It was only a matter of time, but it's finally happened: The nation's Social Security system will pay out more than it takes in this year and next, as aging baby boomers begin entering retirement. The milestone marks the first time in nearly 30 years that the system is in the red, according to a report issued Thursday by federal officials overseeing the program.
The shortfall has been exacerbated by the recession and high employment, which have reduced payroll tax revenues. Long term, however, Social Security's finances stand to improve slightly, the trustees report said. A new tax on pricey health plans, part of recently passed health-care overhaul legislation that goes into effect in 2019, will result in more revenues.
Still, the plan's trust fund will be exhausted by 2037, the report said -- the same prediction it made last year. Treasury Secretary Timothy Geithner, a trustee, urged lawmakers to move quickly to resolve the problem. "Despite the projection that Social Security can continue to pay full benefits for nearly 30 years, the sooner action is taken, the more options for reform will be available, and the fairer reforms will be to our children and grandchildren," Geithner said in a statement.
Pay outs from Social Security last exceeded income from payroll taxes in 1983, after more than a decade of a running in the red, CNNMoney.com reports. In 1977, President Jimmy Carter signed legislation increasing the withholding rate from 2% to 6.15% -- about where it is today.
Social Security paid $675 billion in benefits to some 53 million beneficiaries last year, the reported noted.
The trustees report also showed the new health-care law, much of which begins taking effect in 2014, should boost the fiscal standing of Medicare, the federal health plan for seniors. The program will remain financially solvent for 12 years longer than projected a year ago -- until 2029 -- because of cost-cutting measures included in the health overhaul bill, signed into law last March by President Obama.
It's Official: Social Security System Now in the Red