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Social Security 2011 – Another Bad Year
Note: After writing this article I received a number of comments that questioned whether the numbers presented in this piece reflect the 2% payroll tax holiday that occurred in 2011. The answer is that these numbers do take that into consideration. Yes, there was a tax break this year. But there was no consequence to SS as a result of the tax break. Every month Treasury has transferred money to SS to make up the shortfall. The American people are $110B poorer, but SS is not.
The following is a slide from SSA that shows income components on a monthly basis for 24 months (ending 10/11). Look on the bottom right and you will see a new revenue source as of 1/1/2011 marked Other Income. This is the monthly transfer from Treasury to make up for the drop in actual tax receipts.
Sorry If that was not clear.
The original article:
Full calendar year 2011 numbers are now available to calculate the results for the Social Security Trust Fund. Here's a look at the key numbers that will be reported to Congress in four months:
Payroll Tax Revenue: $669B ($642B - 2010)
Benefit payments: $726B ($702B - 2010)
Primary Deficit: $57B ($60B - 2010)
Other cash components at SSA:
Tax on benefits: $23B (2010 - $24b)
Payments to R.R. Retirement: $4.6B ($4.4B - 2010)
Overhead: $7.0B ($6.5B - 2010)
Net 2011 cash drain: $46B ($49B - 2010)
Non cash items
Interest: $116B ($117.5B - 2010)
Paper surplus: $70.0B ($68.5B - 2010)
The reported numbers will show a very small improvement ($3B ) in the net cash drain. This may cause some to look at the 2011 results and say, “See! Things are stabilizing and even getting better!” Let me try to blunt any enthusiasm in advance.
SSA measures (A) actual monthly cash receipts and then (B) makes assumptions about what additional amounts are coming in based on a series of macro assumptions (GDP, employment/unemployment, etc.). The Treasury Department pays SSA the sum of A+B. Ultimately all of the money is accounted for and any adjustments (plus or minus) are reflected in the next year's results.
This system works pretty well as the annual adjustments have been fairly modest and the adjustments have been both positive and negative. That was not the case in 2009. The models that SSA uses significantly overestimated tax revenues in that year. As a result, there were very significant downward revisions to the actual receipts that were reported in 2009. Following is a slide of SSA’s monthly 2010 revenues. Note that the revisions to FICA and SECA from the prior years totaled $28B. (2009 and 2011 also have significant prior year adjustments.)
To regularize the data for the big accounting changes it is necessary to add/subtract the adjustment from the prior year and then look forward to what overstatements/understatements were made in the then current year. When the ins and outs are made, the results for the regularized FICA/SECA revenue numbers are as follows:
2005....$521B
2006....$553B
2007....$585B
2008....$615B
2009....$676B
2010....$702B
2011....$726B
The following chart shows adjusted Payroll Tax revenues minus Benefit Payments:
Looking at the data on this basis, you'll see the actual deterioration that took place in 2011. 2012 will be worse than 2011. Benefits are going to jump by $50B+ next year. 10,000 new people are signing up for checks every day of the week. Add the fact that every one of the 55mm beneficiaries will be getting 3.6% more in their checks (COLA adjustment). The revenue side is a wild card. What will GDP be? If it's around the 2% that is currently anticipated, revenues at SSA will fall well below plan. A flat economy (+2%) would translate into a $100B 2012 primary deficit (payroll receipts minus benefits). A number like that is not on anyone’s radar today.
The following is a chart used by the House Finance Committee. It plots the expectations for net cash drains at SSA. While there is plenty of red ink in the chart, there is not nearly enough to describe what is going to happen. Note that the expectation is for some improvement in 2011 and relative stability until 2018 when the red ink explodes. On the chart, I think today we are really at the 2017 level. 2012 will bring us the results depicted in the chart for 2018.
The 2011 numbers for SSA indicate that we are at least five years ahead of existing thinking on the SSA deficits. When this realization sinks in, it will break the hearts of the SS defenders. If we are, as I contend, five to six years ahead of “schedule” with cash deficits at SSA, there is no alternative besides cutting scheduled benefits. Raising taxes to fill a hole this big is not an option. Nor is it an option to maintain the status quo and allow for a very rapid rundown of the SS Trust Fund.
If we are going to experience what I believe we will, then the cumulative SS cash shortfall over the next decade will add ANOTHER $1.5 trillion onto Public Sector Borrowing ("PSB"). (A shift from the Intergovernmental account into the PSB account; AKA the Chinese). This increase in PSB more than offsets the $1.2 T of cuts that the congressional super committee failure has just mandated.
