09 Feb 2011

Social Security Trust Fund a Mirage – Social Security Deficits as Far as the Eye Can See

According to the Congressional Budget Office (CBO), last year Social Security had a $37 billion dollar shortfall. This year the CBO estimates it will lose $45 billion. Over the next ten years, the CBO says the total debt incurred by Social Security will be somewhere in the neighborhood of $547 billion.

Politicians, mostly democrats, like to point out that the program is solvent through some year in the 2030’s, but really, since the program has always used the income from that year to pay for the costs of that year, this trust fund is a complete mirage. All it is is the rest of the government saying it’ll pay itself back from other funds. The Concord Center outlines this issue pretty well in the following quote:

The trust funds are simply a claim on future general revenues. They represent a promise from one arm of the government (Treasury) to pay another arm of the government (Social Security). Coming up with the cash to make good on that claim will mean squeezing out other spending, raising taxes, or borrowing from whoever is willing to lend us the money. Some combination of these will be necessary to close the gap and the sooner this problem is addressed, the better.

We can no longer pretend that today’s entitlement promises can be financed with today’s revenue level. In this regard, it is crucial to note that Social Security’s future draw on general revenues is small in comparison to the projected needs of Medicare and Medicaid. At some point soon, we need to decide how much to reduce promised benefits and/or raise taxes to pay for them. The fact that Social Security is already paying out more than it takes in — before the vast majority of baby boomers qualify for benefits — highlights the trade-offs that must be made to prevent an explosion of debt.

I made that last sentence bold because it is the scariest part. If we can’t even pay for the program when we’re in much better shape than we will be in 10, 20, 30 years… we’re really going to be in trouble when we have even fewer people in the workplace for each person collecting benefits.

Our taxes will skyrocket, our economy will suffer and our debt will balloon to a level that will undercut the funding of everything else in government… if we don’t start making hard choices, but much less painful than the choices available to us in 10 or 20 years, now.

Author Details
After a few years of blogging on other sites, Solomon launched ‘Rise of the Center’ – the precursor to Uniters.org, leading to a number of interviews and freelance opportunities, most notably covering the 2012 election cycle on WNYC.org – the website for the largest NPR station in the country, in New York City – and reported from the floor of the 2012 Democratic & Republican National Conventions. After a hiatus from politics, the horrific circus of the 2016 election, and more generally increasing extremism and corruption, brought him back to this project.
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After a few years of blogging on other sites, Solomon launched ‘Rise of the Center’ – the precursor to Uniters.org, leading to a number of interviews and freelance opportunities, most notably covering the 2012 election cycle on WNYC.org – the website for the largest NPR station in the country, in New York City – and reported from the floor of the 2012 Democratic & Republican National Conventions. After a hiatus from politics, the horrific circus of the 2016 election, and more generally increasing extremism and corruption, brought him back to this project.
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10 thoughts on “Social Security Trust Fund a Mirage – Social Security Deficits as Far as the Eye Can See”

  1. Unfortunately, we’ve got a long way to go convincing voters that the Social Security “Trust Fund” is just an accounting fiction.
     
    I’ve even had a voter (local Democratic official) link me to ssa.gov to prove there is a trust fund, telling me I needed to do more research on the subject so that I get it right.

      1. Interesting-bearing bonds are the actual accounting fiction used.  The “Trust Fund” equals the amount of net contributions over the decades + the US Treasury interest rates along the way.
         
        I think (but I’m not sure) that the US Treasury assigns actual bonds to the Trust Fund, which means that the Trust Fund is an IOU from the Treasury = the US government = future taxpayers.

    1. The article here and the comments are only partially correct. There is still $2.5 trillion in the trust fund in the form of Treasury Bonds (IOU’s) of the money the government has borrowed from the SS Trust Fund since 1935.
      There is still a surplus each year, but it is currently being adversely affected by two unforeseen elements: the decline in employment (less FICA being collected from workers and employers) and Boomer’s early retirements, both a result of the economy.
      To find out more about what is going on with Social Security read the article, “Our Social Net Is ‘Not’ an Entitlement” on The Cutting Edge Blog at It’s Worth an Opinion: http://worthanopinion.net
       
      Jim Worth – Author, “Final Audit”

  2. So what are some solutions?
    1. Eliminate the cap on taxable earnings.
    2. Means testing – do wealthy retired people need a government pension?
    3. Stop using accounting tricks to hide funding problems.
     
