A socialist’s view of Social Security. What you should know about the Social Security trust fund and its future impact on you

23 Feb

Sen. Bernie Sanders, an admitted socialist, has the answer for dealing with Social Security, do nothing, except of course raise taxes on those earning more than $250,000 a year. His view is that no basic changes are needed to Social Security rather simply raise taxes on the “wealthy” and things will be fine. He notes that far from broke the “trust funds” are invested in government securities and thus are backed by the full faith and credit of the U.S. government. He is right about that. But it seems to me the point he misses is that sooner or later the use of those funds will be required and the U.S. government will be required to come up with the cash to make benefit payments. Is that a potential problem? Well, the Chinese who are among the largest investors in the U.S. are looking for some assurance that the credit rating of the U.S. will not decline.

The money that is invested each day in the trust fund is not isolated by the Treasury, the money is spent like all other federal revenue, and there is no “lock box” or isolated funds. Social Security holds the Treasury securities just like any other creditor.

Consider this from the Office of the Chief Actuary of Social Security:

The last 5 Trustees Reports have indicated that Social Security’s Old-Age, Survivors, and Disability Insurance (OASDI) Trust Funds would become exhausted between 2037 and 2041 under the intermediate set of economic and demographic assumptions provided in each report. If no legislative change in enacted, scheduled tax revenues will be sufficient to pay only about three fourths of the scheduled benefits after trust fund exhaustion.

Here is a summary from the 2010 Trustees Annual Report:

The financial outlook for Social Security is little changed from last year. The short term outlook is worsened by a deeper recession than was projected last year, but the overall 75-year outlook is nevertheless somewhat improved primarily because a provision of the ACA is expected to cause a higher share of labor compensation to be paid in the form of wages that are subject to the Social Security payroll tax than would occur in the absence of the legislation. The Disability Insurance (DI) Trust Fund, however, is now projected to become exhausted in 2018, two years earlier than in last year’s report.

Thus, changes to improve the financial status of the DI program are needed soon. Social Security expenditures are expected to exceed tax receipts this year for the first time since 1983. The projected deficit of $41 billion this year (excluding interest income) is attributable to the recession and to an expected $25 billion downward adjustment to 2010 income that corrects for excess payroll tax revenue credited to the trust funds in earlier years. This deficit is expected to shrink substantially for 2011 and to return to small surpluses for years 2012-2014 due to the improving economy. After 2014 deficits are expected to grow rapidly as the baby boom generation’s retirement causes the number of beneficiaries to grow substantially more rapidly than the number of covered workers.

The annual deficits will be made up by redeeming trust fund assets in amounts less than interest earnings through 2024, and then by redeeming trust fund assets until reserves are exhausted in 2037, at which point tax income would be sufficient to pay about 75 percent of scheduled benefits through 2084. The projected exhaustion date for the combined OASI and DI Trust Funds is unchanged from last year’s report.

The long-run financial challenges facing Social Security and those that remain for Medicare should be addressed soon. If action is taken sooner rather than later, more options will be available, and more time will be available to phase in changes so that those affected have adequate time to prepare.

Let’s put this in very simple personal terms. I looked at the last annual statement I received from Social Security in August 2009 and it tells me that since 1959 I paid $116,781 in Social Security taxes, my employer paid an additional $116,873. Any way you slice it, $233,654 is a lot of money. Well, in the scheme of things that is not true. You see, based on the monthly Social Security benefit my wife and I receive, our benefits will exceed all the taxes we paid in 2.76 years and will exceed the additional employers contributions in 5.53 years (and that does not include any future increases in our monthly benefit). Where does the rest of my benefit come from? It comes from my children who are now paying their Social Security taxes.

The essence of the problem ahead of us is that there are more people like me collecting these benefits and fewer people like my children paying for them. My Social Security statement tells me:

the Social Security system is facing serious financial problems, and action is needed soon to make sure the system will be sound when today’s younger workers are ready for retirement.

 Perhaps someone should send Senator Sanders his statement to read.

Social Security is in effect a Ponzi scheme and a welfare program. Does this sound like something that should be fixed by merely raising the taxes paid by some or all Americans?

There are some among us like Senator Sander who think so, but you see that is the problem with major entitlements, they only grow and grow based on political whims and when they become unaffordable the answer is not to modify them to reasonable levels, but to sustain and even grow them through higher and higher taxes. [think public employee pensions and benefits].

The Secretary of the Treasury estimates that within a few years the interest on the national debt will exceed $600 billion a year; it is now about $200 billion. When we get to the point where the Social Security fund needs to cash in the securities, where will the money come from? Well, either the government needs to raise revenue from higher taxes, sell other securities to someone else to raise cash or simply print money. Which of those alternatives sounds appealing to you?

