The Economic Advisor

US National Debt - The Problem With Social Security

The last few years have seen millions of Americans suffer untold pain as their leveraged debt positions exploded in their faces. Suddenly, they owned homes worth less than they owed and so on. As bad as it has been, there is a crisis looming that nobody in Washington wants to discuss. It has to do with the national debt and social security program.

Social security is, of course, the entitlement program set up to provide benefits to seniors. The program has its detractors and proponents. The merits of the program are beyond the focus of this article. While many point to problems with the program going bankrupt as more and more baby boomers enter their retirement years, this suggestion misses a bigger problem. It all has to do with the very odd way our government has used money.

There has long been a fairly secret aspect of the social security. Everything you hear suggests the program has no money and is poorly wrong. These suggestions are objectively wrong. While the program could always be improved, it is generally a huge success. So, what then of these stories that it is running out of money? Well, it is but not because of the way the program is run. Instead, we need to look to Congress to see why.

The national debt has been going up fairly dramatically since the early 1980s. The government sells treasury notes to raise money for its programs. It then must pay interest on its debts. So, where does it get the money? Well, a huge chunk has been coming from social security. This is because social security has run a surplus for decades. Yes, you read that right. The program brought in more money than it spent.

So, what happened to the surplus? Well, the government borrowed the surplus and paid the interest on the national debt. Now we face a double problem. The generations behind the baby boomers are smaller in size. This means that the money coming into social security is dropping. As boomers retire, the outputs are going up. Combined, the annual surplus that social security had is now effectively gone. This means we are going to need to start paying money into social security and also find money to use to pay the interest on the national debt.

The obvious question is where do we get this money? Well, the government is predicting annual deficits of a trillion dollars. We are currently at 12.1 trillion dollars in debt. By 2020, we would be looking at 22.1 trillion in debt conservatively with the number probably being much higher. The only answer to this problem is two painful steps - raise taxes and cut benefits.

The United States have been running a tab for 30 plus years. Unfortunately, that tab is coming due very soon.

Mark P. Warner writes for CurrentUSANationalDebt.com - where you can find out the current USA national debt and get more information on the national debt issue.