Social Security's Impact on the Federal Budget Deficit

By: Paul_L_Kasriel

For a number of years, net contributions to Social Security exceeded benefit payments. These surpluses were transferred to the Treasury's general fund in exchange for an IOU from the Treasury to be called at a time when the net contributions to Social Security became less than the benefit payments. That time arrived in 2009 when net contributions were $8.2 billion less than benefit payments.

As large numbers of baby boomers become eligible for Social Security benefits in the coming years, the shortfall of net contributions to benefit payments will widen. Thus, the Social Security Trust Fund will be its IOUs on the Treasury. In order to honor these IOUs, the Treasury will have to increase income and other taxes, issue new Treasury debt, or cut other federal expenditures. In the coming years, then, if not currently, the Social Security program will have an impact an important impact on federal budgetary decisions.

Paul Kasriel is the recipient of the 2006 Lawrence R. Klein Award for Blue Chip Forecasting Accuracy

by Paul Kasriel
The Northern Trust Company
Economic Research Department - Daily Global Commentary

Copyright © 2011 Paul Kasriel
Paul joined the economic research unit of The Northern Trust Company in 1986 as Vice President and Economist, being named Senior Vice President and Director of Economic Research in 2000. His economic and interest rate forecasts are used both internally and by clients. The accuracy of the Economic Research Department's forecasts has consistently been highly-ranked in the Blue Chip survey of about 50 forecasters over the years. To that point, Paul received the prestigious 2006 Lawrence R. Klein Award for having the most accurate economic forecast among the Blue Chip survey participants for the years 2002 through 2005.

The opinions expressed herein are those of the author and do not necessarily represent the views of The Northern Trust Company. The Northern Trust Company does not warrant the accuracy or completeness of information contained herein, such information is subject to change and is not intended to influence your investment decisions.

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