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What Social Security Crisis?

by: Blue Girl

Tue Jan 18, 2011 at 18:00:00 PM CST

| More

On January 25, President Obama will address a joint session of Congress, and the nation, to deliver the State of the Union address and there is a lot of apprehension among those of us on the left. Will the President commit political suicide by grabbing hold of that so-called "third rail" of American politics, and embrace cuts to Social Security? Or will he keep his campaign promise to preserve and protect the most successful and popular social program in the history of the nation? During the campaign, he promised to fight against cuts to benefits, cuts to Cost of Living Adjustments and efforts to raise the retirement age. He also vowed to strengthen the program by raising the cap and paying Social Security taxes on those earning over $250,000 per year (currently, Social Security taxes are paid only on the first $107,000 of earnings.) He reiterated those promises in his weekly address on August 15, in which he commemorated the signing of the legislation into law by FDR 75 years before:

"I'd have thought that debate would've been put to rest once and for all by the financial crisis we've just experienced. I'd have thought, after being reminded how quickly the stock market can tumble, after seeing the wealth people worked a lifetime to earn wiped out in a matter of days, that no one would want to place bets with Social Security on Wall Street; that everyone would understand why we need to be prudent about investing the retirement money of tens of millions of Americans.

"But some Republican leaders in Congress don't seem to have learned any lessons from the past few years. They're pushing to make privatizing Social Security a key part of their legislative agenda if they win a majority in Congress this fall. It's right up there on their to-do list with repealing some of the Medicare benefits and reforms that are adding at least a dozen years to the fiscal health of Medicare -- the single longest extension in history.

"That agenda is wrong for seniors, it's wrong for America, and I won't let it happen. Not while I'm President. I'll fight with everything I've got to stop those who would gamble your Social Security on Wall Street."

Yet a month later when I questioned David Plouffe about the President's committment to Social Security at the Harkin Steak Fry, I got a non-answer that made chills run up my spine..."They want to weaken and destroy it. We want to fix it."

Try that answer on someone who doesn't know that it doesn't need fixing because it ain't broke, and who went to school back when they taught us how to diagram sentences so we can decypher what those who look at the trust fund with a lustful, impure eye are really saying: "In order to avoid future benefit cuts, we must cut future benefits. Ditto raising the retirement age."

Didn't we put some people in military prison for destroying villages in order to save them?

The fact of the matter is, Social Security is not only not responsible for our deficit woes, it is independent of the deficit and it is solvent for decades. Period. Full stop.

That CBO report finds that the Social Security OAS (Old Age/Survivors) Trust Fund, without changing a thing, will be able to make full payouts through 2039 -- it should also be noted that the full payout projections have been pushed downward by the economic downturn of the last couple of years, and those numbers should start moving the other way as the economy recovers. And if that isn't the case, we have a lot bigger problems than Social Security coming down the pike.

And even if the trust fund were to run out, Social Security would still be in pretty good shape. The OAS Trust Fund, established with the Social Security Amendments of 1939, is considered to be fully funded (in SS Speak in 'Short Term Actuarial Balance') if it has reserves equal to 100% of the next year's cost. As it turns out it fell out of balance in 1971 and despite some tweaks in 1977 continued to fall until it flirted with zero in 1982. Which led to the creation of the Greenspan Commission and its two part fix. The first part was intended to put the Trust Fund back in Short Term Balance, a task that was complete by 1993. The second part was to build the Trust Fund sufficiently over that minimum to fund benefits ON AVERAGE over the next 75 years. That was pretty successful as well, leaving the current Trust Fund with a ratio of 390 (almost 4 years of reserve)  , but in any event it was ALWAYS the plan to draw down the excess as needed to help fund the demographic challenge of the Boomers. The last boomers will retire in 2029, ten years before the trust fund is currently projected to be depleted, and four years  before it fails the 100% test (per SSA numbers which vary a little from CBO's).

