Not really. There is not a direct link between revenue and benefits. The system is not sustainable as currently structured. If you take a look at how many times payroll taxes have been raised, the pay caps increased every year, raising the retirement age, changing COLA formulae, etc. you will see there is some attempt to keep the system solvent, but the baby boom cohort will overwhelm it if taxes are not raised, benefits reduced, or both.
I think you’d agree that changes in the non-public debt held by the social security trust fund is to an extent a measure of the health of the system.
When the balances are increasing, income to the trust fund is exceeding outgo. The more rapid the increase, the better the shape of the fund. Then, one day, the increase slows, indicating that outgo is starting to overwhelm income (tax receipts). Finally, the increase stops altogether, indicating that outgo equals tax receipts.
And finally, we reach the present state, where outgo exceeds income, the non-public debt has to be cashed in at the Treasury, and it’s only a matter of time before the Trust fund is depleted unless changes are made to restore the overall financial viability of the social security system by some combination of raising taxes and/or cutting benefits.
So, a large non-public balance in the trust fund is a good thing, but the more important measure is whether that balance is increasing or declining, and how fast.
At least that’s how I see it.
“the baby boom cohort will overwhelm it if taxes are not raised, benefits reduced, or both.”
That was my point. The system is flawed but if revenues are kept at a level that supports benefits the system would be sustainable. The system will have to be tweaked as the underlying assumptions change.
Much of it depends on the level of economic growth.
This is just moot anyway because the system has been screwed up and any attempt to fix it will be sabotaged by the politicians. In a political sense, not a theoretical sense, you are 100% correct.
Kabar,
I’ll address this question to you because you seem to have one of the more informed views of the structure of the social security trust funds in here, but if anyone else has an opinion on it, please chip in.
My question: What is to stop the administration from literally looting the trust fund after the debt hits the debt ceiling?
I’ll explain what I mean. Everyone is assuming that the inflows to the government are about $170 bn in August, of which I believe around $50 billion is from social security taxes. That money is presumed to be the amount available to pay bills in August, bills that total around $310 billion.
It’s assumed that the $50 billion taken in as SS taxes will go to pay bills, including, if Obama directs it, payment to social security recipients. However, what is to stop the administration from just cashing in $50 billion of the non-public debt and using that money to pay the social security recipients, then spending the SS taxes received that month on other expenses?
The cashing in of $50 bn of non-public debt would open up an equivalent amount under the debt ceiling that the Treasury could then issue as publicly held debt, providing the funds to pay the SS recipients.
This would leave the entire $170 bn of August tax receipts available to pay the rest of the August bills, so they would only come up short about $90 billion, instead of $140 billion.
I guess it’s a two part question: 1) Could this be done legally? and 2) Would it be a good thing or a bad thing for those not wanting the debt ceiling to be raised?
And beyond that, could they raid the trust fund for the other $90 billion the same way? Because if they could, it wouldn’t last very long taking nearly a $150 bn hit each month. Plus, Obama could continue to spend money like water for another year and a half or so, before the fund hit zero. The debt ceiling would be moot until then. And then there’s the other trust funds besides...
I’d like to think there’s no way people would stand for it, but as you can see from other comments, this stuff is pretty obscure and hard to digest. If he did it, he just might get away with it for an extended period of time.
Thoughts?