    The sad thing is, there is a bipartisan consensus to not do anything meaningful about fixing one of the most successful social programs in US history.

    1. In order to test my solutions, on this and for the Federal budget as a whole, on detailed, realistic 30-year projections, I spent five months writing a spreadsheet to do just that.  It’s interactive, found here.
       
      Here’s what I came up with.  Keep the cap on taxable earnings — otherwise, Social Security accrues liabilities to pay higher benefits in the future, or else it’s not really SocSec withholding above that threshold, just a regular tax, and if we’re going to increase marginal income tax rates at higher incomes, I’d like to call a horse a horse and do it there (but I don’t want to do it for SocSec).
       
      That leaves means-testing and raising the retirement age.  My means testing is only partial — if you make under $55,000 per year IN RETIREMENT, you receive the same amount.  If you make more than that (top 50%), your Social Security check gets trimmed by 22%.  If we then raise the retirement age to 70, with early retirement at 67 — presto, Social Security is an internally balanced budget, and preserved pretty much forever.

    1. If I may amend this statement, or offer my own take:  A country that exempts wealthy elites from taxes in whole or in part will be surpassed by its competitors, occasionally to the point of internal collapse.  This was a problem in French before its revolution, in Russia before its revolution, and in Mexico after its independence from Spain, which is why the Mexicans agreed to sell half their country for a mere $15 million in 1848.  With so many loopholes, trust funds, deductions, and capital gains tax discounts, the US tends increasingly in this direction for its multimillionaires.
       
      (Yes, the Mexicans signed that treaty under the duress of foreign occupation, and excepting Texas, that land was mostly barren at the time.  But recent work by a Mexican historian shows that the Mexican elites had so quickly since 1821 switched from taxing themselves to borrowing from Europeans, that they really needed the money from selling what is now US California and the Southwest.)

  3. The article here and the comments are only partially correct. There is still $2.5 trillion in the trust fund in the form of Treasury Bonds (IOU’s) of the money the government has borrowed from the SS Trust Fund since 1935.
    There is still a surplus each year, but it is currently being adversely affected by two unforeseen elements: the decline in employment (less FICA being collected from workers and employers) and Boomer’s early retirements, both a result of the economy.
    To find out more about what is going on with Social Security read the article, “Our Social Net Is ‘Not’ an Entitlement” on The Cutting Edge Blog at It’s Worth an Opinion: http://worthanopinion.net

    Jim Worth – Author, “Final Audit”

    1. You don’t understand… the Trust Fund is NOT bonds. It is an internal loan from one part of the government to the other. They are only called bonds. They aren’t actualy bonds… and this is the government saying this, not my opinion. This is a quote from the Office of Management and Budget:

      “These balances are available to finance future benefit
      payments and other trust fund expenditures—but only
      in a bookkeeping sense. These funds are not set up
      to be pension funds, like the funds of private pension
      plans. They do not consist of real economic assets that
      can be drawn down in the future to fund benefits.
      Instead,
      they are claims on the Treasury that, when redeemed,
      will have to be financed by raising taxes, borrowing
      from the public, or reducing benefits or other
      expenditures. The existence of large trust fund balances,
      therefore, does not, by itself, have any impact
      on the Government’s ability to pay benefits.”

       

      Note the part that says “They do not consist of real economic assets…”.

      A trust fund actually has money in it. This is just numbers in a book saying the Treasury has to pay Social Security deficits, by putting us in more debt. A bond is a financial investment that is actually worth something. These are only just called bonds.

       

      And there is not a surplus. Social Security was $30 something billion in the red this year, is expected to be $45 billion in the red next year, and SIX HUNDRED billion in the red this decade.

       

      The money isn’t coming out of a bank account of some trust fund somewhere, its coming from the same place that 40% of the federal budget is coming from this year… our kids’ future earnings.

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