Bankrupt is in the Eye of the Beholder

Brad Setser has a nice post taking the President's language about social security and asking what it must mean about the governments current budget shortfall.

By the President's definition, Social Security is bust because it can only pay about 80% of promised benefits with dedicated revenues in 2053, after the trust fund is exhausted in 2052, and only 75% of promised benefits in 2062 (using the CBO forecast).
"If you're 20 years old, in your mid-20s, and you're beginning to work, I want you to think about a Social Security system that will be flat bust, bankrupt, unless the United States Congress has got the willingness to act now," Bush said.
Right now, though, the non-Social Security part of the government has dedicated revenues sufficient to cover only about 70% of its expenses. Revenues in 2004 were around 11.3% of GDP, expenditures were about 16.25% of GDP (including interest payments on the Social Security trust fund), for an overall deficit in the non-Social Security part of government of a bit under 5% of GDP. Put differently, non-social security government spending exceeded non-social security revenue by over 40%.
(One note: I used the CBO's data for FY 2004, and the Trustees' data for calendar year 2004 for Social Security, I could not quickly find the CBO's forecast for FY 04 Social Security payroll tax revenue. The resulting error is tiny).
On the external side, revenues (exports) only cover 65% of our current spending (imports). By my calculations, based on data through November and conservative estimates for December exports and imports, end 2004 exports will be around 9.75% of GDP, imports around 15.05% of GDP. Our current trade deficit of 5.3% of GDP is equal to 54% of export revenues.
In other words, using the President's criteria for Social Security, we are already bust.

Read the full post here.