The consequences of SS (and similarly the other government retirement funds) on PSB over the coming years is not now being considered by those looking at America’s debt profile. It will be soon enough. The current thinking is that SS is a problem that can be worried about in another ten years or so. That's simply not true.
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No I did not mention it. As I state elsewhere, the tax break in 2011 and the one coming up in 2012 has NOTHING TO WITH the results at SS.
Treasury pays the extra 2% every month. Trust me on this. I watch this very closely. There has been no consequence to SS as a result of the tax break. Zero. Nada. Zip.
The American people owe an extra $120 billion as a result of the tax cut. Treasury had to issue additional debt to cover the shortfall, but SS receipts for the year were not cut by a penny.
Most people don't believe me when I say this. But it is true. I will try to prove it to you. A few steps:
Go to this web site:
http://www.ssa.gov/cgi-bin/ops_series.cgi
Click on Multiple Time Periods
A new window comes up. You must set the following fields:
On Financial Items there is a menu, click on "Income Components"
Under Reporting:
Do monthly
For number of years do: 2
Then enter.
You get a page with the details of income for the past 24 months. Note that starting in January of 2011 there was a new data field marked Other Income. This is the money coming in from Treasury every month.
I must say it pisses me off that you think I would miscount the odd $120B in this story.....
bk
Pissed off or not, it probably would have been a good idea to offer this brief explanation integral to your original article, as most of us who are aware of the employee FICA tax cut had no idea that the the treasury was making up the difference with funny money. Very strange to say the least, but I am glad I know the whole story now.
Yup. I assumed that folks would understand this. Wrong again.....
yeah no shit. and you forgot to add "let's do that again right now to support the working guy." Say what? "That's called retirement." Why would a working guy have a problem paying his taxes into that? "Because we can tax millionaires"? REALLY? They don't pay my Social Security phucker. YOU DO. Part of me says "bankrupt it now" so we can phuck these baby-boomer politicos RIGHT PHUCKING NOW AND FOREVER cuz they sure appear to want to "one up the Vietnam war" crowd from back in the day as well.
Thanks, Bruce, but I think the situation is actually worse than your numbers show. Payroll tax receipts are down in 2011 vs 2010, not up, because of the payroll tax cut. The numbers that SSA publishes estimating month-ahead receipts follow some obscure accounting system that I haven't been able to unravel. They don't represent pure and simple payroll tax revenues.
I think the most reliable timely numbers are in Treasury's MTS. Those are published on a fiscal year basis, so it takes some work to deduce a calendar year comparison.
The relevant raw data for FICA + SECA tax receipts from MTS is:
Oct-Dec09 FY10 Oct10 Oct-Dec10 FY11 Oct11
FOASI 122 540 40 116 484 34
FDI 21 92 7 20 82 6
Do the math (FY-Oct-Dec of FY+Oct of CY) and you get the following:
Jan-Oct 10 Jan-Oct 11
FOASI 458 402
FDI 78 68
Total SSA tax receipts 536 470
These are FICA plus SECA. Again, with the payroll tax cut, it's only logical that payroll tax receipts are down. The numbers you're quoting represent something different from what you think they represent.
See comment above on this.
bk
Nice work Bruce. "Projected Cash Burn" (chart title) will take on new meaning pretty soon as fiat logs come into vogue. :D
Social Security has been intentionally underfunded to pave the way for confiscation of IRA's, Pensions, and Retirement accounts via Draconian taxation schemes or outright confiscation.
My Father was a state Bank Commissioner and major stockholder in a large community bank for years and he retired at age 53 out of total frustration. He said when banks started being bought by entrepreneurs and attorneys they were no longer banks and the entire system was doomed to failure. He's nearly ninety now and happy he won't have to live through it. It's been coming a very long time and no one did anything about the corruption and slick deals as long as it wasn't them that got burned by crooked banksters and fraudsters. Now there's more of them than us.
or simply by printing money.....
This like saying my wife and I made $180,000 in after tax payroll income. We also had $20,000 interest on government bonds, but we're not going count that in our total income(for some strange reason).
We spent 190,000 this year, so we are $10,000 in the red.
If this makes sense to you then you will buy the implications of Mr. Krastings report
Nope. In your example, it's as if you had $20,000 of interest income on bonds that your wife issued to you -- 'intermarital' transfers = 'intergovernmental' transfers to SSA.
