On Saturday, Social Security turned 75 years old. AARP chapters around the country held corny birthday parties, but they didn't invite Stephen Goss, Social Security's chief actuary. That might have spoiled the fun.
Just a few days before, Goss and his team produced an annual trustees report acknowledging that, for the first time since 1983, the program has begun to run at a deficit-and, except for a few years in the near future, it would continue to run deeper and deeper in the red through its 150th anniversary and beyond. That's a heck of a depressing birthday present; it's also a pretty grim milestone if you one day were hoping to get a decent return on a lifetime of Social Security taxes.
I imagine you have some questions.
What's all this mean? Social Security used to draw more in taxes than it paid in benefits, which helped shrink the federal deficit. Now there's a shortfall in Social Security's cash flow, which means the system will make the deficit worse. To paraphrase the actuaries' specific forecast: Unless taxes rise or benefits fall, the system will operate at a deficit this year and next, return to a surplus through 2014, then sink back below the surface in 2015 and never come up.
Doesn't the Social Security trust fund cover that? No, silly. All those years of surplus in Social Security were recorded in a book entry dubbed the "trust fund," but the non-marketable special Treasury bonds that make up the fund don't represent any assets that can be cashed in to pay benefits. What the trust fund does is give the system authority to tap the Treasury to pay for benefits, but it doesn't help the Treasury come up with the money.
The fact is, to cover benefits, you and I and Secretary Geithner and his successors have to pony up the old fashioned way-by borrowing, raising taxes, or cutting benefits elsewhere in the federal budget.
Wait a minute. That's no different from what we'd have had to do if there was no trust fund. Bingo. If you'd rather hear it from the horse's mouth, Allan Sloane notes that this passage appeared in the 2009 Trustees' report (though it was curiously missing from the 2010 edition):
Neither the redemption of trust fund bonds, nor interest paid on those bonds, provides any new net income to the Treasury, which must finance [bond] redemptions and interest payments through some combination of increased taxation, reductions in other government spending, or additional borrowing from the public.
Are workers going to lose out? Something will have to give to keep the system solvent, and it will inevitably be given by those of us still in the workforce. The Administration has been floating the idea of gradually raising the age at which you become entitled to full benefits. A plurality of today's workers will retire at 62, as those before them did, but they would get a lot less than under current law. However, that's not what taxpayers want: The most popular proposed fix for Social Security is to apply payroll taxes to every dollar that high earners earn. (Right now they're taxed-and receive benefits based on-income only up to $106,800.)
Tax rich people? Easy. And that will solve the problem? If you tax the rich enough and cut benefits enough, you can make the system self-supporting on paper. But remember, "self-supporting" in Social Security accounting means drawing on the trust fund. "Drawing on the trust fund" is just code for more borrowing, taxes or benefit cuts elsewhere in the economy. By 2037, Social Security will soak up 10 percent of all income tax receipts-on top of what the system collects in Social Security taxes.
I thought Social Security was the easy entitlement to fix. It is, in the sense that you can easily see what needs to be done to make the numbers add up--as opposed to Medicare, about which no one has a clue what to do.
But the fact is, we don't fix Social Security by making the numbers add up. Social Security is a political construction, not a P&L statement, and its survival in anything like its current form depends on its seeming fair and logical to voters. Today, politicians trip over themselves promising to protect Social Security benefits. But as the boomers qualify for Social Security and Medicare and the oldest fifth of the nation start to suck up more and more of the wealth produced by their kids and grandchildren, that might change. Robert Ball, former chief actuary of Social Security, predicted that one day a President would be elected promising to cut Social Security. Hard to imagine now, but if it happened, economic historians would trace that President's campaign back to 2010, the year that Social Security stopped paying for itself.
More on CBS MoneyWatch:
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Social Security and the Federal Debt: Why You Should Worry
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The money that purchased the 2.6 trillion in US treasury bonds was paid in by everyone who worked and paid into Social Security. It was clearly understood that to keep the boomers from being a burden to the younger generation, we needed to sort of 'prepay' a lot of the boomer retirement. We did that.
