Tag: Social Security debate

Social Security system is in deep trouble

As our political class is locked in a fight about government, with one group begging for cuts while the other refuses to let go of the idea that the problem is government isn’t taking enough money already from people, to tackle our out of control spending, one of the items I am afraid isn’t being discussed is the need for serious and massive SS reform. Social Security is in real bad shape. How bad? Well according to this Fiscal Times column, its in horrible shape right now. Here are some facts:

*Since last year, the present value of Social Security’s long-term funding gap widened by $1.1 trillion. In one year.

* Last year, the trustees reported that Social Security would be unable to pay all of its promised benefits beginning in 2037; now the expected default year is 2036.

* The year in which Social Security is projected to start running in the red—that is, the year in which it will start adding permanently to the budget deficit—advanced from four years in the future to one year in the past.

Let’s look at each of these in turn, starting with the first one: SS is running in the red because of a $1.1 trillion funding gap. Not my words. Here is the meat of that argument straight form the article.

First, Social Security stalwarts can’t say any more that the program doesn’t increase the deficit. Until last year, Social Security actually reduced Washington’s need to borrow, since the program took in more FICA tax revenue than it had to pay out in benefits. That was supposed to continue (with the exception of last year and this) until 2015. But in one of the more alarming changes from last year’s trustees report, the year of permanent red ink (revenues falling below costs and staying there) jumped ahead to 2010. In other words, we’ve been operating in the red for a year now, and it’s not going to change.

SS is running in the red and impacting the deficit. That’s started in 2010, instead of as had been projected in last year’s report to not be an issue until 2015, because of this widening funding gap. Currently that Ponzi scheme is taking in $1.1 trillion less than it needs to pay out, and the Baby Boomer retirement bonanza hasn’t even gone full swing. So that brings us right back to the second argument that the defenders of the status quo use to pretend SS isn’t in big trouble: that SS has a large stash of money put away that can be tapped for quite a while. But there is a huge problem with that thinking, because that fund they can tap is simply a bunch of government IOUs, not real money. Let’s look at the article again.

At least until 2037—er, make that 2036 —Social Security can make up the shortfall by tapping its trust fund. Tapping the fund means, essentially, that Social Security presents a bill to the U.S. Treasury and Treasury has to pay. Of course, Treasury has to get the money from somewhere. And that means higher taxes, reduced spending elsewhere, or more borrowing. More borrowing means a wider deficit. Got it? To use the highly technical language of accountants, Social Security has gone from being a deficit good guy to a deficit bad guy five years ahead of schedule.

First off, it looks like every year that we look at a new report, it looks that the numbers have changed in such a way that the projected date that they run out of that IOU money happens earlier and earlier. But the real problem is the IOUs means that basically we have a situation where the Treasury will have to scrounge for money that it doesn’t have to pay off the IOUs. Worse yet is the fact that at the current pace things are going the bill that the financial arm of the SS will present the US Treasury each year to make up its own shortfall will be going up.

The US Treasury will have to then raise taxes, borrow, and/or cut spending on other things to pay back the IOUs. My bet is that the whole scheme implodes long before 2036, by a couple of decades at least, unless SS is reformed. The next time some liberal moron tells you that this SS crisis is made up and a ruse by evil people that want to throw Grandma off the cliff or under the bus, point out this horrible reality. SS is already broke, and the US Treasury simply doesn’t have the ability to pay them back for the IOUs you claim make the whole point moot short of destroying the economy.

And those that say that the problem isn’t that the Ponzi scheme was not just abused terribly but a scheme that was doomed to failure the moment that the left made it the mandatory retirement system it was never intended to be – because it ignored the fact that the whole scheme was set up as a lottery that rewarded the one out of over 90 people that actually lived long enough to collect – but that the Baby Boom generation was simply to big, and their mass retirement is responsible for the strain SS is now under, are also in for a rude surprise. Once all the Baby Boomers are gone, Gen X is going to face the same problem because Gen Y is yet again smaller than it. For a Ponzi scheme to stand a chance, the number paying in has to continue to increase and be larger than those taking out. If that’s not maintained, it implodes. Ask Madoff. Unlike the government though, he is now in the slammer for doing this stuff.

Here is what it all comes down to: to keep SS alive in its current incarnation we will need to put more money into the system, pay out less, and then a lot later, or do all three. If we raise the age to where it should be – in the 70s – it will shock too many people and cause a lot of hardship. If we cut the pay too drastically, people that then do collect aren’t going to get much value anyway from a system that basically robbed them. And as we all clearly see, with a ton of other liberal fantasy land obligations already competing for our cash, even if we basically took all the money from the rich people and the corporations like the crazy people tell us we should so we can avoid dealing with the fact we are running out of other people’s money, we ARE running out of other people’s money.

As I realized more than 2 decades ago, it now seems almost a given that SS will collapse under its own weight as the political class that benefits the most from this scheme continues to refuse to address the issues and fix it. Just remember that when Ronald Reagan proposed SS privatization back over 30 years ago and was shot down by the left over it, that it would have cost us less than $800 million to fix it. Now SS has a $1.1 trillion annual gap. A decade from now when it runs multi trillion dollar gaps, what’s the solution going to cost us, huh?

The lesson here is that there are no free lunches paid by others. Sooner than later it all ends up badly.