Tinkering With CPI Won't Erase Social Security's Insolvency

2031 is likely the next 2012. No, the Mayan calendar hasn't been reinterpreted -- but the Social Security Administration's statistical projections have, and it's not looking good.

A new study by professors Gary King of Harvard University and Samir Soneji of Dartmouth College finds that the Social Security Administration's (SSA) $2.7 trillion trust fund that is supposed to fund the retirement of baby boomers, will be exhausted in 2031 -- two years earlier than the SSA's original projection. Indeed, 2010 was the first time in more than 25 years that Social Security ran a deficit; spending $49 billion more in benefits than revenues generated, and this will become a permanent state ofaffairs unless something is done.

The Congressional Budget Office (CBO) last November warned that "the federal budget is on an unsustainable path under current policies." Even though Social Security's unfunded liabilities are some of the biggest drivers of this fiscal unsustainability (after Medicare), the recent fiscal cliff deal did nothing to address them. That must change come March, when the next round of deficit reductions talks take place, and the changes must be substantial if fiscal apocalypse is to be avoided. As of now, the lame ones that Republicans have proffered won't cut it.

The big Republican idea for putting Social Security spending on a fiscally sustainable footing involves changing the way the program calculates Cost-of-Living Adjustments (COLAs) for beneficiaries. Essentially, Republicans suggest switching the price index used to determine COLAs from the current one to a chained Consumer Price Index (CPI), something that CBO estimates could save $100-$220 billion over the next 10 years.

Ooh, the government says it’s a trust fund, so it must be a fund. Well the government also calls tomatoes vegetables, that doesn’t change anything.

And why is your Government entitled to their own facts? At least my assertions are supported by reality, not part of some Ponzi scheme mass delusion.

T-bills are an asset to the Chinese because they can use them to blackmail the US. They know they’ll be paid because the alternative is blood in the streets globally. Intergovernmental debt is just a smokescreen to hide a morally and fiscally bankrupt United States.

Now you are being silly. According to the laws that set up SS, the payroll taxes raised must be used to pay benefits for SS.

The Social Security Trust Funds are the Old-Age and Survivors Insurance (OASI) and the Disability Insurance (DI) Trust Funds. These funds are accounts managed by the Department of the Treasury. They serve two purposes: (1) they provide an accounting mechanism for tracking all income to and disbursements from the trust funds, and (2) they hold the accumulated assets. These accumulated assets provide automatic spending authority to pay benefits. The Social Security Act limits trust fund expenditures to benefits and administrative costs.

By law, income to the trust funds must be invested, on a daily basis, in securities guaranteed as to both principal and interest by the Federal government. All securities held by the trust funds are "special issues" of the United States Treasury. Such securities are available only to the trust funds.

The Social Security Trust Fund was created in 1939 as part of the Amendments enacted in that year. From its inception, the Trust Fund has always worked the same way. The Social Security Trust Fund has never been "put into the general fund of the government."

Most likely this myth comes from a confusion between the financing of the Social Security program and the way the Social Security Trust Fund is treated in federal budget accounting. Starting in 1969 (due to action by the Johnson Administration in 1968) the transactions to the Trust Fund were included in what is known as the "unified budget." This means that every function of the federal government is included in a single budget. This is sometimes described by saying that the Social Security Trust Funds are "on-budget." This budget treatment of the Social Security Trust Fund continued until 1990 when the Trust Funds were again taken "off-budget." This means only that they are shown as a separate account in the federal budget. But whether the Trust Funds are "on-budget" or "off-budget" is primarily a question of accounting practices--it has no affect on the actual operations of the Trust Fund itself.

The T-bills held by the SSTF are just as much of an obligation as the T-bills held by the Chinese, which is why they are included as part of the $16.4 trillion national debt and affect the debt ceiling. The payment of this debt is dependent upon the good faith and credit of the USG to honor them. It is as simple as that.

I am not saying that SS does not represent a huge unfunded liability or that the program is solvent. I specifically stated that the USG must borrow money to redeem the SS T-bills so SS can pay full benefits. SS is in the red from now until 2031/32 and will need to continue to redeem the T-bills to make up the growing shortfall. Once the T-bills are exhausted, SS will no longer be able to pay full benefits as promised. It is limited by the revenue it has coming in. Without reform, SS benefits will be reduced for everyone.

Again, I strongly emphasize that SS is contributing to our growing national debt. Pelosi and the Dems have said that is not the case, but as I just demonstrated, they are wrong

The T-bills cannot be redeemed without borrowing the money from elsewhere. Therefore the only thing that the reams of propaganda you copied and pasted boils down to this:

1. We spent all your money, it’s gone. Sorry. We did leave a bunch of IOUs in a file cabinet so that makes it OK.

2. Luckily for you we will borrow that much money again to pay you instead of the poor suckers currently working or getting ready to start working. We will call this phony second borrowing “redeeming the trust fund” and you will believe us because you will believe anything we tell you. We promise, you can trust us, just ask the Indians, we’d tell you to ask the Branch Davidians but they’re unavailable just now.

Now, by all means go back and find some more government-published fiction to copy and paste.

We agree on one thing - it is a Ponzi scheme and not sustainable for that reason, I was stating that the Government propaganda is trying to make up facts to cover this up. You could have saved a lot of time by posting that link earlier in this discussion.

However, raising taxes to “fix” the problem only postpones the inevitable and takes money out of the economy, stunting economic growth. On top of that it does nothing to convince citizens to end this abomination or transition it to something that is actuarially sustainable. That you would suggest raising taxes as a ‘solution’ indicates that you still are buying that the Ponzi scheme can work if we just feed it more money..

As I stated previously, there are only two possible outcomes, collapse or phasing out. Any sustainable model can only be based on the accumulation of real, economically viable assets.

The program could easily be transitioned into a privately run life insurance model, with the premiums invested in a broadly diversified conservative portfolio. But this can’t happen if voters continue to believe taxes are any kind of solution.

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