I even wrote and asked the office of the treasury if the Social Security bonds were legal and was told yes. They have to be paid back like any other bond.
If am correct that the dirty secret about the empty trust fund is about to become public knowledge, we now have the opportunity to do something about the massive ripoff of the American people. Instead of continuing to pretend that the trust fund has funds to pay full benefits until at least 2037, we can demand that the government repay the stolen money so there actually will be funds to pay those benefits.
$2.54 trillion is a lot of money even in good economic times. With the current economic climate and the large budget deficits, there is no way the money could be repaid in a single payment. But, it does not have to all be paid back immediately. Beginning in 2016, the cost of benefits will exceed payroll tax revenue, and some of the trust fund balance will be needed each year to pay full benefits. Provisions must be made to repay the stolen money in installments as needed so that Social Security can continue to pay full benefits.
A large portion of the looted money was used to replace lost revenue resulting from the unaffordable tax cuts under George W. Bush. Since the poor paid payroll taxes to fund the income tax cuts for the rich, why not impose a surtax on the super rich to fund the repayment of the Social Security money?
“Let me show you in two different ways how useless the fund is. The first is a quote from the introduction to the 2009 Social Security trustees report, the second is the graphic by my Fortune colleague Robert Dominguez that accompanies this article.
Allen Smith, economics professor emeritus at Eastern Illinois University and author of "The Big Lie: How Our Government Hoodwinked the Public, Emptied the S.S. Trust Fund, and caused The Great Economic Collapse," spotted the 2009 quote, and it is telling.
It says: , "Neither the redemption of trust fund bonds, nor interest paid on those bonds, provides any new net income to the Treasury, which must finance redemptions and interest payments through some combination of increased taxation, reductions in other government spending, or additional borrowing from the public."
In other words, the trust fund is of no economic value.”
No debt provides a benefit, but not paying the debt causes great detriments.
Not paying the debt would hurt the economy more than anything, because most of the money is spent for essentials.
Do you think the debt we owe China is any different, except what is paid to those here stays in this country?
Why would anyone even have to say that paying back debt doesn't provide no new income for the treasury.
It sure provided income for the treasury when all the workers were paying into Social Security, didn't it?
For the past 25 years, under five Presidents and their Congresses, the United States government has been using Social Security surplus revenue to pay for tax cuts, wars, and other government programs. Each month part of that month's Social Security contributions is used to pay current benefits to retirees. Every penny, in excess revenue, not needed to pay current benefits, is deposited into the general fund and used for non-Social Security purposes. Not a single dollar of surplus Social Security revenue has ever been saved to pay future benefits as required by law.
Over the past 25 years, the government has "borrowed," "embezzled," or "stolen" (whichever word you prefer), $2.54 trillion of the Social Security contributions of working Americans. I first discovered this scam more than ten years ago, and I have been trying to warn the public about it for longer than Harry Markopolos tried to warn the SEC about Bernie Madoff's giant Ponzi sheme. But nobody wanted to listen until Allan Sloan offered his support by quoting me and referring to my book, "THE BIG LIE" in his August 10, 2010 Washington Post column. It took great courage for Sloan to be the first to reveal the secret. Now, I commend Eric Schurenberg for being the second major journalist to report the truth about the trust fund that the government has managed to keep under wraps for 25 years.
We need less tax stealing rich people.
SS started getting in trouble in the 1980's with the Art Lauffer / Andrew Mellon style tax cuts for the rich.
So, it's okay to default on the debt owed to the working person, but not "real" investors? Guffaw
Don't drink the .01% kool-aid, people --- it's much too rich for your blood!!!
I wonder how we fund the rest of our deficit spending -- you know, the kind that doesn't even have a worthless IOU attached? Guffaw
I'm surprised you can't see the error in your logic. Seriously.