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Social Security Calls in Its Government IOUs (back)

3/29/2010

Social Security Calls in Its Government IOUs
Parkersburg, W.VA. - The retirement nest egg of an entire generation is stashed away in this small town along the Ohio River: $2.5 trillion in IOUs from the federal government, payable to the Social Security Administration. It’s time to start cashing them in. For more than two decades, Social Security collected more money in payroll taxes than it paid out in benefits - billions more each year. Not anymore. This year, for the first time since the 1980’s, when Congress last overhauled Social Security, the retirement program is projected to pay out more in benefits than it collects in taxes - nearly $29 billion more. Sounds like a good time to start tapping the nest egg. Too bad the federal government already spent that money over the years on other programs, preferring to borrow from Social Security rather than foreign creditors. In return, the Treasury Department issued a stack of IOU’s - in the form of Treasury bonds - which are kept in a nondescript office building just down the street from Parkersburg’s municipal offices. Now the government will have to borrow more money, much of it abroad, to start paying back the IOUs, and the timing couldn’t be worse. The government is projected to post a record $1.5 trillion budget deficit this year, followed by trillion dollar deficits for years to come.
Social Security’s shortfall will not affect current benefits. As long as the IOUs last, benefits will keep flowing. But experts say it is a warning sign that the programs finances are deteriorating. Social Security is projected to drain its trust funds by 2037 unless Congress acts, and there’s concern that the looming crisis will lead to reduced benefits. “This is not just a wake-up call, this is it.” We’re here,” said Mary Johnson, a policy analyst with the Senior Citizens League advocacy group. “We are not going to be able to put it off any more.” For more than two decades, regardless of which political party was in power, Congress has been accused of raiding the Social Security trust funds to pay for other programs, masking the size of the budget deficit. Remember Al Gore’s “lockbox,” the one he was going to use to protect Social Security?
The former vice president talked about it so much during the 2000 presidential campaign that he was parodied on “Saturday Night Live.” Gore lost the election and never got his lockbox. But to illustrate the government’s commitment to repaying Social Security, the Treasury Department has been issuing special bonds. The bonds are unique because they are actually printed on paper, while other government bonds exist only in electronic form. They are stored in a three ring binder, locked in the bottom drawer of a metal filing cabinet in the Parkersburg offices of Bureau of Public Debt. The agency, which is part of the Treasury Department, opened offices in Parkersburg in the 1950's as part of a plan to locate important government functions away from Washington, D.C., during the Cold War. More than 52 million people receive old age or disability benefits from Social Security. The average benefit for retirees is slightly less than $1,200 a month. Disabled workers get an average of $1,100 a month. Social Security’s financial problems have been looming for years as the nation’s 78 million baby boomers reach retirement age. As that group starts collecting benefits - and stops paying payroll taxes - Social Security’s trust funds will shrink, running out of money by 2037, according to the latest projection from the trustees who oversee the program. The recession is making things worse, at least in the short term. Tax receipts are down from the loss of more than 8 million jobs, and applications for early retirement benefits have spiked from older workers who were laid off and forced to retire. About $2.5 trillion is owed to Social Security.

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