CBO - The Coming Raid on Social Security

Bruce Krasting's picture



Every politician in America knows that Social Security (SS) is a third rail. Any Pol who tries to mess with the country's largest and most popular entitlement program is going to have the likes of the AARP coming after them. It's not possible to win an election on a platform that advocates cutting back SS.

With that in mind, I find it interesting to report that a very credible source is now predicting that Obama AND Congress will take action over the next 24 months that will substantially undermine both the long and short-term health of SS. The legislative raid on SS will certainly total in the hundreds of billions, it could top $1T over the next fifteen years.

So who is this "credible source"? And just how is this raid going to happen? The source of this information is the Congressional Budget Office (CBO); the following is how it will play out:


SS consists of two different pieces. The Old Age and Survivors Insurance (OASI) and Disability Insurance (DI). Both entities have their own Trust Funds (TF). OASI has a big TF that will, in theory, allow for SS retirement benefits to be paid for another 15+ years. On the other hand, the DI fund will run completely dry during the 1stQ of 2016. By current law, the DI benefits must be cut across-the-board by 30% on the day that the DI TF is exhausted.

This would mean that 11 million people (most of whom are very sick) would get slammed from one day to the next. There is no one in D.C. who wants this to happen. I don't think the American public wants this outcome either. So what are the fixes?


1) Increase income taxes on +$250k of income to pay for the DI shortfall. Maybe, but this will not happen with the current Republican controlled House.

2) Increase Payroll taxes to cover the DI shortfall. I see zero political support for a permanent Payroll tax increase.

3) Cut benefits by 30%. This would be insane - it will not happen with Obama running the show.

4) Kick the can down the road and raid the OASI TF for the annual shortfalls at DI.


Of course #4 is the path that will be taken. #s 1, 2 and 3 are not politically feasible. I have been wondering what will happen with the DI conundrum. I was surprised to see that the CBO spelled out what will happen in its report on the Budget and Economy - SS Trust Funds. The report has this footnote:


CBO projects that the DI trust fund will be exhausted during fiscal year 2016. Under current law, the Commissioner of Social Security may not pay benefits in excess of the available balances in a trust fund, borrow money for a trust fund, or transfer money from one trust fund to another. However, following rules in the Deficit Control Act of 1985 (section 257(b)), CBO's baseline assumes that the Commissioner will pay DI benefits in full even after the trust fund is exhausted.


The "loophole" to drain the OASI insurance is already law - so Congress doesn't have to do anything to raid the retirement fund. The "do nothing" plan is always the best option in D.C.


The footnote goes on to provide an estimate for the size of the raid:


For illustrative purposes, below are the cumulative shortfalls in the DI trust fund beginning in 2016. Those shortfalls do not include interest expenses.


DI Trust Fund Cumulative Shortfall

($s in Billions)

2016 -15

2017 -55

2018 -94

2019 -133

2020 -173

2021 -215

2022 -260

2023 -307


Wow! At this rate the raid tops $1T in 2029. This is is a big dent in a Trust Fund of $2.8T.


There is an import "tell" from the CBO. In the footnotes it highlights the fact that there is a discrepancy, and uses this an excuse to avoid establishing an adjusted end date for the OASI Trust Fund. (It's not a complicated calculation)

What CBO fails to state is that the raid on OASI will result in a significant reduction in the End Date for the retirement Fund. In its report to Congress last year SS forecast that the Retirement fund would be exhausted in 2033. The DI drain (and other negative revisions by CBO) will bring the End Date to below 2030 in the upcoming SS report to Congress. That would be a very significant development. CBO does not want to be the one who puts a new date "out there". To me, this was a cop-out by the CBO.


Given that discrepancy between the trust funds' operation and the baseline's assumption, CBO is not providing DI or combined trust fund totals for the year of exhaustion and thereafter.


The timing of this story is interesting. The question in my mind is will the "fix" come before or after the bi-election. If Obama was a gambler, and he believed the Democrats could re-take the House in 2014, then he might defer action on DI until 2015. This scenario creates the opportunity for option #1, a tax on the rich to supplement DI. Of course that is gambling, and there would be a very small window of time to push through a new income tax to save DI.

Then there is the Republicans. Do they want to push this before, or after 11/2014? I could argue both ways, but in the end, it gets back to the fact that no one wants to "do" anything with SS. It's better to do "nothing"; that makes #4 the most likely outcome.


I hope that some of the big Defenders of SS pick up on the information from the CBO regarding the coming raid on the retirement fund. This is a huge constituency (60m beneficiaries - 150m contributors - every politician in the country - all of the Press). If that group catches on to what is about to happen to the retirement fund, there will be a great chorus of, "Don't you dare touch my money!"


