Uh, yeah, Social Security does have a problem

January 28, 2011

And it is expertly outlined by IBD’s Jed Graham at the Capital Hill blog:

But the Congressional Budget Office forecast released a day later shows that the coming crisis has drawn one year closer — to 2017.

That year is when Social Security’s disability insurance trust fund is projected to run dry, triggering sharp cuts in disability benefits — reaching about 18% in 2018 — without action from Congress.

A little-discussed reality about Social Security is that it actually has two separate trust funds. The Old Age and Survivors Insurance trust fund is (theoretically) flush, with about $2.4 trillion in interest-bearing IOUs from the Treasury. But the Disability Insurance trust fund is down to about $180 billion and sinking. In fiscal 2010, the Disability Insurance trust fund cashed in about $30 billion in its special-issue Treasury notes, which the Treasury redeemed by floating roughly $30 billion in additional public debt.

The two trust funds are prohibited from transferring resources between them without legal action by Congress, so disability benefits would be slashed starting in 2017 unless something is done.

In theory, a crisis could be averted by transferring some OASI trust fund assets to the DI trust fund. But the longer Washington puts off addressing its long-term budget problem, the more ridiculous such a shift of funny money will appear.

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