Tuesday, January 25, 2011

There is no social security crisis

Alarmists like Wisconsin Congressman Paul Ryan inaccurately claim that the Social Security System is on the verge of bankruptcy. This is patently untrue.

The Social Security System is currently running a surplus and will continue to do so for several years.

As New York Times columnist Bob Herbert writes: ...there is no Social Security crisis. There is a foreseeable problem with the program’s long-term financing, but it can be fixed with changes that do no harm to its elderly beneficiaries. One obvious step would be to raise the cap on payroll taxes (currently $106,000) so that wealthy earners shoulder a fairer share of the burden."

Herbert's column is linked here.


the other side of the coin said...

Oh good, it must be true because some op-ed piece in the NYT said so....long on emotion but short on facts.

Try the report from the CBO:

Can you say Social Security fund deficit? .....latest information about a looming Social Security crisis. The CBO is reporting that the Social Security System will run deficits every year until it has no money.

Maybe we can close our eyes, wish upon a star and HOPE things will CHANGE.

Michael Rosen said...

The Congressional Budget Office shows the program can pay all future benefits through the year 2044 with no changes whatsoever.

Even after that date the shortfalls are relatively minor.

If we instituted a fix in 2030 that is comparable to the one put in place in 1983 it would leave the program fully solvent out to the 22nd century.

Or if we simply raise the cap on income subject to the SS tax to say $175,000 the program would be solvent out to the 22nd Century.

Cutting benefits for near retirees (workers in their late 40s and 50s) seems cruel and unwarranted. These people paid for their benefits through decades of work. Also, this cohort has seen most of the wealth that they did manage to accumulate destroyed with the collapse of the housing bubble and the plunge in the stock market. The bulk of this cohort will therefore be relying on Social Security for the overwhelming majority of their retirement income.

For these reasons, the determination to cut Social Security has the feeling of the class bullies telling the rest of us that we have beat up the weakest kid in the class in order to be admitted to the club. That may be the way things work in Washington, but this doesn’t mean it is right.

the other side of the coin said...

Social Security has built up a $2.5 trillion surplus since the retirement program was last overhauled in the 1980s. Benefits will be safe until that money runs out. That is projected to happen in 2037 — unless Congress acts in the meantime. At that point, Social Security would collect enough in payroll taxes to pay out about 78 percent of benefits, according to the Social Security Administration.

The $2.5 trillion surplus, however, has been borrowed over the years by the federal government and spent on other programs. In return, the Treasury Department has issued bonds to Social Security, guaranteeing repayment with interest.

Social Security supporters are adamant that the program will be repaid, just as the U.S. government repays others who invest in U.S. Treasury bonds.

“It’s an IOU that is backed by Treasury bonds and the faith and credit of the United States government,” said Sen. Bernie Sanders, I-Vt. “It is the same faith and credit that enables us to borrow from rich people and from China and from other countries. As you well know, in the history of this country, the United States has never defaulted on one penny owed to a creditor.”

Read that again. The 2.5 trillion in the "lock box" is not in the "lock box". Instead we have 2.5 trillion IOUs. We borrowed from SS to pay for other federal programs. And we are going to pay all that money back, with interest./?

That shouldn't be a problem considering all of the surpluses we are currently running and projecting into the future. (take tongue out of cheek) THAT makes me nervous.

How do you spell D E F A U L T?