The National Commission on Fiscal Responsibility, charged by President Obama to recommend ways to reduce the federal deficit, appears fixated on Social Security. The commission co-chairs and several members have advocated reducing benefits and raising the retirement age, another benefit cut. The question is why? Could it be because Social Security:
• Pays its own way, does not and cannot add to the deficit, but produces surpluses, already totaling $2.77 trillion and projected to exceed $ 4 trillion?
• Pays benefits only to those "entitled" by satisfying prescribed eligibility requirements - extensive periods of work and contribution?
• Insures family members - starting at birth - against income loss due to an earner's death, disability or retirement?
• Reduces poverty program more effectively than any other program, especially for older women?
• Generates billions of dollars in beneficiary purchasing power that fuel hundreds of billions in sales and millions of jobs?
• Has non-benefit costs below one percent of benefits paid?
None seems like a reason to diminish the program.
Social Security is a model of fiscal responsibility. Three dedicated sources fund it: a modest payroll tax; income taxes on the benefits of high earners; and market-rate interest the U.S. Treasury pays on funds it borrows from Social Security. They will suffice to pay for benefits in full for decades. The Earned Income Tax Credit (EITC) purposely ameliorates the impact of the payroll tax on low earners by reducing their incomes taxes. That explains why many people pay more in payroll taxes than in income taxes.
Moreover, the law permits benefit payments only if there are funds on hand to pay them; and Social Security has no authority to borrow. So, Social Security not only does not increase the deficit, it cannot.
Social Security's trust fund derives from its revenue not immediately needed to pay benefits. The U. S. Treasury issues certificates of obligation to the Social Security trust fund for those surpluses. Starting around 2024, Treasury will begin to repay those loans. This can be done most readily by: expanding the economy thereby improving wages and enlarging payroll tax revenues, and gradually raising the cap on taxable wages (now at $106,800 a year), to its historical level. Increasing the payroll tax rate by only 1 % on employer and employee, starting years from now, if needed, would complete the program to achieve long-term actuarial balance.
The commission seems to ignore justifiable and politically palatable ways to trim the deficit, such as tackling the hundreds of billions in tax subsidies enjoyed by those already best off: for example, tax deductions for interest on mortgages for second homes. There's much more where that came from.( If we ignore those sources, Treasury will have to borrow to pay - not for Social Security - that's already been paid for without borrowing - but for the other non-Social Security outlays hitherto paid for by borrowing from the Social Security trust fund.
Some commentators, such as New York Times political columnist Matt Bai, inaccurately assert that the U.S. Treasury bonds in the trust are merely worthless IOUs. Can they really not know that governments and private trust funds buy such obligations by the billions because they are regarded as valuable and reliable?
Some assert that Social Security is unsustainable because retiree ranks are growing faster than the working population. You've heard the litany: in 1950, 16 people paid payroll taxes for each retiree; today that's 3.3 people; in a few decades that will be 2.2 for each retiree. It seems plausible that this apparently worsening "aged dependency ratio," spells calamity for Social Security.
But if that trend were so lethal, with the shrinkage from 16:1 to 3.3:1, Social Security should have run aground. Instead it creates huge surpluses. For one thing, technological advances enable most of today's employees to produce more goods and services than comparable individuals did in 1950.
Agriculture provides a dramatic demonstration. In 1900, almost 40% of the work force farmed; today fewer than 2% do. By the "logic" of the aged dependency ratio, we should be starving. But farms produce quite enough for us to eat, with plentiful leftovers to export.
The slogan "We live longer, so we should work longer" attempts to justify the proposal to raise Social Security retirement age. We don't have to raise it to provide incentives to work longer. Present law provides them: each year of delayed retirement generates higher benefits. And it is perverse to try to goad people to work longer when we see the doleful effects of mass unemployment - which can recur.
In 2009 (the last year reported), Social Security paid out $658 billion in benefits to 52.5 million beneficiaries, including almost 3.5 million children. Those payments quickly translate into business income and wages rapidly and repeatedly; economists call that "the multiplier effect."
Some use an entirely inapplicable meaning of "entitlement" to sneer at Social Security and Medicare. With these social insurance programs, "entitlement" means a legal right earned by satisfying statutory eligibility requirements - years of work and contributions. Alas, Alan Simpson qualified for commission membership even though unable to tell the difference between an earned entitlement and a cow's tits (his unfortunate language).
Advocates of knifing Social Security argue that it would show "the markets" that we are serious about addressing U.S. deficits. That sounds quite as effective as appeasing the gods by sacrificing live virgins.
Simply put, misinformation and misunderstanding, much of it deliberate, fuel the mistaken notion that we can pare the federal deficit by trimming Social Security. That path would lead to undiminished deficits, more poverty, less purchasing power, less business income and more unemployment
The forces to privatize SS, reduce benefits, increase eligibility age, etc. are now in power and are lusting.
http://www.gpoaccess.gov/usbudget/fy10/pdf/hist.pdf
This is the historical table section of the FY 10 Budget for the General Fund. go to page 55, and look at the lines by superfunction. Their are two problems with actually coming up with the 60% number, one easily accounted for, one not so easy.