I'm trying to stir the pot on this one. I want DI's terminal condition to come onto the table sooner versus later. I'm hoping that if and when it does come up for discussion, it opens the door on the broader issue of what the hell America is doing with entitlements. Basically, I'm trying to pick a big fight. For the good of the country, wish me luck.




Your rating: None

- advertisements -

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
Mon, 02/11/2013 - 14:27 | 3234015 Bob Sacamano
Bob Sacamano's picture

The system was set up so everyone generally puts in the same amount and everyone generally gets out the same amount.   You are in favor of making it welfare for the elderly (more means-tested than it already is).   If we want to be a welfare state, that is definitely the way to go.  I prefer not.

Sun, 02/10/2013 - 18:46 | 3231423 DosZap
DosZap's picture

There is just not enough money to pay benefits when the deductions are levied with a limit.

Only problem here is we face an EVER shrinking workforce,but I agree w/u, all income should be subject o these taxes for the sake of solvency of the system, and doing the RIGHT thing.

Repubs screaming for CUTS in SS/MC are cutting their own throats, they will NEVER get re-elected if they cut of the largest base of voters, who paid their $$$ into that system.

Obama has their Dick in the Watergate on this.

Sun, 02/10/2013 - 18:25 | 3231372 Matt
Matt's picture

Are there limits to how much you can claim in benefits? If so, there should be a limit to how much you can charge for those benefits.

Sun, 02/10/2013 - 18:22 | 3231300 New_Meat
New_Meat's picture

You can find an edge in "Subchapter S Corporations."  All problems solved there ;-) - Ned

[Ed.: We're seeing the "edge" that France has; even in articles here.  Methinks that France's edge has been sharpened sufficiently to hurt when they fall across it.]

Sun, 02/10/2013 - 17:17 | 3231174 steve from virginia
steve from virginia's picture



Unemployed workers turn to DI when long-term unemployment benefits run out + 99 weeks.


A person can survive on DI, Section 8, food stamps and selling prescription pain killers one-at-a-time on the black market (capitalism). Laid-off workers start in their 50s, they are unemployable due to constrained economy, age and lack of 'experience' (don't know Blankfein).


If they live to their 70's that is 20+ years on the public tit. Once a middle-aged person loses their job they can never get another one.


The government needs to make a sea-change, to assist workers instead of plutocrats. The elites don't need any help: funds must flow toward jobs and workers instead of toward banks and defense contractors, China kleptocrats and various DC 'fixers'.


The government can clamp down on outsourcing and end subsidies for companies shedding workers. These would not cost the taxpayer anything but would add to government receipts. More US workers would pay actual taxes (instead of Mexican or Chinese workers who don't pay anything). Eliminating the subsidies and tax-expenditures would save the government more billions.


Govt is on the hook for student loans and Obamacare to the tune of trillion$ in addition to DI.


More divide and conquer, the elites skim the lion's share of government 'proceeds' while the rest of the country fights like dogs over scraps the elites leave behind.


Elites => woodchippers. Ground up elites make good compost. Their screams of agony can be given a back-beat then piped into office buildings and retail malls as background music (more capitalism).


BTW: means testing (assets or otherwise) won't work, it's another divide-and-conquer scam.





Sun, 02/10/2013 - 22:48 | 3232021 Freddie
Freddie's picture

Older people and baby boomers plus everyone else who voted for Choom deserve all the misery that will be coming.  The RINOs grabbed the GOP with McCain and Romney.  Enjoy the Hope.

Sun, 02/10/2013 - 17:54 | 3231297 New_Meat
New_Meat's picture

"Elites => woodchippers. Ground up elites make good compost. Their screams of agony can be given a back-beat then piped into office buildings and retail malls as background music (more capitalism)."

Steve, ya gotta' take up knitting.  We need a modern Mme. Defarge.  My vote is on you!

- Ned

Sun, 02/10/2013 - 20:44 | 3231717 Bob
Bob's picture

I believe he earlier professed a feet-first Chipper Justice philosophy. 

I'm with you guys.

Sun, 02/10/2013 - 23:53 | 3232178 steve from virginia
steve from virginia's picture




"Their screams of agony can be given a back-beat ..."


I could win a Grammy!

Sun, 02/10/2013 - 17:31 | 3231225 skipjack
skipjack's picture

Your premise is wrong.  The only age category that has adde jobs over the past 5 years has been the +55 bracket.

