Social Security goes into deficit

[Kaa]

http://www.nytimes.com/2010/03/25/business/economy/25social.html

Just FYI :-)

Kaa

[TimH]

Change of plans. Now we will all work till we die. No more free lunch.

[Captain Blight]

One more thing the Boomers manage to screw up when they get their hands on.

Thanks, guys, you f****d us all. You can start repaying me any time now.

[bob winter]

Just how much is a typical SS benefit in the US, anyway?

[Tom Montgomery]

Social Security is fixable... over the dead bodies of Republicans like Mitch McConnell, John Boehner and Sarah Palin. You think the health care reform debate was wild and wooly? Just wait until responsible adults in D.C. attempt to fix Social Security. FoxNews and Clear Channel Communications will whip the rabble into a frenzy.

[Norman Bernstein]

It's easily fixed... and, as Tom says, if we had responsible adults in Congress, it would be a no-brainer. Raising the retirement age slightly, indexing benefits to inflation rather than wages, raising or eliminating the cap on contributions, and in the extreme case, providing a modicum of means-testing, could make S.S. solvent in perpetuity. Are some of these changes hard to take? Sure.... will they fix the shortfall? Absolutely.

[Mike Tremor]

Social Security is fixable... over the dead bodies of Republicans like Mitch McConnell, John Boehner and Sarah Palin. You think the health care reform debate was wild and wooly? Just wait until responsible adults in D.C. attempt to fix Social Security. FoxNews and Clear Channel Communications will whip the rabble into a frenzy.
How so? What is the fix you have in mind?

[Mike Tremor]

It's easily fixed... and, as Tom says, if we had responsible adults in Congress, it would be a no-brainer. Raising the retirement age slightly, indexing benefits to inflation rather than wages, raising or eliminating the cap on contributions, and in the extreme case, providing a modicum of means-testing, could make S.S. solvent in perpetuity. Are some of these changes hard to take? Sure.... will they fix the shortfall? Absolutely.
Raising or eliminating the cap and means-testing? Not even giving the high income people the benefits after asking them to pay for themselves any everyone else? Norman, don't you have any respect for personal property rights?

[johnw]

My employees get paid twice a month. On those days, their income is more than their outgo. The rest of the time, they're living on their savings. That's what we're doing now.

We knew the baby boomers would retire someday, so we've been paying more into the trust fund than we've been taking out. We've got decades worth of savings in the trust fund. The assets look like this:

http://www.ssa.gov/OACT/ProgData/assets.gif

To get a feel for how much more we've been paying in than we've been taking out, check this out:

http://www.ssa.gov/OACT/ProgData/incomeoutgo.gif

Now, some would like us to believe that as soon as we're taking more out than we're putting in, Social Security is insolvent and the sky will fall. That's bunk. We've got decades worth of savings, and not every year will be as bad for revenues as 2009. At some point we'll have to fiddle with it again, but it's in much better shape than Medicare, which has been depleted by the unfunded Medicare Part D benefit Bush II passed and rising healthcare costs.

[Tom Montgomery]

Thank you, Mike. Just a taste of the coming debate.

[Keith Wilson]

The problem with Social Security is demographic: People are living longer, the population is growing more slowly, and thus there are fewer people paying in per person collecting. Fixing it will involve either raising taxes, reducing benefits, or both. The math is ismple. Understandably, neither is popular.

Some ways to reduce benefits:
Raising the retirement age:
Indexing benefits to inflation, not wages.
Some degree of means testing.

Ways to raise more money:
Eliminating the wage cap (or raising it).
Collecting Social Security on other income than just wages.
Raising rates.

[johnw]

Raising or eliminating the cap and means-testing? Not even giving the high income people the benefits after asking them to pay for themselves any everyone else? Norman, don't you have any respect for personal property rights?
I think means testing is a non-starter. A better solution would be to fix the cutoff. Right now, you pay a flat rate on wages up to $106,800, nothing on income above that. This is what makes the tax regressive. Fix that, either by raising the lid or eliminating it, and you've probably fixed the problem.

[Norman Bernstein]

Raising or eliminating the cap and means-testing? Not even giving the high income people the benefits after asking them to pay for themselves any everyone else? Norman, don't you have any respect for personal property rights?

Very much so. I also believe in community and national responsibility. I wouldn't take bread out of the mouth of a taxpayer, or take his shelter or clothing away from him. But if you're suggesting that I think it's perfectly OK to tax the guy buying a Bently at a lower rate than the guy whose tax money would be used to buy food, clothing and shelter, then yeah.... call me a left wing radical.

[Kaa]

We've got decades worth of savings in the trust fund.

Except that the trust fund is nothing but an accounting device.

