Social Security Old Age, Disability Benefits Hit Record High
The federal government hit a new high in Social Security and disability benefit payments a full month before the end of the fiscal year on September 30.
By the end of August—and with a month to go in the fiscal year—the government had paid out just under $595 billion in benefits from the Old Age and Survivors Insurance Trust Fund. In all of fiscal 2011, by comparison, OASITF payments were about $591 billion.
Payments for federal disability insurance benefits also set an annual record in just the first 11 months of fiscal 2012.
Through the end of August, the federal government had paid $129.126 billion in benefits from the federal disability insurance trust fund. Through all of fiscal 2011, the government paid $128.094 billion in disability benefits.
In fiscal 2010 the government spent $123.038 on disability benefits; in fiscal 2009, it was $115.086 billion; in fiscal 2008, $104.328 billion; and in fiscal 2007, $97.061.
The data are taken from the Monthly Treasury Statement for September 2012.
Expected Baby Boom Bounce
As dramatic as the numbers seem, at least one expert advises calm. Lawrence Summers, president of the Social Security Institute, a nonprofit group dedicated to reforming the system, says 2012 is a difficult year to compare with past years of benefit payouts because it includes expected bounces from the Baby Boomer effect, he said.
“First, 2012 is an ‘odd’ year in that there is an unusual bulge in the growth in Social Security recipients, and hence benefits paid this year, 2012,” Summers said. “This was not a surprise, and it is a result of the beginning retirement of the ‘pig in the python,’ the Baby Boomers. In other words, this increase is not due to something wacky or unexpected or unusual going on.”
However, he added, the numbers do point out the crucial need to overhaul Social Security.
“This is not to say the program is not out of actuarial balance over the long run,” he said. “Congress’s appalling handling of Social Security makes Hoffa’s misuse of Teamster pension fund monies pale by comparison. Just because it’s Congress, however, doesn’t make it any less criminal than what Hoffa and company did.”
‘Going to Get Worse’
Jason Fichtner likewise wasn’t surprised at the growing Social Security payout. “But what might be surprising to people is to know that it’s just going to continue to get worse,” he warned.
Fichtner is a senior research fellow at the Mercatus Center at George Mason University and formerly held several positions at the Social Security Administration, including acting deputy commissioner, chief economist, and associate commissioner for retirement policy.
“For the past two years the amount of money Social Security has been collecting based on payroll tax contributions alone has not been enough to pay the outgoing benefit payments,” Fichtner said. “In other words, Social Security is now ‘cash-flow negative’ and is projected to stay in a cash-flow deficit until the trust funds are exhausted in 2033.”
Payroll taxes will provide only about 75 percent of the necessary benefit payments.
The options would be to raise the payroll tax by 25 percent or cut benefit payments by 25 percent, Fichtner explained.
“The increase in Social Security payments is a result of the Baby Boomer generation retiring and more people turning to the disability program due to the recent slow economic growth,” he said. “Additionally, the slow economy has kept job creation low and, hence, payroll tax revenue is low as well.”
The solution, Summers said, consists of two steps. Step one, he said, is for Congress to honor the payout promises that were made at the program’s inception.
“It offers them an enormous lever to cut the rest of government. It puts seniors on their side, and it requires the country to prioritize spending with Social Security at the top,” he said. “Then, once everyone is guaranteed they won’t do any worse than they’ve been promised, give everyone the option either to stay in the old program or voluntarily get out” and invest in private retirement plans.