Bill Manzi.com

The Social Security Trust Fund appears to be on course to pay out in benefits more than it takes in this year, something that projections had estimated would happen in 2016. A recent New York Times article detailed the quicker than anticipated decline.

Analysts have long tried to predict the year when Social Security would pay out more than it took in because they view it as a tipping point — the first step of a long, slow march to insolvency, unless Congress strengthens the program’s finances.

“When the level of the trust fund gets to zero, you have to cut benefits,” Alan Greenspan, architect of the plan to rescue the Social Security program the last time it got into trouble, in the early 1980s, said on Wednesday.

That episode was more dire because the fund could have fallen to zero in a matter of months. But partly because of steps taken in those years, and partly because of many years of robust economic growth, the latest projections show the program will not exhaust its funds until about 2037.

The Times article, linked below, appears to take the position, like Greenspan, that since the Trust Fund has “assets” that will last into 2037 there is a little time to create a fix for Social Security. The article pays scant attention to the fact that these “assets” are U.S. Government bonds which must now be redeemed for cash to pay benefits. So while the “Trust Fund” is technically liquid the U.S. Government will now need to borrow or tax for the amount redeemed annually.

For accounting purposes, the system’s accumulated revenue is placed in Treasury securities.

In a year like this, the paper gains from the interest earned on the securities will more than cover the difference between what it takes in and pays out.

Mr. Goss, the actuary, emphasized that even the $29 billion shortfall projected for this year was small, relative to the roughly $700 billion that would flow in and out of the system. The system, he added, has a balance of about $2.5 trillion that will take decades to deplete. Mr. Goss said that large cushion could start to grow again if the economy recovers briskly.

Interest paid by U.S. taxpayers. The fiscal plight of the country is serious and will eventually require actions that will be politically difficult, to say the least. Today’s Fred Hiatt column in the Washington Post reflects the same concerns.

Read the New York Times article here.