If a couple 'owes it to themselves' with intermarital transfers, then they (as a unit) have NO EXTERNAL INCOME to support their spending. Money merely moves from wife's to hubby's pocket, or vice versa.
The Soc Sec Trust Fund is the same way. Consolidate it with the US Treasury, and there is no Trust Fund and no interest income.
Since when we start talking about trillions? I thought the number "million" is big.
Bruce
How much did the reduced tax withheld this year for employees affect the bottom line of the calculated deficit?
Zero. See above.
You can deny reality but the results thereof are much more difficult to deny!
Soon, yes, soon...
Where does the deficit money come from? How does the gov make up that $46 billion?
The US Treasury borrows the shortfall from the public. It becomes debt owed to someone, most likely a foreign central bank. China, Russia, Venezuela, Nigeria. They provide the money at the end of the day.
And the Fed buys the debt too, or will again soon. Can't forget the Fed--the ultimate buyer when all the foreigners back away from the Treasury market.
And the largest holder of treasury debt..... in other words they just printed it out of thin air but fuckhead Bernenk says that isn't printing because he now has an asset on his books - he bought stuff!
Great thinker that one. He buys worthless paper debt form a bankrupt issuer, puts it on his asset log and claims it is worth every dollar he printed!
Well I guess he's right, it is worth every dollar he printed.
Or, BB made every dollar worth what he spent it for. If the stuff he paid for with new dollars is worthless, then it makes new dollars worthless as well. Call me a Chief Debasement Officer.
One of the things that pisses me off the most in my line of work are the sheer number of clueless "administrators" who look at every problem and say something like "well, it SHOULD be working!" AAAAAAAAAAAAAHHH!!! Screw what it SHOULD be; how's about looking at what it actually IS?
That's the same thinking you're seeing with all these boomers who are retiring: "Social Security SHOULD fund my golden years!" No clue about how "their" Social Security isn't really theirs, that "their" money has been piddled away for years on every stupidass thing that a 4 trillion dollar a year fed govt can dream up to waste our coin on. Nope: everything's fine. If there was really a problem, they'd have heard about it on 60 Minutes. Andy Rooney would have crapped his diaper whining about it. Since this hasn't happened all must be well
fascism: when Big Government and Big Business shake hands, and the common man gets squashed in their grip
soc Sec find may have been raided by rest of federal budget looters, and maybe we just have to admit govt does not want to pay back loans it took from the fund because it cut taxes for rich and spent big bucks on defense and Medicare Part D, but please don't call boomers whiners when they complain their trust fund was raided. Are farmers whiny brats when they complain their trade accounts were stolen by MF Global? Plus it will be the generation after boomers that really get screwed, and they will,have paid far more in taxes and get far less in benes, with worse economy during their working lives.
Boomers paid much higher FICA taxes their whole working lives compared to earlier generation, specifically to build war chest trust fund to be there when they retired. It's not whiny bratty to be pissed it was squandered on tax cut to rich and unpaid for overpriced pills for earlier generation of seniors .
Buy. But, But . . .
Don't you undeerstand? Those deficits are anticipated by any annuity fund. That is why they have reserves to draw upon.
The real solution is that (O) can simply halt payments. That was the assurance we got when there was a question about increasing the debt limit.
Who knew that a promise to save SS would entail cutting off the inflow of funds by decreasing the payroll tax. It will be great.
A sequel to the movie RED (retired and extremely dangerous) came to mind: Death of Socialism in Amerika.
Bruce...Thank you very much for your dedicated and thorough analyses of topics such as this one, putting arcane concepts into manageable form. Whatever the ZH pays you, it isn't nearly enough (ha, ha, just a little joke, there.)
Anyway, I understand how bleak the outlook is for the main SS trust fund. One topic I don't think you broached is the Disabilty fund, which I believe is under similar, and significant strain due to the number of long-term, middle-aged unemployed (and others, surely) who are signing up in droves, using it as a last-ditch source of income.
And, for that matter, what about Medicare? The trends there must be equally shocking.
In any case, thanks again for the quality of your contributions.
The numbers in this piece are the combined results of the old age/retirement fund and the disability fund. DI is a disaster today. It is dragging down the numbers for OAI.
Medicare is a problem that is much more significant than SS. It, like the DI, is blowing up as I write.
It's being given as fast as legistatively and executively possible to Big Pharma and the insurance companies and the other hangers-on. It is nothing but grand theft.
