An old adage of detective work is very direct: "Follow the money!"
But when you examine government finances you have to be more specific. You have to follow the cash--- the actual money collected.
In her annual letter to workers, for instance, Social Security Commissioner Jo Anne Barnhart puts us to sleep and warns us at the same time.
"Unless action is taken soon to strengthen Social Security, in just 14 years we will begin paying more in benefits than we collect in taxes. Without changes, by 2042 the Social Security Trust Fund will be exhausted. By then, the number of Americans 65 or older is expected to have doubled. There won't be enough younger people working to pay all of the benefits owed to those who are retiring. At that point, there will be enough money to pay only about 73 cents for each dollar of scheduled benefits," she writes.
By 2042 anyone who is 62 today will be 100 years old. Fat chance a 62 year old will spend much time worrying. Those most likely to be affected are in their twenties, a group concerned with more immediate things like starting careers, getting married, and buying houses.
Ms. Barnhart's letter, however, uses a conventional analysis of money credited to the Social Security trust funds. They currently show some $1,355.3 billion in Treasury securities as assets. New additions of interest are credited each year.
What happens if we ask when the actual cash payments to beneficiaries will exceed the actual cash revenues from employment taxes? I ask this question because all the other money is "book entry" money. It records obligations, not actual cash. Actual cash is required to make payments.
Answer: We may be in trouble as early as 2010.
This figure comes from the Trustees of Social Security and Medicare. They've done the cash analysis for us. The figures are available on the web in a table titled, "OASDI and HI Annual Income Excluding Interest, Cost, and Balance in Current Dollars." Basically, it's a cash flow analysis of the Old Age Security and Disability Income programs and the Hospital Insurance program of Medicare.
Since the analysis involves estimates from 2004 to 2080 the Trustees give us three sets of figures. One is for Intermediate Cost Assumptions. These are the assumptions about economic growth, employment growth, birth rates and death rates that the trustees believe most likely. They also provide tables for "Low Cost Assumptions" and "High Cost Assumptions."
In the Intermediate Assumptions table, OASDI shows a cash surplus of $64 billion for 2004 and a $3 billion shortfall for Hospital Insurance in the same year. That nets to a comfortable $62 billion surplus.
By 2018 OASDI turns negative, just as Commissioner Barnhart warns. When combined with Hospital Insurance, the first negative year is 2016.
That's pretty far away.
But check the "High Cost Assumptions."
They tell us that OASDI will be short of cash by 2013. The combined programs will be cash-short by 2010.
That's six years away.
Being cash short for Social Security and Medicare benefits wouldn't be worrisome if our friends in Washington were enjoying revenue collections beyond their wildest dreams. But they are not. They're looking at deficits from here to eternity. They won't be able to tap general revenues because general revenues will already be thoroughly tapped.
If George Bush is re-elected President in November, he'll be very glad a third term isn't possible. If John Kerry is elected President, he'll be the first President delighted to have only one term. Whoever is elected President in 2008 will be known in history as "the fall guy President."
Query: Which set of assumptions is more likely, the Intermediate Cost or the High Cost?
Politicians of both parties will tell you the Intermediate Cost assumptions because that puts the problem farther into the future. In fact, the High Cost assumptions are more likely.
This isn't a matter of inflammatory journalism. It's a matter of history.
When Social Security was reformed only 20 years ago you and I were told that the higher taxes and higher retirement age would make it fully funded and financially sound for 75 years or more. Today, only two decades later, the Social Security Trustees tell us that OASDI has unfunded liabilities of $3.7 trillion.
What happened?
High Cost assumptions were more accurate than Intermediate Cost assumptions
On the web:
Your Social Security Statement--- a sampleThe 2004 Trustees ReportTable VI.F10--- OASDI and HI Annual Income Excluding Interest, Cost, and Balance in Current Dollars for Calendar Years 2004-80.
Intermediate Cost Assumptions High Cost AssumptionsThe President's Budget Projections and Budget HistoryThe Generational Storm Reader