Sun, 02/10/2013 - 23:12 | 3232084 andrewp111
andrewp111's picture

That is only because no one is retiring, and those younger than 55 are getting older every day.

Sun, 02/10/2013 - 17:11 | 3231171 Uber Vandal
Uber Vandal's picture

My own IF / THEN scenario in regards to my own time to collect on SS is this:

IF I am still alive and there is actually anything left, THEN I expect it to not be able to buy a dented can of cat food.

Not unlike what happened to pensioners in Weimar Germany. Refer to below:


"My father was a lawyer," says Walter Levy, an internationally known German-born oil consultant in New York, "and he had taken out an insurance policy in 1903, and every month he had made the payments faithfully. It was a 20-year policy, and when it came due, he cashed it in and bought a single loaf of bread."


Sun, 02/10/2013 - 17:02 | 3231150 Bazza McKenzie
Bazza McKenzie's picture

Pretty sure Bruce is misinterpreting what the CBO is saying. Sec 257 of the Deficit Control Act of 1985 specifies how the "baseline" spending is to be calculated in forward projections.  CBO therefore appears to be saying they are providing forward projections in the way they are required to do by law, BUT in reality there will be no trust fund money to pay it.  They also point out that the commissioner is prohibited by law from transferring money from other trust funds or borrowing.

Thus they are not forecasting a raid on the SS trust fund.  Rather, they are saying DI payments will stop but because the law that specifies how we calculate the baseline doesn't allow for this, our "official" forecast that assumes payments will be made is wrong.

Sun, 02/10/2013 - 19:32 | 3231534 Bruce Krasting
Bruce Krasting's picture

I'm not sure about the meaning of DCA of 1985. Never heard of it before.


I have talked with a number of people who ponder these things. The collective thinking is that the easiest route is to use reitement fund, if there is no official fix. So I think CBO is confirming this type of thinking. The sentence that leads me to this:


CBO's baseline assumes that the Commissioner will pay DI benefits in full even after the trust fund is exhausted.

Sun, 02/10/2013 - 19:43 | 3231568 Bob
Bob's picture

So you were just bullshitting here, Bruce? JHC. 

People are all too quick to jump your sexy bones when you talk like that, man. 

Don't be a shill. 

Sun, 02/10/2013 - 20:51 | 3231749 Orly
Orly's picture

He said he's trying to stir the pot.

Looks like it worked...except for that whole pre-conceived bias thing.

Do you people even listen?

JHC, yourself, Holmes.


Sun, 02/10/2013 - 21:12 | 3231771 Bob
Bob's picture

Oh, there you go!  True, I admit.  Noted it as I read. 

That was a nice touch, I thought.  I really did. 

And Bruce is apparently the designated SS guy at ZH.

So he's got a responsibility.  But he seems to be strongly and relentlessly running Third Way on this subject.  Over the longterm. 

We all fucking know those guys.

Sun, 02/10/2013 - 19:29 | 3231524 Bob
Bob's picture

Reading 101.  Thank you. 

Bruce has his "suspicions," but still it says what it says. Unless the two are subsets of OASI, which was not at all clear. 

So now I gotta look myself . . .

Sun, 02/10/2013 - 13:14 | 3230695 Longing for the...
Longing for the old America's picture

All the 'trust funds' contain nothing of value. Calculating when they will run out is absurd and non-meaningful anyway.

Sun, 02/10/2013 - 17:27 | 3231218 sgt_doom
sgt_doom's picture

These type of ignorant remarks should never be left unchallenged -- I'm surprised I am the only one responding accordingly.

Treasuries have the highest value to the banksters --- they don't require reserve capital on hand when they possess Treasures, it's considered the same value as currency, hard cash in hand.

Treasuries are also valued by the bankster/speculator class as they are ideal to be used as collateral for futures trading and manipulation.

Krasting is just sooooo ignorant, as it turns out, too many who regularly post here also are.....

Sun, 02/10/2013 - 18:20 | 3231364 Matt
Matt's picture

3 times. maybe if you say it 3 more it will become true.

Sun, 02/10/2013 - 22:51 | 3232030 Dr. No
Dr. No's picture

It was nice that I got to junk a truely stupid comment 3 times...

Sun, 02/10/2013 - 20:14 | 3231668 Imminent Crucible
Imminent Crucible's picture

Sgt Choom doesn't know the meaning of "non-marketable Treasury instruments". 

Sun, 02/10/2013 - 17:28 | 3231217 sgt_doom
sgt_doom's picture

These type of ignorant remarks should never be left unchallenged -- I'm surprised I am the only one responding accordingly.

