Social Security Isn't Broke, But We Still Ought to Fix It

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Social Security Isn't Broke, But We Still Ought to Fix ItIt has been a big week in Washington for thrashing out the federal budget, both this year's and those for the future. Along with discussions about slashing spending on such things as defense and Medicare, a growing number of lawmakers are lining up behind plans to cut Social Security, one of the most cherished -- and vital -- programs for the elderly in this country.

Republicans want to increase the retirement age and some Democrats have joined the chorus to cut benefits. Even President Obama, in outlining his budget proposals on Wednesday, indicated that Americans would have to accept "reforms" of Social Security.

"There are those who believe we shouldn't make any reforms to Medicare, Medicaid or Social Security out of a fear that any talk of change to these programs will usher in the sort of radical steps that House Republicans have proposed," Obama said. "I understand these fears. But I guarantee that if we don't make any changes at all, we won't be able to keep our commitments to a retiring generation that will live longer and face higher health care costs than those who came before."

But is the program that has provided retirement benefits to millions of Americans since the Depression really broken? Is it causing the federal deficit to spiral out of control as some have suggested?

The Real Numbers on Social Security


Peter G. Peterson, chairman of Blackstone Group, for example, has repeatedly claimed that Social Security is not adequately funded and that younger Americans will have to pay double the amount of Social Security taxes within 10 years. And even the normally sober factcheck.org, which debunks myths propagated by both parties, has repeated claims that Social Security is contributing to the federal deficit.
The fact is, though, that most of the arguments for why Social Security is facing bankruptcy in the short term are simply not true. As Dean Baker, co-director of the Center for Economic and Policy Research in Washington, says: "The biggest weapon for people who want to change Social Security in a big way, such as privatizing it or seriously cutting benefits, is that the program is on life support." If the program seems like it's going to fade away anyway, people won't feel they have anything to lose by gutting it.

But a close reading of the Trustees report and the Congressional Budget Office analysis paints a different picture. Social Security received about $37 billion less in payroll taxes than it paid out in benefits in 2010. It will have a larger shortfall again this year because the federal government decided to give workers a 2% tax holiday on the amount they pay toward Social Security in 2011.

But Social Security has a trust fund of $2.6 trillion. This is money that was paid into the system but hasn't yet been spent by it. The money is all held in government bonds for which the Treasury must pay interest. It earned $119 billion in interest in 2010 and is projected to receive a similar amount in 2011. Total income in 2010 was $788 billion; total outgo was $706 billion. Does that sound like bankruptcy?

Now, some people regard those interest payments as contributing to the federal deficit. That's correct in in a strictly bookkeeping sense, because the federal government must pay them out of general revenues. But if Social Security didn't own these bonds, someone else would -- perhaps China or a pension fund in California. It is nonsense to suggest they are contributing to the federal deficit, too.

Minor Change Would Help Keep Program Solvent

David Certner, legislative policy director for AARP, points out that the trust fund has enough money to pay all of its projected benefits for the next 26 years. "The rest of the budget is out of balance, not Social Security, which takes in more money than it pays out," he says. Even after the 26 years are up, the program will have enough income from taxes to pay 75% of all benefits.

Certner and Baker both maintain it would be relatively easy to make modest changes to Social Security to close the gap that will emerge in 2037. Among the options: Raise or eliminate the cap on Social Security taxes, which are now paid by employers and employees on only the first $106,900 of income.

Back in 1983, 90% of all wages in the U.S were taxed for Social Security. Today, because of wage inflation, it's only about 82.5%. If the ceiling was raised again to return that percentage to 90%, it would eliminate one-third of the problem. Many people don't even know there is a cap, or that rich people pay less in Social Security taxes as a percentage of income than do middle-income people.

The Poor Die Younger

Others have suggested further raising the retirement age, which is currently 66 and is due to rise to 67 in 2022. But as Baker points out, most of the advances in longevity have come at the upper end of the income scale. Poor people still don't live as long as rich people, so if they have to postpone retirement until age 70, they will face shorter lifespans after stopping work.

In addition, lower income people often have physically demanding jobs, such as custodians, nurses and waiters. For many of them, waiting until 70 years of age to retire would be difficult.

And seniors do need the money. Statistics show that one in three seniors depends on Social Security for 90% of their income. Another third depend on it for two-thirds of their income. "The middle third has seen a lot of damage in terms of other sources of income," says Certner, referring to the market collapse in the financial crisis, the decline in interest on bonds, and the sharp decline in home values. "So you want to do as much as possible to protect the middle income population as well."

Baker has another interesting idea: He suggests taking some of the trust fund money now held in government bonds and investing it in the stock market, where it could earn higher returns. That way, not only would Social security be stabilized, but people could no longer claim that Social Security was to blame for the deficit.

