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Hiding it Does Not Help: Social Security is Already Broke

2 min readBy: William McBride

I recently noticed a column by Pulitzer Prize winning journalist David Cay Johnston in which he claims the following:

“Which federal program took in more than it spent last year, added $95 billion to its surplus and lifted 20 million Americans of all ages out of poverty?

Why, Social Security, of course, which ended 2011 with a $2.7 trillion surplus.”

This is highly misleading, and more than a little dangerous considering the European sovereign debt crisis. According to the most recent data from the social security administration, last year social security paid out $596 billion in benefits and took in $504 billion in taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. es, for a deficit of $92 billion.

Social security did run a surplus after the reforms of 1983 until 2010. If you count the $106 billion in interest earned last year on that accumulated surplus then the social security current year balance switches to a surplus of $14 billion. That’s legitimate, if unsustainable over the long term. This surplus could even disappear this year as interest rates have come down and benefits have increased.

However, to get to a $95 billion current year surplus David Cay Johnston is counting “general fund reimbursements”, which is to say money moved from the rest of the federal budget to cover social security deficits. That is clearly illegitimate, and conflicts with any sensible notion of social security as a contained retirement system funded by its own revenue sources. Last year, $88 billion was transferred from the rest of the federal budget in this manner. When administrative expenses are substracted this comes to a balance of $95 billion.

Tax experts across the ideological spectrum recognize this is a charade. See, for instance, Eugene Steuerle’s testimony on the matter:

“Nonetheless, additional general revenue financing of Social Security in absence of broader reform tends to hide the true deficits in Social Security, deter reform, and likely increase total government deficits in the long-term.”