The president and other privatization supporters have referred to Social Security as a program that is in crisis or on the verge of bankruptcy because of the financial obligation it owes to future generations of retirees. Yet a quick comparison between Social Security and other budgetary obligations put on future generations by this administration shows that Social Security is in fact in better financial health than the budget overall. Social Security currently has a $1.7 trillion surplus. The Trust Fund took in $170 billion more than it paid out in 2004. In 2018 the surplus is projected to grow to $5.3 trillion. By 2027, it is expected to be $6.6 trillion. Because of demographic changes, the Trust Fund will then start to deplete until the surplus is paid out by 2042. At which point, incoming contributions from workers will be able to pay 75 percent of promised benefits.
The Social Security and Medicare trustees, a majority of whom are members of the president’s cabinet, project that this Social Security shortfall will amount to 0.65 percent of the Gross Domestic Product (the basic measure of the size of the U.S. economy) over the next 75 years. In dollar terms, the trustees project the shortfall over the 75 year period at $3.7 trillion.
In contrast, the Congressional Budget Office (CBO) projects that the Social Security shortfall will be only a little over half as large as the trustees do; CBO places the shortfall at 0.35 percent of GDP over the 75-year period.
Source: Center on Budget & Policy Priorities from Congressional Budget Office & Joint Committee on Taxation cost estimates
The Budget Deficit and Tax Cuts – While Social Security is in surplus, the federal budget is running a deficit of $539 billion for FY2005. Moreover, the president’s FY2006 budget proposal would borrow another $1.4 trillion over the next five years. If you were to exclude the Social Security surplus from the administration’s calculus, the actual size of the government's operating budget deficit actually would be closer to $2.5 trillion.
The cost of the 2001 and 2003 tax cuts, if made permanent as the president insists, is 1.95 percent of GDP ($11.1 trillion) over the next 75 years, or three times the size of the Social Security shortfall of 0.65 percent of GDP.
If the tax cuts are made permanent, the portion benefiting the wealthiest one percent of Americans will be about the same size as the entire Social Security shortfall. The Urban Institute-Brookings Tax Policy Center estimates the cost of the tax cuts for the top one percent of households will equal 0.5 percent of GDP ($2.9 trillion) over the next 75 years. This is 46 percent larger than CBO’s estimate of the size of the Social Security shortfall and more than three-quarters the size of the shortfall that the trustees project.
Medicare - The trustees also project the cost of the Medicare drug benefit at 1.4 percent of GDP ($8.1 trillion) over the same period of 75 years. This is at least double the size of the Social Security shortfall. Recent reports indicate that the administration’s initial estimates for the cost of the drug benefit were extremely low.
Comparing Costs over an Infinite Horizon
The American Academy of Actuaries denounced use of the estimations of Social Security’s shortfall over an infinite time period as providing “little if any useful information about the program’s long-range finances and indeed are likely to mislead anyone lacking technical expertise in the demographic, economic and actuarial aspects of the program’s finances into believing that the program is in far worse financial condition than is actually indicated.”
Still, because the president and pro-privatization advocates continue to use the infinite horizon figure of $10 to $11 trillion, a comparison between programs over this period is in order. Comparing the Social Security shortfall into eternity to the cost of the tax cuts and the drug benefit over the same time horizon, the costs of the tax cuts and the drug benefit remain much larger.
- The Social Security shortfall is estimated by the Trustees at $10.4 trillion, or 1.2 percent of GDP, when measured into eternity. The cost of the tax cuts, if made permanent, is $16.4 trillion (1.9 percent of GDP) over the same time horizon.
- The trustees’ estimate of the cost of the drug benefit, measured into eternity, is $16.6 trillion (1.8 percent of GDP).
- The combined cost of the tax cuts and the drug benefit, projected into eternity, thus equals $33 trillion, or 3.8 percent of GDP. This is more than three times the size of the Social Security shortfall, as measured into eternity.
These figures indicate that there are at least a few more pressing budgetary crises that Congress and the president should address before considering drastically altering the Social Security program, the most successful government program ever created.