THE SINGLE LARGEST government program in the United States will soon have an annual budget of $1 trillion a year. Yet even that amount isn't sufficient to fulfill the promises it has made. If Congress doesn't address its insolvency issues, payouts will need to be slashed by a quarter starting in fewer than 20 years.
The program is Social Security, and our national pastime seems to be turning a blind eye to its dysfunctions.
The problems with this entitlement aren't unique. Obamacare is also a mess, while cumulative government spending on Medicare and Medicaid is growing at a faster rate than Social Security is, and eventually will consume a larger share of the economy.
But that's no reason to ignore the serious fiscal issues with America's main retirement program. Since 2010, it has been running a cash-flow deficit--meaning that the Social Security payroll taxes the government collects aren't enough to cover the benefits it's obliged to pay out. That should have been a signal that the time had come to look at reform.
Instead, we've spent the last seven years ignoring the problem. To get by, the program started tapping into the assets set aside beginning in the 1980s for rainy days. Prior to 2010, the program collected more in payroll taxes than was needed to pay the benefits due at the time. The leftovers were "invested" into Treasury bonds through the so-called Old Age Trust Fund, which is now being drawn down.
In fact, the Treasury bonds are nothing but IOUs. When it's time to disburse benefits they can't afford, Social Security administrators turn in those paper promises in exchange for hard cash from the Treasury Department.
But Treasury also doesn't have the money: It has already spent it on wars, roads, education, domestic spying, and much more. So when Social Security shows up with its IOUs, Treasury has to borrow to pay the bonds back. That adds to the debt that future generations will be on the hook for via higher taxes.
Did you catch that? Past generations of workers paid extra payroll taxes to bulk up the Social Security system. But the government spent that additional revenue on non-retirement activities, so now your children and grandchildren will also have to pay more in taxes to reimburse the program.
You may be tempted to wave away this problem. After all, there's more than $2.3 trillion left in the trust fund.
Don't. The Social Security trustees have calculated that the cash-flow deficit over the next 80 years will amount to a staggering...