Treasuries have the highest value to the banksters --- they don't require reserve capital on hand when they possess Treasures, it's considered the same value as currency, hard cash in hand.

Treasuries are also valued by the bankster/speculator class as they are ideal to be used as collateral for futures trading and manipulation.

Krasting is just sooooo ignorant, as it turns out, too many who regularly post here also are.....

Sun, 02/10/2013 - 19:26 | 3231518 Bob
Bob's picture

You seem to have left this piece out as you pissed in everybody's face:


Sun, 02/10/2013 - 18:58 | 3231456 Orly
Orly's picture


Say what?

Sun, 02/10/2013 - 16:55 | 3231140 Bicycle Repairman
Bicycle Repairman's picture

The trust funds contain IOUs from the federal government. Treasury bonds are also nothing more than IOUs from the federal government. If you think some president is going to stand before the American people and say that the trust fund is as empty as Al Capone's safe, while it pays off on Treasury bonds, you are smoking whacky weed.

Sun, 02/10/2013 - 22:04 | 3231920 rbg81
rbg81's picture

When this scenario does unfold, the Federal Reserve will own the majority of USTs.  The FR will get paid last.  But, that might be okay as they bought those USTs with $$ conjered out of thin air anyway.  At worst, its a paper loss.  Nice hat trick, eh?

Sun, 02/10/2013 - 13:47 | 3230768 Bruce Krasting
Bruce Krasting's picture

I agree with your first sentence. I think you're wrong on the second.

Consider DI, there is now a drop dead date. SOMETHING must happen.


The same is true for OASI. Understanding when it will dry up is both possible and of significant meaning. We're talking 7% of GDP with SS. Screw this one up and there will be a depression bigger than anything seen before.


Admittedly this is wonkish stuff, and it is absurd. It's real though.

Sun, 02/10/2013 - 23:01 | 3232055 Room 101
Room 101's picture

"Consider DI, there is now a drop dead date. SOMETHING must happen."

Yeah, they start taking money out of the other fund.  Where I think you're wrong is in implicitly believing that anyone outside of a few political/economics junkies will much care.  

Sun, 02/10/2013 - 19:24 | 3231507 Bob
Bob's picture

It would be nice to hear you throw down against the Third Way snakes, Bruce.  Otherwise, you're too easy to dismiss as one of them, your deeply felt protestations notwithstanding.  

After all, you don't like "social insurance" per se.  It would seem that the market should rule all. 

Except the paying our debts to seniors piece, that is.  

Sun, 02/10/2013 - 17:26 | 3231214 sgt_doom
sgt_doom's picture

"I agree with your first sentence."

These type of ignorant remarks by Krasting perfectly illustrate why he is unable to distinguish his vagina from his butthole.

Treasuries have the highest value to the banksters --- the don't require reserve capital on hand when they possess Treasures, it's considered the same value as currency, hard cash in hand.

Treasuries are also valued by the bankster/speculator class as they are ideal to be used as collateral for futures trading and manipulation.

Krasting is just sooooo ignorant, as it turns out, too many who regularly post here also are.....

Sun, 02/10/2013 - 20:12 | 3231664 nightshiftsucks
nightshiftsucks's picture

And your mouth is your asshole Sgt. Dumbass

Sun, 02/10/2013 - 19:47 | 3231589 maximin thrax
maximin thrax's picture

The ignorance is yours, Doom. The Treasurys held by SS in the "lock box" cannot be sold on the open market, so have no real value. They can only be redeemed by the Treasury. And since we're in perpetual deficit spending mode, every dollar of these intergovernmental Treasurys redeemed by the Treasury is a dollar that the Federal Government has to turn around and borrow.

So if we raid the SSDI trust of $15 Billion to make disability payments, then that adds $15 Billion to the deficit that year because the money to redeem those notes must be borrowed.

The Treasurys held by SS will never end up in the hands of the bankster/speculator class. But the Treasurys issued to borrow the money to redeem those intergovernmental Treasuries might (if not bought by the Fed).

Sun, 02/10/2013 - 22:02 | 3231910 rbg81
rbg81's picture

The Federal Reserve will just buy the "Lockbox" hook, line and sinker.  It will be the solution for everything.  They will go back to the well again, again, and yet again until its dry.  Then they'll just expect everyone to drink dirt.

Mon, 02/11/2013 - 09:46 | 3232795 DOT
DOT's picture

SPV Bitchez!


Sun, 02/10/2013 - 20:02 | 3231623 Bob
Bob's picture

There is a matter of perspective/definition to be understood here.  We may raise a sizable portion of annual expenses by selling debt.  But what we say we "financed" is fluid. 