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lifeoverwork

http://lifeoverwork.net/social-security-not-going-away/

February 01 2012 at 1:31 AM Report abuse rate up rate down Reply
Dave

The following was prepared at the request of Congressman Gary Peters office for the House Ways and Means Committee.

Social Security, Today’s Issues and Their Impact on the Future

Research into Social Security led to the discovery of many issues that distort the treatment of Social Security Income today. Unless these are addressed, any new actions could compound the problems.
The intent of the research is to assure that Congress is aware of existing problems so that the Social Security issue can be dealt with wisely. It is not intended to argue one way or another regarding any debate.
Much of the current discussion examines only the payments into and out of the Social Security Trust Fund. When the existing tax code, the General Fund and Social Security payments are examined as a unit a different picture emerges.

One of the most critical observations is that certain changes could DECREASE revenues that go into the General Fund. These could occur;
 If both the retirement and early retirement ages are increased, this could also increase Social Security payments in the long run (when the 7% annual reduction for early retirees is considered);
 If Social Security Income is reduced for “high income” earners.

These will occur not because of the changes, but because of the existing tax treatment of Social Security Income. The root of this lies with the taxing of Social Security Income above 50% (the 50% represents employer payments into the Trust Fund that were not previously taxed).
The impact of existing law on individuals is just as critical.
 A recipient with the same total income as another recipient but with less Social Security Income and more “other income” could have more of their Social Security Income taxed.
 There can be up to a 500% increase in taxable Social Security income if two single recipients get married;
 Effective marginal tax rates for recipients can be as high as 46%. A self employed Social Security Recipient can pay up to 64% on part of their income. Couples in the $80,000 to $100,000 income range are paying approximately a $4,000 penalty.

Again the root of this lies with the taxing of Social Security Income above 50%.

The Tax Reform Act of 1986 had the IRS do a major study to project the impact of proposed changes. A similar study should be done to place dollar figures on the issues raised.

It is not to say that fair change cannot be made.
 Cola could be indexed against “other income” with minimal impact on recipients.
 Medicare premiums could be changed to be a percentage of Social Security Income (why should a friend with lower Social Security pay a higher percentage?).
 Even the additional 35% taxable Social Security Income could be justified if it went into the Trust Fund and was treated as a reinvestment should future income decrease significantly

These, other issues and case studies are addressed at -- https://sites.google.com/site/ssincometaxandchange/

July 13 2011 at 11:17 AM Report abuse rate up rate down Reply
uncdan21

LOVE IT !! Liberals...Conservatives.....thisis an isue that afects all of us...take that money out of the economy and see what happens...the coffers were raided first by Nixon to balance the budget...now it is just taken for granted to raid it...by the way, to the guy that made the comment about Clinton balancing his budget with social security....you could not be more wrong..check your facts....you must be too young to remember the 2000 elections...the platforms were to keep social security in a lockbox ( as Clinton did) or to give tax breaks with it....GUESS WHICH IDEA WON THE ELECTION? Medicaid on the other hand should be abolished along with welfare...the majority of people who get these benefits live in a cycle of generational ineptness ( or craftiness) as the case may be.......love the people who think that they are better than others

June 22 2011 at 6:46 PM Report abuse rate up rate down Reply
wackycpa

IN YOUR LAST PARAGRAPH, YOU SAY THAT PERHAPS THE SOCIAL SECURITY "TRUST FUND" COULD INVEST SOME OF ITS "ASSETS" IN THE STOCK MARKET. SO WHERE WILL IT GET THE CASH TO INVEST IN THE MARKET? IT WOULD ASK THE TREASURY TO REDEEM SOME OF THE SPECIAL TREASURY BONDS THE "TRUST FUND" HOLDS. AND WHERE WILL THE TREASURY GET THE CASH TO REDEEM THE BONDS? EITHER BY RAISING TAXES OR REDUCING SPENDING OR BORROWING MORE MONEY FROM THE CHINESE AND INCREASING THE NATIONAL DEBT. WONDERFUL IDEA!! THERE IS NO TRUST FUND!!!!!!!
THE OTHER WAY TO DO IT, AND IT WOULD BE CRAZY, IS TO HAVE THE FEDERAL RESERVE BUY THESE SPECIAL BONDS FROM THE TRUST FUND. AND HOW WILL THE FEDERAL RESERVE PAY FOR THESE BONDS? EASY, THE FED JUST PRINTS MONEY (THEY ARE THE ONLY ONES WHO CAN). DOES ANYONE KNOW WHAT THE EFFECT OF INFLATION MEANS TO MOST PEOPLE'S STANDARD OF LIVING IF WE TRY TO "GET BY" BY JUST PRINTING MORE MONEY??

April 20 2011 at 5:12 PM Report abuse rate up rate down Reply
Adele

MOZARTADEL 0 minutes ago

The Lunatic Fringe does not even use their own money in their effort to destroy this country.


