Politics

Fact deprived Americans – Social Security- know the facts‼️

imageMany Americans do not understand the basics of Social Security, and they are susceptible to the partisan rhetoric on the issues. When I recently tried to explain simple facts about the state of Social Security on a Facebook discussion, I was called a Republican troll.

You can find additional discussion, facts and figures under the Social Security category on this blog.

However, let’s dispel some of the myths.

🤔  Members of Congress don’t participate in Social Security 👎👎👎 NOT TRUE Congress has participated in Social Security since January 1984. Before that they neither paid SS taxes nor received benefits.

🤔  Congress stole the money from the Social Security trust. 👎👎👎 NOT TRUE When the incoming payroll taxes were greater than what was needed to pay benefits, the Trust invested in special interest paying Treasury bonds. Today only because of that interest can full benefits be paid. The only reason there is a claimed “surplus” between benefits being paid and income to the Trust is because interest payments are counted. Incoming taxes do not cover outgoing payments.  In a few years the trust must redeem those bonds to pay benefits. If you ever purchased a US savings Bond or Treasure Bill, you made the same type of investment. Once the Trust purchased the bonds the government was free to do what was necessary with the money just as a corporation or municipality is if you purchase their bonds.

🤔 Politicians (mostly Republicans) are lying about the state of Social Security only because they want to cut benefits or privatize the program. 👎👎👎 NOT TRUE The Trustees have been describing the declining state of the trust for decades and urging action by Congress which has been ignored. Read the past reports for yourself here. The latest conclusion from the Trustees is shown below.

🤔 We paid for our benefits, it’s not an entitlement, our money should be there. 👎👎👎 NOT ACCURATE  The taxes those of us collecting a benefit today paid went to pay benefits for the generation before us. In addition, look at the benefit you and possibly your spouse are receiving. You will collect every penny you and your employer paid in taxes in seven to ten years not counting additional survivor benefits or COLAs. That’s one reason the trust is being depleted, but it’s not the full story. Your Social Security taxes carry an opportunity cost; the earnings you could have had if, instead of paying taxes, you were able to invest the same money over your working life. For a detailed discussion read this from the Tax Foundation.  You traded that interest for the security and guarantee of a future payment. In other words if you could privatize your own Social Security taxes, your retirement income would be likely substantially higher.

🤔  Social Security has no effect on the deficit or debt. 👍👎👍👎 NOT EXACTLY The federal budget process is complicated. When the incoming taxes were in excess of what was needed to pay benefits, that may be technically correct. However, today it’s different.

The federal debt is $ 19,248,244,178,321.02; of that $ 5,354,739,735,873.50 is intergovernmental debt like what is owed via Treasury bonds to the Social Security trust. But the real issue is that where does the money come from to pay interest on the Treasury bonds in the trust and where will the money come from when the trust must redeem the Treasury bonds? The answer is your income taxes and/or an increase in the deficit.

🤔  Some politicians want to cut Social Security benefits. 👎👎👎 NOT ACCURATE Nobody is proposing cutting benefits for anyone collecting benefits or near retirement. Proposals seek to cut the future liability for people many years from retirement. It’s either that or raise taxes considerably on everyone. The demographics are against the system and over the years politicians have improved benefits but failed to adjust taxes sufficiently to fully fund the program.

🤔  There is no big problem, just lift the tax cap and the problem is solved. 👎👎👎 WRONG First, lifting the taxable pay cap solves a lot of the problem, but not all of it. However, to do that means that while the taxes are raised, the benefit will still be calculated based on a taxable wage cap. In other words, Social Security is turned into a welfare program for most Americans. That is exactly the opposite intent of Social Security when it was implemented. Why should some Americans subsidize retirement benefits for all Americans under a program originally designed  to provide a base income enhanced by other retirement plans and personal saving?  And if we were to take that route, where will the money come from to improve Social Security benefits as some politicians suggest? We are in this fix because politicians in both parties refuse to tell Americans the truth or take the necessary action. The problem gets harder to solve with each passing day.

