Social Security's Finances Are Not Stressed by Housing Bubble Recession

[Hannah Bell]

Contrary to what the Associated Press wants the American public to believe, Social Security's finances are not "stressed" by the downturn. It is true that it is now paying out more money in benefits than it takes in from taxes, but this means zero, nada, nothing in terms of the finances of the program.

Under the law that governs Social Security's operations, it can pay full benefits as long as it maintains a minimum balance in its trust fund. At present, it has more than $2 trillion in the trust fund, far more than the minimum balance. In fact, because SS collects interest on the bonds in the trust fund it actually is projected to continue to run surpluses even through the crisis.

The article notes that the fund is projected face a shortfall after 2037. While there will probably have to be some adjustments made to the program at some point, this has been true in prior decades as well. It is striking how much attention the media devote to comparatively minor problem.

http://prospect.org/csnc/blogs/beat_the_press

[Warren Stupidity]

1. And the drumbeat here to increase SS taxes continues unfettered by reality.

Let's pour even more into the trust fund to subsidize the very wealthy and their huge tax breaks handed to them over the last 30 years.

[Hannah Bell]

2. +100

[DJ13]

3. Im not so sure this is about increasing the withholdings

Our plutocrats now seem to think reducing SS benefits during this depression is the way to treat people.

(See the prognostication by the Obama administration that there will be no need for a COLA for SS for the next 2 years because they somehow already know there will be no inflation for an example of this.)

[Hannah Bell]

5. yep. it's a benefits cut unless prices hold steady.

[TexasObserver]

4. Recommend

[Thickasabrick]

6. Hannah, when you say it has $2T in the trust fund...does it count the

IOU's?

[Hannah Bell]

9. $2.4 trillion in securities backed by the full faith & credit of the US gov't.

you're welcome to the word games.


equal to Bush's tax cuts to the top 5% over 10 years.

part of which were financed with SS overpayments from the working class borrowed into the general budget.

Well, time to pay it back.

[Thickasabrick]

10. I'm sorry I'm so dumb about this stuff. So the securities are the

IOU's I keep hearing about that have been borrowed from the fund?

[Hannah Bell]

11. i don't know if you're sincere or not, but here's the short version:

in 1983 reagan, greenspan, & a bi-partisan congress "saved" social security by increasing SS tax rates over the % needed to take care of current retirees & high enough to generate ever-increasing surplus collections for the next 30 years.

this "rescue" violated the spirit of the original SS legislation & the practice of the previous 40+ years, which had been: tax workers enough to pay for current retirees & maintain a 1-year cushion.

any SS surpluses *must*, by the terms of the original legislation, be put into gov't backed bonds to collect interest, i.e. "borrowed" by the gov in exchange for US securities.

The TF = those securities.

[Thickasabrick]

12. Thank you! Yes I was sincere. So this all goes back to the

Gore lock box stuff? As you can see, I have picked up bits and pieces over the years but at the time really didn't take the time to pay attention. Getting closer to that magical age, has suddenly caused me to sit up and take notice.

[Statistical]

14. There is no lock box.

Every year in the past SS collected more money then it spent.

The govt took that surplus and spent it (just like any tax dollar).
The govt replaced those spent dollars with T-bills.

The big problem is WE RACKED UP A MASSIVE FEDERAL DEBT on top of the "free" SS money we spent each year.

So going forward EVEN A BALANCED BUDGET is not enough. SS will start requiring more money then it brings in each year. The fed govt will need to transfer that money from federal accounts to SS.


So for past 20 years:
SS ----> federal govt (billions of dollars per year)

Going forward until the baby boomers die off:
federal govt ----> SS

So to have a balanced budget REVENUE = EXPENSES + INTEREST ON DEBT + MONEY INTO SS TO KEEP FUND SOLVENT

We couldn't balance the budget for last 20 years even WITH free money from SS.

Imagine a young adult who's parents give him/her $10,000 free money each year and they still get into debt each year (spending more than they make even w/ free $10K and putting it on CC). One day their parent say no "free" $10,000 a year anymore and you need to pay US $10,000 per year. Do you think the kid who couldn't balance their checkbook with "free" $10K coming in every year will somehow be able to do it not only not having $10K but having to pay out $10K?

[Thickasabrick]

15. Oh Wow.....that was one of the best explanations I've ever read!

So....what you're saying also is that even though we had a surplus when Bush took over, it wasn't a "true" surplus in that we still had that debt (or T-Bills) from Social Security?

[Statistical]

19. Well surplus is year to year.

So we had a surplus but we still had the accumulated debt of multiple years.

Surplus is like having money left over at the end of a payperiod. You still have that $20,000 in credit card debt it just means this period you have more money then expenses.

So we owe $11 trillion dollars. Some of that we owe to SS and other agencies some we owe to private t-bill holders.

