According to a New York Times report this morning, the long-term health of Social Security looks increasingly grim. Grim, not because Social Security is necessarily bloated and unsustainable (Social Security produced a surplus every year between 1984 and 2009), but because the recession has reduced the funding of these programs. The non-partisan Congressional Budget Office estimates that the Medicare trust fund will be dried up by 2024 and that by 2033 the Social Security Trust Fund might face a similar fate.
The Congressional Budget Office also estimates that 56 million Americans received Social Security benefits in 2011. What is often overlooked by politicians who want to cut funding for Social Security is the fact that Social Security provides a major source of income for 54% percent of married couples and 73% of non-married persons aged 65 or older. There is a bleaker fate for those who receive benefits from the Disability Program – which is expected to run out of funds in 2016. With this in mind, what would happen to the level of demand in our economy (and the prospects for a continued recovery) if we were to slash social security benefits?