So Does Social Security Add to the Deficit?
In light of the recent debates over Social Security, CRFB's latest paper attempts to clarify how the program relates to the federal budget and budget deficits. Some say that Social Security is a completely independent program and contributes nothing to the budget deficit, while others argue that it is in fact the largest government program and adds to overall deficits since it spends more than it takes in. So who's correct?
We argue that both of these perspectives are correct, depending on how you view the program. Viewed as a stand alone program, dedicated revenues and trust fund assets will keep the program solvent for another 25 years, but will increase the borrowing needs going forward since Social Security essentially lent its holdings to the rest of the federal government. Viewed as part of the overall budget, Social Security can be seen as already adding to deficits today since yearly benefits already exceed dedicated revenues.
As we find in our analysis:
"No matter how you look at it, Social Security is in dire need of reform. The program’s trustees continue to warn us that changes need to be implemented as soon as possible. By acting now, we can implement changes in thoughtful ways and protect those who depend on the program the most. We can also institute tax and benefit changes gradually, giving current workers plenty of time to adjust their retirement planning decisions. Whether for the health of the budget or for its own sake, it’s time to reform Social Security."
Below, CRFB President Maya MacGuineas explains the two different perspectives on the Nightly Business Report: