Following the news from Washington has never been easy. But there’s an added challenge today: the problem of large numbers. It’s almost impossible for anyone to really grasp the idea of a billion, let alone a trillion. Even the experts get confused.
“I don’t have the exact numbers in front of me, but I think it’s -- it went from $1.75 billion to $1.84 billion,” White House spokesman Robert Gibbs said recently when asked about the national deficit. He quickly corrected himself: “a trillion -- I’m sorry.”
This isn’t a trivial difference. A billion is a thousand million, and a trillion is a thousand billion.
Why does this matter? Frankly, our economic well-being depends on it. The Social Security Trustees recently released their 2009 annual report, and it’s packed with numbers that are difficult to comprehend. But it’s critical that we try.
In “net present value,” the report says Social Security has promised to pay out $7.7 trillion more in benefits than it will receive in taxes. “Net present value” means Congress would have to invest $7.7 trillion today to have enough money to pay all of Social Security’s promised benefits between 2016 and 2083.
That’s more than twice what the federal government will spend this year on everything it buys. And again, this investment would be on top of the funding Social Security will collect through payroll taxes.
The big numbers matter more this year. Lawmakers have passed an $850 billion “stimulus” bill. President Obama has set aside hundreds of billions more for health care reform.
But as they embark on a historic spending spree, policymakers are beginning to lose a windfall they’ve come to count on. Starting this year, the annual Social Security surpluses that Congress has been borrowing and spending on other programs will begin to shrink. That means larger deficits today and less money for Congress to spend in the years ahead.
The Trustees say these surpluses will disappear for good in 2016. Social Security will then start paying out more every year than it takes in. Lawmakers will have to raise taxes or slash spending on other federal programs to pay benefits.
Sure, there’s a Social Security trust fund filled with IOUs. But, unlike your 401(k), there’s no real money behind those -- just a promise by one wing of the government to provide money to another wing. The real money will have to be taxed or borrowed, as is the case for all government spending.
What does this mean for you? Depends on how old you are.