The most important take-away points from the 2012 Trustees Report will be that Social Security has a large and growing surplus; that without any Congressional action, Social Security will continue to pay benefits to America’s eligible working families for decades; and that with modest legislated increases in revenue, it will continue to pay those benefits for the next century and beyond.
Because the economic recovery and wage growth have been slower than expected and the cost of living was higher, this year’s report is likely to project that the number of years that Social Security can continue to pay benefits in full with no Congressional action will be a year or two shorter. But it is still decades away -- and the precise year has fluctuated in virtually every Trustees Report, sometimes sooner, sometimes later. The fluctuation is unsurprising given the uncertainties related to projecting inflation, wage growth, productivity, immigration rates, fertility rates, and other factors so far into the future.
With the issuance of the 2012 report, journalists will have an opportunity to correct the common misunderstanding that Social Security is now paying out more in benefits than it is collecting in income. Social Security is prohibited by law from doing that, and if there were less income than outgo this year, the Trustees would be announcing an immediate cut in benefits. They are not.
Journalists can clarify that Social Security has three revenue sources: Payroll contributions from employers and employees, interest earned on Social Security’s U.S. Treasury bond holdings (which have the same legal standing and status of all other Treasury bonds issued by the government), and income taxes on the Social Security benefits paid by those with higher incomes. The report will likely project that Social Security’s benefits and administrative costs in 2012 will exceed the amount of payroll tax contributions collected -- but that is not surprising in light of the stagnation of average wages and continued high unemployment. Indeed, it has happened 18 times since 1958, according to the Social Security Administration.
Payroll contributions along with interest and taxes will be more than enough to cover the cost of the program this year. Last year’s report projected that at the end of 2011, Social Security would have an accumulated surplus of around $2.7 trillion, which it now has. This year’s report will show that it will be even higher at the end of 2012.