Let's try this again: No, Social Security is NOT insolvent.

[TheWraith]

Today I keep running into this stubborn insistence by some on DU that Social Security is really insolvent, despite the $2.6 trillion dollar Social Security Trust Fund; or that the payroll taxes which supply Social Security and other programs are taken to pay for the Defense Department or other government spending. Both of these statements are amazingly false.

The Social Security Trust Fund was created for the express purpose of saving up enough money to get the system through the wave of baby boomer retirements. Prior to that, Social Security was entirely "pay as you go," with there being no buffer between what was collected in payroll taxes and what was paid out as benefits. To pay for the boomers, payroll taxes were hiked and the SSTF was created to store the surplus against the day when there would be too many retirees for those currently working to pay for.

Now so that the Social Security Trust Fund money wasn't just sitting there doing nothing, and for it to make more money to pay out later as benefits, that money was invested. But it had to be invested in a way that would present no risk of losing the money which had already been entrusted to the system from people's taxes. Therefore, it was invested into US Treasury bonds, which are a famously no-risk investment, and pay a healthy return in the form of interest. When you see people mention the US government paying the interest on it's debt, a large chunk of that interest goes into the Social Security Trust Fund.

Which brings us to the claims that because the money has been invested, somehow the Social Security system is bankrupt or that the money has been "stolen." To apply this same standard to day to day living, you would have to believe that you're giving away your money to the bank when you put it in a savings account. This seems fairly absurd on the face of it, but some people really believe it about the Social Security Trust Fund, simply because it's "the government." But no, SSTF funds and payroll taxes aren't "hiding deficit spending," or being given away, or anything so absurd. Like any good retirement program, it's growing every day until the day it's actually spent on sending benefits to a senior.

[girl gone mad]

1. It would have been helpful if the President hadn't idiotically made deficit hysteria..

the cornerstone of his economic agenda over the past few years.

Now you reap what you've sown.

[TheWraith]

3. Count on DU to have someone try to turn anything into a smear on Obama.

Even if, as here, you have to completely redefine and rewrite history in order to do so.

[dionysus]

10. it only took one post for a lame anti-obama smear to show up. ahh.. DU...

[girl gone mad]

20. Who would trust the administration to protect Social Security at this point?

The deficit commission was solely Obama's doing.

The debt ceiling "crisis" is another example of complete failure to lead from a position of strength.

Time after time, the administration cowers and caves to failed right wing economic frames.

I don't disagree with what you've written, but at the same time I have no faith that our leadership either understands basic economics or is willing to defend these programs as necessary.

[TheWraith]

25. Yes, the meme of the imaginary Social Security cuts returns.

I would think that you wouldn't want to bring that up, since after all it proves that your "point" is completely full of shit. There were no Social Security cuts in the deficit commission. There were none in the debt ceiling deal. There were none from the joint committee. But nonetheless, some people keep insisting on pushing the Republican spin that Obama and the Democrats are intent on destroying Social Security, when only one party has ever advocated that or done ANYTHING to advance it.

[girl gone mad]

27. What you've written is outside of my point.

Why was the deficit a subject of contention to begin with? Why did the President assemble a commission tasked with deficit reduction in the midst of a financial crisis, when the best economists on the planet told him he should be looking to expand the deficit, not reduce it? Why was the commission advised to put Social Security on the table, when Social Security has nothing to do with the deficit? Why was a well known enemy of Social Security who has made it his life's mission to publicly attack the program appointed chair of the commission?

No one has argued that Obama and the Democrats are intent on destroying Social Security. The neoliberals will be content enough to weaken it in the name of fiscal prudence.

[TheWraith]

36. No one has argued that? There have been DOZENS of assertions of that just on DU.

Try googling "Obama social security" and see what results you get from FireDogLake. There's been practically nothing BUT the claim that Obama is supposedly out to destroy Social Security via the budget, even when--as usual--they have to lie to make the claim. It is, and remains, Republican propaganda horseshit intended to tar Democrats.

[elleng]

5. ...

[rhett o rick]

2. k&r

[Scuba]

4. Thank you. It really irked me that every Republican presidential candidate said "we all know ...

... that Social Security is broke" and NOT ONE frickin' moderator, "journalist" or even our Democratic leaders called them on it.


If Democratic Congressional candidates want a unified message, "Social Security is not broke, that's a Republican lie" would be a good one.



edited for typo

[TheWraith]

11. For being so relatively simple, a LOT of people don't understand it.

It's really easy for people to say "Oh well there's no money in the trust fund, only government debt!" and portray that all the money was stolen by the Evil Big Government at some point. But that has about as much bearing on the real situation as saying that your bank account is nothing but scratches on paper. Arguably true, but it's backed by real money.

