WASHINGTON (AP) — Job losses are cutting into Social Security tax collections so much that the retirement program is projected to pay out almost as much in benefits next year as it collects in payroll taxes and other cash receipts.
The Congressional Budget Office projects that the Social Security trust funds will collect just $3 billion more in cash receipts than they will pay out in benefits in the 2010 budget year that starts in October. A year ago, before the economy slipped into recession, the CBO projected an $86 billion cash surplus for the same year.
The development will have little practical effect on the short-term operation of the program, thanks in part to an additional $116 billion in interest income, as well as a $2.4 trillion balance in the Social Security trust funds. Most of that balance is on loan to the government to pay for other ongoing federal programs.
The smaller cash surplus would reduce the government's ability to borrow more from the trust funds, by about $83 billion. But that represents only a small portion of the more than $1 trillion the government is expected to borrow next year.
The shrinking Social Security surplus, however, highlights future problems for a retirement system that has to accommodate the post-World War II baby boomers reaching retirement age.
The Social Security Administration projected last year that that the trust funds will begin paying out more than they collect in payroll taxes in 2017.
By 2041, the balance in the trust fund will be exhausted unless major changes are made in the programs, such as levying more payroll taxes on high earners, changing the formula for annual cost-of-living benefit increases or raising the retirement age.
The administration is scheduled to issue new long-term projections in about a month.
Christian Weller, an associate professor of public policy at the University of Massachusetts in Boston, said the Congressional Budget Office figures highlight the program's dependence on a strong employment market. The new estimates were included in the CBO's 2010 budget projections issued last week.
"If you lose millions of jobs, you have millions fewer taxpayers. That will put a damper on the tax receipts that Social Security gets," Weller said.
He said it is unclear whether the recession will have much impact on the long-term solvency of Social Security. That depends on how quickly the economy recovers and the long-term growth rate, he said.
A fix for the projected future Social Security shortfall has taken a back seat to President Barack Obama's and lawmakers focus on health care reform, restoring a teetering financial system and returning the economy to health.
The recession has claimed more than 4 million jobs, and lawmakers blame rising health care costs for many of the federal government's fiscal problems.
Alicia Munnell of the Carroll School of Management at Boston College said the Social Security program remains sound in the short term.
"We all know that Social Security has long-term financial problems," Munnell said. "It's not surprising that when you have the unemployment rate going up that you would have the tax receipts falling off. It affects it in a temporary way."
The CBO projects that Social Security's cash surplus will start to grow again in 2011, reaching $27 billion in 2014 before gradually falling again and becoming a net loss in 2017.
