Here’s one case where bipartisanship ruled in Washington, but with a very negative outcome.
For three decades Social Security’s payroll tax collections had been producing large surpluses — had is the operative word — taking in more money than needed for administrative costs and benefit payments, mainly to retirees and disabled adults.
But rather than holding on to that money for the expected day that expenses would exceed income, Republicans and Democrats in Congress have been tapping the surplus — in exchange for IOUs — to pay for other programs.
It was an easy political choice because doing so reduced the amount of money the federal government had to borrow from private investors or foreign governments to cover the budget deficit.
Truth is, there never has been a Social Security lock box.
Well, that expected day is here. This year Social Security is projected to pay out $789 billion and take in just $623 billion.
To cover all the money that was taken out, the Treasury Department has been issuing to Social Security special interest-paying bonds. They now have a value of $2.7 trillion, and this year interest on the bonds should be about $110 billion — though critics say this is merely an accounting device and the government eventually may need to borrow money to cover the interest.
Still, about $54 billion of this year’s $166 billion shortfall is to be covered by some of that interest.
The rest of the shortage, $112 billion, is due to the one-year reduction in the payroll tax passed two years ago in an effort to stimulate the economy by leaving more money in workers’ paychecks. The tax cut was extended but is set to expire in January — unless Congress extends it again. Money to pay that loss of income to Social Security likely will have to be borrowed.
Meanwhile, members of Congress are spending their time arguing over whether Social Security is adding to the federal budget deficit.
But that discussion is wrong-headed and only serves to further delay addressing the problem in a serious way — something Congress seems adept at doing.
A bipartisan effort — political collusion is closer to reality than compromise — over a long period helped land Social Security in its current fiscal state. The focus of debate should now be on how to keep it solvent beyond 2033, the year Treasury Secretary Tim Geithner has said Social Security will have only “enough money to cover about three-fourths of full benefits.”