The Myth of Social Security Insolvency

[FR7 Baptist]

Many people are freaking out about how Social Security is going bankrupt. That simply isn't true. The Social Security Trust Fund is held in a white four-drawer locked fire-froof filing cabinet in Parkersburg, W. Va. that is stuffed with $2.5 trillion in Treasury bonds. The Social Security Administration gets paid interest by the Treasury on the bonds, which are backed by the full faith and credit of the United States Government. The Treasury has never missed a debt payment and Social Security has never failed to pay a check. There is enough assets in the Trust Fund to pay 100% of benefits until 2037, and then there will be enough income to pay 78% of benefits indefinitely. There is no Social Security crisis. All we need to do is make minor tweaks to Social Security to make it solvent until Jesus comes back. We should lift the cap on SS taxes and keep projected benefits the same and the problem will be solved.

However some on the Right, and some in the Obama administration want to cut SS or raise the retirement age. For example, former Republican Senator Alan Simpson, the head of Obama's deficit commission, said that Social Security is like a "milk cow with 300 million t**s." Hopefully the deficit commission will come out with constructive solutions for balancing the budget instead of destroying Social Security.

 

[billwald]

How come the right wingers never worry about the Army going broke?

 

[FR7 Baptist]

How come the right wingers never worry about the Army going broke?

Because they're willing to run up the national debt to pay for unneeded wars and pay their defense contractor buddies while they cut social safety programs. The United States has a Cold War mentality on defense. We spend more on it than the rest of the world combined. We need to, and can, make cuts to our defense budget without harming our national security.

Bill, what do you think about my plan to fix Social Security? What would you do about it?

 

[billwald]

Agree that the cap should be lifted.

The problem with raising the retirement age is that physical health for many people drops off rapidly after 65. Mine did, anyway. <G> The long term result might be that the people who have done physical work would have to take reduced benefits while the desk sitters could keep working.

 

[Steven2006]

It is a crisis if you think it through. Yes twenty-seven years sounds like a long time. However when you are talking that kind of money if you don't find the solution far enough in advance the amounts needed become much, much larger. It is like failing to realize the power of compounding interest, but in reverse. If we can fix it early enough it will cost less than waiting.

Kind of like the old question you can ask children to teach them about the importance of starting early with saving and the power of time in compounding equation. If you were offered a temporary job for just one month and were offered to be paid either $1,000.00 a day or one cent a day but doubled each day, which would you choose? On the surface the thousand dollars a day for thirty days sounds like a lot, but just as the twenty-seven years sounds like a lot of time, when it comes to money it is not in comparison.

Another factor is the amount of people working to fund SS vs those that are drawing from it. Early with SS there were about four workers funding for every one retiree. If my memory serves me correctly we are currently close to one for one. In the coming years with the baby boomers retiring that will get much worse.

So in reality if one looks at the large picture it is in severe crisis and the longer we take to fix it the costlier it will be.

 

[Ruiz]

Paul,

When getting my MBA (just finished) we were to look at the Social Security issue. I know you are getting your point from an AP story that I believe initially ran in the LA Times. However, financially Social Security is unsustainable from an economic perspective for the long run.

You mentioned the Treasury Bills and the interest we are getting from those. This is one of those false economic ideas which sound good on paper, but means nothing. It is like me giving myself stock. I will pay myself dividends on that stock every year. Yet, all I am doing is taking money from one location and paying another part of the interest. This is an accounting trick that I believe should be outlawed as it seems underhanded. In fact, we do not have the money to pay the interest in these bills which creates larger deficits. The Treasury Bills do not just get money out of nowhere, but is a trick to not have to show how much money is actually spent on Social Security using taxes. It is underhanded and is similar to what Greece did to get itself into trouble. They hid their debt and the true tax burden making it appear certain items were a smaller portion of the GDP.

Thus, Social Security, by your own admission, is not sustained by the social security tax. Thus, treasury bills must be used but that will only increase our deficit even more. Which, in return increases the debt of the United States thereby making our treasury bills worth less and will reduce our credit rating making the bills more expensive for the government. This added expense will increase our debt load and make it more difficult to sell more treasury bills thereby making the United States appear to be a more risky investment.