During the Thanksgiving Holiday, many of my extended Family visited for the feast. I have 9 aunt & uncles and their spouses on both sides of my family. The two oldest just started withdrawing benefits, the other 7 were talking about how much they are looking forward to it. Of the 9(really 18), only one uncle is ready to self fund his retirement and his plan includes continuing to work a light week, consulting ect. The rest are totally unprepared. I am sure that they will be eventually moving in with my cousins. They have no clue about the funding deficit, nor the pending inflation that will have to happen with continued controlled monetization. They don't want to get a clue. The boomers will be a generation of elderly poor and it will be sad. Very sad, because it is going to hit them from out of the blue. It will be interesting to watch how they react when austerity is forced upon them. They have the mindset that they are owed.
I would be grateful if they just gave me back my money, and that of my now adult children born into this obscene slavery. What a sad hoax this has been.
It is not 'your money', it never was. All FICA, SS and MM payments were, and are, a tax.
It's gone, it's not your money, you don't have an account.
Yeah, Reagan and Bush I spent it on star wars and friends. It's gone -- poof! You trusted them to not steal your retirement, eh? Boy was that stupid. They forced you, you say? Tough shit you old coots.
Being livestock sucks.
dupe
Dear Feral, Please reflect upon the truth that if it were not for us 'old coots', you 'kids' would not be here. If you do not respect your your mother and father and grandfathers and grandmothers, please respect the rest of us. We have done you no ill and wish you only the best.
Thank you om
Debt by president
Now run it by debt per party congressional control.
Does anything jump out at you? ;-)
The lack of a veto.
Good point: congressional control thx Chart #2 and thanks #2 Chart #3
the biggest ponzi perpetrated on mankind
Doesn't FICA fund SS, and isn't FICA a payroll tax that Barama has suspended for a year and now wants to extend the suspension?
Odrama cut the FICA rate 2%...and he'll be so deperate in '12 he may very well suspend it. Madness has no boundary.
"Madness has no boundary."
No kidding. What a great idea. He's fucking brilliant.
Yeah, lets not lower the rate on Federal Taxes...ya know the stuff that goes to fund the congress critters paycheck...no no no...lets lower taxes on a now bankrupt runoff enterprise holding our worthless paper that we set up to pillage almost a century ago...which now operates on cash flow alone.
Makes perfect sense.
A tax cut is "madness"?
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EDIT: Interesting to see nothing but junks for that. I'm actually a bit surprised. (If you guys really oppose the payroll tax cut, you can donate your additional 2%, same as any other tax you don't want to see reduced.)
Is cutting taxes but not spending, to be lauded?
Context, get some.
Cutting taxes is to be lauded. Cutting spending is nice, but not required for me to embrace the tax cut.
I think you were junked because the payroll tax reduction represents a skewed priority system.
My take on it is, income for the elderly is a good priority. Bailouts for banks and artificially low interest rates by the fed, make seniors poor so that wall street types can buy their nice cars and houses in the hamptons. That is a bad priority. I am convinced that Obama (or his unlucky replacement) would cut back on SS instead of cutting off wall street.
Edited to note: Mr Krasting changed his article to reflect that the payroll tax deduction does not affect SS amounts. General Revenue makes up for this tax reduction.
I don't agree about "skewed priorities," myself. The simple bit is that the government has been spending way more than it takes in, and our politicians have been very consistently making effort to continue cutting taxes. Our previous administration oversaw one of the biggest entitlement EXPANSIONS after very costly tax-cuts had already been made, but at the time, there were only "fringe" bloggers expressing concern about it. The elderly are very well taken care of today, while the wage-earning folks are getting killed in an environment of increased cost of living, stagnant wages, and oppressive taxes.
So the current administration implements a tax-cut that applies to everyone in the country who earns a wage, and this is seen as bad thing?
Clearly it's not the policy. It's the administration.
A lot of the crowd here claims to be opposed to "socialism" and taxation in general, but scratch a few folks and find boundless hypocrisy under the skin.
I'm all for assessing the real spending problems. Let's quit screwing around and just end Social Security and Medicare tomorrow.
In my opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of the Social Security Trust Fund and the consolidated results of its operations and its cash flows for the period ended December 31, 2011, in conformity with U.S. generally accepted accounting principles.
Charles Ponzi, CPA
Great analysis Bruce - If I may make a request - Ben Bernacke today indicated that the previously values Bloomberg published related to the $7.77 Trillion in 'loans' to banks in 2008 was egregiously overstated. He indicated that the number was more like $1.5 Trillion - Would you be willing to evaluate those numbers & provide your assessment - Many thanks in advance -
Ooh ! Imaginary numbers .... !