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Obama's FY 2014 Budget on Social Security

Dan Barrett
April 9, 2013

With budget fever gripping the Beltway policy world and state government inner circles, there are plenty of questions and skepticism on what President Obama's FY 2014 Budget will plan for the country's biggest expenses: government-subsidized health care and retirement entitlement programs. Though the budget is due to be released on tomorrow, some details have already come out on what taxpayers can expect and what this all means for the nation's bottom line. In an analysis by the Fiscal Times, many experts predict few surprises and many repeat proposals from the Obama 2013 Budget. I examine Social Security in the first of three posts. Note: Figures are in ten-year windows (not the usual five-year increments under the BillTally project).

Where it's at: According to the Social Security Administration, the regular retiree program has run a deficit (i.e. its expenditures are higher than the Trust Fund's non-interest receipts from withholding taxes) for the past two years and will continue upwards at an annual average of $66 billion between 2012 and 2018. The budgetary outlook could worsen. Deficits will likely increase sharply as the Baby Boomer generation enters retirement and the pool of workers expected to shrink, relative to reitrees. Jagadeesh Gokhale of the Cato Institute says that the disability portion of Social Security is the real worry because more people have been applying, which has mounted budgetary pressure, so much so that the program may default on benefits by as early as 2016.

What the budget might do:

  • Institute Chained CPI ($130 billion):  By changing how cost-of-living adjustments is calculated for retirees, future payments would likely not be as high as projected as compared to traditional determinations. The change could also push taxpayers into higher tax brackets earlier than expected (a revenue boom for the program but a bust for workers). The concept does have some opponents including the AARP, many Congressional Democrats, and experts who support other options.
  • The FY 2013 Budget also listed a few smaller efforts that could result in a net $3 billion savings, though most of that is improving collections of information on state and local pensions, which may end up costing more than it saves.

For better or worse? Much of the focus is not on Social Security but on the other two big programs. This is likely a timely issue where Social Security is seen as at least momentarily solvent and will stay that way long after Medicare is expected to default. Chained CPI and the already proposed measures may temporarily help guarantee retirees benefits for a longer period of time but the program will eventually need serious reform and, like all of these programs, the sooner sustainable reforms occur, the less it will cost taxpayers. However, none of this addresses the disability portion of Social Security, which would need a bailout in a very short amount of time.


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