TAXES: The Fate of Social Security

The Cato Institute�s position on the need to privatize Social Security is examined and critiqued in an article titled The Fate of Social Security.

There seems to be a general impression among some circles that the Social Security program will be bankrupted by the time the Baby Boomer�s have finished retiring. The critique says otherwise.

From the article:

The Social Security trust fund currently runs a surplus of over $60 billion per year. Based on current projections there are sufficient reserves in the trust fund to cover all retirees until 2029. In 2012, as the baby boomers begin to retire, benefit payouts will start to exceed taxes collected. This means that the Social Security Administration will have to draw on interest earned on the fund to cover benefits. In 2019 benefit payments will exceed taxes collected and the fund will have to start drawing down its reserves. By 2029 the trust fund would be depleted, at which point FICA taxes collected would only cover about 77 percent of benefits due. Dean Baker, an economist and policy analyst at the Economic Policy Institute (EPI), cautions that inaccurate assumptions about demographic changes, productivity, inflation, and wages can produce unrealistic and overly pessimistic projections about the viability of the trust fund.

However the situation is not as dire and the Cato Institute would have you believe:

Social Security fund trustees report that the gap over the next 70-plus years amounts to 2.2 percent of the taxable U.S. payroll. Linda Stern, commenting in Modern Maturity, observes that covering that shortfall entirely today would mean raising the present FICA employee/employer tax from 12.4 percent to 14.6 percent, or reducing benefits by 15 percent. But we don�t have to cover it all immediately, and there are many other ways to generate revenues to assure the adequacy of funds in the next century. Even by the most pessimistic scenarios, a FICA tax increase on employees and employers of just 0.05 percent each per year between 2010 and 2046 (total of 3.6 percentage points) would be sufficient to maintain current benefits into the foreseeable future.

The push to privatize Social Security is based on fear and greed:

The prospect of gaining access to the trust funds has Wall Street practically delirious. The mutual fund industry, and such venerable brokerage houses as Merrill Lynch, have teamed up with the National Association of Manufacturers and other corporate interests to steamroll the privatization initiative, with differences between them only over the details of privatization. On one point they seem to concur�they want to keep the federal Government from having any influence over how Social Security funds are invested. At present, the funds are invested exclusively in interest-bearing government securities (usually held to maturity), backed by the "full faith and credit" of the federal government.

I personally do not know a great deal about the US Social Security program but the article makes sense to me.

Is the 2.2% Payroll Tax increase worth saving Social Security?

The Cato Institute is a Libertarian �Think Thank� and the authors of the article are a couple of pro-Union PhD�s. Where do the other parties stand on Social Security reform?

Gools says,

The push to privatize Social Security is based on fear and greed:

Truer words were never spoken. Besides the methods discussed, the future solvency of Social Security can be guaranteed by tinkering with retirement age and method for calculating cost-of-living increases.

The problem could be solved once and for all by removing the cap on Social Security payroll deductions, which are currently capped at around the first $90,000 of income, if my memory serves me correctly.

Social Security is not going to go bankrupt. This is just another Republican myth designed to divert trillions of dollars of federal funds into bank accounts of stock brokers, mutual funds, insurance companies, etc. Same old Republican strategy of siphoning off taxpayers' money into bank accounts of Republican political contributors. That is exactly what the Iraq War does, by the way.

Originally posted by donguillermo
This is just another Republican myth designed to divert trillions of dollars of federal funds into bank accounts of stock brokers, mutual funds, insurance companies, etc. Same old Republican strategy of siphoning off taxpayers' money into bank accounts of Republican political contributors. That is exactly what the Iraq War does, by the way.

The issue here is that this is an allegation completly unfounded, yet it is referred to so casually. It would be good to see some evidence that this "old Republican strategy" actually exists. That's a pretty grand claim of the Republican party "siphoning off" tax money for payoffs to contributors, without proof.