Every entitlement we have is backed by the full faith and credit of the United States, which also includes the fourteen trillion dollars in U.S. debt, about half of which is owed to Americans and the balance to other countries. You can argue all you want who caused all this debt, but there is one answer you can’t argue with; politicians and all of us who gladly accept more and more from the promises made whether it be lower taxes, tax loopholes or more entitlements.

Americans are at a cross roads, they need to decide how much of their total security they want provided for them through a massive government and they need to decide how much they want to pay for it. That’s all Americans; you are not going to pay for the goals of Americas’ progressive left by heavily taxing each family earning more than $250,000. Keep in mind that based on intermediate assumptions by the Trustees, we will blow through the $2.5 trillion in the S.S. trust fund government securities in just twenty-four years between 2017 and 2041.

I suppose one option is to take the path followed by Norway, the government provides for all our basic needs in return for turning over 50% or more of what we earn in taxes? What do you think?

Just so you know here is what the Social Security.gov website says about the trust fund:


Why do some people describe the “special issue” securities held by the trust funds as worthless IOUs? What is SSA’s reaction to this criticism?

As stated above, money flowing into the trust funds is invested in U. S. Government securities. Because the government spends this borrowed cash, some people see the current increase in the trust fund assets as an accumulation of securities that the government will be unable to make good on in the future. Without legislation to restore long-range solvency of the trust funds, redemption of long-term securities prior to maturity would be necessary. Far from being “worthless IOUs,” the investments held by the trust funds are backed by the full faith and credit of the U. S. Government. The government has always repaid Social Security, with interest. The special-issue securities are, therefore, just as safe as U.S. Savings Bonds or other financial instruments of the Federal government. Many options are being considered to restore long-range trust fund solvency. These options are being considered now, over 25 years in advance of the year the funds are likely to be exhausted. It is thus likely that legislation will be enacted to restore long-term solvency, making it unlikely that the trust funds’ securities will need to be redeemed on a large scale prior to maturity.

Can the Social Security Trust Funds remain solvent without making changes to the program?

In the annual Trustees Report, projections are made under three alternative sets of economic and demographic assumptions. Under one of these sets (labeled “Low Cost”) the trust funds remain solvent for the next 75 years. Under the other two sets (the “Intermediate” and “High Cost”), the trust funds become depleted within the next 30 years. The intermediate assumptions reflect the Trustees’ best estimate of future experience. The Trustees believe that extensive public discussion and analysis of the long-range financing problems of the Social Security program are essential in developing broad support for changes to restore the long-range balance of the program.

Were the assets of the Social Security Trust Funds depleted in the past?

The assets of the larger trust fund (OASI), from which retirement benefits are paid, were nearly depleted in 1982. No beneficiary was shortchanged because the Congress enacted temporary emergency legislation that permitted borrowing from other Federal trust funds and then later enacted legislation to strengthen OASI Trust Fund financing. The borrowed amounts were repaid with interest within 4 years

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3 Responses to “A socialist’s view of Social Security. What you should know about the Social Security trust fund and its future impact on you”

  1. July 11, 2011 at 5:12 PM #

    The writer has completely forgotten that long-term deposits PAY INTEREST.
    They don’t just SIT there. Even something as simple as a savings account
    is INVESTED. It produces a RETURN. If, since 1959, over 50 years, he and
    his employer have jointly invested $233,654, and he expects that he and his spouse
    jointly will consume that in benefits in only 6 years, then he is asking (assuming
    both of them are lucky enough to live longer than that), “Where does the rest of my benefit come from?” This is a good question, but his answer is ridiculous.
    He says “It comes from my children who are now paying their Social Security taxes.”
    The fact that the government did not actually invest your payroll taxes in the stock market does NOT mean that it did not invest them. Money borrowed from the fund WAS SPENT BY THE GOVERNMENT ON PROJECTS AND SERVICES that CREATED JOBS and created tax revenue, that created RETURN to the society AND TO YOU in the form of the goods and services produced by the spending. The interest is going to get paid and the government has the capacity as well as the obligation to pay it. How it gets paid or “who” pays it is purely up to the structure of the tax code, something you would do well to pay more attention to, as opposed to worrying about the “insolvency” of something that is in fact a cash COW.

    • rdquinn July 11, 2011 at 7:33 PM #

      You would do well to read the Trustee Report and warnings. The interest paid means more money borrowed by the government and in a few years when the interest is insufficient to pay benefits and bonds have to be cashed it means more and more borrowing to pay benefits. It’s like paying off one credit card with another. Some cash cow. You sound like Bernie Sanders.

      ps. It is not the governments job to create jobs.

  2. Doug February 23, 2011 at 6:17 PM #

    I agree with you Dick that we are not at as much a risk as our kids. Scary when they don’t save for the future and will not have some of the financial advantages we have.


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