Data recently made public by the Social Security Administration confirm that in October, 2009, the program reached a grim milestone: six consecutive months of operating cash deficits. This is the first time Social Security has faced this situation over the entire time period, dating back through 1987, for which SSA posts the monthly data online.
From May through October inclusive, Social Security’s outgoing payments have exceeded incoming program revenue, generated mostly by the payroll tax (with a smaller amount coming in via the taxation of benefits). When a cash-deficit situation develops during a period that the program is still technically solvent, full benefits continue to be paid. The operational deficit is effectively made up with general revenues, putting additional strain on a sagging federal budget.
The primary reason for the early arrival of Social Security’s deficits is the recession, which is depressing payroll tax revenue. The drop in employment, and its corollary effect on payroll taxes, is coinciding with a long-anticipated surge in benefit claims as the Baby Boomers begin to hit the retirement rolls. These factors have combined to accelerate Social Security’s financial difficulties relative to previous projections.