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Continued: D.J. Tice: As a nest egg, Social Security has cracked. But we knew that.

  • Article by: D.J. TICE , Star Tribune
  • Last update: October 18, 2009 - 11:57 AM

It's a measure of America's troubles that last month's news about Social Security was received placidly, almost with a weary shrug. The news reveals a lot about the nation's current distress, future challenges and past dithering.

Social Security will slip into the red next year, according to an Associated Press report, paying out more in benefits than it collects in payroll taxes. It will be the first time the vast federal retirement system has come up short since the early 1980s -- a ditch we'll plunged into six years ahead of schedule.

The new projections call for Social Security to be back in the black by 2012, but only briefly. After 2016, the program is on track to fall permanently into deficit.

Current retirees will still get their benefits. Social Security has a much-discussed and misunderstood Trust Fund that gives it a claim against the federal Treasury. In other words, the federal government will make up the program's shortfall by -- what else? -- borrowing a bit more (some $19 billion over the next two years, and much more later), further inflating its own ponderous debt bubble.

What this confirms about current conditions isn't news: People are hurting. Social Security must prematurely tap its Trust Fund because many out-of-work seniors are opting to take early retirement, even though many of them might have preferred to work a few more years and enjoy larger benefits later. Also, payroll tax collections have shrunk as unemployment has soared.

Trouble is, Social Security's imbalance won't go away just because the recession does. Long before this past year's economic storm was a wispy cloud on the horizon, it was clear Social Security would fall into deficit sometime before 2020, and stay there forever after.

Nothing was done to prevent this largely because of constant reassurances that the trillions the Trust Fund holds in "reserves" mean Social Security will be just fine for decades to come.

The latest developments show how "just fine" really works. As Social Security taps its reserves, every dollar will have to come out of the federal budget, financed by higher taxes, spending cuts or bigger deficits. (Bet on deficits.)

It is perfectly true that Social Security has been running large surpluses ever since that last crisis in the early '80s -- collecting more in payroll taxes than it paid out in benefits. But those surpluses weren't set aside as in a pension fund. They simply flowed into the Treasury and went to support other federal spending, mostly serving to make federal deficits look smaller than they really were all these years.

This so-called raiding of the Trust Fund has often been decried. In truth, any mechanism to truly squirrel away Social Security surpluses presented difficulties. But however grave the mistake or misdeed of spending the Social Security surplus, it is what is technically known as a done deal. The challenge now is to face where it leaves us.

It leaves American taxpayers needing to make up Social Security's shortfall -- starting next year, not decades from now when the Trust Fund is exhausted. And it leaves future retirees in some danger.

The special bonds held by the Trust Fund are genuine obligations of the federal government. But they are unusual. They are not due and payable on a set schedule, like an ordinary bond or loan. Social Security is simply authorized to draw on them whenever it needs to because its own tax collections aren't big enough to cover its own obligations.

But Congress -- in essence, the debtor in this situation -- can change Social Security's needs any time it likes. It can increase Social Security taxes or reduce retiree benefits, and has done both several times in the past. This would have the effect of canceling, or at least delaying, Social Security's redemption of those Trust Fund bonds.

Of course Congress faces moral and political pressures to give taxpayer/retirees the benefits they have been promised. But the mountainous federal debt policymakers somehow will have to shrink in the years ahead will also produce pressures, and Social Security benefits could well be eroded in the process.

One other way Social Security's premature woes reflect the nation's larger mess is this: The retirement program has become a comparatively small problem in our swelling sea of troubles. Medicare's funding crisis, for one thing, is worse.

Still, according to the Social Security Trustees, it would take benefit cuts or tax hikes equivalent to an immediate, permanent 16 percent increase in payroll taxes to make the system whole. Not exactly a stimulus plan.

What's most worrisome, though, is that in Social Security we have a problem that has been well understood for many years. If action had been taken earlier, the solution would have been less painful (and sooner, by the way, is still better than later).

A remedy was already long overdue when Democrats greeted former President George W. Bush's 2005 attempt to put Social Security restructuring on the agenda about as constructively as Republicans have greeted President Obama's health care initiative this year. Bush's idea to include private accounts in the fix charmed Democrats rather the way Obama's "public option" has won GOP hearts.

Our political system's recurrent inability to tell hard truths, to ask for sacrifice, and to compromise across partisan lines may be the deepest deficiency we face.

D.J. Tice is the Star Tribune's commentary editor. He is at dtice@startribune.com.

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