Nothing get clicks from seniors like a scary story about Social Security, and the Associate Press supplied a real granny-grabber last week: "Social Security on Pace to be Drained by 2037." Hyper-ventilating off on a new report from the Congressional Budget Office, the headline managed to seize a topic of key interest and entirely miss the point.
To understand what's wrong with such a headline, you need to grasp one fact: Social Security is, ultimately, just another pay as you go government transfer program. That is, we tax Peter to pay Paul. The Treasury raises money with taxes and debt and distributes some of it to seniors, survivors, and disabled people according to formulas embedded in the Social Security law. Your benefits are safe as long as voters agree that transferring that much money to seniors is better than transferring it elsewhere, or letting taxpayers keep it. Simple.
What makes it seem complicated is that Uncle Sam's accountants treat Social Security like a closed ecosystem. Unlike other government programs, it has its own tax -- this year a 10.4% slice of your wages (4.2% from you and 6.2% from your employer) officially called the FICA tax-and every year the Social Security trustees estimate how long the system's inflows from FICA and other revenues will cover its outflows.
But where the system really turns murky is with the trillion-dollar Social Security trust fund, an accounting phantom that has launched a thousand half-cocked headlines like AP's. Social Security experts like Eugene Steuerle of the Urban Institute regard it as a trillion-dollar distraction. "I try to avoid the trust fund debate," he writes in an email. "Social Security is mainly a pay-as-you-go system."
There is a massive trust fund -- and this is one case where your definition of "is" really matters -- only because FICA has pulled in much more than Social Security needed for the past 27 years. The government treated the FICA surplus the same way it treats all tax revenue: It spent it on aircraft carriers, interest on the debt, haircuts for Congressmen, and all the other purposes of government. The surplus, along with imputed interest, is recorded on the government's ledgers. That ledger entry is the trust fund.
What does the trust fund do? The Social Security Administration itself describes it as "budget authority." That is, until the fund runs out, the program can order the Treasury to come up with the money to pay benefits, even if FICA taxes don't cover benefits (and they don't, starting this year), without asking Congress for more money.
What the trust fund doesn't do is change how the Treasury pays for benefits: Trust fund or no trust fund, we still have to tax Peter to pay benefits to Paul. If Peter's FICA taxes don't cover Paul's benefits, the shortfall has be made up out of Peter's other taxes, or by borrowing. All that matters is how much we want to support seniors, not whether government accountants say the trust fund is a $2.6 trillion or 50 cents.
In the kind of Social Security post you should pay attention to, "The Truth about Social Security Cuts" CBS MoneyWatch writer Carla Fried argues persuasively that voters (including most Tea Party members) support Social Security so strongly that benefits are in zero danger in the short run. Certainly, no politician has enough of a career death wish to propose stiffing anyone now retired or even within 10 years of retirement.
The question anyone younger than 50 needs to ask is, how long will that popularity last? At some point, as the population ages and seniors absorb an ever larger share of spending -- not just in Social Security, but also in Medicare and Medicaid -- voters may simply choke on elderly entitlements. (Remember at that point we may simultaneously be choking on interest payments on the debt.) Ironically, the best way to protect benefits for younger workers today is to embrace gradual changes in the program starting today -- thus avoiding more draconian cuts in a crisis a decade or more hence.
In the meantime, forget about when the Social Security trust fund will be "drained." Indeed, forget about the trust fund altogether. It's irrelevant. As with all the fiscal challenges we face, Social Security's biggest risk is failure of political will. There's no trust fund for that.
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Boy, are people beating me up this morning on the blogs which I take as positive sign since so many of them didn't realize the issue at hand.
http://hubpages.com/hub/The-Social-Security-Trust-Fund-Holds-Nothing-But-Government-IOUs
What is your definition of Social Security.
Is it a safety net, or is it a redistribution of wealth?
And if it's a safety net, why would someone who makes more have to put in more, when he/she will never get that back.
If the money collected from our checks went into a true trust, the wealthy would not have had the free ride they've had for over 30 years and the government would not have been able to continue making war, buying weapons, and giving out no bid contracts to companies like Bechtel and Haliburton whose CEO's are being paid with that money.
Put it in the fund, leave it in the fund, and make sure even workers like you contribute.
Problem solved.
We all pay into SS. We deserve to have it be there when we need it, just like ANY insurance policy. Cut lifetime health, life insurance, and pensions for our elected 'public servants, and that'll help too, and set the right example!