Thanks for admitting that Social Security pays more than it brings in from the social security tax. Now, if you can only see that the Treasury Bills are only increasing our debt load and bankrupting society.

 

[FR7 Baptist]

Steven, I agree that we need to fix it soon. We need to keep having a surplus so we can draw down the Trust Fund as the baby boomers retire so we don't have to raise the FICA tax burden beyond lifting the earnings cap. We need the Trust Fund to be bigger so we can get through the baby boomer hump in payments.

 

[FR7 Baptist]

You mentioned the Treasury Bills and the interest we are getting from those. This is one of those false economic ideas which sound good on paper, but means nothing. It is like me giving myself stock. I will pay myself dividends on that stock every year. Yet, all I am doing is taking money from one location and paying another part of the interest. This is an accounting trick that I believe should be outlawed as it seems underhanded. In fact, we do not have the money to pay the interest in these bills which creates larger deficits. The Treasury Bills do not just get money out of nowhere, but is a trick to not have to show how much money is actually spent on Social Security using taxes. It is underhanded and is similar to what Greece did to get itself into trouble. They hid their debt and the true tax burden making it appear certain items were a smaller portion of the GDP.

We should have made wiser choices with the Trust Fund money. We need to balance our budget so it won't cause (too many) problems to redeem the Treasury bonds.

Thanks for admitting that Social Security pays more than it brings in from the social security tax. Now, if you can only see that the Treasury Bills are only increasing our debt load and bankrupting society.

I doubt that the USG will ever default on debt. If it really came down to it, the Fed would just print/electronically create more money which it would use to buy Treasury securities, and they'd use the money to service existing debt. That would have substantial negative economic effects, but I think they'd do that before they default. (In fact, they already do that to an extent.)

What we need to do is raise taxes and cut spending. I'd cut education, agriculture, and defense a fair amount and impose an across the board budget cut to other Federal agencies. What I'm not willing to do is cut Social Security, except I'd be open to raising the early retirement age because letting people draw a government pension at 62 is mental.

 

[Ruiz]

We should have made wiser choices with the Trust Fund money. We need to balance our budget so it won't cause (too many) problems to redeem the Treasury bonds.



I doubt that the USG will ever default on debt. If it really came down to it, the Fed would just print/electronically create more money which it would use to buy Treasury securities, and they'd use the money to service existing debt. That would have substantial negative economic effects, but I think they'd do that before they default. (In fact, they already do that to an extent.)

What we need to do is raise taxes and cut spending. I'd cut education, agriculture, and defense a fair amount and impose an across the board budget cut to other Federal agencies. What I'm not willing to do is cut Social Security, except I'd be open to raising the early retirement age because letting people draw a government pension at 62 is mental.

So, your solution to solving our debt problem is to print more money? That would then devalue the dollar which will mean you have to print more money. This will result in inflation, which by all accounts, helps the government to pay entitlements but hurts those receiving those entitlements. I call this tax the worst kind of inflation as hurts the lower classes the most and causes big businesses to seek a more stable currency.

As well, printing more money devalues what we pay other nations and in return they get less money to cover their loans. This will make us borrowing more money more expensive.

Thus, by printing more money you have accomplished a couple of things.

1. Reduced the benefits you are giving because of inflation.
2. Made it easier to devalue our debt while harder to borrow.
3. Made the prices of goods and services more expensive.

If you maintain this course you could force us into deflation of salaries while goods and services remain the same.

BTW, the liberal Brookings Institute disagrees with you. This is not merely a conservative versus liberal viewpoint. One economic scholar I read noted, "no one who knows accounting and finance can dispute that unless something dramatically changes, we will be unable to pay the interest on our debt by 2040."

Will we ever default? I do not know. However, to say "we will never default" is foolish. As well, to punish those on Social Security by purposefully printing money (devaluing the dollar) is immoral.

 

[Ruiz]

BTW, I think it is both unwise and immoral to live beyond your means. If we are increasing our debt it is because we covet too much to live within our means. It is one thing to take a loan out for a big project and then pay off that debt. It is another thing to keep increasing our debt every year. We spend too much because we are too immoral to be content.