Rightwing "Charities and Non Profits" that get Tax Payers Money from Grants.


All these Non Profits provide control of the press and use Taxpayer money from Grants to do it.....

.

American Family Associatio­­n they got $ 19,233,560 Million Dollars last year that is $82,777, 894 Million Dollar in the last 5 years.



Heritage Foundation got $ 63, 910, 593 Million Dollar last year that is $ 190, 085,156 Million Dollars in the last 5 Years !!!!



American Enterprise Institute got $58,988,98­­4 Million Dollars in 2008 and over $208,974,9­­89 MILLION DOLLARS the last 7 years!!



New America Foundation got $15,201,36­­7 Million Dollar and over $58,531,48­­0 Million Dollars the last 5 years!!



Pat Robertson’­­s American Center for Law and Justice got $13,291,86­­5 Million Dollars last year that is $ 57,586,400 Million Dollars the last 5 years !!!!



Pat Robertson and the 700 Club got $ 183,000,00­­0 Million Dollars last year that is $843,340,5­­45 Million Dollars in the last 5 years !!!



American Legislativ­­e Exchange Council –$27,229,3­­72 Million Dollars in 2009 and $37,134,80­­8 Million Dollars the last 7 years.



Young American’s Foundation ---2008- $20,396,34­­8 Million Dollars and $99.978,49­­8 Million Dollars the last 7 years ! Like these people claim a Baby Blanket cost $450.00 on their return.



Church World Services got $68, 971,520 Million Dollars and $384,552,3­26 Million Dollars over 5 years!!!!
*****************************************************************

April 19 2011 at 3:10 PM Report abuse rate up rate down Reply
1 reply to Adele's comment
icemanbill23

Adele...you are so far left in your ideology that the "center right" majority of this nation appears to be the "lunatic fringe". You need look no further than yourself to find the real "lunatic fringe". I laugh whenever I read how liberals consider lack of excessive taxation as taxpaper money given away. It's all about the spending, Adele.

April 19 2011 at 4:02 PM Report abuse +1 rate up rate down Reply
National

Another article by a so called "reporter" on AOL that is not factual and is more designed to work a self serving agenda. This same reporter wrote with great authority about the impending demise of gold several months ago as have 3 or 4 expert "authorities" on AOL. In fact Mr. Cohan has called for the demise of gold for over 2 years when it was at $1150/oz. ... OOOOPS. Well keep writing it, sometime this decade you may be right.

April 19 2011 at 3:39 AM Report abuse +1 rate up rate down Reply
Tom Millett

"But if Social Security didn't own these bonds, someone else would -- perhaps China or a pension fund in California. It is nonsense to suggest they are contributing to the federal deficit, too."

Firs off, "someone else" would only own those assets if the government was able to borrow from the public the amount of money in the "trust fund" and that's quite an assumption.

But, beyond that, it doesn't change the fact that WE OWE THAT MONEY NOW. Who cares who it's owed to? What an incredible non-sequitor with respect to the solvency question.

Would my personal financial situation improve if I said I'd have spent my mortgage money on beer and hookers if not on my house? No, I'd still owe a lot of money and it wouldn't make it easier or harder to pay off my debt.

April 18 2011 at 6:14 PM Report abuse rate up rate down Reply
jm1949mm

This article plays fast an loose with the facts just as do the politicians. The Social Security "Trust Fund" was set up by Reagan to ensure SS solvency for the long term. It was raided by Clinton to "balance the budget." The "Trust Funds" is empty except for IOU's placed there by the Federal government. To pay back those OIU's to the "Trust Fund," the Federal government is going to have to get the money from somewhere -- raise taxes or increase the deficit. Social Security is bankrupt because it is invested in what is fast becoming the worse investment on the planet... US treasuries.

April 18 2011 at 10:49 AM Report abuse rate up rate down Reply
paulwd513

there shouldnt be a wage limit on paying into ss, everyone should pay regardless of how much they make! the rich should pay more than us working class people! with out us doing there dirty work they wouldnt be filthy rich! how do you rich people like them apples?

April 18 2011 at 9:50 AM Report abuse rate up rate down Reply
1 reply to paulwd513's comment
MY LORD

WIthout rich people giving you a job, you would starve to death. The ones making the beds at the Ritz always think that they are the reason the hotel is full

April 18 2011 at 10:01 PM Report abuse +2 rate up rate down Reply
conniedn

MAKE all the POLITICIANS go on Soc.Sec. , then lets see how fast they mess with Soc.Sec. - before we start condemning other foreign governments, we better start cleaning out our house. Starting at the top and work ourselves down. Greed is going to kill all of us. We must " TURN" things around". Remember the old saying. "HELL ON EARTH"? Welllllll, we are begining to live it!

April 18 2011 at 9:41 AM Report abuse +1 rate up rate down Reply