Another victim of the recession has cashed in its chips — the Social Security surplus.
Expected to survive until 2017, according to many educated estimates, the stock decline has instead wiped the surplus out completely.
It happened in the blink of an accountant's eye, as we were all paying attention to other serious financial problems, says Kevin Hassett of the American Enterprise Institute, commenting on this unamusing disappearing act in a column for Bloomberg.com.
"Social Security has for years been the near-term bright spot in the federal budget," writes Hassett.
"Each year the program has raised $50 billion to $100 billion more in payroll taxes than it paid out in benefits."
Opponents of Social Security reform often cited these surpluses as a good reason to postpone any attempt to fix the system.
But with American workers losing their jobs at an almost unprecedented rate, Social Security payroll revenues have declined substantially, says Hassett. Recession-driven early retirements have also increased, adding to the drawdown of funds.
Social Security reform has not been enacted, in part, because the Congressional Budget Office has been issuing excessively rosy estimates of surpluses, thus creating the unwarranted impression that the system is on firm financial ground, according to Hassett.
The decline means that the Treasury Department could be forced to borrow an additional $700 billion from foreign investors like China and Japan just as those investors seem unwilling to hold the trillions in bonds they already own.
"The Social Security trust fund, though technically in balance, is going to put huge pressures on taxpayers very soon," warns Sen. Judd Gregg, the senior Republican on the Senate Budget Committee.
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