By EPI economist Monique Morrissey
Yesterday’s Congressional Budget Office budget report showed that the weak economy continues to be a drag on Social Security’s short-term finances as payroll tax receipts lag pre-recession projections. Outlays are also higher than anticipated before the downturn, as Social Security has helped cushion the blow for older workers who have lost their jobs. This will have little impact on Social Security’s long-term finances, however, in part because workers who take early retirement receive reduced benefits.
Social Security is still projected to run an $868 billion surplus over the next decade, building up a trust fund sufficient to last through the peak baby boomer retirement years.
Nevertheless, gloomy news reports—in particular an Associated Press story by Stephen Ohlemacher—show that when it comes to Social Security, no news is bad news. The AP story claims that “Social Security will run at a deficit this year and keep on running in the red until its trust funds are drained by about 2037.” The story misrepresents the trust fund’s solvency by excluding interest earnings, a major source of revenue for Social Security. The article also fails to mention that even if nothing is done to shore up the system’s finances, current tax receipts will be sufficient to cover most benefits in 2037, which will still be higher in inflation-adjusted terms than benefits are today. Social Security is not in crisis.
A paper released yesterday by EPI looks at Social Security’s long-term finances, concluding that the biggest cause of Social Security’s projected long-term shortfall is not rising life expectancy or the baby boomer retirement, but rather stagnant wages and growing inequality.