CBO: Social Security to begin running permanent deficits this year, not 2016

Not unexpected.

The Congressional Budget Office said Wednesday that Social Security will pay out $45 billion more in benefits this year than it will collect in payroll taxes, further straining the nation’s finances. The deficits will continue until the Social Security trust funds are eventually drained, in about 2037.

Previously, CBO said Social Security would start running permanent deficits in 2016. In the short term, Social Security is suffering from a weak economy that has payroll taxes lagging and applications for benefits rising. In the long term, Social Security will be strained by the growing number of baby boomers retiring and applying for benefits.

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Remember the payroll tax cut for employees that was part of last month’s tax cuts deal? Democrats warned at the time that that would play into the GOP’s hands on entitlement reform by establishing a new lower baseline rate that’s insufficient to fund the program. (The current rate is temporary, but as we’ve learned, temporary tax rates are hard to raise.) The result: An accelerated, expanded shortfall in Social Security that will inevitably intensify cries that the program is unsustainable and needs to be reformed. Which, of course, it does: As noted above, assuming The One wins a second term, Social Security would have begun running deficits before the end of his presidency anyway. As it is, two graphs for you from today’s new CBO report. First, the Baby Boomer effect on expenses over the next 10 years:

And second, the offsetting receipts, with the Medicare line self-explanatory:

This isn’t the only horrible news in the report by a longshot, either. CBO’s projected deficit for this year is a cool $1.5 trillion or 9.8 percent of GDP, which is just two-tenths of one percent less than last year’s all-time budget-buster. And there’s not much revenue relief coming from new jobs: CBO expects that unemployment will remain above eight percent through 2012 and won’t get back to a historic norm of 5-6 percent or so until 2016. This ship has already started to sink, in other words, and yet Captain Hope chose to use his annual megaphone last night to talk about stuff like high-speed rail. As Megan McArdle says, terrifying.

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