Lets say in 2012 we have a balanced budget (after expenses, interest on debt, and paying obligations to SS) = we still have $11T debt we just aren't adding to it.

Now lets say in 2013 we have a $200B surplus and we don't spend it. We could pay down the debt to $10.8T (just like taking surplus money after paying bills and paying down CC debt).

Now if we did that for 10 years we would have paid down $2T of the $11T we owe.

[Hannah Bell]

18. you forgot the "massive tax cuts on wealth & corporations since reagan"

bit.

repeal of bush's tax cuts to the top 5% would pay off the entire SS TF in 10 years.

But it doesn't need to be paid off in 10 years; 25 years will work fine.

Thus, no such crisis as you imply, except in getting the super-rich to pay up.

[Statistical]

20. The "crisis" is Congress loves spending money they don't have.

They never met a spending bill they didn't like.

If we raised tax rates to Carter levels and KEPT SPENDING THE SAME then you are right we could pay not just the SS IOUs but the entire public national debt off in about 20 years.

However with a surplus of hundreds of billions each year do you honestly think Congress will "do the right thing" and pay down the debt. With hundreds of billions just begging to be spent. Of course they won't. We are addicted to debt. We have been debt spending for 40 years nonstop. The first time they see positive cashflow they would increase spending to swallow it hole.

So while theoretically I agree with you the "crisis" could be solved in 20 years. Hell we could have a sovreign wealth fund like most prosperous nations do in 20 years it will NEVER happen.

If tomorrow there was a surplus of $200B between receipts and expenses Congress would be in a fistfight over how to spend it the fastest.

[Hannah Bell]

23. Congress won't do the right thing unless forced to. & if they're not

forced to do the right thing, none of the proposed substitutes for doing the right thing will do anything but further impoverish the majority.

The super-rich & corps need a big tax hike, period.

[Hannah Bell]

17. imo, the "lock-box" talk was bullshit. The original SS legislation *mandates"

the government to borrow any excess SS collections in exchange for US securities.

Once the excess money is collected, it *has* to be borrowed by the government. Everyone who voted for that piece of crap bill knew, or should have.

So what could "lock-box" possibly mean?

Gore, the big fat hypocrite, was in the "didn't vote" column on this important vote.


http://www.ssa.gov/history/tally1983.html

[slipslidingaway]

21. Thanks for the link n/t

[tritsofme]

7. It is a relatively minor problem, but when SS draws from the trust, it means a higher

federal deficit.

There is no account labeled SS Trust Fund that they are drawing from.

In terms of the overall size of budget and and even the overall deficit, Social Security's shortfalls over the recession will be relatively minor.

The AP article cited is just pointing out details, I don't see the problem.

[Hannah Bell]

8. SS isn't the cause of federal deficits. it's run surpluses for 30 years.

[tritsofme]

13. I never said SS is the cause of the federal deficit

I just pointed out that it is contributing to the federal deficit.

There is no $2 trillion account out there waiting to be drawn upon, Congress has spent the entirety of the surplus over the last 30 years. It will come out of general revenues.

But like I said, Social Security's contribution to the federal deficit is relatively minor, but real.

[Hannah Bell]

24. it's not contributing to the deficit. it's in surplus. you want to say paying

back the borrowed money will contribute to the deficit.

it needs to be paid back over 30 years, not all at once, so i don't think it's a big factor.

raising the income taxes of the top 5% to clinton-era levels would pay it off in 10 years without adding deficit. do you find that onerous?

[tritsofme]

26. I'm not really sure what you're arguing here. Over the next two years SS will pay out $20 billion

more than it collects.

When SS draws on the Trust Fund to make up for this shortfall, it will increase the federal deficit.

The deficits that SS is running are small, temporary, and mostly related to the recession, I don't think anything really needs to be done.

[Hannah Bell]

27. i'm arguing that social security doesn't, & won't, "increase the deficit".

social security has run 30 years of surpluses. SS doesn't, & hasn't, "contributed" to the debt or deficit.

The US government borrowed a couple of trillion from working people. The bill is due.

The government doesn't *have to* borrow more money to pay it back; they can increase taxes on the top 5%. Who've gotten a free ride on the backs of working people for the last 30 years.

[tritsofme]

28. Well Congress isn't going to enact a new tax, the SS shortfall will get tacked on the

federal deficit. I don't see why this is a hard concept. We are not talking about the previous 30 years, only the next few.

They don't have to borrow money, but I don't see any appetite in Washington for a new surtax to close the temporary SS shortfall, it's not even being discussed.

Your argument that the federal deficit won't increase is based on a hypothetical tax increase?

[Hannah Bell]

29. my argument is that the money was taken from the working class & given to the rich

as tax cuts, for 30 years, & they should pay it back.

Yours is, apparently, they aren't going to so there's nothing to be done, can't "increase the deficit".