[wiggs]

6. you are correct. Plus, where some of this meme came from was when FICA revenues fell short of

outlays last year....SS wasn't taking in as much as it was putting out. This was foreseen a long time ago, of course, but that didn't stop many from deceiving others about the state of SS.

What doesn't get enough mention is that SS planners in the 80's could not have foreseen that middle and lower income wages would become stagnant and that most of the income growth over the last 30 years would go to the upper 10%, where income is not taxed for SS past 106,000.

[PATRICK]

8. Good fact

Too bad one can't get the idea out that this is exactly where the potential is locked away along with most other economic potential like some sort of locked in Diluvian heat sink of petrocarbons. Something it would make sense to mine, release tax and regulated back into the commons where it belongs.

[TheWraith]

9. Bingo. Going into red ink is the entire point of the Trust Fund.

Even though it wouldn't have gone into red ink last year without the economy sucking, the fact remains that making that money available to drain is the entire reason it was created, and to avoid a situation where it was either insolvent or had to be funded through debt.

[elleng]

7. Thanks, Wraith!

You persuaded this boomer (officially JUST PRE-boom) to go out to buy some Champagne (or Asti Spumanti, or Prosecco) w my pension and SS!!!

[TheWraith]

12. Glad I could help your mood. :) nt

[Snake Alchemist]

13. Where is the money kept for the trust fund?

I may have a new plot for Ocean's 19 or whatever # they're up to.

[gratuitous]

14. Well, THAT should stop Republican demagoguery and fear-mongering on the subject

And, when the next Trustee report comes in with shorter "full benefits" horizon because of the payroll tax holiday, I'm 100% sure nobody anywhere will try to panic the public while proposing another hare-brained privatization scheme.

[TheWraith]

15. There is no "shorter full benefits horizon."

The Social Security Trust Fund has not lost one single dollar of revenue due to the payroll tax holiday.

[econoclast]

16. Define "insolvent"

The OP is correct in almost everything he said 2 points however....

1.) Technically .... Insolvency is defined as not having the capacity to pay all ones debts.

So, if things remain unchanged, SS will be insolvent in something like 15 years. If I remember correctly the trustees project that somewhere around 2026 there won't be enough funds to meet all obligations. They'd have enough to pay out at 75% of projected benefits. SS is not insolvent ... YET. But that day is near.

2.) The SS Trust Fund indeed has 2.6 trillion dollars worth if US Treasuries in it. The OP's analysis is spot on.

But how do those securities get turned into cash that can be paid out as benefits?

To turn the 2.6 trillion in assets in the SSTF into the cash needed to make future payments, those assets have to be redeemed. Which means that, since the government seems likely to continue running budget deficits, to get that cash the government will have to borrow an additional 2.6 trillion dollars in the market. That is an additional 2.6 trillion on top of what they need to borrow to cover the annual budget deficits.

Seeing as how we already owe 14, 15 (is it 16 yet?) trillion dollars, the question is this .....is there a limit to how much the US can borrow at reasonable interest rates?    Is the well bottomless?     And if it is not,    What will interest rates have to be to attract enough cash to meet our future borrowing needs?

In a sense, the current crisis atmosphere around the world plays into our hands as it increases demand for Safe assets.    And nothing is safer than US treasuries.    So the "flight to quality" helps keep rates down and US borrowing costs relatively low.    But the crisis atmosphere abroad won't last forever.     What happens to demand for US Treasuries when the Euro is "safe" again?

[exboyfil]

18. Spot on analysis

I will go even one more step. What if obligations can be voted away by a simple majority in Congress and a presidential signature? Obviously you can default on any debt, but would some future Congress view a default on S.S. debt differently than to your other creditors? What would the markets think of such an approach? Would it become harder to to obtain debt in the future or easier? My guess would be it might be easier. I am not saying that it will happen, but the only way it will not happen involves the political will of the people. Already working class folks have gotten a taste of 2% less withholdings. This was simply an awful idea. Second only to the idea of a Trust Fund without covenants in place to stop additional debt from being acquired.

How about a joint proposal to scrap S.S. and raise the minimum wage by 7.5%? Immediately working class folks will have a huge boost in their incomes (15%). 20 years ago my Law professor asked who would opt out of S.S. if they could. When I made a lot less money, I raised my hand. 20 years later I might still raise my hand (I still have another 19 years of working life until I draw S.S., and I will be able to conservatively save more than the benefit in that time with the money from the withholdings). Before you criticize me ask the California teachers if they would raise their hands to being rolled into S.S. instead of their current retirement system (or in addition to their current retirement system)?

Frankly I think S.S. should apply to all income and the rates should be adjusted downward to reflect a pay as you go. Trust Fund should be drawn down once the economy gets better, but the first step is to lift the cap.

S.S. is not insolvent, but its biggest (only) debtor may be or may act like it is with impunity.

[sendero]

19. Nice.....

.... and correct as well.

