Tuesday, August 14, 2012

Social Security: Surplus dwindling, huge shortfall looms


Social Security surplus is projected to run out in 2033, forcing a 25 percent cut in benefits. To fix Social Security, Congress would have to find $8.6 trillion.

By Stephen Ohlemacher, Associated Press / August 13, 2012 

As millions of baby boomers flood Social Security with applications for benefits, the program's $2.7 trillion surplus is starting to look small.

For nearly three decades Social Security produced big surpluses, collecting more in taxes from workers than it paid in benefits to retirees, disabled workers, spouses and children. The surpluses also helped mask the size of the budget deficit being generated by the rest of the federal government.

Those days are over.

Since 2010, Social Security has been paying out more in benefits than it collects in taxes, adding to the urgency for Congress to address the program's long-term finances.

"To me, urgent doesn't begin to describe it," said Chuck Blahous, one of the public trustees who oversee Social Security. "I would say we're somewhere between critical and too late to deal with it."

The Social Security trustees project the surplus will be gone in 2033. Unless Congress acts, Social Security would only collect enough tax revenue each year to pay about 75 percent of benefits, triggering an automatic reduction.

Lawmakers from both political parties say they want to avoid such a dramatic benefit cut for people who have retired and might not have the means to make up the lost income. Still, that scenario is more than two decades away, which is why many in Congress are willing to put off changes.

But once the surplus is spent, the annual funding gaps start off big and grow fast, which could make them hard to rein in if Congress procrastinates.

The projected shortfall in 2033 is $623 billion, according to the trustees' latest report. It reaches $1 trillion in 2045 and nearly $7 trillion in 2086, the end of a 75-year period used by Social Security's number crunchers because it covers the retirement years of just about everyone working today.

Add up 75 years' worth of shortfalls and you get an astonishing figure: $134 trillion. Adjusted for inflation, that's $30.5 trillion in 2012 dollars, or eight times the size of this year's entire federal budget.

In present value terms, the Social Security Administration says the shortfall is $8.6 trillion. That means the agency would need to invest $8.6 trillion today, and have it pay returns of 2.9 percent above inflation for the next 75 years, to produce enough money to cover the shortfall.

That's the rate of return Social Security expects to get from its trust funds. The problem, of course, is that Social Security doesn't have an extra $8.6 trillion to invest.

Social Security Commissioner Michael J. Astrue said he is frustrated that little has been done to solve a problem that is only going to get harder to fix as 2033 approaches. If changes are done soon, they can be spread out over time, perhaps sparing current retirees while giving workers time to increase their savings.

"It won't be easy but it's just going to get harder the longer they wait," Astrue said.

There is no consensus in Washington on how pressing the problem is.

President Barack Obama created a deficit-reduction commission in 2010 but didn't embrace its plan for Social Security: raising the retirement age, reducing benefits for medium- and high-income workers and raising the cap on the amount of wages subject to the payroll tax, all very gradually.

The issue has been largely absent from this year's presidential election. Neither Obama nor his Republican opponent, Mitt Romney, has made it a significant part of the campaign.

Thursday, August 9, 2012

California unemployment payouts drop by half


California sent out $1 billion in unemployment payments in June, a 50% drop from the peak two years ago, the Employment Development Department reports.

Part of the decline is due to fewer people being unemployed. By EDD’s count, there were 1.97 million Californians who were out of work this June compared to 2.26 million in June 2010 and 2.19 million last year.

However, the biggest reason for the drop in payouts this year is because California fell short in April of the federal eligibility requirements for the maximum 99 weeks of benefits.

Normally, unemployed workers are only eligible for 26 weeks of state aid. But because of the length and depth of the national economic downturn — the U.S. lost nearly 7 million jobs during the 18 months of the official recession — Congress extended unemployment benefits to 99 weeks.

Even though California has the third highest unemployment rate in the country, the state failed in April to meet the complex federal formula for state eligibility.

As a result, benefits in California were cut to 79 weeks in May and more than 90,000 long-term unemployed had their payments cut off.

With 709,000 of California’s unemployed in June out of work more than 52 weeks, thousands of other long-term unemployed are expected to exhaust their benefits each month.

California’s maximum benefits will be further cut to a maximum of 72 weeks in September as part of an overall effort by Congress to reduce the number of people getting aid.

Although the drop in total payouts is welcome news to the state, it does little to affect the projected $10.2 billion deficit in California’s unemployment insurance trust fund.

The state’s trust fund for unemployment payments ran out of money in January 2009, when claims outstripped payments by employers. California has been borrowing money from the federal government to make up the difference since then.

Last year, the state had to start paying back interest on the federal loan — a payment that totaled $303.5 million. Another $313 million in interest is due in September.  The state is making the payments from money borrowed from the California disability insurance trust fund,  which will have to be paid back within four years.

To begin paying off the $10 billion in principal due Uncle Sam, employers are being charged an additional $21 a year per worker this year in federal payroll taxes ($77 per worker total). The state legislative analyst estimates the increased payroll tax will cost California employers an extra $290 million this year and $580.9 million in 2013.

Friday, August 3, 2012

Senate Panel Passes Bipartisan Tax Extenders Bill

The Senate Finance Committee approved legislation Thursday on a 19 to 5 vote extending dozens of tax cuts known as tax extenders, including a two year alternative minimum tax patch.  Other provisions would extend the ability for school teachers to deduct expenses for school supplies, mortgage debt relief to 2013 and the election to take an itemized deduction for state and local general sales taxes in lieu of the itemized deduction permitted for state and local income taxes, along with the above-the-line deduction for qualified tuition-related expenses and tax-free distributions from individual retirement plan for charitable purposes. Energy-related provisions include an extension of the wind energy production tax credit for one year, through Dec. 31, 2013, while changing the "placed in service" date for the wind energy facility to when construction begins.

For more information, see http://www.finance.senate.gov/newsroom/chairman/release/?id=e3290a69-8fa4-4a6d-8c3a-756ea03a4224