A Terrible Day for the Economy, But a Great Day to Note the Social Security Noncrisis
Today, Lehman Brothers is filing paperwork for bankruptcy. Merrill Lynch is selling itself at fire sale prices. Insurance giant AIG is pleading for federal loans. The auto industry wants loan guarantees. Our flawed twin pillars of private mortgages, Fannie Mae and Freddie Mac, have already imploded. Millions of Americans are in danger of foreclosure or are seeing jaw-dropping declines in the value of their homes. Asian, and European stock markets have dropped sharply. The Dow Jones is down nearly 300 points.
The flood of horrible news makes me nostalgic for the days we worried about the looming Social Security crisis. Whatever you may hear, the system is in remarkably good shape these days, even as everything else in the economy seems headed to hell in a hand basket. Today is a great day to remember how terrific Social Security really is.
The system certainly has been good to me. Four years ago, my mother-in-law suddenly died, leaving Veronica and I to care for her medically complicated, intellectually disabled brother Vincent. With our two young daughters, we drove Vincent 770 miles in our mini-van, and we all started a new life.
Since this is a family posting, I'll say that almost every program or service Vincent needed was screwed up by the simple act of moving him across state lines. In family crisis, we found ourselves mired down for months of bureaucratic headaches to resolve the simplest things. Precisely two things worked beautifully and well: Vincent's Medicare and his Social Security. A few days after Vincent's mom died, we spent 20 minutes at an upstate New York office to fix the paperwork. Like clockwork his monthly benefits continued without incident or interruption ever since.
He receives about $1,000 per month from Social Security. He will do so as long as he lives, with cost of living adjustments. That isn't huge, but it is a godsend. He doesn't get these benefits as part of some means-tested program, though there would be no shame in that. He would still get his check if his mom had left him some cash, or if Veronica and I decided to help with some bills. He doesn't have to beg for it at some welfare office with his shoebox filled with financial papers. He could move to rural Montana, and this would all still work.
As a "disabled adult child," he gets these benefits because his mom and dad contributed payroll taxes for decades. You might never have thought about it, but Social Security provides every contributing worker with a generous life insurance policy from a company that will never raise your premium, will never turn you down when you get sick -- and that will never go broke. It doesn't even sell your name to telemarketers.
Will this system survive? It's natural to wonder. Conservatives do their best to stoke our fears, presenting Social Security as a looming crisis by lumping it in with Medicare and Medicaid. In one of many examples, the Heritage Foundation warns of
trillions in future costs associated with Social Security, Medicare, and Medicaid, which the CBO projects could push the federal public debt to nearly 300 percent of GDP by 2050, and over 850 percent of GDP by 2082.
Scary stuff. And it's not only conservatives trying to worry us. The front page of the July 8 Washington Post concluded "Candidates Diverge on How to Save Social Security." As the lead paragraph breathlessly put it, "Sens. Barack Obama and John McCain are both proposing dramatic changes to Social Security, taking on the financially fragile 'third rail of American politics' that Congress and recent presidents have been unable to repair."
Ominously, it says: "Experts predict that proposal would make up less than half of the $4.3 trillion shortfall Social Security is expected to face over the next 75 years." $4.3 trillion!
How do you wrap your mind around such a huge amount, paid out over three generations in a wealthy nation of 300 million people? According to the actuaries, current Social Security spending consumes 4.3 percent of GDP. It is predicted to peak at about 6.1 percent by 2035. Spending is then predicted to level off to about 5.8 percent of GDP. Things start to get speculative after 2082.
Most of this spending is already covered through payroll taxes, which now amount to about 4.9 percent of GDP. We also have the Social Security Trust Fund, which now has about $2.2 trillion. Those much-maligned T-bills looks pretty attractive right about now. Between these assets and payroll tax revenue, the system can fully cover its obligations until roughly 2042, at which point payroll tax revenue will only cover three-fourths of the current benefit.
I hope to be alive then. So some adjustment is needed. There is nothing progressive about chronic deficits or about us kicking the can down the road for future generations to fix. Senator Obama's proposes a slight increase in payroll taxes on those with annual incomes exceeding $250,000. This seems fair and prudent, especially since rich people have seen their taxes have been unduly reduced in recent years. Some increase in the retirement age and some other adjustments are also sensible.
I wish every fiscal challenge were as readily handled. Social Security actuaries note that unfunded Social Security liabilities over the next 75 years amount to about 0.6 percent of GDP. Making the Bush tax cuts permanent digs a budget hole three times as large. Whatever you think about the Iraq and Afghanistan wars, they have required larger annual spending increases than would be required to fully-fund Social Security. This may be the only area of government that that's not in fiscal crisis right now.
Why all the exaggeration and overheated rhetoric? When we cut through the flim-flam, the real fight concerns the role of government. Senator McCain says it's a "disgrace" that younger people subsidize the retirement of preceding generations. The real disgrace is the utter mismatch between McCain's rhetoric and his own tax plan.
Never mind the findings of nonpartisan experts that his tax plan leaves the great, great majority of American households worse off than the Obama plan does. Never mind the growing pile of newspaper stories noting that Senator McCain's been repeatedly lying about this simple fact.
