Social Security (SS) has released its estimates for the December data for benefits payed and taxes received. With this info, I can estimate the 2012 results that will be formally reported in five-months. It was a ho-hummer of a year for SS, it tread water vigorously, and ended up with a cash deficit of $46.7B, just a tad more red ink that 2011’s $45.6B. The pieces of the pie, and YoY comps:
Payroll tax receipts: $712.7B (+6.5%)
(Includes payment from Treasury Re the 2% tax cut)
Income from Tax on Benefits $27.1B (+15%) !!
(Means test)
Total Cash Receipts $739.8 (+7.0%)
Benefit Payments $780B (+6.9%)
(Includes RR interchange)
Overhead $6.7B (+4.7%)
Total cash Outlay $786B (6.8%)
Net cash flow loss $46.7B (+2.4%)
Interest income $111.4B (-1.7%)
(non-cash)
Accounting surplus $64.7B (-2.5%)
(Paper minus cash)
Number of Beneficiaries 56.8m (+2.5%)
Some thoughts on these results:
– The $46.7B annual cash deficit is the third in a row. The 2012 shortfall confirms it; SS will never see a cash flow surplus again. Every dollar of the cash shortfall MUST be funded by selling additional debt to the public.
I hope this is clear. I’ll repeat it. Social Security is adding to the debt held by the public. It is forcing the country to borrow more to fund current operations. When Senate Democrats, like Dick Durbin and Harry Reid say, “SS does not add a penny to our debt.” – they are lying.
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– The Tax on Benefits is up to a meaningful $27.1b (+15%). The increase is the result of many newly retired folks who are getting SS, and also have other income (investments and pensions). This forces them to add the SS income into their tax base. THIS IS A “MEANS TEST”.
I emphasize this fact as there is very strong opposition to the concept of a means tax for SS by Democrats in Washington and the liberal press (Dean Baker). But it already exists!
Liberals don’t like means testing because it undermines the principals of SS. It makes it appear that SS is a form of welfare. The fear is that if SS is labeled as welfare, the popularity of the program would quickly wane. So the staunchest supporters of SS are avoiding a fix that could patch the finances for the worst reasons. They are supporting Roosevelt’s dreams, at the expense of the base they say they are trying to protect. Only in America….
The problem with the existing Tax on Benefits is that it does not cut deep enough to fill the bucket. I advocate that the tax bite for high-end seniors be increased. I will go further, and state that the means test for SS benefits should be based on assets, not just income that can be manipulated.
My strong feelings on means testing SS benefits are to my personal disadvantage; my SS benefits would be gone under my plan. I say this now, as I know there will be many who will throw rocks at me for my stance. I can already see the words, “I paid for it, the money is mine!” I say,”Sorry, this will come sooner or later.”
My gripe is that the generation that is causing the problem, the Baby Boomers, is getting off scot-free. All of the proposals to tweak SS (Age and inflation adjustments) would phase in over twenty-years. With this, the bulk of the baby boomers would get a free ride. This doesn’t seem fair at all to me. Society, as a whole, will have to pay for the Boomers, but the Boomers should shoulder a higher percent of the cost. By no means should their political clout result in an unfair outcome. This is a political “Kick of the Can”, “screw folks sometime in the future”. A downright ugly plan at that.
– In 2012 the Treasury paid SS $115B to offset the drop in income related to the 2% reduction in payroll taxes for the year. The operating results (including the Treasury contribution) still produced a cash flow deficit of $46.7B. In other words, the shortfall for 2012 added $162B to the borrowing requirements at Treasury. This borrowing resulted in a dollar-for-dollar increase in the Debt Owed to the Public.
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– There was an improvement (+6.5%) in the YoY payroll tax income. A portion of the better results are annual “Adjustments”. 2012 had positive adjustments to revenue from the prior year totaling $2.1B, while 2011 had negative adjustments of $8.6B. Taken together, the real rate of increase for revenues at SS is closer to 5.2%. This data can be used to create an estimate of total payroll income (Adjusted payroll income / Tax rate {12.4%} :
2011 estimated SS total payrolls = $5.658T
2012 estimated SS total payroll = $5.951T
YoY change = $293B (1.8%)
The ~$300B of increased pay seems like a very big number, but when you consider that inflation is running at about that same 1.8%, most folks are getting no place fast.
I draw this comparison to make a point about the huge numbers that are part of the economy. A $300B increase in worker’s incomes doesn’t move the needle at all. Amazing…
Note: This quickie numbers analysis does not reflect the cap of $106.5K on SS tax, nor other sources of income that is not taxed by SS. I don’t think this skews the results/conclusions by much. Social Security has 155m in its pool, significantly larger than the Non-Farms Payroll (135m). These numbers cover a big slice of the American pie.
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– The YoY increase in Benefits of $50.1B (6.9%) is a reflection of A) A COLA increase of 3.6% and B) A net increase of 1.4m in the number of beneficiaries. The costs at SS rose at a pace that is far higher than the economy grew in 2012. Approximately 11,000 people enter the system every day. 7,000 current members of the club, well, they leave the system 24/7.
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– Interest income is down 2.5% in 2012. The decrease of $1.1B is modest, but also significant. The passage of time and ZIRP/QE, has caught up with SS’s investment portfolio. The interest income at SS for 2011 will prove to be the zenith; from now on, the interest income at SS will be in annual decline. This is an important milestone, a decidedly negative one at that.
The Federal Reserve has cheapened the cost of money at the expense of SS. One can argue the merits of this tradeoff, but what can’t be argued, is the consequence to SS. If the Ten-Year were at 4% (Versus the 6% long-term average) it would add $700B to SS interest income over the next (critical) ten-years.
If you listen to Bernanke, the other Fed Doves, guys like the WSJ’s Jon Hilsenrath, and all of the economists on TV, you would think that there is no consequence to the government of perpetual cheap money. Actually, what Bernanke is doing is dramatically shortening the day of reckoning for SS. The current thinking is the SS “go bust” date is 2033. But when SS releases its annual report in May, it will confirm that the date has been brought forward a few years, and the culprit is cheap money. I wish that someone other than the blog world would point these things out. Bernanke is no pal of SS, Very Important People, like Paul Krugman, love SS and also hail Bernanke’s endless cheap money. I guess they don’t see the conflict.
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– There was no crisis at SS in 2012, and there won’t be a real crisis for a number of years to come. The growing annual cash deficits are now “programmed” to happen. This gives Democrats the opportunity to say, “Hands off SS”. “It ain’t broke, so don’t try to fix it”.
My guess is that the Democrats will prevail on SS with regard to the current fiscal cliff debate. As a result, there will be no changes to SS. Should that be the outcome, in about five years the wheels will fall off the cart. By then, SS will be running cash deficits of at least $200B a year. It will be much harder to “fix” than today.
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