Harry Hamburg  /  AP
Sens. John Barrasso, R-Wyo., and John Cornyn, R-Texas, listen as Senate Minority Leader Mitch McConnell speaks to reporters after the weekly caucus luncheons in Washington on Tuesday. McConnell says he's ready to work with Obama on Social Security and other tough issues.
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updated 1/27/2011 11:08:04 AM ET 2011-01-27T16:08:04

Social Security's finances are getting worse as the economy struggles to recover and millions of baby boomers stand at the brink of retirement.

New congressional projections show Social Security running deficits every year until its trust funds are eventually drained in about 2037.

This year alone, Social Security is projected to collect $45 billion less in payroll taxes than it pays out in retirement, disability and survivor benefits, the nonpartisan Congressional Budget Office said Wednesday. That figure swells to $130 billion when a new one-year cut in payroll taxes is included, though Congress has promised to repay any lost revenue from the tax cut.

Story: CBO forecast: frightening fodder for both parties

The massive retirement program has been feeling the effects of a struggling economy for several years. The program first went into deficit last year, but the CBO said at the time that Social Security would post surpluses for a few more years before permanently slipping into deficits in 2016.

The outlook, however, has grown bleaker as the nation struggles to recover from the worst economic crisis since Social Security was enacted during the Great Depression. In the short term, Social Security is suffering from a weak economy that has payroll taxes lagging and applications for benefits rising. In the long term, Social Security will be strained by the growing number of baby boomers retiring and applying for benefits.

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News of deficits a wake-up call for policymakers
The deficits add a sense of urgency to efforts to improve Social Security's finances.

For much of the past 30 years, Social Security has run big surpluses, which the government has borrowed to spend on other programs. Now that Social Security is running deficits, the federal government will have to find money elsewhere to help pay for retirement, disability and survivor benefits.

"It means that Social Security is increasingly adding to our long-term fiscal problem, and it's happening now," said Eugene Steuerle, a former Treasury official who is now a fellow at the Urban Institute think tank.

It's a bad time for the nation to be hit with more financial problems. The federal budget deficit will surge to a record $1.5 trillion flood of red ink this year, congressional budget experts estimated Wednesday, blaming the slow economic recovery and a tax cut law enacted in December.

Story: CBO: U.S. budget deficit to hit $1.5 trillion

A debt commission appointed by President Barack Obama has recommended a series of changes to improve Social Security's finances, including a gradual increase in the full retirement age, lower cost-of-living increases and a gradual increase in the threshold on the amount of income subject to the Social Security payroll tax.

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Obama, however, has not embraced any of the panel's recommendations. Instead, in his State of the Union speech this week, he called for unspecified bipartisan solutions to strengthen the program while protecting current retirees, future retirees and people with disabilities.

Replay: Minute-by-minute of Obama's speech

Senate Republican leader Mitch McConnell of Kentucky said he is ready to work with Obama on Social Security and other tough issues.

"I take the president at his word when he says he's eager to cooperate with us on doing all of it," McConnell said.

Video: McConnell: Obama’s spending cut proposal ‘inadequate’ (on this page)

Social Security experts say news of permanent deficits should be a wake-up call for action.

"So long as Social Security was running surpluses, policymakers could put off the need to fix the program," said Andrew Biggs, a former deputy commissioner at the Social Security Administration who is now a resident scholar at the American Enterprise Institute. "Now that the system is running deficits, it simply becomes clear that we need to act on Social Security reform."

More than 54 million people receive retirement, disability or survivor benefits from Social Security. Monthly payments average $1,076.

The program has been supported by a 6.2 percent payroll tax paid by both workers and employers. In December, Congress passed a one-year tax cut for workers, to 4.2 percent. The lost revenue is to be repaid to Social Security from general revenue funds, meaning it will add to the growing national debt.

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Social Security's $2.5 trillion surplus
Social Security has built up a $2.5 trillion surplus since the retirement program was last overhauled in the 1980s. Benefits will be safe until that money runs out. That is projected to happen in 2037 — unless Congress acts in the meantime. At that point, Social Security would collect enough in payroll taxes to pay out about 78 percent of benefits, according to the Social Security Administration.

The $2.5 trillion surplus, however, has been borrowed over the years by the federal government and spent on other programs. In return, the Treasury Department has issued bonds to Social Security, guaranteeing repayment with interest.

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Social Security supporters are adamant that the program will be repaid, just as the U.S. government repays others who invest in U.S. Treasury bonds.

"It's an IOU that is backed by Treasury bonds and the faith and credit of the United States government," said Sen. Bernie Sanders, I-Vt. "It is the same faith and credit that enables us to borrow from rich people and from China and from other countries. As you well know, in the history of this country, the United States has never defaulted on one penny owed to a creditor."