🤔  Congress and the President intentionally deny a COLA. 👎👎👎 NOT TRUE The COLA is determined based on an established formula using the change in the CPI-W from one year to the next. While there is debate about the accuracy of that measure for retiree inflation, the formula would have to be changed by law. Only three times since 1975 has the COLA been 0%.

UPDATED 6-22-16 to reflect 2016 Trustees report.

To illustrate the magnitude of the 75-year actuarial deficit, consider that for the combined OASI and DI Trust Funds to remain fully solvent throughout the 75-year projection period: (1) revenues would have to increase by an amount equivalent to an immediate and permanent payroll tax rate increase of 2.58 percentage points to 14.98 percent, (2) scheduled benefits would have to be reduced by an amount equivalent to an immediate and permanent reduction of about 16 percent applied to all current and future beneficiaries, or about 19 percent if the reductions were applied only to those who become initially eligible for benefits in 2016 or later; or (3) some combination of these approaches would have to be adopted.


If substantial actions are deferred for several years, the changes necessary to maintain Social Security solvency would be concentrated on fewer years and fewer generations. Much larger changes would be necessary if action is deferred until the combined trust fund reserves become depleted in 2034.

For example, maintaining 75-year solvency with policies that begin in 2034 would require: (1) an increase in revenues by an amount equivalent to a 3.58 percentage point payroll tax rate increase starting in 2034, (2) a reduction in scheduled benefits by an amount equivalent to a 21 percent reduction in all benefits starting in 2034, or (3) some combination of these approaches would have to be adopted.

The Trustees recommend that lawmakers address the projected trust fund shortfalls in a timely way in order to phase in necessary changes gradually and give workers and beneficiaries time to adjust to them. Implementing changes sooner rather than later would allow more generations to share in the needed revenue increases or reductions in scheduled benefits and could preserve more trust fund reserves to help finance future benefits. Social Security will play a critical role in the lives of 61 million beneficiaries and 171 million covered workers and their families in 2016. With informed discussion, creative thinking, and timely legislative action, Social Security can continue to protect future generations.

 

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8 replies »

    • He has a point about assumptions such as GDP growth, but that’s the type of assumption any retirement plan must use. Unfortunately, he promotes the idea the assets are phony. If we accept that, then none of our US Savings Bonds are real either. Since 2010 the incoming taxes have been less than the benefits being paid. Unless the economy takes off, we will rely more and more on interest to make benefit payments.

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  1. “… We paid for our benefits, it’s not an entitlement, our money should be there. 👎👎👎 NOT ACCURATE …”

    Certainly true, but not in the way you state. The whole point of the system is a long term financing system – where your contributions over a 35 year working career (generally) determine, in part, the benefits you are to receive – based on a truly arbitrary, progressive benefit formula.

    Let’s ask the next individual ready today to enter the workforce at age 18, to vote on whether she/he wants to pay into a system for at least 49 years (and that is only if they do not raise the retirement age), probably with ever higher tax rates, for a benefit that will be paid only if Congress agrees to continue the program (there is no contract here, it is an entitlement), and where the benefit is not “guaranteed” and will have to be funded by people yet unborn. Do you reasonably believe Americans would support Social Security if they knew the truth and had a choice?

    No one “traded” anything, because there was no choice, no participant control. This was a mandate. And, NO, perhaps 1/3 of individuals who will ultimately receive Social Security would NOT receive a higher retirement income had Social Security been a system of individual accounts – because the arbitrary formula is so skewed in favor of lower income Americans, and individuals who have significant gaps in their earnings history (who only paid in 40 quarters, not 35 years/420 quarters).

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    • Actually I was referring to individual accounts within SS, but rather diverting the payroll taxes into investment outside of SS.

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    • Given the way the average American views SS, it’s track record and the misperceptions Americans hold, I think your technically correct assessment is not relevant because people don’t think that way and never will in my view. I also think the probability of Congress breaking this promise is virtually zero.

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  2. This edition of your blog should be read by everyone collecting Social Security benefits, everyone paying taxes into the Social Security Trust Fund, and anyone who will do either of these things in the future.

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