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“Social Security’s finances significantly worsened last year, according to the new 2012 trustees report,[1] because of a weakened economy and structural problems with the program. The April 23 report shows that all people who receive Social Security benefits face about a 25 percent benefit cut as soon as 2033—three years earlier than predicted in last year’s report. The program’s long-term deficit is now larger than it was before the 1983 reforms. In order to pay all of its promised benefits, Social Security would require massive annual injections of general revenue tax money in addition to what the program receives from payroll taxes. These additional funds would be needed for the next 75 years and beyond.
Factors Dragging Down Social Security
The poor numbers come from a number of factors, including the continued weakness of the U.S. economy, high energy prices holding down wages, and a significant increase in the number of people who receive benefits from Social Security’s disability program (SSDI). SSDI has its own sub-trust fund that will be exhausted in 2016. While some SSDI costs will be paid from money that would have gone to pay retirement and survivors’ benefits, SSDI recipients face across-the-board benefit reductions in just four years. As this year’s report shows, the need to reform SSDI is as great as the need to fix the rest of the program.
Long-Term Financial Picture Worsens
In net-present-value terms, Social Security owes $11.3 trillion more in benefits than it will receive in taxes. This 2012 number consists of $2.7 trillion to repay the special-issue bonds in the trust fund and $6.5 trillion to pay benefits after the trust fund is exhausted in 2033. This is an increase of $2.2 trillion from last year’s report. This is the largest one-year drop in the program’s finances since 1994.”
