Social Security ‘cash negative,' hardly an issue

WASHINGTON – Last year, as a debate over the runaway national debt gathered steam in Washington, Social Security passed a treacherous milestone. It went “cash negative.”

For most of its 75-year history, the program had paid its own way through a dedicated stream of payroll taxes, even generating huge surpluses for the past two decades. But in 2010, under the strain of a recession that caused tax revenue to plummet, the cost of benefits outstripped tax collections for the first time since the early 1980s.

Now, Social Security is sucking money out of the Treasury. This year, it will add a projected $46 billion to the nation’s budget problems, according to projections by system trustees. Replacing cash lost to a one-year payroll tax holiday will require another $105 billion. If the payroll tax break is expanded next year, as President Barack Obama has proposed, Social Security will need an extra $267 billion to pay promised benefits.

But while talk about fixing the nation’s finances has grown more urgent, fixing Social Security has largely vanished from the conversation.

Lawmakers in both parties are ducking the issue, wary of agitating older voters and their advocates in Washington, who have long targeted politicians who try to tamper with federal retirement benefits. Democrats lost control of the House last year in part because seniors abandoned them in protest over Medicare cuts in Obama’s much-contested health care act, and no one in Washington has forgotten that lesson.

In his February budget request, Obama ignored the Social Security blueprint put forth by his own bipartisan panel on debt reduction. During this summer’s debt-limit showdown, he endorsed the panel’s proposal to tie future benefits to a less-generous inflation index. But Obama took that idea off the table in September when he submitted recommendations to a special debt-reduction “supercommittee” now at work on Capitol Hill. Until recently, members of the supercommittee said, Social Security had rarely come up in their closed-door deliberations.

Social Security is hardly the biggest drain on the budget. But unless Congress acts, its finances will continue to deteriorate as the rising tide of baby boomers begins claiming benefits. The $2.6 trillion Social Security trust fund will provide little relief. The government has borrowed every cent and now must raise taxes, cut spending or borrow more heavily from outside investors to keep benefit checks flowing.

Many Democrats have largely chosen to ignore the shortfall, insisting that the program is flush, citing the existence of the trust fund. They argue that fixing Social Security can wait, perhaps for years.

Senate Majority Leader Harry Reid, D-Nev., who is fighting to maintain control of the Senate, has been particularly outspoken. In March, as a bipartisan group of six senators was gaining attention for a push to draft a debt-reduction plan that included a Social Security fix, Reid summoned hundreds of activists to a rally on Capitol Hill. Fresh off a tough re-election campaign that turned in his favor after he accused his tea party opponent of wanting to “wipe out” Social Security, Reid exhorted policymakers to “leave Social Security alone.”

“It’s the one thing I’ve had the most difficult time grasping,” said Erskine Bowles, the former Clinton White House chief of staff who co-chaired Obama’s fiscal panel with former GOP senator Alan Simpson.

The Bowles-Simpson plan would have righted the system’s finances with a combination of payroll tax increases and reductions in scheduled benefits, mainly years down the road. It would have hit upper-income workers while raising benefits for the most needy, those with average lifetime earnings of less than $11,000 a year.

Just as the GOP has rejected any form of tax increase to contain the debt, however, Reid and House Minority Leader Nancy Pelosi, D-Calif., have ruled out any reduction in government retirement benefits. Last week, Reid softened his stand, backing a Democratic proposal to the supercommittee that included the change in the Social Security inflation index. In return, however, Democrats demanded $1.3 trillion in new tax revenue, which Republicans instantly rejected, leaving the ideological divide as wide as ever.

In recent weeks, AARP, the nation’s largest and most influential seniors organization, has been airing television ads in which an older man warns viewers that “some in Washington want to make a deal cutting the Social Security and Medicare benefits we worked for,” instead of cutting “waste and loopholes.”

The public relations campaign has proved effective, particularly after a recession that devastated private retirement accounts and left younger people anxious about the future. Eighty-two percent of Americans worry that Social Security will not deliver promised benefits, according to a recent poll for Americans for a Secure Retirement. Fifty percent oppose cutting the program “no matter what.”