Social Security Trust Fund Battered by Coronavirus

By Michael Rainey

Time to Start Worrying About a
Shutdown?

Although Treasury Secretary Steven Mnuchin has expressed renewed
interest in reaching a deal on the next coronavirus stimulus bill
and even called House Speaker Nancy Pelosi (D-CA) yesterday to get
the ball rolling again, the results so far have not been good.

Pelosi released a statement
following the 36-minute phone call that makes it clear the two
sides are still far apart: “Sadly, this phone call made clear that
Democrats and the White House continue to have serious differences
understanding the gravity of the situation that America’s working
families are facing.”

The lack of progress on the stimulus bill, along with the
rapidly approaching October 1 deadline for funding the federal
government in the next fiscal year, has some observers talking
about the possibility of a government shutdown to kick off the new
fiscal year as lawmakers fail to make a deal on multiple complex
negotiations.

Here’s how Politico’s Anna Palmer and Jake Sherman
put it Wednesday:

“CONSIDER THIS: There are, at most, 11 days in session for the
two sides to pass government funding, and solve the stimulus riddle
that’s had PELOSI, MNUCHIN and White House chief of staff MARK
MEADOWS tied up for months. That’s not much time.”

Palmer and Sherman say it’s too early to start taking bets one
way or another, but we should have a better idea where things stand
in the week of September 14, when the House returns to Washington
from its summer break. At that point, they warn, “brace for
lots of turbulence.”

Social Security Trust Fund Depleted by 2031: CBO

The Social Security Old Age and Survivors Insurance fund will be
depleted by 2031, according to a
report released Wednesday by the Congressional Budget
Office.  

The CBO said the surplus in the fund, which pays Social Security
retirement benefits, would drop from $2.8 trillion this year to
$533 billion in 2030, and run out the following year.

The CBO also estimates that the Highway Trust fund will be
depleted in 2021, Medicare's Hospital Insurance Trust Fund will run
dry in 2024, and the Social Security disability fund will run out
by 2026.

The economic slowdown caused by the coronavirus pandemic has put
a dent in the federal government’s trust funds, CBO said. In
January, the trust funds as a whole were projected to record a
surplus of $57 billion in fiscal year 2020, but now are projected
to record a $43 billion dollar deficit – a swing of $100 billion.
The change in the estimate was driven largely by an increase in
payouts by the Unemployment Trust Fund.

National Debt Will Exceed Size of Economy in
2021

The CBO also updated its budget
outlook Wednesday, estimating that the federal budget
deficit for fiscal year 2020 would come in at $3.3 trillion, down
from its previous estimate of $3.7 trillion. The deficit for the
2021 fiscal year was projected to be $1.8 trillion.

The new projections mean that the national debt is already close
to the size of the total economy and will likely surpass it next
year. The CBO said it expects federal debt held by the public to
equal roughly 98% of the size of the economy by the end of 2020 and
exceed 100% in 2021. By 2023, the debt will equal 107% of GDP – the
highest level in U.S. history, exceeding the previous peak set in
1946 in the aftermath of World War II.

By comparison, the debt-to-GDP ratio stood at 79% at the
beginning of 2019 and 35% in 2007.

The CBO said federal outlays will equal about 32% of GDP
in 2020, a roughly 50% increase from the year before and the
highest since 1945. Outlays are projected to fall to roughly 22% of
GDP over the next five years. Revenues are expected to fall from
16.3% of GDP in 2019 to 15.5% in 2021, due to the economic effects
from the pandemic, before rising to 18% of GDP by 2030.

Deficits expected to continue. “It will be hard to
ratchet down this spending going forward, and we are going to be
entering a long stretch of deficits well above historical
averages,” G. William Hoagland of the Bipartisan Policy Center

told The Washington Post. Hoagland also said he
doubted the issue would take center stage politically any time
soon: “[A]s a matter of national politics, the deficit was not a
matter of concern before the pandemic and it won’t be
after.”