Tax money is almost entirely fungible. 

We could say that we're borrowing money to spend on shit that has no justification to almost anybody.  Like the security state or Pax Americana. 

Shit that wasn't paid in advance.  Shit that is not debt. 

It's hard to argue against paying down the federal debt, imo:


How is it that this debt paydown gets labeled as the problem?

Sun, 02/10/2013 - 18:17 | 3231355 Matt
Matt's picture

So, since these treasuries are so incredibly valuable, what kind of return do you expect Social Security to get on them? If they buy a 30 year at 3.17%, how much can they flip it for in a couple years when they need the cash?

Sun, 02/10/2013 - 19:37 | 3231537 Bob
Bob's picture

You know the answer, you just don't like it.  The Treasury/General Fund has to retire the debt. 

How they finance that is an entirely different question.  Higher taxes, cut other spending, or sell new debt seem to be the options. 

Just like any other day in DC.  Or anywhere else. 

Sun, 02/10/2013 - 23:56 | 3232187 sunnyside
sunnyside's picture

Many think that there is no difference if the money isn't in the right pocket or the left.  The same pair of pants are broke.

Sun, 02/10/2013 - 13:11 | 3230689 Longing for the...
Longing for the old America's picture

There is so much fraud and abuse in the disability program it is sickening. Disability is the new unemployement insurance.

Investigate the recipients with threats of jail if their claims are found fraudulent and you'd end more than 50% of the payments.




Sun, 02/10/2013 - 17:37 | 3231249 WillyGroper
WillyGroper's picture

I've witnessed both sides of this. Damn near impossible to get, even if you're missing all 4 appendages. The fraud I've seen is about 3-1. Unemployment insurance? Hire a shyster and it's more like a "Pension Plan" after they blew the pension they received at the casino while driving spankin new cars. :o{

Sun, 02/10/2013 - 23:18 | 3232099 andrewp111
andrewp111's picture

It probably mattered which state you live in. Obama made DI easier to get in Swing States that he needed for his releection. Of course, he doesn't care about that anymore, does he?

Sun, 02/10/2013 - 22:47 | 3232019 Vendetta
Vendetta's picture

That is what I've seen.  I knew a phd physicist from russia  who got his grandmother into the US then she claimed 'culture shock' and got on disability.  Ever gone to a Social Security office?  Funny how virtually the only people speaking english are those working at the SS office ... call it subsidized immigration.

Mon, 02/11/2013 - 00:59 | 3232292 cornflakesdisease
cornflakesdisease's picture

Productivity creates inflation.  We have to stiffle that.  Another great way to stamp down on inflation is to open up immigration and bring wages down, and that includes for the doctors, chemists, and very skilled people.  You aint seen nothing yet.

Sun, 02/10/2013 - 18:46 | 3231425 Orly
Orly's picture

I concur with WillieG.

Having worked in the medical field and scanned or x-rayed these guys, it is unbelievable the hoops they put these people through who have legitimate claims. Four, five, six times back to the office to "verify" their disability.  Meanwhile, old homebread is off playing golf on account of he got a good lawyah.

It really is sickening.

You want to clean up Disability?  Get the government out of it.


Sun, 02/10/2013 - 21:54 | 3231890 BandGap
BandGap's picture

Disability fuels another cottage industry - lawyers who "specialize" in helping the less fortunate get their "fair share".

Want to clean up disability? Only let disabled collect.

Sun, 02/10/2013 - 22:57 | 3232048 Orly
Orly's picture

What?  And cut out the Texas Hammer?  The Loncar of the Law?

Is you crazee or sumfin?  They got a hundert n two thousand for some dude I think works at the grocery store by my house!


Sun, 02/10/2013 - 18:35 | 3231393 FMR Bankster
FMR Bankster's picture

Since the massive increase in disability claims you are always rejected on your first try. But if someone qualifies they eventually recieve it. And it's easy to qualify. Hell, 15% 0f the kids under 18 are taking drugs that will form the basis for acceptable disability claims. ADD, ADHD, autism, and numerous other much milder problems now require the drugging of children. Toss in alcohol and drug use and abuse(you are "sick" these days, not irresponsible)and we should have about 5% of the people working to support the rest in 20 years or so. Good thing we can print money or we'd be in real trouble!

Sun, 02/10/2013 - 12:58 | 3230660 lunaticfringe
lunaticfringe's picture

Just print more money. Fed injects it in. What problem?

Do NOT follow this link or you will be banned from the site!