Every since the early eighties, when the Greenspan commission kicked the can down the road with a combination of tax increases and later retirement ages, analysts have been awaiting the day when the system would finally go into deficit. That date has been sliding around between 2016 and 2020 for some years now, but the suspense is finally over: the system is going into deficit this year.
" . . . payments have risen more than expected during the downturn, because jobs disappeared and people applied for benefits sooner than they had planned. At the same time, the program's revenue has fallen sharply, because there are fewer paychecks to tax."
According to the CBO report from which that article is drawn, the deficit will persist until around 2014, at which point it will go temporarily back into surplus before returning permanently to the red in 2018. This is a small but permanent deterioration of the program's finances--the people who have retired early will pay no more FICA taxes, and they'll have less in the way of taxable Social Security benefits.
Meanwhile, at a time when tax revenues are already hurting bad, this will force the general fund to subsidize Social Security, rather than the other way around.
This is the canary in the coal mine; if Social Security's finances are in trouble, Medicare's will also be looking worse. While I was at the Kauffman Foundation's economics blogger forum last Friday, a show of hands indicated that about 80% of the people there thought America would have a serious fiscal crisis in the next two decades. This is how it starts--not with a bang, but with a moderate decline in revenues.
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is a columnist at Bloomberg View
and a former senior editor at The Atlantic.
Her new book is The Up Side of Down