"Fool me once; shame on you. Fool me twice; shame on me." - Ancient Proverb

I recently started reading the U.S. Social Security Administration's 2008 OASDI Trustees Report. It pretty much goes without saying that this is not the most interesting reading material in the world, as the report is neither a suspenseful page-turner nor a runaway bestseller. Released to no apparent fanfare on March 28th, so far the report has done a better job of gathering dust than garnering attention.

Short-Range Results

"The OASI Trust Fund and the combined OASI and DI Trust Funds are ade­quately financed over the next 10 years under the intermediate assumptions. The DI Trust Fund is expected to remain solvent over the next 10 years, but does not satisfy the short-range test of financial adequacy because assets are estimated to fall below 100 percent of annual expenditures before the end of 2017. The combined assets of the OASI and DI Trust Funds are projected to increase from $2,238 billion at the beginning of 2008, or 359 percent of annual expenditures, to $4,273 billion at the beginning of 2017, or 385 percent of annual expenditures in that year..."

Long-Range Results

"...Annual cost will exceed tax income starting in 2017, at which time the annual gap will be covered with cash from redemptions of special obliga­tions of the Treasury that make up the trust fund assets until these assets are exhausted in 2041."

To most of us, OASDI (which stands for Old-Age, Survivors, and Disability Insurance) is better known as Social Security. Unfortunately, because the mere mention of Social Security has the ability to illicit spontaneous yawning, we as Americans have been sleeping rather than standing guard. Consequently, our eyes have been closed to a deceit that is robbing us of our future financial security.

With total incoming revenue expected to top $800 billion for the year, Social Security is the largest program in the history of our government. And for the past twenty years, OASDI has been cash flow positive, with surpluses totaling over $190 billion last year alone.

However, over the years, Congress has been continually borrowing these annual surpluses, and has now spent more than $2 trillion of Social Security’s trust fund assets. While referring to this practice as "borrowing" is far too kind, these monies have been taken legally due to the accounting principles (or lack thereof) that now govern the distribution of funds within our federal budget. Under a unified budget, surpluses from one program, such as Social Security, automatically flow into general revenue calculations, where they may then be used to mask deficit spending for any number of other programs or initiatives.

The whole point of starting a trust fund was to set aside money for the future. Because projected program costs were expected to exceed revenue in coming years, tax rates were increased prior to need, and these tax increases were scheduled as prescribed by the 1983 amendments. In other words, if the government were to wait to increase taxes until 2017 when the money will actually be needed to fund retirement benefits for the baby boom generation, it would already be too late. At that point, the program would begin to need cash at a rate far in excess of the ability to raise it through fair and balanced taxation.

This certainly does not have to mean that the Social Security program is destined for insolvency, and the passing of the baby boom generation should be seen as an extended hurdle rather than an insurmountable barrier. Referring to these looming demographic issues as an “extended hurdle” may be a slight understatement given the current lack of foresight and financial discipline exhibited by our government, but with proper planning, we can assuredly meet these challenges with confidence--and success. That said, Social Security will need to draw upon its cash reserves during the effectual time period, and we must ensure that these resources will be ready and available as needed.

As it pertains to the current state of the OASDI trust funds, the money has already been spent and the damage is done. However, Social Security is projected to generate continued operational surpluses between now and 2017, and the total value of the OASDI trust funds is scheduled to grow from last year's assets of $2.238 trillion to a total of $4.486 trillion in assets by the end of 2017.

This means that the Social Security trust fund is projected to double in value over the next 10 years. We as citizens have little hope of recovering the $2 trillion in trust monies that have already been spent, and politicians are largely to blame for this gross negligence. However, if we as citizens allow politicians to continue to spend these incoming surpluses and "borrow" an additional $2 trillion from our trust fund, we will have only ourselves to blame. We must act now to protect and preserve the future of our financial security--for our parents, for ourselves, and for our children.

Looking ahead, the OASDI surplus is expected to total $192 billion for 2008. To put this number in perspective, the Economic Stimulus Act of 2008 has an estimated price tag of $152 billion, with the majority going towards sending stimulus checks to eligible taxpayers. It pretty much goes without saying that a significant percentage of this money will ultimately leave our economy through the purchase of foreign oil and other consumer goods manufactured outside these United States. So if Congress can find a way to spend $152 billion to facilitate consumer spending, then surely it can also find a way to start saving comparable amounts, such as the ongoing Social Security trust fund surpluses.

An important first step will be to stop including Social Security revenue in the unified budget. That way, politicians will no longer be able to devise new ways to spend this money as part of general revenue, and we can start using OASDI surpluses for their intended purpose--saving for the future.

Furthermore, to best protect this money and the people who actually earned it, the government should start allocating trust resources to individual accounts for each taxpayer instead of lumping it together in a collective lockbox. Creating a sense of individual ownership will allow taxpayers to act as their own trustees, as individuals with a stake in the future success of the program. And managing such a responsibility will help reinforce the fact that we have a truly vested interest in financial sustainability of Social Security, so that we will never again allow its trust fund resources to be squandered away as carelessly as they have been in the past. We the people created this great nation, and we the people are its rightful trustees--for this generation and the next.

Sources:

U.S. Social Security Administration - 2008 OASDI Trustees Report
(Section II.A, Highlights; Short-Range Results, Long-Range Results)

U.S. Social Security Administration - Office of the Chief Actuary
(Time Series: Both Funds; Income, Outgo, and Assets; Calendar Year; All Years)

U.S. Social Security Administration - 2008 OASDI Trustees Report
(Section IV.A, Short-Range Estimates; Table IV.A3, Intermediate Projections)

White House - Press Release, February 13, 2008
(Fact Sheet: Economic Stimulus Act of 2008)