As for making it private? I believe George Bush stated:

And this frightens some in Washington. Because they want the federal government controlling the Social Security like it�s some kind of federal program. We understand differently though. You see, it�s your money not the government�s money.

Source: Speech in St. Charles, MO Nov 2, 2000

Originally posted by donguillermo
Social Security is not going to go bankrupt. This is just another Republican myth designed to divert trillions of dollars of federal funds into bank accounts of stock brokers, mutual funds, insurance companies, etc. Same old Republican strategy of siphoning off taxpayers' money into bank accounts of Republican political contributors. That is exactly what the Iraq War does, by the way.

Having gotten a report on my furture benifits since the Clinton years, the SSA has warned that there will be drastic changes if something is not done to change the system. That is fact! Not Republican hype. From the SSA website

Unless changes are made, when you reach age 63 in 2042, benefits for all retirees could be cut by 27 percent and could continue to be reduced every year thereafter. If you lived to be 100 years old in 2079 (which will be more common by then), your scheduled benefits could be reduced by 33 percent from today's scheduled levels. See the Trustees Report

Changes do need to be made. Already my retirment age has been raised to 67 for full benifits. IMHO neither side has been agressive in reforming the system. However, to simply place the blame on the Republicans is quite unfair. Clinton did NOTHING in eight years of office. Bush has put forth a plan that could help improve the benifits that people recieve. IMHO, make a portion of the account as part of the Federal Thrift Savings plan. ITs a huge fund that would allow people to make choices based on risk and have the protection of a large fund family. Would this satisfy your brokerage conspiracy claims?

The bottom line is Kerry has put forth NO plan, and has flip flopped on the issue numerous times.

In 1996: �In an interview with the Globe, Kerry said dramatic changes are needed to make sure Social Security benefits are available for future retirees. He said the next Congress should consider controversial measures such as raising the retirement age and means-testing benefits, and called it �wacky� that the taxes that pay for the system do not apply to income over $62,700.� (Michael Grunwald, �Kerry, Weld Diverge On Social Security,� The Boston Globe, 6/3/96)

In 2003: �[Kerry] told the audience here the country should consider raising Social Security taxes on incomes above $86,000 or capping the retirement benefits paid to wealthy Americans.� (David Yepsen, �Still Time For Kerry - But Hold The Ketchup,� The Des Moines Register, 8/14/03)

Now in 2004: RUSSERT: �Back in 1995, you said we have to be bold. And it might be unpopular, but we should consider raising the retirement age and means testing. Do you stand by those statements?� KERRY: �No, I rejected that. We looked at that and we found that we don�t have to do it.� (Sen. John Kerry, NBC�s �Meet The Press� with Tim Russert, 4/18/04)

So Which Kerry would we elect? The bottom line is every time we look at Kerry's plan for the future, instead of refoming the system and fixing it, Kerry's responce seems to be "Just Raise The Taxes" Throwing money at every problem is not the solution to the future.....

Originally posted by ZeddicusZulZorander

Originally posted by donguillermo
This is just another Republican myth designed to divert trillions of dollars of federal funds into bank accounts of stock brokers, mutual funds, insurance companies, etc. Same old Republican strategy of siphoning off taxpayers' money into bank accounts of Republican political contributors. That is exactly what the Iraq War does, by the way.

The issue here is that this is an allegation completly unfounded, yet it is referred to so casually. It would be good to see some evidence that this "old Republican strategy" actually exists. That's a pretty grand claim of the Republican party "siphoning off" tax money for payoffs to contributors, without proof.

Excuse me, are you saying that major brokerage firms and insurance companies, and their top management, are not major political contributors to Bush and the Republicans? Do I really have to provide proof? I suppose you also want proof that wild bears defecate in forested areas. And I never said anything about payoffs. Please do not attribute words to me that I never said.

With respect to the Iraq War, many billions of dollars are going into the treasuries of Halliburton, major defense contractors, and security contractors in Iraq. Are you denying that these firms and their top management are major political contributors to Bush and the Republicans? If you want the whole sorry record of where Bush's money comes from laid out here on ATS, that is fine with me. It is not a pretty picture.

