NRO's Luskin: Social Security “crisis” starts in 2009, when program will be less able to bail out the federal government

A January 11 National Review Online (NRO) column by Donald Luskin, NRO financial contributing editor and chief investment officer of Trend Macrolytics, LLC, falsely blamed the Social Security system for overall fiscal shortfalls of the federal government. He claimed that a “Social Security crisis” will begin in the year 2009, not because there will be any shortfall in that program, but because that is the year when the annual surplus in the Social Security trust fund -- the revenue it receives above the benefits it pays out over the course of the year -- is expected to begin to shrink. In other words, according to Luskin, this so-called “crisis” will exist in the system even though the size of the trust fund, which under current law is the amount of money available to pay current Social Security beneficiaries, will continue to grow.

To justify this claim of a “crisis,” Luskin wrote:

According to the latest annual report of the Trustees of the Social Security Trust Funds, the surplus in 2004 was $64.4 billion dollars. It will be higher this year -- at $87.7 billion. The surplus will keep getting bigger and bigger through 2008, when it will reach $108 billion. Each year, that's more and more money that the federal government won't have to raise from the world capital markets. It's a captive audience of bond buyers -- and a growing one.

But in 2009, just 5 years from now, the surplus will start to shrink. In 2009 it will fall to $103.7 billion, and in that year the federal government will have to go to the capital markets to raise $4.3 billion that it didn't have to raise the year before. That's not a lot of money in the grand governmental scheme of things. But it's an important turning point for Social Security -- it's the year the crisis begins.

Luskin is asserting that because what is commonly known as the “general fund” -- out of which non-Social Security expenditures by the federal government are paid -- is projected to run large and persistent deficits, and because some of these deficits are financed by borrowing from the Social Security trust fund, Social Security will be in “crisis” as soon the amount of federal deficits that can be financed in this way begins to shrink. According to Luskin, “Social Security will start to become a drag on the budget of the federal government in 2009” simply because it is predicted to offset the deficit of the rest of the federal government by a somewhat smaller amount than previously.

So, following Luskin's logic, if your brother lends you $1,000 this month, but can lend you only $800 next month, he will have become a “drag” on your finances.