Social Security Will Boost Debt by 18 Percent of GDP in Just Twenty Years

At IBD, "Social Security to Up Debt By 18% of GDP In 20 Years":

Since 2007, Social Security has gone from running an $81 billion annual cash surplus to an estimated $58 billion deficit.

Yet despite that $139 billion swing toward red ink, Democrats insist that Social Security hasn't added a penny to the deficit and, therefore, should be off the table in fiscal cliff negotiations.

In reality, Social Security's deteriorating finances explain 15% of the $900 billion-plus increase in the overall budget deficit over the past five years.

Even more striking, Social Security's cash deficit will balloon to $155 billion by 2022, the Congressional Budget Office projects. That rise amounts to more than one-third of the overall deficit increase over the coming decade if current tax and spending policies stay in place.

IOU Accounting

So how can liberals argue that Social Security doesn't cause deficits? The $2.7 trillion Social Security trust fund doesn't hold any resources to help the government afford benefits. Instead, it represents a Treasury promise to cover any cash shortfall until the trust fund's special bonds, really government IOUs, are all spent.

That makes the retirement program's cash shortfall a problem for Treasury, but not Social Security itself, liberals can argue.

Yet either way, the impact on the government's bottom line is the same.

On its current path, Social Security's cash shortfall would raise public debt by 18% of GDP through 2032 — just before the trust fund is exhausted — an IBD analysis based on the 2012 Social Security Trustees report finds.

In 20 years, if Social Security is left unreformed, its cash deficit will hit 1.4% of GDP. On top of that, the extra interest due on the debt incurred by redeeming all of Social Security's trust fund bonds would amount to another 1% of GDP.

Bottom line: Social Security alone would increase the deficit by 2.4% of GDP, making it too big to ignore.

Because health care is by far the biggest driver of long-term budget deficits, there's no reason to think that the non-Social Security part of the budget will have money to spare to cover such a big Social Security deficit.

There also are important reasons to reform Social Security beyond fiscal prudence. When President Clinton put Social Security at the top of his agenda in 1998, he told Congress that reform wasn't just about saving money but also providing more support to lift low lifetime earners and elderly widows out of poverty. Such efforts have been stymied by political stalemate.

How about adults at the halfway point of their careers who face the prospect of retiring after the Social Security trust fund is depleted?

An IBD analysis finds that an average earner (about $43,000 a year) with 20 years left until retirement would have to set aside more than 5% of wages each year to make up for a nearly 25% automatic benefit cut under current law. That assumes Treasury returns and a lifetime annuity.

The government should let these workers know if they need to do more saving before it's too late.

RTWT.