Social Security: Disaster Is Closer Than It Appears

American Thinker ^ | 09/08/2012 | Brenton Smith

[SeekAndFind]

Every car sold since I was born carries a warning on the passenger side view mirror: "Objects in the mirror are closer than they appear." Car manufacturers provide this warning because the same mirror produces different views of the same traffic: one accurate and one dangerous.

The Social Security debate has its own set of mirrors, with an illusion actually designed to make the problem look smaller than it is. The difference here, of course, is that car manufacturers see the danger of misreading traffic, whereas those in our government want the public to misread the size of the underfunding of Social Security.

The problem in Social Security is that the system has made more promises than it has money. This problem is expressed as the "shortfall." The figure represents the amount of promises left over after the trust fund has been exhausted. It is total amount of promises in excess of what Social Security can pay.

The Trustees provide information on the "shortfall" in two different forms. One is the 75-year shortfall, and the other is the infinite shortfall. In 2012, the Trustees determined that Social Security has a shortfall of 20.5 trillion dollars over the infinite horizon, whereas the 75-year shortfall is roughly $8.6 trillion. So to believe that the 75-year "shortfall" is meaningful, you have to believe that the vast majority of Social Security's problems lie 76 years or more away.

No one does, of course. Washington uses this view because it makes the problem appear smaller -- about 12 trillion dollars smaller. So it is important for readers to understand how the illusion works.

The illusion works by stating that costs aren't costs. Social Security is financed by making promises to current workers of future benefits. The payroll tax is recognized as revenue today.

[Wolfie]

The political will to “fix” it does not exist. It’ll just have to go bust. To those planning on collecting, sorry, you trusted the wrong people.

[kabar]

SS is a pay as you go system. It has been running in the red since 2010 and will continue to do so for many years to come. The IOU’s run out in 2035 and then benefits will be cut to match revenue.

[sauropod]

.

[JRandomFreeper]

Every car sold since I was born carries a warning on the passenger side view mirror:

Young pup, ain't he?

/johnny

[meatloaf]

The politicians will cut a lot of other stuff before they actually cut Social Security benefits to current recipients. Social Security will take as much other revenue besides FICA as necessary to keep the checks going and more importantly, to them, the politicians reelection.

It’s one case where the voters have the politicians by the balls.

[South Dakota]

Socialist Security is tied to the economy. As the economy slows and the amount of income decreased so too must the benefits.

Soon we will go into a depression no matter who is President and the democrats social programs will fail

[ex-snook]

SS was a system where working Americans supported retired Americans. It used to be 10 workers supporting one retired. It still is only 7 are in other countries and neither them or their employers are paying into the system.

Exporting jobs has been a disaster for our economy and the SS system. Putting Americans back to work again will restore the SS system like it used to work.

[C210N]

Politicians will eventually reform Social Security. I predict it will be some plan which, paradoxically, removes a few Trillions out of the existing Social Security, and moves it into a Brand New “Son of Social Security” (or, alternatively, it will be called “Mother of All Social Security”), and will raise taxes. Everybody will have to participate in SOSS (Son of SS), or pay a penalty. To soften the blow, workers may not have to pay their share of the required FISOSSA (Federal Insurance for the Son of Social Security Act) tax...

[C210N]

The best thing about SOSS (or MOASS, if they call it that) will be that by design it will pay out a GREAT DEAL MORE in SS, all the while significantly reducing the Federal Deficit to the point of making it a surplus!

[kabar]

The politicians will cut a lot of other stuff before they actually cut Social Security benefits to current recipients. Social Security will take as much other revenue besides FICA as necessary to keep the checks going and more importantly, to them, the politicians reelection.

Sorry, but to do that they will have to change the law. Once the IOUs in the SSTF run out, by law, benefits will be reduced to reflect the decreased revenue. The latest estimates from the Trustees is that SS revenue would be able to pay for about 75% of the benefits due.

I suspect that Congress will do something well before that date. Unlike Medicare, SS is fairly easy to fix. In the meantime we are borrowing money to cash in the SS IOUs to make up the shortfall.

Source: CBO "Combined OASDI Trust Funds; January 2011 Baseline" 26 Jan 2011. Note: See "Primary Surplus" line (which is negative, indicating a deficit)"

Matters are even worse than this chart shows. In December, Congress passed a Social Security tax reduction. Workers are temporarily paying 2 percentage points less, from 6.2 percent to 4.2 percent, in Social Security payroll taxes this calendar year. Since the government is making up the shortfall out of general revenues, CBO’s deficit projections for the trust funds do not include that. But CBO’s figures predict that the "payroll tax holiday" will cost the government’s general fund $85 billion in this fiscal year and $29 billion in fiscal year 2012 (which starts Oct.1, 2011.) Since every dollar of that will have to be borrowed, the combined effect of the " tax holiday" and the annual deficits will amount to a $130 billion addition to the federal deficit in the current fiscal year, and $59 billion in fiscal 2012.

Social Security has passed a tipping point. For years it generated more revenue than it consumed, holding down the overall federal deficit and allowing Congress to spend more freely for other things. But those days are gone. Rather than lessening the federal deficit, Social Security has at last — as long predicted — become a drag on the government’s overall finances.

As recently as October, CBO was projecting that it would be 2016 before outlays regularly exceed revenues. But Social Security’s fiscal troubles are more severe than was thought, and the latest projections show the permanent deficits started several years ahead of earlier predictions.

