Skip to comments.Social Security: Disaster Is Closer Than It Appears
Posted on 09/08/2012 10:55:06 AM PDT by 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.
(Excerpt) Read more at americanthinker.com ...
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.
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.
Young pup, ain't he?
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.
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
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.
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...
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!
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, CBOs deficit projections for the trust funds do not include that. But CBOs figures predict that the "payroll tax holiday" will cost the governments 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 governments overall finances.
As recently as October, CBO was projecting that it would be 2016 before outlays regularly exceed revenues. But Social Securitys fiscal troubles are more severe than was thought, and the latest projections show the permanent deficits started several years ahead of earlier predictions.
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.
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.
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.
“The political will to fix it does not exist. Itll 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.
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."
“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.
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.
Dont get me wrong. Your govt owes you that money...no question about that. But, I dont 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 wouldnt 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.
“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.”
Everyone whines about the baby boomers retiring. Well, they werent whining when the boomers were paying into the ponzi scheme.
In other words, it is and has been a ponzi scheme. I am sure a lot of people would be more than happy to accept a cash settle of their SS “investment” along with a modest interest payment for their 40 to 50 years paying into the system.
You suppose the Govt will do that? LOL Don’t hold your breath.
The problem is that once your contributions are put into the system, they no longer belong to you. SCOTUS made that determination with Flemming vs. Nestor
“The problem is that once your contributions are put into the system, they no longer belong to you. SCOTUS made that determination with Flemming vs. Nestor”
Sorry to be the skunk at the garden party, but here’s a brief explanation of SS (you can decide if your “facts” obfuscate the truth or not):
1. The government funds SS through the Payroll tax (1/2 paid by employer, 1/2 paid by employee or, in the case of self-employed folks, fully paid by the self-employed)
- this tax, roughly 15% of payroll has been slashed for the past two years,ostensibly as a stimulus; this has starved SS of critical funds when it is already “rolling over” (see below for details)
2. Funds collected by SS can lawfully go two places:
a) to pay current beneficiaries, or
b) in the event of a surplus, be invested in special Treasury securities that can only be bought and sold by the SSA
c) when money is invested in Treasury securities, the SSA gets a special obligation bond, and the Treasury puts the cash received into the general funds
d) as long as SS revenues exceed outlays, those moneys placed in the General Fund are used to mask deficit spending.
3. In the event that expenses for current beneficiaries exceed current revenues, the SSA bust, by law, redeem special securities to the extent required to meet all legal obligations.
a) the Treasury must, by law, pay full face value and interest for any special SS bonds presented.
b) if the Treasury does not have sufficient money in the General Fund to cover the full value of the SS bond and interest, it must sell debt to cover the difference.
c) this is why Obama couldn’t guarantee that SS benefits would go out on 8/4/11 if the debt limit wasn’t raised by 8/3.
d) the SS “fund” rolled over in the recent past - that is, outflows exceeded income - and for the next twenty years SS will be adding to the deficit to pay for baby boomers’ retirements.
To reiterate: the “trust fund” is a lie populated by IOU’s that must be redeemed from current tax payments as the original cash gathered by the government for this purpose has already been spent. Those IOU’s will run out around 2030, meaning that the government will no longer be authorized to sell debt to pay retirement benefits.
If you think the money is sitting there for you and your retirement, I think you are mistaken.
There cannot be a Social Security “Trust” Fund when the Federal government goes broke EVERY YEAR!
The SSTF is an unfunded liability, which is why it is included as part of the national debt under "Intragovernmental Holdings." It is not part of the publicly held debt.
You can call it what you want, but, as noted above, the money is not there to fund the boomers’ retirements. And demographics and the Obama economy are reducing the number of current workers who will be paying for the boomers’ retirements out of current tax receipts, or growing deficits for the next 20-30 years.
People on SS today will receive far more in benefits than they paid in, which is why SS is a Ponzi scheme.
FYI: Here is the SS response to the following question:
Why do some people describe the "special issue" securities held by the trust funds as worthless IOUs? What is SSA's reaction to this criticism?
"Money flowing into the trust funds is invested in U. S. Government securities. Because the government spends this borrowed cash, some people see the trust fund assets as an accumulation of securities that the government will be unable to make good on in the future. Without legislation to restore long-range solvency of the trust funds, redemption of long-term securities prior to maturity would be necessary.
Far from being "worthless IOUs," the investments held by the trust funds are backed by the full faith and credit of the U. S. Government. The government has always repaid Social Security, with interest. The special-issue securities are, therefore, just as safe as U.S. Savings Bonds or other financial instruments of the Federal government.
Many options are being considered to restore long-range trust fund solvency. These options are being considered now, over 20 years in advance of the year the funds are likely to be exhausted. It is thus likely that legislation will be enacted to restore long-term solvency, making it unlikely that the trust funds' securities will need to be redeemed on a large scale prior to maturity."
Medicare beneficiaries receive three times what they paid into the system.
This graph shows that the average man and woman (average defined in the study as average income over their working lives and living to the average life expectancy) who start receiving benefits in 2010 get over 3 times more in benefits than they pay in to the system! Of importance, the study accounts for inflation by calculating all past taxes and future payments in 2010 dollars to provide an accurate comparison.
If the notion that Medicare recipients are simply "getting back what they paid in" is false then where is the money coming from? Simply, the excess received is being borrowed from younger generations and the cost is more than we can bear