Social Security is part of the deficit now

This year's federal budget deficit is projected at around $1.4 trillion, and that number is getting the attention of members of Congress on both sides of the aisle. Even the most liberal of economists agree that deficits of that magnitude are unsustainable. The United States' credit standing might be in jeopardy if serious efforts to reduce the deficit are not undertaken quickly.

All that is old news, but one aspect of the deficit is not getting much attention. Part of the deficit consists of shortfalls in Social Security funding and the nation's obligation to repay money borrowed from the Social Security Trust Funds. In 2010, Social Security benefits exceeded Social Security taxes by about $49 billion. That's a tiny percentage of $1.4 trillion, but it's a factor in the overall deficit that had been projected for decades. Had Congress acted 10 or 20 years ago, this shortfall could have been avoided relatively painlessly.

Social Security has always worked by transferring wealth from workers to retirees. Since 1983, Social Security had built up a huge surplus to meet projected obligations when the baby boom generation began retiring. That day of reckoning is upon us, and Social Security revenues are no longer sufficient to pay promised benefits. Moreover, the billions of dollars that had been borrowed from Social Security have to be repaid, and those notes are coming due. For years, Social Security revenues have obscured the magnitude of the federal budget deficit as those excess revenues were spent for government operations. Those borrowed funds would have to be repaid through higher taxes, but no plan was in place to produce those revenues.

Now, America has a crippling budget deficit and no plan to balance the budget. Even Rep. Paul Ryan's austere budget proposal would only reduce the deficit over the next deficit; it would not produce a budget surplus, like the one we had in 2001. Contrary to what some politicians are claiming, Social Security is part of the deficit problem because its obligations exceed its revenues and the money borrowed from Social Security has to be repaid from other taxes.