At the moment the serious issue is not that at some future moment (2037 or so) the "trust fund" will run out unless we adjust the SS somehow. The issue is that during the surplus years the excess SS payments went straight into the Federal budget -- and during the deficit years the shortfall would be coming out of the Federal budget.

Basically, the Federal government will have to borrow MORE money.

Kaa

[Keith Wilson]

and during the deficit years the shortfall would be coming out of the Federal budget.Actually, no. They changed that twenty years ago. Look here.
(http://www.ssa.gov/history/BudgetTreatment.html)
don't you have any respect for personal property rights?Sure I do.. Personal property rights do NOT include the right to be free from taxes, even progressive taxes. Those who have more money should pay more taxes.

[Rick-Mi]

We knew the baby boomers would retire someday, so we've been paying more into the trust fund than we've been taking out. We've got decades worth of savings in the trust fund. The assets look like this:



You've got to be kidding. Don't tell me you really believe that John? The Social Security trust fund is nothing but a pile of IOU's. Please, take 40 or so seconds and observe a remarkable depiction of the SS trust fund.....

http://www.youtube.com/watch?v=7GSXbgfKFWg

[Kaa]

Actually, no. They changed that twenty years ago. Look here. (http://www.ssa.gov/history/BudgetTreatment.html)

I did, and..?

The SS trust fund holds almost exclusively "special obligation bonds" which are non-marketable and are nothing but a Federal government IOU. Effectively, during the surplus years the amount the Federal government had to borrow (and roll over) each year was smaller by the value of the SS surplus.

During deficit years, the trust fund will "liquidate" these special obligation bonds. What this means is that


The Federal government will be unable to "borrow" part of its revenue from SS and so will have to borrow it on the open market
The Federal government will be unable to roll over some special obligation bonds and will have to borrow on the open market to cover the bonds' redemption.

Bottom line -- as I said, the Federal government will have to borrow more money, not to mention that the increased supply of Treasuries will drive the interest rate up, especially if the Fed yields to the temptation to inflate away the old debt.

Kaa

[Keith Wilson]

especially if the Fed yields to the temptation to inflate away the old debt.That is, after all, the traditional solution.

[Kaa]

That is, after all, the traditional solution.

And it works reasonably well -- compared to alternatives, that is :D

Consider Greece, which finds itself in the position of being unable to inflate away the debt...

Kaa

[johnw]

Except that the trust fund is nothing but an accounting device.

At the moment the serious issue is not that at some future moment (2037 or so) the "trust fund" will run out unless we adjust the SS somehow. The issue is that during the surplus years the excess SS payments went straight into the Federal budget -- and during the deficit years the shortfall would be coming out of the Federal budget.

Basically, the Federal government will have to borrow MORE money.

Kaa
If what you say is true, all those years we've been paying into the trust fund have been a fraud perpetrated by George H.W. Bush, who said he was fixing the Social Security system when he increased payroll taxes. He claimed the money was going into a trust fund to save up for the boomers' retirement. That means the tax cuts for the rich were paid for by an increase in a regressive tax paid on working people. If the trust fund is just an accounting gimmick, how can it be in trouble?

If the problem is the budget as a whole, why blame Social Security? Bush II put two wars on the credit card while cutting taxes.

And why do you claim borrowing more money is the only solution? Raising taxes, cutting spending, modifying benefits or retirement ages, or some combination of the above all strike me as better ways of dealing with the problem.

[Kaa]

...a fraud perpetrated by George H.W. Bush...

Woohooo! We got to YWWAB in almost record time :D


If the trust fund is just an accounting gimmick, how can it be in trouble?

The trust fund is not in trouble. The Federal government is :-)


And why do you claim borrowing more money is the only solution? Raising taxes, cutting spending, modifying benefits or retirement ages, or some combination of the above all strike me as better ways of dealing with the problem.

I am not talking about solutions. I am saying -- read carefully -- that SS going into deficit means that the Federal government will have to borrow more money than otherwise. That's a statement of a cause-effect relationship, not a solution, "only" or not only.

If the SS drops back into surplus again (as it is projected to do), that cause-effect relationship will no longer apply.

Kaa

[johnw]

The trust fund is not in trouble. The Federal government is :-)

Precisely. Yet the thrust of this thread is that Social Security is in trouble, and the solutions proposed are that things be done to Social Security. That makes no sense.

Oh, and I was wrong, it was Reagan who increased the tax. My point is that it was not a fraud, it had legal force and political justification. Claiming, as Rick does, that it's just a pile of IOUs, does disservice to Reagan's memory. Reagan said the tax increase would build the trust fund to ensure the solvency of Social Security. It was taken off-budget, reversing an action taken by Lyndon Johnson. Now we're by people like Rick that Reagan was a liar, and that trust fund doesn't really exist.