Copyright 2011 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

Video: Deficit to hit record high

  1. Closed captioning of: Deficit to hit record high

    >>> the budget deficit as now reached a new all time highway, set to reach $1.5 trillion before the end of the year. that could put a dent in the president's big plans for more spending. with us now nbc political analyst , ed rendel. late night and early morning for many of us, but very sobering numbers from the budget deficit from the ceo. that's going to make it harder for the president to fulfill his plan to get more spending at a time when he's not been very specific about where the deficit cuts are coming from.

    >> of course neither have the republicans and i they's an important point to note. nobody is willing to say who's ox is going to be gored. and if we're going to reduce the deficit, at of oxes have to be gored. and the president and the congress have to step up and say this is tough medicine, mr. and mrs. america but we have to do it. we have to do it if we're going to get our fiscal situation under control. i haven't heard -- i thought the president was fairly honest last night when he said, look, the freeze only affects 12% of -- discretionary domestic spending only represents about 12% of the budget. we have to look at health care , and he's absolutely right. we have to have a serious discussion. but i agreed with a number of the things the congressman said, but it's amazing to me how republicans who always talk about running government like a business don't realize that businesses absolutely cut costs and cut expenses, but at the same time invest in new research and development . they'll cut costs and cut expenses, but bring in a new product line , they'll invest in bringing a new product line in because it can grow their business. they do it at the same time. and we can cut the deficit and yet invest in not only our future, but invest in short-term job creation which comes from infrastructure. we not only must do -- not only is that a good idea, it's an imperative. if we're going to get this economy back on track in the short run and we're going to win the battle for economic competitiveness in the long room.

    >> if we're going to be competitive, though, what the republicans were saying last night, paul ryan , the budget chair was saying that this president, this white house has spent too much. now we both know that some of this was the crisis to try to overcome what was a meltdown and it was money some of it was being committed by the previous administration, by the bush white house . but this is what paul ryan had to say last night and i want to get you to react to it.

    >> since taking office, president obama has signed into law spending increases of nearly 25% for domestic government agencies . all of this new government spending was sold as investment. yet after two years, the unemployment rate remains above 9%. and government has added over 3 trillion to our debt.

    >> does he have a point?

    >> first of all, a lot of it is voodoo economics because a lot of that t.a.r.p. money as you know has been repaid. a lot of the automobile money is in the process of being repaid. and everyone agrees that what president bush start and what president obama followed through on t.a.r.p. actually worked, not only to save this country's economy, but also to safe the global economy , number one. and what congressman ryan is not saying, if we hadn't invested in the stimulus the same budget office said that unemployment would be as high as 11% and maybe as high as 12%. so the stimulus did have a positive affect. do you remember how much of that $870 billion of stimulus spending was actually tax cuts ? $375 billion. so it's not an -- -it's not $870 billion of spending in this stimulus bill, it's $375 billion in tax cuts and less than $500 billion in new spending and the new spending did work to keep our unemployment rate down. one of the reasons it didn't is that we didn't spend enough money on infrastructure which clearly is the best producer of well paying jobs that can't be outsourced.

    >> governor, one of the first things that the president did in trying to get his arms around the deficit side of it is to threaten to veto any earmarks that come his way and he's already running into problems from senate democrats , harry reid in an interview with our own kelly o'donnell just now, this is what he had to say and he's not the only one.

    >> the american public should understand and i'm sure they will as time goes by that the president has enough power, he should just back off, he's got enough to do without messing in what we do. he feels this is good for him and his image and maybe it is, but he's wrong.

    >> so he's in trouble on the earmarks and one other thing, i got to ask you, as someone who was the mayor and the district attorney of the city of philadelphia , you know the urban environment better than anybody, what about the fact that they are sort of saying well down the road we'll some up with gun control language, but to talk about tucson and invoke the her heroism and the tragedy of those victims and not to talk about those magazines what, do you think?

    >> first of all, i understand the point that the president's people made after the speech that he didn't want anything to distract him from the economic message and i agree with that. but look, we ought to have gun control . if you poll the american people now about having clips that contain more than ten bullets, most will say we need to restrict them. no one needs a magazine with 33 bullets in it to protect their home. no one does. it's clear as the nose on your face. we have got to seize the momentum. i think the president should have -- he shouldn't have made it the centerpiece of his speech, but he should have said in referencing the green family, in referencing the mr. hernandez who was there, say, look, this is a time when america needs to take a deep breath and do what's needed. we all need the guts and the courage to say to special interests no, it's time for sensible limitations, no one needs a magazine clip with 33 bullet in it.

    >> ed rendel, the new nbc political analyst .

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