The results of a CNN poll on Social Security (CNN poll: Majority Say They Don’t Count on Social Security) suggest, not surprisingly, that almost two thirds “of Americans say the program won’t last another 70 years.” The article says that: “For the first time in nearly 30 years, Social Security will pay out more benefits than it receives in payroll taxes both this year and in 2011. By 2015, the program is expected regularly operate with an annual deficit.”
Exacerbating this problem is a “run on the bank” mentality where many of those who are eligible for early age Social Security, seeing that the future for this program is dim, want to start collecting ASAP!
Those few Americans who still believe that the Social Security Trust Fund is more than an empty piggy bank should know that even according to the Federal Office of Budget and Management: “These [Trust Fund] balances are available to finance future benefit payments and other Trust Fund expenditures – but only in a bookkeeping sense…. They do not consist of real economic assets that can be drawn down in the future to fund benefits. Instead, they are claims on the Treasury that, when redeemed, will have to be financed by raising taxes, borrowing from the public, or reducing benefits or other expenditures. The existence of large Trust Fund balances, therefore, does not, by itself, have any impact on the Government’s ability to pay benefits (from FY 2000 Budget, Analytical Perspectives, p. 337)”. (Quoted from Wikipedia).
Essentially what that means is that payments into the Social Security trust fund become assets against which the government can borrow at a very advantageous (i.e. LOW) rate, essentially making this a “free” source of capital to fund, well, other government programs and initiatives which otherwise we US Taxpayers would be paying more taxes to fund.
The term “Social Security”, for most folks at least, congers up an image of a more comfortable retirement, with average benefits (according to the www.ssa.gov site) paid to retirees of $1,170 per month or just over $14,000 per year. Astonishingly, as of June, 2010 the ssa.gov site reports there are more than 53 million participants receiving more than $57 billion (with a B) in MONTHLY benefits (that’s more than $685 billion paid out in a year).
Initially, that is way back in 1935 when FDR signed the bill into law, the program really was self-funded. However, over time, with the addition of subsidies to individuals not “fully paying in” to the program, it became less and less self-sustaining. But, seriously, can you really argue that our military or the elderly should not have the security of social insurance benefits?
In addition, a large constituency (and a large campaign contributor base) supporting “secure” Social Security has also lost interest in SSI being fundable. Companies who had rich defined benefit plans with Social Security benefit offsets lobbied heavily for continued cost of living increases, with the interest of keeping their own pension payments in check. The majority of these companies have frozen their DB plans and converted to defined contribution programs that are employee paid, significantly diminishing their interest in the viability of Social Security.
We agree that without action the SSI “Ponzi Scheme” is soon to come crashing down.
However, Grahall’s Robert Cirkiel suggests that the Social Security Insurance budget could be balanced and restored to fiscal health with two changes, One is to raise the retirement age again, to reflect increasing life expectancies. (This was last done in 1983.) The second is to eliminate the maximum taxable wage base, currently at $106,800. The wage base is the amount above which Social Security taxes are not collected. To make this additional tax more palatable to the higher paid (on whom it will fall) the Social Security benefits should also be calculated on all wages. Since the Social Security benefits formula decreases as pay increases, the taxes paid in could exceed the benefits paid out.
Grahall’s Garry Rogers adds this note of caution about these suggestions: “These are far from minor changes. In fact, while the first is a cost control measure, which arguably allows the program to more accurately reflect changes in structure that have been neglected (longer lifespan, etc.), the second is an enormous alteration to the program. It would represent another 6% tax on individual earning over the wage base and that would be on top of the increases in taxes expected to occur upon the expiration of the Bush tax cuts!” This would be a far cry from President Obama’s promise that “Middle class families will see their taxes cut – and no family making less than $250,000 will see their taxes increase“.
Let’s hope that it won’t take years for our elected officials figure out how to do the right thing by our Social Security system. Ah well, if our legislators choose not to make any changes, we can rest assured in the fact that when SSI goes bankrupt, Welfare will take over and US taxpayers will cover those costs too.