If Senator McCain is worried about the future, what on earth is he doing suggesting a tax plan that accumulates such huge deficits? By 2018, his tax plan adds more than $200 billion more than the Obama plan does to the federal deficit, every year. Given the difference in projected revenues, we could could indefiinitely wage another Iraq war and cover a huge chunk of the projected Social Security shortfall under the Obama plan, while still running a lower deficit than Senator McCain's plan would produce.
McCain's rhetoric is a stalking horse for private accounts. Many libertarians and conservatives want to replace the current Social Security system with one modeled on corporate 401(k) plans, with an ancillary welfare program tacked on.
There is nothing wrong with 401(k)'s. Yet these build on the secure foundation Social Security provides. Private accounts have nothing to do with the issue of current workers supporting their parents. And interest rates on government securities are set in the same markets that price private securities. Accounting for risk, these markets say the Trust Fund's boring old T-bills are worth precisely the same as whatever else you could buy with that same $2.2 trillion. These T-bills certainly look good this morning.
If we want current workers to contribute more to finance our retirements, we can set a bit more money aside to accomplish that. Indeed we should. Let's not forget what Social Security is. It is our most successful form of social insurance. It uses the instruments of government to shield us from big risks that no private market can touch. Don't let anybody tell you that Social Security only helps old people. On days like today, when the economy is reeling, I'm glad that this old dinosaur is still around, alive and kicking.
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Well it won't be around long if either Dems or Repubs keep tinkering with it. The real shame are all the IOU's that fill the Social Security vaults. If the Government had stopped robbing social security all these years there would not be this problem. The fact is that government could rob the SS system all they wanted but now with all of these other financial crisis afoot they will have to drastically cut the services that you are being so thankful for. You watch what they do with it in the coming two to three years. The future does not look bright!
Social Security was one of the greatest things the Democrats ever got us. There are a lot of seniors who would be unable to get by without their Social Security monthly checks. Even today, 70 years later, the Republicans are still trying to take it away from us. Oh well, some things never change.
Two thoughts after reading this very well reasoned post:
First, didn't we recently have a savings and loan crisis after which a government of fiscal conservatives pledged to prevent another such financial crisis from ever occurring? Listening to Senator McCain tell us that the economy is basically sound and promise that this time he and his running mate will fix things once and for all reminds me of a man who, when accused of cheating on his spouse, responded that it's all a lie and it will never happen again.
Second, while my high-priced financial advisers work to protect my retirement through this chaos (to date, they're not doing a bad job), it's nice to have Social Security retirement that "just keep rolling along." I worry about the people on fixed incomes who don't have access to enough financial and professional resources to weather these types of storms. Come to think of it, if this meltdown continues, I may be one of them.
Why doesn't macane give back his mother's s.s. check. She surely doesn't need it.
What is happening in the financial markets today is a perfect reason why the Republican idea to "privatize" Social Security should scare the pants off every American. If the Republicans got their way, you and I would be expected to have the financial savvy to make our own decisions about how to invest our social security money. If the so called smart people who head such companies as Lehman Bros, Freddie Mac, Fannie Mae, Merrill Lynch, and Bear Stearns have managed to make such a muck of it...and they're the "experts"...what chance would you and I have?? I am disabled and thanks to SS Disability, after contributing for 30 years, I have a secure check coming every month that keeps a roof over my head and food on my table. At the same time, in the last few weeks, my market investments are down almost $20,000!! Imagine if I didn't have that sure thing money!!! If you put this issue in these kinds of terms the next time you hear John McCain advocate the privatization of Social Security, be afraid...Be Very Afraid!!!
Privatizing social security is a very bad idea.
The US government cannot have a trust fund. The SS trust fund does not exist, it is just an illusion. Every dollar spent out of the so called trust fund must be paid through tax dollars.
Except for the minor fact that the Social Security funds into the "trust fund" are a separate tax structure, and are kept separate. The fact that they are investing the trust fund into T-Bills is immaterial. The funding is STILL not out of your income tax!
Haven't you heard? Everything's fine! http://www.entertonement.com/clips/25923/John-McCain/John-McCain-On-Economy/McCain-Say-Economy-Is-All-Good/Fundamentals-are-still-strong
Now....aren't you glad people rose up against the privatization of Social Security?
That would have placed the funds on the STOCK MARKET......and look what's there in that gambling pit today, as we speak.
The only problem with privatizing Social Security is that it is not, nor was it ever, a RETIREMENT plan. It was ALWAYS an INSURANCE plan. Thus the reason it is called OASDI (Old-Age, Survivors, and Disability Insurance). It is meant to SUPPLEMENT your retirement, or replace it if something really bad happens (such as the steel mill where you worked for your entire adult life shutting down within a year of your retiring, as happened to my late step-father-in-law)
Furthermore, as long as the US govt can keep up its debt obligations, the Social Security Trust Fund will NEVER run out of money! All the scenarios created by bushco(tm) in his attempts to privatize it, and now by mcbush in HIS attempts assume that the US govt will STOP PAYING BACK the T-Bills that the trust fund has taken out!
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