[kabar]

There were 16 workers to every retiree in 1950; 3.3 today, and just 2 in 2030. It is demographics that doom this Ponzi scheme. We are an aging society. By 2030 one out of every 5 residents of this country will be 65 or older--twice what it is now.

Reducing unemployment will add more revenue to the system, but it won't be enough to offset the increasing payout of benefits. 10,000 people are retiring every day and will continue to do for the next 20 years.

Why Social Security is a Ponzi Scheme

[Chewbarkah]

Models of future SS performance must be based on estimates of future payroll tax receipts, which reflect estimates of aggregate earned income. Are these projections accurate?

Are young “workers” enterring the workforce expected to produce real earnings anything close to those of their parents’ generation? From every appearance, many young folks are either unemployed or underemployed (some due to bad choices and limited abilities, others due to globalization and the Obama economy). It would take political courage to admit that the current generation has dismal prospects (a good portion can’t support themselves, much less carry retirees). I can’t believe the models are realistic.

[Hoodat]

Since the government is making up the shortfall out of general revenues, CBO’s deficit projections for the trust funds do not include that.

There is no trust fund. 100% of Social Security outlays come from the general fund. It's nothing more than a ponzi scheme that is about to collapse. Meanwhile, I will wait for a political leader who has the integrity and fortitude to tell the American people that their government has been lying to them for the past 70 years and that there is no way possible for the government to honor what they've been told all this time about social security.

[BlessingsofLiberty]

“The political will to “fix” it does not exist. It’ll just have to go bust. To those planning on collecting, sorry, you trusted the wrong people.”

I don’t remember when I or anyone else was given an option (except in very rare cases). It had nothing to do with trust.

Essentially, SS was money stolen...a huge Madoff ponzi scheme. It was never invested, it isn’t in a safe trust fund earning interest...almost makes you think it was never meant to survive.

This all part of the larger ponzi scheme...$16 trillion moving to levels where our interest rates on the debt will be $1 trillion a year.

Our grand kids and their kids will never forgive us.

[kabar]

There is no trust fund. 100% of Social Security outlays come from the general fund.

Nonsense. The payroll tax is used to fund SS. Any shortfall is covered by cashing in the SSTF IOUs (non-market, interest bearing T-bills) using GF money. When SS was generating a "surplus," the unneeded revenue was deposited into the GF and Treasury issued T-bills in the amount of the surplus and added them to the SSTF. The SSTF is included in the $16 trillion national debt under "Intragovernmental Holdings."

Trust Fund FAQs

[saneright]

I am thoroughly convinced that it is going to take a complete meltdown of the system to wake up the average citizen. Let's face it, for several years we have been hearing about how social security is going broke. People have heard this so many times that stories like this don't register. It will literally take receiving an IOU instead of your monthly payment to get the average schmucks attention.

[BlessingsofLiberty]

“The payroll tax is used to fund SS.”

It is a pay as you go scheme. If it was in a safe trust, that money would not have been included in the GF. It is called fuzzy math.

Over the years they have gutted the SS program with every feel good scheme that the politicians could think of. Not very forward looking was it?

Don’t get me wrong. Your govt owes you that money...no question about that. But, I don’t think they intend to pay it back. If they were sincere, every politician in Congress would be in SS.

If they intended to pay it back, they wouldn’t be equating SS with all the welfare programs, feel good give away schemes and trying to make SS recipients look like welfare queens. Remember...people paid into SS with their hard earned wages...no one ever said we had a choice or option.

[kabar]

It is a pay as you go scheme. If it was in a safe trust, that money would not have been included in the GF. It is called fuzzy math.

The SSTF consists of non-market, interest bearing T-bills. They represent an obligation based on the good faith and credit of the USG to honor them, just like the publicly held debt. The problem is not the IOUs in the SSTF, but rather, the actuarial problem of promising more benefits than the system can produce in revenue. It is a Ponzi scheme where those at the top of the pyramid receive far more out of the system than they put in.

Over the years they have gutted the SS program with every feel good scheme that the politicians could think of. Not very forward looking was it?

Far from gutting it, they have been adding to the benefits without providing the revenue stream to support it. SS is on automatic pilot in terms of the COLA increases. Even though the cap on earnings has been raised almost every year and taxes have been raised 40 times, the revenue is still insufficient to cover the long term liabilities.

Don’t get me wrong. Your govt owes you that money...no question about that. But, I don’t think they intend to pay it back. If they were sincere, every politician in Congress would be in SS.

The famous 1983 Faustian bargain Reagan made with Tip O'Neill on SS mandated that all new federal employees had to join SS and that included Congress.

If they intended to pay it back, they wouldn’t be equating SS with all the welfare programs, feel good give away schemes and trying to make SS recipients look like welfare queens. Remember...people paid into SS with their hard earned wages...no one ever said we had a choice or option.

It is not a matter of paying anything back. SS is a pay as you go system. Today's workers pay for today's retirees. The $2.6 trillion in the SSTF represents the same kind of liability the USG has towards the $1.2 trillion held in T-bills by the Chinese. The only difference in the T-bills held by the SSTF is that they can only be redeemed by the USG and cannot be sold to anyone else. The $2.6 trillion is part of the national debt. So is the Medicare Trust Fund and the federal employee trust fund, etc.

SS is going broke because we have an aging society, which will cause more benefits to be paid out than the revenue we are taking in. Fewer workers to support more retirees. By law, once the SSTF IOUs are exhausted, then benefits must be reduced based on revenue. The gap between benefits promised and revenue produced is the unfunded liability of SS.

[BreezyDog]