Bottom line -- as I said, the Federal government will have to borrow more money, not to mention that the increased supply of Treasuries will drive the interest rate up, especially if the Fed yields to the temptation to inflate away the old debt.

You say this isn't a 'solution,' but it's the only scenario you envision. It would be an action by the government. I say it is only one action the government can take. For example, we spend more on defense than the rest of the world combined. Advocates of shrinking the government should be demanding that such extravagant expenditures be curbed, though strangely, those who claim to want smaller government keep expanding defense spending.

Yes, the government has a problem, though given how low interest rates on our bonds are, I'd say our solvency is looking pretty good. Trying to lay that problem at Social Security's feet when that program has been operating in surplus and has 2.5 trillion in savings makes no sense.

[Kaa]

You say this isn't a 'solution,' but it's the only scenario you envision.

Sigh. It's not a scenario. Let me repeat myself -- it's a cause-effect relationship. And I specifically said "more than otherwise".


For example, we spend more on defense than the rest of the world combined. Advocates of shrinking the government should be demanding that such extravagant expenditures be curbed...

Why, I do :-) Perhaps "demand" is too strong a word, but I think radically slashing the Pentagon's budget would be quite a useful thing to do.


Trying to lay that problem at Social Security's feet when that program has been operating in surplus and has 2.5 trillion in savings makes no sense.

:D Y'know, it's like the old saying: "If you owe the bank $10,000 and you run out of money, you have a problem. If you owe the bank $10,000,000 and you run out of money, the bank has a problem."

It's not like SS has $2.5 trillion is savings. It's more like the Federal government owes $2.5 trillion to SS -- besides its other obligations.

Kaa

[bob winter]

Strangely enough, governments the world over seem to get into the "trust funds".

[johnw]

Sigh. It's not a scenario. Let me repeat myself -- it's a cause-effect relationship. And I specifically said "more than otherwise".
Sigh. No, it's a possible course of action. There are others. It would only be a 'cause' if no alternative course is taken.

[Dan McCosh]

The problem with SS is taking the money that was put into it and spending it elsewhere--just like corporations have been doing with their pension funds.

[paladin]

Someone has a helluva lotta I.O.U.'s from past weenies dipping into SS and "borrowing" from it...now the I.O.U.'s need repaying...guess who gets to repay them......?

[johnw]

The problem with SS is taking the money that was put into it and spending it elsewhere--just like corporations have been doing with their pension funds.
Well, it did make huge tax cuts for the rich look less irresponsible, because with the increase in regressive payroll taxes, the deficits didn't look that bad.

And now we're told the savings in the trust fund were an illusion. So, instead of fixing the problem -- that the whole budget is in deficit -- we're supposed to take the problem out on Social Security.

This is why Clinton worked to get the budget into surplus.

[donald branscom]

Social Security is NOT bankrupt. There are Trillions in that fund.
It was reported on the news this morning how much is in the fund.

I am SICK and TIRED of Republicans trying to scare young people by saying they will have NO Social Security. IT WIL BE THERE.... even for Republicans.
It make s young people feel hopeless.

PLEASE stop your scared child stories.

Social Security is VERY important to the infrastructure of this country.
IF this country had done Bush's plan we would be broke. There would be hundreds of thousands of people on the streets.
The average person does not know how to invest in stocks or other things.
It would be like throwing the chickens to the wolves.

STOP TELLING YOUNG PEOPLE THERE WILL BE NO SOCIAL SECURITY!!!!


And you political people should start thinking and talking about ways to IMPROVE ...yes I said improve Social Security. Not just save it. IMPROVE IT.

[donald branscom]

It's easily fixed... and, as Tom says, if we had responsible adults in Congress, it would be a no-brainer. Raising the retirement age slightly, indexing benefits to inflation rather than wages, raising or eliminating the cap on contributions, and in the extreme case, providing a modicum of means-testing, could make S.S. solvent in perpetuity. Are some of these changes hard to take? Sure.... will they fix the shortfall? Absolutely.

They already HAVE raised the age at which you can receive benefits.
Or don't you read your mail.

But believe me if you ACTUALLY WORK for a living you will be feeling it when you are 60.
I would really like to know how many men (percentage) live long enough to collect. My father worked in a steel factory all his life and died just 4 years after he got his Social Security. But he was lucky and had a good job with benefits that paid a retirement also for his wife. Otherwise she would be on the streets with a sleeping bag trying to live on a grand per month.
The law says Social Security is supposed to keep up with inflation. Well the inflation is almost zero and the prices are still going up.