Former CBO chief economist Wendy Edelberg said she doubted the
latest increase in the size of the debt was significant in and of
itself. “There’s no economic difference between a ratio of 99% and
a ratio of 101%,” she
told The Wall Street Journal. She also said he
coronavirus-related deficit spending was money well spent: “It was
a massive rise in borrowing and quite shocking, but incredibly
effective. On the flip side, this is exactly why we, as a country,
want to have room to increase borrowing during times of
emergency.”

Maya MacGuineas of the Committee for a Responsible Federal
Budget said the latest numbers serve as a reminder that the debt
remains an important issue and needs to be addressed. "What should
be absolutely clear from today’s report is that after the virus is
contained and the economy has recovered, lawmakers cannot afford to
continue ignoring the trajectory of our debt any longer," she
said.

Biden Says He’d Use FEMA Funds to Help
Schools

Democratic presidential candidate Joe Biden said Wednesday that
he would use billions in federal disaster aid to help schools
struggling to reopen amid the coronavirus pandemic pay for
essential supplies such as hand sanitizer, face masks and cleaning
supplies.

Biden would reverse a
new policy announced Tuesday by the Federal
Emergency Management Agency, under which it will no longer cover
the cost of emergency supplies used by schools, election offices
and various state and local agencies. The new rules, which take
effect on September 15, narrow the definition of "emergency
protective measure" so that it no longer applies to non-emergency
settings such as schools.

"Supporting schools and other functions — courthouses and other
related functions — are not a direct emergency protective measures
and therefore they're not eligible for [public assistance]," Keith
Turi, FEMA assistant administrator for recovery,
said on a conference call Tuesday.

Schools will still be eligible for other forms of federal aid,
though, including billions of dollars appropriated by the Cares Act
in March, which can be used to purchase cleaning supplies and
masks.

Speaking in Delaware, Biden outlined his proposed response. “If
I were president of the day, I’d direct FEMA to make sure that our
kids K-12 get full access to disaster relief and emergency
assistance under the Stafford Act,” he said. “I’d make sure that
PPE [personal protective equipment] and sanitation supplies for
schools qualify as emergency protective measures … to fully be
eligible for federal assistance.”

Biden also accused the Trump administration of abandoning
schools amid the pandemic. “Now Trump’s FEMA director is cutting
schools loose,” he said. “This is an emergency, Mr. president. This
is an emergency. And Donald Trump and his FEMA should treat it as
one.”

Most Americans Say the Government Is Making the Pandemic Worse
The federal government’s response to the coronavirus crisis gets a
failing grade from most Americans, according to a new Axios-Ipsos
survey. Sixty percent of respondents in a late-August survey of
1,100 adults said the government is making the pandemic worse,
while just 39% said it was making things better. There is a serious
partisan divide on the issue. While 80% of Democrats are critical
of the government response, 74% of Republicans are supportive.
Axios’ Sam Baker says that while trust in government has remained
steady in recent weeks, it has tumbled since the pandemic took
hold. In March, most Americans said they trusted the government to
“look out for their best interests.” But in the most recent survey,
only 32% agreed with that statement, and similar results have been
recorded for months.

Democrats Take Aim at Trump’s Payroll Tax Deferral

Senate Democrats are taking steps to overturn President Trump’s
four-month deferral of payroll taxes, a controversial executive
action that went into effect Tuesday. Employers now have the option
to stop withholding the employee portion of Social Security taxes,
a move intended to boost paychecks through the end of the year.
Workers would have to pay back the taxes in the first four months
of 2021.

Trump’s opponents in the Senate are trying to use a law called
the Congressional Review Act to allow Congress to vote to overturn
the executive action. To do so, they have asked the Government
Accountability Office to review the rule by September 22, which
could result in a vote.

The move is a long shot,
says Richard Rubin of The Wall Street Journal.
Even is the first step results in a favorable ruling for Democrats,
the result would be votes that require two-thirds majorities in the
House and the Senate – a scenario that is unlikely to succeed in a
divided Congress.

Programming note: We’ll be back in your
inbox on Tuesday, September 8. Enjoy the Labor Day weekend!

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