Government

Social Security in an Election Year – The New York Times

I don’t want to get into another debate about Social Security. The fact is it needs some significant changes to sustain itself. What those changes are range from simply raising  the taxable wage cap, which is no real solution at all, to scrapping the whole thing for private accounts which may be logical, but not even close to practical.

Equally troubling as the problem of fixing Social Security is the distorted views of the left.

What they are saying below is that because Social Security is seriously flawed, incoming taxes are necessary to pay benefits not to the people being taxed, but to those of us who are currently receiving benefits.

You see, the taxes being paid today are not financing Social Security, nothing is. 

The taxes, interest on the Treasury bonds held by the Social Security Trust and shortly the value of the bonds themselves are paying my benefits and nothing is being invested to pay benefits to my children or yours.

The talk of “diverting money to Wall Street,” you mean like the 401k, IRAs and pension plans that hundreds of millions of Americans rely on and which are invested in “Wall Street,” only repeats the left’s anti-Wall Street rhetoric. We should remind them it is banks and “Wall Street” that buys Treasury bonds to finance the government.

However, my favorite line from the op-Ed below is “shift the risk from government to individuals.”  Risk from government? What risk does government have that is not the risk of taxpayers and all citizens? Who will end up covering the risk when Social Security can only pay 75% of accrued benefits in seventeen short years because of the incompetence of government? 

Candidates should be telling Americans the truth‼️

With more retirees relying on the program, candidates should be suggesting sensible fixes, not broad cutbacks…

Mr. Bush and Mr. Cruz have said that Social Security payroll taxes should be diverted into new private accounts for employees, a reprise of President George W. Bush’s failed privatization attempt in 2005. Private accounts do not enhance retirement security. They divert money that would otherwise finance Social Security to Wall Street and shift the risk from government to individuals.

Source: Social Security in an Election Year – The New York Times

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5 replies »

  1. Richard,

    I think you are wrong on this statement : “You see, the taxes being paid today are not financing Social Security, nothing is.”

    The taxes collected today generate the promise of future benefits. Hence it is financed because every dollar in creates obligations out. If there were no future benefits, Social Security would be funded by the payroll tax. In a sense, payroll taxes aren’t taxes. They are more like a loan because every dollar in creates promises of dollars out.

    And I think that the figure is 75% not 25%. Mind you, CBO is much less optimistic, and believes that benefit levels will be reduce by 30-40%.

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    • You are right the 25% was supposed to be 75% (typo). Given the incoming taxes are only paying current benefits, I think my analysis is correct in trying to explain to people what is going on, but, of course, you are correct about the growing obligation.

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  2. When the trust fund runs out of money (“IOU’s”) in ~20 years (2034, 2035), FICA contributions at current rates are expected to be sufficient to pay 74% – 75% of promised benefits (not 25%). Here is the trustees summary:

    “… Interest income and redemption of trust fund assets from the General Fund of the Treasury, will provide the resources needed to offset Social Security’s annual aggregate cash-flow deficits until 2034. Since the cash-flow deficit will be less than interest earnings through 2019, total income will exceed expenditures and reserves of the combined trust funds will continue to grow but not by enough to prevent the ratio of reserves to one year’s projected cost (the combined trust fund ratio) from declining. (This ratio peaked in 2008, declined through 2014, and is expected to decline steadily in future years.) After 2019, Treasury will redeem trust fund asset reserves to the extent that program cost exceeds tax revenue and interest earnings until depletion of total trust fund reserves in 2034, one year later than projected in last year’s Trustees Report. Thereafter, tax income is projected to be sufficient to pay about three-quarters of scheduled benefits through the end of the projection period in 2089.”

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  3. Everyone agrees Social Security needs to be fixed. “diverting money to Wall Street,” is not the answer, Bernie Madoff comes to mind. We need a new retirement savings plan, tax exempt when you put the money in, tax exempt when you pull it out in retirement, then more people will see it is worth it, to save for retirement. Congress will have to figure out the limits, but with inflation over 45 years or more eating away at the value of money, I would think no tax on withdrawals until income is above $150,000. A middle class savings plan that really helps the middle class.

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    • We need one plan. Now we have dozens and even the states are getting involved in their own plans. We need one tax-favored plan that uses the same rules and limits. What we have now is too confusing for people.

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