While lots of other things should be on the chopping block before SS (Medicare will probably be first sadly), there are limits, albeit "soft" ones, on the amount of deficit financing any government can do.

The only reason we've gotten away with our 14+ trillion of debt is because we are the world's reserve currency. And as many of you know, there is a strong push by several countries to end that situation in all practical senses.

[girl gone mad]

22. Our reserve currency status is not very important in the scheme of things.

We'd be better off if foreign nations diversified their reserve holdings.

[sendero]

33. I disagree..

... we can simply print to infinity only because of our reserve currency status. If it didn't matter, Ethiopia would still be printing.

[girl gone mad]

21. The US doesn't borrow.

No sovereign currency nation does, really.

We certainly don't need to borrow.

[TheWraith]

35. By that definition, there is no such thing as solvency for Social Security.

Because there will ALWAYS be future debts arising as long as more people are being born. Is there a potential point on the horizon when the Social Security Trust Fund runs out of money? Yes. And before that happens, we need to deal with the problem, most likely by raising the cap on payroll taxes. As far as the bonds being paid out, the treasury is constantly issuing new bonds as old ones roll over.

Plus, this doesn't have to be done right now--we've got a number of years before the SSTF is going to be needing more than a small fragment of it's bonds, and it certainly won't be all at once. Even if you're talking about cashing in the entire SSTF over just 10 years, that's $260 billion a year, a VERY manageable amount. That's time enough to bring the economy back, which instantly improves the inflow to the SSTF, as well as improving general tax revenues for the general government. Remember the projected budget surpluses in 2000? Get the economy going like that again and watch the problem go away.

[lacrew]

17. Some Investment

Remember the debt limit debate last summer?

Remember the part about social security checks at risk of not going out, due to said debate?

Have you heard the news that we're about to hit that debt limit again?

Treasury Bonds may have a history of being no risk, but that is...err...history.

What exactly would have happened if the debt limit were not raised?

What happens if the Chinese quit buying new bonds at auction?

Talk about lack of diversification.

[TheWraith]

26. Try fact-checking yourself. You just come off as knowing nothing.

"Remember the part about social security checks at risk of not going out, due to said debate?"

Yeah--because if the debt ceiling weren't raised, it would force a government shutdown. Nothing to do with the bonds being no good.

"Have you heard the news that we're about to hit that debt limit again?"

Yes--and due to the deal President Obama worked out last time, there is no real risk of Congress being able to obstruct it, since they now have to pass something to STOP the increase instead of to approve it.

"Treasury Bonds may have a history of being no risk, but that is...err...history."

Wrong, and nothing but a cheap attempt to pretend that the bonds are less than what they are: investments backed by the full faith and credit of the US Government.

"What happens if the Chinese quit buying new bonds at auction?"

The Chinese have less than no incentive to fuck with the US debt, since the US defaulting would be only slightly less damaging to the Chinese economy than a limited nuclear strike on all their major population centers.

[Justice wanted]

23. EXACTLY!!! It pure GOP bull shit JUST like the GOP under the Bush administration put the USPS

in the trouble it is in now.

[joshcryer]

24. Two words: unified budget

Look them up. Social Security is fine and the "general fund" is not a sacred cow, though the right wingers want it to be, anyone on the left who buys into that propaganda are really hurting socialized care in this country.

[Fumesucker]

28. At some point government income is going to have to exceed government expenditures..

That is if those T Bonds are ever expected to be redeemed..

If America was "investing" in the health, education and general welfare of its people that would be a decent plan, rather the government has been "investing" in tax cuts for the uber-wealthy and bombs for brown foreigners.

I don't see any plausible scenario where government expenditures are going to be less than income.

[Taitertots]

29. Investing the social security trust fund in government securities was a stupid move

Every penny in it comes directly from higher taxes in the future. Why not just let the workers keep their 2.6 trillion dollars and promise to raise taxes in the future?

You are defending a 2.5 trillion dollar transfer of wealth from workers to the rich.

[muriel_volestrangler]

31. Your plan has to assume that income taxes on the rich could have been raised instead

If the trust fund had not been created, then income taxes would have had to be raised at that time, to provide the extra revenue the rest of federal government needed right then. Raising the money by promising to keep up the social security benefits in future was politically possible, however. People tied the higher FICA rate to getting it back in the future.

[Taitertots]

32. Why couldn't they increase the tax rate for the rich?

Shouldn't the government fund itself through progressive taxation?

[muriel_volestrangler]

34. Perhaps it should

But Reagan persuaded a Democratic House, in the early 1980s, to go for the FICA increases instead.

If Social Security had remained as 'pay as you go', then, from now on, the FICA rates would have to be higher than they are now (or benefits cut); or general taxation would have to pay for part of it. Since a lot of the imbalance is due to the population bulge of the baby boom, it did make sense to share out the burden across the years by increasing the FICA rate earlier, so that the higher rate was paid by both baby boomers and their successors, rather than an even higher rate by just the successors.

