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Will Social Security survive the recession?

Social Security is about to go into the red, paying out more in benefits than it takes in taxes during the next two years, the first time that has happened since the 1980s, Jerome Corsi’s Red Alert reports.

Unemployment resulting in lower tax revenues and a spike in early retirement claims – two consequences of the continuing U.S. recession – are the culprits in this crunch, Corsi contends.

Applications for Social Security retirement benefits are 23 percent higher this year, while disability claims have increased by 20 percent.

Nearly 2.2 million people applied for Social Security retirement benefits from the start of the budget year in October through July, compared with 1.8 million in the same period last year, according to the Associated Press.

While Social Security is supposed to have $2.5 trillion in trust funds to cover such shortfalls, Congress has spent the Social Security trust fund reserve on other underfunded government programs, placing government IOUs in the trust fund to replace the otherwise absconded cash.

Forty-three million retirees and their dependents receive Social Security benefits, with an additional 9.5 million receiving Social Security disability benefits.

The average monthly Social Security check is currently paying around $1,100, while the average disability benefit is about $920 a month.

Social Security early retirement benefits can be paid out beginning at age 62.

The U.S. economic downturn has caused the loss of approximately 7 million jobs, reducing the payroll base on which Social Security taxes derive revenue, while putting pressure on those 62 or older who have lost jobs.

Social Security woes do not end there, Corsi wrote.

For 2009, Social Security beneficiaries received an unusually large 5.8 percent increase in benefits, primarily because of the 2008 spike in oil prices, according to the Wall Street Journal.

Typically, Social Security cost-of-living adjustments result in a 2 to 3 percent increase in benefits.

However, this year is expected to be different.

“No cost-of-living increase is expected in 2010 for the first time in 35 years,” Corsi wrote, “largely because inflation has not increased during the economic downturn.”

How bad is the Social Security revenue shortfall?

Rep. Jason Chaffetz, R-Utah, has written that when debts to various government trust funds are added to the anticipated 2010 budget deficit, the U.S. debt burden will reach nearly 100 percent of gross domestic product in 2010.

Moreover, Rep. Chaffetz estimates that when unfunded liabilities of more than $100 trillion from Social Security, Medicare and government employee pensions are included, national debt is several times larger than GDP.

“In 2010, nearly $200 billion will be spent on interest payments, almost half of which will be going overseas,” Chaffetz wrote. “Interest payments are forecast to skyrocket to $829 billion by 2019.”

Corsi noted that Congress focusing on Social Security reform is unlikely, especially with 2010 being a mid-term election year.

“If the national debate over Obamacare has demonstrated anything, it is that seniors remain a politically important lobby that react vocally when entitlement benefits are threatened,” Corsi wrote. “Just ask George W. Bush who expended his political capital coming out of his 2004 re-election by trying and failing to put on the national agenda a Social Security reform that would allow some privatization of retirement benefits.”

He said he does not expect the Social Security revenue shortfall to get nearly the mainstream media attention the issue warrants, especially when the Obama administration is determined to pursue universal health-insurance reform – a program that will increase federal revenue liabilities – and cap-and-trade carbon emissions control legislation – likely to act as a corporate tax that will force job losses and curtail tax revenues.

Instead, Corsi noted, the likely outcome of the Social Security budget crisis is that President Obama will seek to tax the “rich,” this time by suggesting that Social Security taxes should be applied as payroll taxes to incomes higher than $250,000.

Red Alert’s author, whose books “The Obama Nation” and “Unfit for Command” have topped the New York Times best-sellers list, received his Ph.D. from Harvard University in political science in 1972. For nearly 25 years, beginning in 1981, he worked with banks throughout the U.S. and around the world to develop financial services marketing companies to assist banks in establishing broker/dealers and insurance subsidiaries to provide financial planning products and services to their retail customers. In this career, Corsi developed three different third-party financial services marketing firms that reached gross sales levels of $1 billion in annuities and equal volume in mutual funds. In 1999, he began developing Internet-based financial marketing firms, also adapted to work in conjunction with banks.

In his 25-year financial services career, Corsi has been a noted financial services speaker and writer, publishing three books and numerous articles in professional financial services journals and magazines.

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