The Social Security Crisis

[Kurt_and_Hunter]

Social Security is a government program with dedicated funding and its own accounting.

Workers pay FICA payroll taxes. We keep track of that money. Workers pay $100x this month. We mail out checks to retirees for $90x. That leaves $10x surplus.

First thing to note: The supposed Social Security Crisis involves pretty much the only thing in the government that has a surplus. (This is a clue... when people see a surplus in anything their minds turn to how to grab it. Note how the rich managed to appropriate the Clinton budget surplus in the form of Bush/Cheney tax cuts.)

Okay... that $10x surplus is put into a dedicated fund. Then the rest of the government takes that $10x, spends it and replaces it with an IOU.

Is Social Security solvent?

This is actually two questions.

1) Did we put enough int the piggy bank to pay for SS?

Yes. Social Security is solvent until 2037. It is entirely possible that if we change nothing Social Security will remain solvent past 2037. In fact, it may remain solvent until 2085 with no changes at all. (There is a range of estimates.)

And if Social Security became "insolvent" that would not mean checks would stop. If the system takes in $100 and has to pay out $103 it is insolvent insofar as it is not taking in enough to meet its obligations but it is still able to meet 97% of its obligations.

In that scenario benefits would have to be be cut to make up the difference. That would be the worst thing that ever happened. If the accounting forced a reduction in benefits in 2040 (which is not known to be the case, BTW) it would be the worst thing that ever happened. The Earth would crash into the sun or something.

Since the *possibility* of having to reduce benefits 30 years from now is the worst thing ever we have a crisis.

How can we solve the terrible crisis of maybe cutting benefits someday?

Cut benefits before 2040 for real.

See... problem solved.

If your head just exploded then SS is more solvent because you will not be able to collect on any of the money you paid in during your life before your head exploded.)

2) Is there enough in the piggy bank to pay for SS?

We put in either enough or very, very nearly enough. Unfortunately it is not there. It was taken and spent on clever things like the Iraq War.

And now we see the REAL Social Security crisis. The SS money went into general revenue in exchanges for IOUs. And if we had to pay back those IOUs it would be inconvenient.

We have a big deficit. Someday (when the economy is functioning better) we will have to raise revenues or cut spending.

A big part of what we have to pay out will be SS. But SS, unlike everything else, actually pays for all or very nearly all of itself. It is not in any way the cause of the deficit.


The "crisis" is that 1) the government has a whopping deficit and 2) the government has to pay back SS benefits that were pretty well funded all along.

What sort of moral degenerate does a person have to be to see a nexus there?

The government is behaving like those insurance companies that collect premiums for decades then skip town when there is a hurricane.

The money to pay back the IOUs is just a normal, fungible dollar in the federal budget. It is utterly morally and intellectual bankrupt to think of repaying a fricking DEBT (an IOU) as a favor! It is no different from any other dollar the government is obliged to pay out.

Cutting SS benefits to paper over the inconvenience of having to repay a debt has nothing to do with Social Security. It has to do with how to repay a debt.

Okay... so we are sitting in the future and we have to come up with, say $20 Trillion. Well, we can cut SS benefits or cut something else or raise taxes. These are choices. These choices determine who will be stuck with paying down the general deficit.

Cutting SS benefits is not fiscal austerity, IT IS A TRANSFER PAYMENT FROM THE POOL OF FICA TAX PAYERS TO THE POOL OF INCOME AND CAPITAL GAINS TAX PAYERS.

(Many will disagree with that characterization, but if we assume that the rich will nessecarily bear the brunt of reducing that deficit then this frenzy for doing something about the deficit that involves cutting SS is shifting something from SS recipients to the rich.)

And that is why it is favored by the rich and opposed by the poor. For some dumb-ass reason poor people don't like having money they paid diverted to the better-off.

(QUESTION: I don't know the answer to this. What has the rate of return been on the 'borrowed' SS trust fund money?)

[lumberjack_jeff]

1. Can I please recommend multiple times? n/t

"behaving like those insurance companies that collect premiums for decades then skip town when there is a hurricane."

Very well said.

Do you mind if I repost?

[Kurt_and_Hunter]

3. By all means, please make whatever use of it you wish

Funny that your rec didn't hold up long.

People are a trip.

[lumberjack_jeff]

5. Kicking

The powers that be need to come clean about their squishy definition of the words imprinted on the physical bonds in physical file cabinets which comprise the SS trust fund; "backed by the full faith and credit of the United States of America"

[Statistical]

2. "What has the rate of return been on the 'borrowed' SS trust fund money?" 4.86%

http://www.ssa.gov/OACT/ProgData/fundFAQ.html#n3

Overall annualized return for assets purchased in 2009: 2.917%
Overall annualized return (effective return) for 2009: 4.86%.

Average & Effective Return since inception.


Keep in mind interest rates rise during periods of high inflation and tend to fall during periods of low inflation.

Inflation adjusted (which is the only true measure of wealth, wages, interest, or prosperity) rates have been relatively steady. Yielding about 2%-3% inflation adjusted returns.

[Kurt_and_Hunter]

4. Thanks.