Think about it: SS receipts are down now due to unemployment, but payouts are the same. Without a buffer SS would be constantly going into the red or black. We'd be constantly changing payouts or taxes. A buffer fixes that. Computers wouldn't work without buffers, nor would SS.
"Well, there are plenty of ways to end up broke. Lots of folks are never anything but broke from the day they're born. They never really have any money to invest. Some invest foolishly. Others do everything right, but just can't seem to catch a break (a minority, I'd guess). Then there are wars, so-called acts of God, crimes, and other imponderables that can do it.
The point is that everyone should be allowed to do his or her best with the money that he or her has earned honestly. Whether they do well or poorly is not really germaine. Stealing their money from them to try to save them from themselves is still stealing."
To which I'd reply:
I'll go out on a limb and say that the reason there isn't rioting in the streets over this "stealing" is that the majority (pesky in a democracy) view it as about as much an affront as the loss of freedom imposed on them by goverment dictating what side of the road they have to drive on.
Deep down, all of the potential rioters have been mollified by the dream of becoming latter-day Ida May Fullers, of whom those who would know:
"The accumulated taxes on her salary during those three years was a total of $24.75. Her initial monthly check was $22.54. During her lifetime she collected a total of $22,888.92 in Social Security benefits."
-- http://www.ssa.gov/history/idapayroll.html
If this is indeed what is happening, then the America's citizens have a serious case of moral rot. In this case, no system ever devised, or ever likely to be devised, will save them from something very nasty eventually happening to them.
The answer to almost all of our budget problems is returning the earning power of the middle class to it's former levels. This will require tweaking many areas of our economy, but one of the most important is taxation policy. We need a somewhat punishing taxation on the top tiers of earners that will provide incentive for reinvestment instead of profit taking. Higher taxes on the wealthy is the incentive that makes "trickle down" work. As more people below the $106k earning cap make more the payments into SS will reverse the drain on the surplus until the retiring boomers begin to draw it down as was intended.
You will make sure they will resent the cost of Social Security. Never mind that the government is letting Medicare be ripped off by too high charges for Prescription drugs. It is time the government protected the two best programs the middle class will ever have.
The entire problem has been CAUSED by those in YOUR tax bracket. The FICA rate is NOT 10.4%, because there is a CAP! That reduces the rate for the upper class. The only fix necessary is to raise or remove the cap, and gradually replace the bonds with REAL investments. Isn't it Finance 101 to not have all your eggs in one basket?
If SS is ruined then I will march to Washington(very slowly) and knock some Congressmens heads with my cane.
My son-in-law is working from his home doing customer service from his internet connection and a dedicated phone line. He doesn't make a great deal, but it supplements his benefits from SSD. The referral was from the Dept of SS. It might be worth looking into.
Best of luck.
Once again the rich make the rules in their favor and when something goes wrong they try to make the poor pay for it. Any article that fails to point out the greed going on there is distracting us from the real story.
Continue to gradually raise the age for full benefits as we live longer.
Continue to gradually raise the ceiling on income subject to SS taxes.
Voila!
In any case, stop including SS in discussions about "Deficit Reduction."
SS has never added one penny to the national debt or any yearly deficit. It has always paid its own way, and in fact has paid for many other programs when DC robbed SS surpluses to pay other bills. The Trust Fund is an obligation like any other obligation of the govt. That money is owed to current and future retirees just as much as debt is owed on treasury bonds bought by China.
I see people like Pete Peterson who has lived a coddled life still working (he says) although to him working may be making a few calls and checking in once a day.
Statistics have proven that the higher earners are the ones who are living longest. They live about 6.5 years longer than they did when Social Security began. The lower paid worker lives about 2.5 years longer than they did when Social Security began. Living two years longer was taken care of in 1983 when the full retirement age was gradually raised to 67 from 65. Benefits also were cut then to make up for living longer.
As for rasing th full-benefits age, the proposal I've seen is to raise it to 69 by the year 2075. I just don't think that's an outrageous idea. There is also the parallel proposal that those who do hard physical labor would get a break on that. And of course there's Social Security Disability benefits for those folks physically unable to work.
Until we stop these incredible payments and force the American people to make sacrifices, we will never settle the GWB debt. We actually have not been asked to give up anything but in fact, have been asked to SPEND MORE !!! WE ARE IN 2 WARS PEOPLE !!!
We have to increase taxes and repeal the tax dodges for the wealthy.
Everyone will have to pay something - those that have more must pay more.
Reducing taxes any further will drive us into poverty big time - except for the rich of course.
People even pay taxes on their Social Security benefits.
Obama messed up with his extensions of the tax cuts for the rich.