Ensuring that it continues to meet the test means a series of tweaks under current SSA projections starting sometime around 2026. But given the substantial uncertainty about conditions 25 years out and the possibility that the system needs no fixes at all, there is exactly zero reason to move on this in 2011. Despite the hysteria floating around, examination of the numbers shows that not only CAN we afford to wait but that we SHOULD.

The draw down of the Social Security trust fund is not a pending disaster, it's by design. The fact of the matter is, in case you are one of the people in this country to whom facts matter, Social Security is a self funding entity, independent of the general fund. It funds itself entirely through payroll taxes, and so long as payroll taxes are collected, retirees will get their checks. The only way that changes is if Congress acts to stop collecting payroll taxes or to outright abolish the program.

Faced with that reality, those who oppose Social Security tend to go into "yeah, but..." mode and clutch at their pearls while they try in vain not to hyperventilate over a projected $4.5 trillion-with-a-t hole in Social Securities budget seventy five years down the road.

But this, too, is a faulty argument because a very modest increase -- less than 1% from each employee and employer -- in the amount of payroll tax withheld from workers wages would not only fill that hole, it would put the program on a sound footing "indefinitely."

They really stick their fingers in their ears and sing "la la la la la! I can't hear you!" when it is pointed out to them that $4.5 trillion is about the same cost, over the same period of time, of permanently extending the Bush tax cuts to the top 2% of earners.

But that isn't the end of their subterfuge! Their next ploy is to pretend that Medicare and Social Security are the same thing. They aren't. They are totally separate entities and they are funded via different mechanisms. Medicare does have problems, but they trace to runaway costs in our broken healthcare system, not to Social Security. Pretending the two are one and the same is either fundamental ignorance or deliberate, willful dishonesty. There is no other option.

Elected leaders embracing cuts to Social Security by either reducing the amount of benefit paid or raising the retirement age are, therefore, either stupid, or lying. In neither instance should they be making decisions that affect millions of Americans. And that goes double for those who parrot the BS knowing full well it's just that...BS.

Blue Girl :: What Social Security Crisis?
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One thing I'd be willing to bet. (0.00 / 0)
They aren't stupid.  They know exactly what they're doing.

If God ever decides to give the world an enema, I'm pretty sure Wall Street is where He'll stick the hose.

Great diary. Except some factual errors. (0.00 / 0)
"First of all, the trust fund is a relatively recent creation. It was establisned in 1983,"

Well no the Trust Fund was established with the passage of the Social Security Amendments of 1939. In fact I just published some extracts from the 1st Report of the Trustees a few days ago here:
linking to the HTML of that Report here:
which starts:

The Federal old-age and survivors insurance trust fund was created pursuant to section 201 of the Social Security Act Amendments of 1939, approved August 10, 1939. This trust fund became effective on January 1, 1940, and superseded the old-age reserve account established under the Social Security Act of 1935. The trust fund is held by a Board of Trustees composed of the Secretary of the Treasury, the Secretary of Labor, and the Chairman of the Social Security Board, all ex officio. The trust fund so held is available for the payment of old-age annuities and survivors insurance benefits and the necessary expenditures incurred by the Social Security Board and the Treasury Department in the administration of the program

And if you read through more of the Report you can see that the structure and function of the Trust Fund were exactly the same then as now, to serve as a reserve fund for short or medium term periods where there is an imbalance between income and cost. For example Social Security was cash flow negative every year from 1971 to 1982 as that reserve was drawn down. Equally the Trustees built up very large surpluses between 1936 and 1945 in much the same way as the 1983 bill did. In fact as late as 1950 the OAS Trust Fund had ten years of cost in reserve  Table VI.A2.- Operations of the OASI Trust Fund, Calendar Years 1937-2009 . For comparison the Trust Fund today holds 3 1/2 years worth of reserves.

And on a more minor point the tax increase needed would be just  under 1% for both employer and employee.

But those are quibbles, just pointers for whatever Washington Monthly readers click through (because Steve Benen picked up this story). And we need to keep telling it like it is, and your post is about 95% there.

Thank you, Bruce (0.00 / 0)
Your suggestions have been edited in.  

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