 

[FR7 Baptist]

So, your solution to solving our debt problem is to print more money?

Ruiz, read what I posted. I never advocated that. I said that the USG would probably do that before defaulting.

BTW, the liberal Brookings Institute disagrees with you. This is not merely a conservative versus liberal viewpoint. One economic scholar I read noted, "no one who knows accounting and finance can dispute that unless something dramatically changes, we will be unable to pay the interest on our debt by 2040."

Will we ever default? I do not know. However, to say "we will never default" is foolish. As well, to punish those on Social Security by purposefully printing money (devaluing the dollar) is immoral.

I agree that purposefully printing money would be immoral.

What is your plan to cut the debt? What do you think about what I proposed?

 

[FR7 Baptist]

BTW, I think it is both unwise and immoral to live beyond your means. If we are increasing our debt it is because we covet too much to live within our means. It is one thing to take a loan out for a big project and then pay off that debt. It is another thing to keep increasing our debt every year. We spend too much because we are too immoral to be content.

What specific tax hikes and spending cuts, if any, do you propose?

 

[NiteShift]

Because they're willing to run up the national debt to pay for unneeded wars and pay their defense contractor buddies while they cut social safety programs. The United States has a Cold War mentality on defense. We spend more on it than the rest of the world combined. We need to, and can, make cuts to our defense budget without harming our national security.

Our military is much smaller than it was 20 years ago. How much smaller do you think it should get? Defense spending is about 4% of GDP now. It was 10% during the 50's, 4.7% during Carter's administration. You want to cut defense but have no interest in cutting any other government programs.

 

[FR7 Baptist]

Our military is much smaller than it was 20 years ago. How much smaller do you think it should get? Defense spending is about 4% of GDP now. It was 10% during the 50's, 4.7% during Carter's administration. You want to cut defense but have no interest in cutting any other government programs.

How about 20% smaller? Also, I pointed out in this thread other cuts I want to make.

 

[NiteShift]

How about 20% smaller?

Since 1990 the Army went from 18 to 10 divisions. The Navy went had 508 ships and is now down to 348. The Air Force had 24 active wings in 1990 and now has 13. Military personnel have been cut by 700,000. Can you name any other government department that has been reduced this much, or even at all over the same time period?

 

[FR7 Baptist]

Since 1990 the Army went from 18 to 10 divisions. The Navy went had 508 ships and is now down to 348. The Air Force had 24 active wings in 1990 and now has 13. Military personnel have been cut by 700,000. Can you name any other government department that has been reduced this much, or even at all over the same time period?

Not off the top of my head. We could stop producing new nukes since we can already blow up the world many times over.

 

[NiteShift]

Not off the top of my head. We could stop producing new nukes since we can already blow up the world many times over.

Pres. Obama signed a nuclear arms treaty this year that commits the US to reducing nukes by 25 - 30%. There are no new nuclear weapons in the pipeline. You'll have to look elsewhere for more savings.

 

[FR7 Baptist]

Pres. Obama signed a nuclear arms treaty this year that commits the US to reducing nukes by 25 - 30%. There are no new nuclear weapons in the pipeline. You'll have to look elsewhere for more savings.

Good point. I forgot about that. What's your plan to fix Social Security?

 

[NiteShift]

Good point. I forgot about that. What's your plan to fix Social Security?

Means testing and preventing politicians from raiding the trust fund to pay for other programs.

 

[carpro]

Many people are freaking out about how Social Security is going bankrupt. That simply isn't true. The Social Security Trust Fund is held in a white four-drawer locked fire-froof filing cabinet in Parkersburg, W. Va. that is stuffed with $2.5 trillion in Treasury bonds.

Bonds that are non-negotiable and worthless on the open market. When SS is unable to meet it's current obligations this year, the government will have to borrow money, probably from a foreign country named China, just to meet it's obligation. Therefore repaying borrowed money with more borrowed money.

There is no Social Security Trust fund. Our free wheeling government has spent the money. Every last cent.