If paying out Social Security is viewed as a basic function of government keeping retired people in an adequate state of living, then there's a good case for saying "forget payroll taxes; we'll take it all from income tax, and other government revenue based on ability to pay, such as corporate taxes". But if it's viewed as an entitlement based on what a person has paid in (and, since the benefits are based on lifetime and maximum earnings, that is how it's viewed), then the argument that Social Security should be paid for from specific contributions based on those earnings is pretty sound.

[Taitertots]

38. I don't buy into the counter productive framing imposed on the situation

Calling it an entitlement doesn't change the fact that it is a regressive tax that directly transfered 2.5 trillion dollars from workers to the wealthy.

We don't need to accept either going directly to all income tax or a harsh regressive taxation scheme. Remove the cap on FICA, remove the exemptions, don't spend the excesses, and move to a progressive tax rate. That solves everything.

[TheWraith]

37. Sorry, but that's a big load of Republican talking points.

"Why not just let the workers keep their 2.6 trillion dollars and promise to raise taxes in the future?"

Maybe because anyone who understands the point of the Social Security Trust Fund understands that it is in no way even imaginably "2.5 trillion dollar transfer of wealth from workers to the rich." First through the, again, mistaken belief that the SSTF has somehow been "stolen," which we established in the OP is bullshit. And second because you either underestimate or dismiss the entire point of Social Security being a guaranteed income stream NOT subject to the randomness of private investments.

Not to mention, raising payroll taxes enough to support the retirement of the boomers, based on the number of people working at the time, would be a fast and easy way to kill the economy and horribly strain working people, unless you think they can afford to give up another ~$2,000 a year in payroll taxes.

[Taitertots]

39. The money was taken from the workers to support huge tax decreases on the wealthy

When it should have been taken in the form of progressive income taxation. Why do you support harsh regressive taxation to pay for wars and tax breaks for the wealthy?

Your position would make sense if the trillions paid in by boomers wasn't spent on tax breaks for the wealthy and wars. And if the income tax rates weren't very low for the people who gained the most from raiding the SSTF.

"Not to mention, raising payroll taxes enough to support the retirement of the boomers, based on the number of people working at the time, would be a fast and easy way to kill the economy and horribly strain working people, unless you think they can afford to give up another ~$2,000 a year in payroll taxes."
Sounds like we should remove the income cap and make the rate progressive.

I'll try to summerize my position. The wealth has been transfered and income taxation can't bring it back. If you gave me a trillion dollars the top marginal income tax rate could be 99% and my grandchildren would die the richest people on the planet. We gave trillions to the wealthy now they are paying us back with the interest. Hardly sounds like a fair and equitable way to run an economy.

[Yo_Mama]

30. Yes, it's got a trust fund

But if you are 50 years old, the trust fund is not adequate to fund your retirement.

The DI trust fund is due to run out of funds by 2018; at that point, either money will be shifted from SS revenues to fund disability payments, or disability payments will be cut by somewhere around 20%.

If OASDI were a pension fund under private accounting rules, it wouldn't be considered solvent - the plan would be forced by the law governing private pensions to raise its contributions.

So I don't think your argument holds water. We need to raise revenues to save this program, and as DU discusses often enough, there's a way to do it. The fact that we aren't doing so, and that we are cutting FICA taxes as "stimulus", strongly hints that right now the political will to save SS/DI isn't there and that the real goal behind cutting FICA taxes on employees is to create a political base for not paying out benefits.

The second issue is that the assets in the SS, DI, Medicare, and federal retirement programs aren't marketable Treasuries. Instead they are special obligation Treasuries, on which the country pays interest by credit to itself. In other words, these are fake debt. We add them to our theoretical national debt, but no securities have been sold to the public.

While these programs were running surpluses that was fine, but now that they aren't, and we have to use the trust funds, that means we have to borrow and raise taxes. Well raising taxes is apparently out, so we are borrowing.

In fact, we are borrowing over a trillion dollars a year, and the borrowing rate is about static for the last two years and next year. At the beginning of January 2008, Debt Held By The Public was 5.1 trillion. It is now 10.4 trillion. We plan to borrow more than a trillion dollars next year.

If you count all the intragovernmental debt as debt, then we are already at a 100% Debt/GDP ratio. The only reason we can currently borrow money at very low rates is the financial tumult around the world, and the fact that we haven't turned those intragovernmental obligations into debt on the market. Under accounting rules, the "assets" in the intragovernmental debt bucket would not be carried at full value.

OASDI is not solvent in any sense, and those who are pretending it is are the enemies of the program. It can be made solvent; the only purpose of pretending that it is solvent is to forestall the steps needed to make it solvent.