The myth of the Social Security system's financial shortfall

[pinboy3niner]

The myth of the Social Security system's financial shortfall
The trust fund is in far better shape than critics admit.
ByMichael Hiltzik
August 8, 2010

<snip>
In recent years, during which conservatives have intensified their efforts to destroy one of the few U.S. government programs that actually works as intended, the report's publication has become an occasion for hand-wringing and crocodile tears over the (supposedly) parlous state of the system's finances.

This year's report, which came out Thursday, is no exception. Within minutes of its release, some analysts were claiming that it projected a "shortfall" for Social Security this year of $41 billion.
<snip>

The trustees indicated that the program has made it through the worst economic downturn in its life span essentially unscathed. In fact, by at least one measure it's fiscally stronger than a year ago: Its projected actuarial deficit over the next 75 years (a measurement required by law) is smaller now than a year ago.

The old age and disability trust funds, which hold the system's surplus, grew in 2009 by $122 billion, to $2.5 trillion. The program paid out $675 billion to 53 million beneficiaries — men, women and children — with administrative costs of 0.9% of expenditures. For all you privatization advocates out there, you'd be lucky to find a retirement and insurance plan of this complexity with an administrative fee less than five or 10 times that ratio.


http://www.latimes.com/business/la-fi-hiltzik-20100808,0,1359956.column

[Sherman A1]

1. We all need to mention this to our

Congresstypes & Senators on a regular basis.

The problems with the federal budget stem from a 5 sided building not too far from where they work.

[damntexdem]

4. We need to do more than this. We need to clarify that attacking SS is a fighting issue.

Any vote to degrade Social Security, whether by a Repuke or a Dem, should be clearly noted to be a declaration of enmity between a politician and any sane voters.

[Doctor_J]

8. Yes but WallStreet wants the money

and that counts a lot more to your rep & Sens than your wishes

[disidoro01]

2. SS sort of solvent.

I'm not disagreeing that SS privatization would be wrong. I do not believe that SS is either solvent or strong though. Money paid into SS is exchanged for securities backed by the full faith and credit of the U.S. government. Returns are horrifically low and there really is no guarantee that IOU's can continually be repaid. Congress needs to keep their hands out of this cookie jar. It's a recipe for disaster. All the reports coming out say it's solvent and strong but that is based on repayments continuing to happen. As our debts and deficits grow larger, the strain on the government will grow larger and it will without a doubt impact SS. If you borrow 200 dollars and invest it in a stock that loses 1%, How do you come up with the 2 dollar loss to pay back your lender?

[damntexdem]

5. If "there really is no guarantee that IOU's can continually be repaid," ...

then the world economy is truly screwed, not just the faith and credit of the U.S. So far, the U.S. has never defaulted on its treasury bonds. If it ever does, the game is over. In short, the SS Trust Fund is in the safest place possible in this world; and if that place becomes no longer safe, then it is not clear that ANY financial place is.

In short, SS if FULLY solvent.

[Igel]

6. The SS bonds are special issue bonds.

They're held by precisely one entity: A branch of the US government, the Social Security administration.

If the government defaulted on this variety of bond, only the Federal government would be affected.

There's a completely different course of action available. The government could simply forgive itself. Since the SS 'trust fund' is actually set up and held on Congressional authority and the bonds issued to the trust fund are issued on Congressional authority, so that one branch of the government holds the debt from another branch of government, Congress could merely direct one branch to issue a statement of forgiveness of the debt to the other. Of course, this is "completely different" in the sense of being "essentially the same."

If this doesn't happen and SS obligations aren't reduced, you'll see one of three things happen: (1) Less and less of the US budget will be discretionary as SS takes up more and more general revenues in redeeming bonds; (2) the budget will have to increase to maintain discretionary spending and accommodate the increased non-discretionary spending, either by (a) issuing more debt obligations in the form of T-bills or (b) increasing taxes.

Note that "increasing taxes" is not just taking the cap off of earned income subject to FICA withholding--that's intended to cover the gap once the "trust fund" is exhausted. It would move SS from being a supposedly program funded with special-use taxes to being more of a general-fund program.

[Recursion]

10. We crossed that Rubicon a while ago: it became a general fund program...

...when we started getting hooked on its revenues as a way of balancing cash flow.

[jtown1123]

7. Just curious how you can say there is no guarantee

benefits won't be paid? There is no instance, ever, when Social Security stopped handing out checks and no instance of the U.S. defaulting on a bond. The government borrowed that money, and guess what, it has to be repaid. Do we really want to spend our money on ridiculous wars, Wall St. bailouts, but say, sorry, no dice to seniors, children and the disabled? Social Security funds itself and is financially sound. It will need to be tweaked after 2037 to avoid a 22% funding shortfall, but we can do that by raising the tax cap on incomes above $106,800.

[Enthusiast]

3. Privatization advocates have ulterior motives. nt

[Doctor_J]

9. And raise the cap from $90K to $120K

The flat-earthers (or flat-taxers) never mention how regressive the FICA tax is when extolling the virtues of a "Fair Tax".

[NorthCarolina]

11. There's lots of outstanding IOU's that the Government cannot afford

to pay back to SS if they want to continue to fund the wars. China's pockets are only so deep, so something has to go...my guess is that the Debt Commission will recommend that SS be cut to a level that will erase existing debt to the program.