $50 trillion; their combined, long-term, unfunded obligations totaled some $35 trillion back in 2006.

If it can’t go on forever, it won’t. Creative accounting will not forestall the crash, which is inevitable. We let it go too long.

“I told you so” won’t help anything, but just for the record, here’s a paper from the Heritage Foundation in 1988 saying that we have 20 years of Social Security surpluses ahead of us, and we need to fix Social Security during that period.

UPDATE 5/14: Hot Air got into the act yesterday, reporting on the same story and posting the same graphic. He adds another ominous note: Moody’s is warning that the US government’s AAA financial rating for Treasury Bills is at risk of being downgraded. Make no mistake, this is not a sign that a crisis is coming, it’s a sign that it’s already here.