Social Security is Cash Flow Negative

Blame the Boomers
We have known for decades this day would come. The population explosion following World War II known as the Baby Boom meant that as the population aged, the number of retirees would exceed the number of workers. Social Security was designed to support current recipients with current contributions.

During their working years, Baby Boomers paid far more into the fund than it paid out. The Social Security Trust Fund was created to save the excess contributions against the day when payouts began to exceed contributions. Special government bonds were purchased for the fund. The problem? When the government issues bonds of any kind, it is borrowing money. Add to the mix the government's propensity of borrowing to support virtually all its operations and you have a disaster in the making.

Time has Come Today
As long as inflows exceeded outflows, Social Security remained self-supporting and elected officials could ignore the looming catastrophe. After all, that is what our policy makers do (just research global climate change policy; the real estate bubble; the financial industry destruction of global financial stability).

In 2008 we entered The Great Recession. Millions of Americans lost their jobs. Millions of Americans and their former employers were no longer paying 12.4% of earned income into Social Security. As the unemployment rate stubbornly remained around 9% and millions of the long-term unemployed fell off the unemployment rate radar screen, Social Security Tax receipts were hard hit.

In December 2010 the Obama/McConnell tax bill cut contributions to Social Security by the currently employed 2%. Social Security Tax receipts once again were hit hard.

Despite Social Security System incentives to continue working late into their 60s, unemployed persons 62 and over began to collect Social Security early - yet another hit to the system.

Repaying National Debt Principle
Sound like a Perfect Storm? A few days ago it was announced that Social Security had turned "cash flow negative" 4-7 years before government projections. This called into question even the most conservative estimates of the long-term solvency of Social Security.

The estimates rely on tapping the Social Security Trust Fund. Tapping the Social Security Trust Fund, until it is exhausted means paying down the national debt - paying the interest on it, but also repaying the principle ($2.5 TRILLION).

There is only one way to accomplish that. Increase government revenues while cutting government services to the bone. Time to take another look at the Simpson/Bowles deficit reduction plan.