"The Myth of the Social Security Shortfall"
This is from Michael Hiltzik at the LA Times:
The myth of the Social Security system's financial shortfall, by Michael Hiltzik, Commentary, LA Times: The annual report of the Social Security Trustees ... has become an occasion for hand-wringing and crocodile tears over the (supposedly) parlous state of the system's finances. ... Within minutes of its release, some analysts were claiming that it projected a "shortfall" for Social Security this year of $41 billion.
Before we get to the bogus math behind that statement ... let's look at the encouraging findings... The trustees indicated that the program has made it through the worst economic downturn in its life span essentially unscathed. In fact, by at least one measure it's fiscally stronger than a year ago...
That brings us back to this supposed $41-billion "shortfall," which exists only if you decide not to count interest due of about $118 billion. And that, in turn, leads us to the convoluted subject of the trust fund, which for some two decades has been the prime target of the crowd trying to bamboozle Americans into thinking Social Security is insolvent, bankrupt, broke — pick any term you wish, because they're all wrong. ... Despite what Social Security's enemies love to claim, the trust fund is not a myth... It's real money, and it represents the savings of every worker paying into the system today. So I'm going to train a microscope on it. ...
The truth is that there are two separate tax programs at work here — the payroll tax and the income tax... The first pays for Social Security and the second for the rest of the federal budget. Most Americans pay more payroll tax than income tax. Not until you pull in $200,000 or more ... are you likely to pay more in income tax than payroll tax. ...
Since 1983, the money from all payroll taxpayers has been building up the Social Security surplus, swelling the trust fund. What's happened to the money? It's been borrowed by the federal government and spent on federal programs — housing, stimulus, war and a big income tax cut for the richest Americans, enacted under President George W. Bush in 2001. In other words, money from the taxpayers at the lower end of the income scale has been spent to help out those at the higher end. That transfer — that loan, to characterize it accurately — is represented by the Treasury bonds held by the trust fund.
The interest on those bonds, and the eventual redemption of the principal, should have to be paid for by income taxpayers, who reaped the direct benefits from borrowing the money. So all the whining you hear about how redeeming the trust fund will require a tax hike we can't afford is simply the sound of wealthy taxpayers trying to skip out on a bill about to come due. The next time someone tells you the trust fund is full of worthless IOUs, try to guess what tax bracket he's in. ...
The trust fund may not last forever, but reports of its demise are certainly premature. The trustees say it will be drawn down to zero in 2037, at which point the program will only have enough money coming in from taxes to pay 78% of the benefits... So sometime in the next quarter-century — but by no means right now — does anything have to be fixed...?
That 2037 deadline ... is a moving target. It's based on long-term projections, which become more uncertain the further out you look. ... It has held steady at 2037 for two years despite the downturn, but that's still better than the projection in 1998, which was for exhaustion in 2032.
In short, if the new trustees report gets examined wisely and responsibly, it should put an end to all the current talk about raising the retirement age or cutting benefits. Social Security doesn't contribute a dime to the federal deficit, and in these days of market stagnation and cutbacks in pensions, it has never been more important to millions of Americans. The Pete Petersons of the world should find themselves a different target.
Posted by Mark Thoma on Sunday, August 8, 2010 at 10:17 AM in Economics, Social Security |
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