Take the "Human Resource" superfuntion, subtract out Medicare and the off budget portion of Social Security (2007 numbers). You get something in the $700B range. That number, compared to the $550B or so for Defense, probably comes close to 60%.
The second problem that is harder to account for, is that this the THE BUDGET, remember? All that supplemental funding (and other programs like cash for clunkers) may or may not be part of this "budget". "The budget" is not what the government spends every year, it is just the portion which receives the most attention and scrutiny.
Having said that, you are correct, SS and Med do not add to the deficit, therefore cutting them will have no impact on the deficit. But, SS and Med are NOT fully funded for the 75 year projection that the government uses to guage the health of the programs. Some adjustmenets ARE needed to the programs in order to align revenues with outlays, just like in 1983.
You conveniently omitted the fact that the Social Security base has increased 230% since 1950 and the Social Security tax rate has increased 313% since 1950. Could that have had anything to do with the fact that Social Security is still solvent?
"raising the cap on taxable wages (now at $106,800 a year), to its historical level"
How do you define the historical level? In 1937, the Social Security base was $3,000. That's $45,481.67 in today's dollars. Thus, one could argue that the Social Security base is already 135% above its historical level.
Since you're so keen on historical levels, how about we return a few other things to historical levels? Let's raise the retirement age so that the ratio of workers to retirees goes back to its historical level of 16:1. And let's put the Social Security tax rate back to its historical level of 2%. That should be enough historical levels to satisfy everyone.
While your changing things to "historical levels", heres another one. Today, if a person legally immigrates to the US, in order to decrease the burden on their family they can bring their parents here who can immediately claim Social Security benefits without having paid a penny into the system. There is a special program for this.
Of note, historically, the age has been rasied, payment levels have changed, and taaxes have risen, in order to balance the fund.
If you describe Social Security as a "pay as you go", as the authors do, then at some point in time the pillars of the program need to change in order to reflect the realities of available funds.
one-half support from the worker at his/her death or disability to receive it the social security worker has to be deceased.
You can bet that the Commission will not look at these "loop holes" but rather at social programs that affect the poor and middle class. In other words, the Commission decisions will reflect its constituents of note, the rich. In America the "little people" pay every time.
The real long-term fiscal challenge is healthcare costs. Total medicare and medicaid (NOT counting the rest of healthcare inflation) is expected to increase from it's current ~5% of GDP to 12% of GDP over next 30 years, funded by tax payers. This is simply unsustainable. To put that in perspective in 2009 - massive military spending = 23% of budget, SS = 20%, and Medicare/Medicaid = 17%. ALL other federal spending = 40% of budget AND we are running a $1.4T deficit. Medical inflation will cause massive future deficits and crowd out all other govt spenidng. Just won't work. We need fiscal reform of medical spending and capitation on medical spending, a cap of SS, and cutting military spending by half all of this will still require tax increases or we blow up. The facts dont lie.
We moved the full retirement age up in 1983 from 65 to 67 to make up for living longer. Statistics show that most lower paid workers only live two years longer, but the higher paid earners live 6 years longer. Raising the cap without raising the benefits will take in more money from the higher earners. Since they live longer, they are getting more benefits already.
Medicare is a mess, because of no bidding allowed on prescription drugs and no cost control.
Inteerstingly, of the the intra-governmental debt (i.e. trust funds) Social Security is the largest but only accounts for half of the entire debt. Highway trust Fund is another one. Research National Debt and check out the intra-governmental stuff. We owe a lot more money to.....ourselves.....than just Social Security.
i was actually referring to the annual deficit. Since Soc Sec'ty net in/out flows are thrown in there for acctg sake, the surpluses we've been running every year forever have made the annual deficit look smaller than it actually is. That reverses in three years when soc sec'ty takes in less than pays out. The net difference will inflate the annual deficit. That is one of the issues the commission is wrestling with.
Rep. Boehner is on record with the statement: we need to cut Social Security and Medicare to pay for our wars in Iraq and Afghanistan.
This gentleman is the enemy of every senior citizen in this country. Let's not forget that!
No matter what party I belong to. Please explain, if given the chance (To end this Ponzi scheme) I was offered the chance to never collect SS in exchange for paying SS taxes, what the majority of people my age would do?
No, they won't think that at all. The rest of the world believes in the looking after their populations. They have cradle to grave health care, SS and all kinds of programs to care for the health of their people.
The world thinks we're still living in the dark ages and they are appalled by how we DON'T treat our people.
How about we make people actually WORK to receive govt cash? Explain the arguement to someone who PAYS taxes. Why do I have to pay for people who don't work? Any day now.......Didn't think so.
I always thought "Fiscal responsibility" meant paying off debts you signed up for?
P.S. If the SS money had not been spent on other things, the SS fund would be liquid until 2037. It wouldn't be until 2037 that benefits would exceed funds; plenty of time to fix the system.
Most Democrats want Social Security to be fully paid.