At Tuesday’s Ways and Means Subcommittee on Social Security hearing, Dr. Charles Blahous of the Social Security and Medicare Boards of Trustees testified that Americans owe $24 trillion in unfunded liabilities to those already in the Social Security system.
Congressman Jim Renacci (R-OH), a CPA, asked Blahous what the impact would be on the Social Security trust fund if all unfunded liabilities needed to paid out. Blahous said that they usually highlight the 75-year “open group obligation” which is currently $10.6 trillion, but said the “actual amount of unfunded obligations within the Social Security system is actually substantially higher than that. ” According to Blahous, the reason is that the shortfall does not play out gradually over time. “It’s actually something that is on the books now. There is an excess of benefit obligations over contributions for people who are already in the system. And that’s actually about $24 trillion. And that’s about 4.4% of future wages going forward,” Blahous said.
Actually, it’s even worse to that, according to the Social Security Trustees’ 2014 Annual Report to Congress. Tucked way in the back in Table VI.F1 in the appendix we find, “The excess of the present value of cost for past and current participants over the present value of dedicated tax income for past and current participants produces an unfunded obligation for past and current participants of $26.1 trillion.” (But what’s a of couple trillion here or there?)
Asked by Renacci if Social Security taxes this year will be adequate to fund current benefit obligations, Blahous explained that there will be a shortfall of around $80 billion this year alone.
Renacci wanted to know where the money will come from to make up the difference.
“Well, when the payroll taxes fall short of benefit obligations, the difference has to be made with payments from the general fund. Right now they’d be in the form of interest payments from the general fund to the trust fund and a large share of those interest payments would go out the door immediately to pay beneficiaries,” said Blahous. He added that $80 billion would be added to the federal deficit this year as a result of the shortfall.
Renacci thought the unfunded liabilities should have received more attention in the Trustees’ report. “So we have $17 trillion in debt, we have potentially $10-20 trillion in unfunded liabilities, we could have over $50 trillion total liabilities — just in those two areas — and we have $80 billion each year, at least this year, that is going to exceed what comes in,” Renacci said. “I would somewhat believe we have a current problem that we need to fix and it’s something that we can’t kick down the road, as I continue to hear.”
Congressman Renacci’s office released highlights of the Trustees’ report:
- The combined trust fund reserves are still growing and will continue to do so through 2019. Beginning with 2020, the cost of the program is projected to exceed income.
- The projected point at which the combined trust fund reserves will become depleted, if Congress does not act before then, comes in 2033 – the same as projected last year. At that time, there will be sufficient income coming in to pay 77 percent of scheduled benefits.
- The projected actuarial deficit over the 75-year long-range period is 2.88 percent of taxable payroll — 0.16 percentage point larger than in last year’s report.
“As a CPA and former businessman, I came to Washington to bring a business perspective to an institution that sorely lacks it. We know that we spend more than we should, but the American people do not fully know the extent of our country’s dire financial situation. This is partly due to the fact that the Treasury leaves some of the largest liabilities, including Social Security, off of its balance sheet,” said Renacci, adding that he recently introduced the bipartisan Federal Financial Statement Transparency Act.
The bill would establish a Federal Accounting Standards Advisory Board to develop Federal financial accounting concepts and standards. Renacci said the bill would lead to “a more honest depiction of our nation’s finances to ultimately allow Congress to better address our growing $17 trillion debt.” He said a clean balance sheet will serve as a benchmark for beginning to preserve Social Security programs for current seniors and for future generations.