As for making it private? I believe George Bush stated:

And this frightens some in Washington. Because they want the federal government controlling the Social Security like it�s some kind of federal program. We understand differently though. You see, it�s your money not the government�s money.

LOL. Too bad I am not allowed to insult Bush in this forum. "like it's some kind of federal program"??? ATTENTION GEORGE BUSH: Social Security is a federal program.

"it's your money not the government's money." ATTENTION GEORGE BUSH: once the money goes into the federal treasury, it is no longer your money, it's the government's money.

Now, are you going to continue to snipe at me, or are you going to respond to Gool's post? You also didn't respond to the substantive points I made in the first two paragraphs of my post.


[edit on 8/4/2004 by donguillermo]

FredT says

Changes do need to be made. Already my retirment age has been raised to 67 for full benifits. IMHO neither side has been agressive in reforming the system. However, to simply place the blame on the Republicans is quite unfair. Clinton did NOTHING in eight years of office.

Excuse me, but Clinton did the most important thing to put Social Security on a sound financial footing. He took the federal government from a budget deficit of over $200 billion to a budget surplus of over $200 billion, setting the government on a course to completely pay off the national debt in 20 years or so. The government is currently paying $318 billion per year in interest on the national debt. That number will grow steadily thanks to Bush's irresponsible tax cuts. If the national debt were paid off, the government would have an extra $300 billion per year to take care of Social Security liquidity problems.

Originally posted by donguillermo
Excuse me, but Clinton did the most important thing to put Social Security on a sound financial footing. He took the federal government from a budget deficit of over $200 billion to a budget surplus of over $200 billion, setting the government on a course to completely pay off the national debt in 20 years or so.

Please he robbed peter to pay paul. The Clinton Era "saving of social security" as you have implied are vodoo economics at its worst.

To keep Social Security on track through 2055, the president arbitrarily transfers another $2.8 trillion--the remainder of the $4.5 trillion surplus--from the Treasury to the trust fund over the next 15 years. The president described this as equal to 62% of the projected budget surplus but it is not part of the surplus at all. The entire surplus is already spoken for by the new spending, the savings accounts and the automatic additions of Social Security surpluses to the trust fund. This $2.8 trillion is a completely new additional grant of money from the Treasury to the trust fund. The Treasury credits the Social Security account with $2.8 trillion and debits the governments general revenue account $2.8 trillion. This permits the trust fund to acquire $2.8 trillion in additional government bonds. Cashing in these bonds between 2032 and 2055 will pay for the projected benefits in those years. Magic!
The issue isnt just transferring money from general revenue to the trust fund. Its double-counting. The trust fund accumulates the $2.7 trillion of regular Social Security surpluses. The same $2.7 trillion is then counted again in the $4.5 trillion the president uses to finance his $2.8 trillion to Social Security. Thus the president raises the Social Security trust fund by $5.5 trillion while spending nearly $2 trillion on other things, all out of a total surplus of $4.5 trillion.
This amounts to the biggest and most creative budget sham Ive ever seen. If the government gave $2.8 trillion to private individuals, it would create $2.8 trillion of budget deficits, and the national debt would rise by $2.8 trillion. But since the Social Security trust fund is part of the government, this transfer of money (and the bonds that are bought with it) does not count as deficit or add to the national debt.
But when these bonds are used to finance benefits after 2032, they must be sold to the public. Selling the bonds will then add to the budget deficit and national debt unless there is a multitrillion dollar tax increase. Thus Mr. Clintons proposed sleight of hand commits us to massive future deficits or tax increases or both. And of course it does nothing to increase future real incomes to help pay for future benefits.
www.nber.org...

Seems to me he just put the whole mess off of his watch for us to pick up the broken pieces in 2032-55. We wont be able to use this "slight of hand accounting" then will we?



[edit on 5-8-2004 by FredT]