Yes, if everyone takes your attitude.

Funny, they had a big appetite for surtaxes when they funneled 700 billion to the banksters in a matter of weeks - 1/3 of what's owed to workers. No one was worried about deficits or tax hikes then.

But when it comes to repaying workers over the next 25 years - omg, it'll increase the deficit! Oh, legislators have no "appetite" for increasing the taxes on the obscenely wealthy so they can repay the money they STOLE.

[Yo_Mama]

16. There are no trust funds

There were never any independent sources of funds in those trust funds. The "bonds" in there are a promise that the government will pay from the general fund.

Both Medicare and Social Security are running deficits now, and this does have a real effect on the projected budget deficits for the next ten years. Social Security wasn't projected to start running deficits until 2017 or 2016.

So this is real. Compared to a lot of our other spending it is minor, but we are theorizing that a lot of that spending is temporary and thus the ongoing problem with the retirement benefits is a real fiscal problem.

Now, as noted, the excess Social Security and Medicare taxes paid since 1983 (although Medicare went negative in 2007 or 2008, I forget which) were really used to support federal spending without raising income taxes to pay for it.

The recession is causing most of this; WIET receipts by the government are shown by month and by day in the Daily Treasury Statement. WIET means Withheld Income and Employment Taxes, which are almost all income tax and Social Security/Medicare tax. These represent by far the biggest source of federal government income. In the fiscal year which ended Sept 08, they were 80% of federal revenue. In the fiscal year which just ended in Sept 09, they were 84% of federal revenue. You can access the Daily Treasury Statements here:
http://fms.treas.gov/dts/overview.html

But now, they are dropping steeply month by month, as incomes drop. The following numbers are in rounded MILLIONS:

WIET Sept 08: 142,759
WIET Sept 09: 125,216

So between the drop in revenues and the more rapid rise in payments out, the federal budget is in a genuine crisis.

We will be raising income taxes. The reason why DU should understand and care about this is that many federal proposals assume that they will be paid for by a rise in income taxes. However, the problem is that raising income taxes can only pay for so much, and if we assume we will raise income taxes to pay for an expansion of insurance, then we are left without the revenues to pay for Medicare and Social Security.

So this is not easy; it is really intimidating, and this will end as it has in California, with some federal entitlements being cut even as taxes are raised. Because you can only raise taxes so much before it becomes self-defeating. That is especially true with regressive taxation, such as sales taxes.

Everyone should also understand that anyone promising an effective cut in taxes is either an idiot or a liar. In general, we will all see a rise in taxes. In order to be able to sustain economic growth with that rise in taxes, we need to pay attention to efficiency and saving power. So, for example, if we adopt a basically regressive tax such as a rise in Social Security tax rates, that is economically productive only if we also pair that with a program that somehow enhances the welfare and security of the lower income bracket in some other way so that they can save, invest, establish households, etc. One of the easiest ways to do that would be with a payroll-tax financed health insurance system (which would shift more of the burden of paying for health taxes onto the higher earners).

What we have to do is raise taxes carefully so as not to destroy the less well-off (such as the proposed 4.5% VAT) but also not to chase the wealthy out of the country. Because people on DU need to understand that the truly rich are extremely mobile, and they will depart. Maximum personal taxation rates in various socialized European countries vary from about 60% to about 45%, so we do not have the option to raise tax rates to 90%. Further, even if we were to raise tax rates to 100%, the truly rich just are not wealthy enough to pay for more than a few years of the programs we need. Thus, we are going to raise taxes across most of population.

And finally, we need to consider all of the major government funding projects conjointly, because we will not have accomplished anything if we pay for one program which sounds nice, but leave another program which is absolutely essential out in the fiscal cold.

And the last thing we need to do is make sure that we do not drive the dollar too low. That would raise import prices, which would amount to a hidden and violently regressive tax. As it is, the elderly and the poor have suffered massively from inflation for basic needs since 2005. We cannot make our economy healthy by continuing to starve them into submission.

[Hannah Bell]

25. then all the government's other trust funds are phony too.

and SS IS NOT RUNNING DEFICITS NOW. IT'S RUNNING SURPLUSES.

If you can't get the basics right, the rest of your post is full of bull too.

[Yo_Mama]

31. No, Social Security is in deficit right now

Hannah, I am not lying. Social Security is a completely pay as you go system. This year it went into deficit. The projections are that it will be in deficit next year and the year thereafter.

I can prove I am not lying. Here is the link (it is a pdf file) to the Monthly Treasury Statement for August 09:
http://fms.treas.gov/mts/mts0809.pdf

To figure out what is happening with Social Security you have to go two places. On page 16, it shows total payout fiscal year to date for Social Security and Disability. Respectively they were (in MILLIONS):
09: 612,042
08: 564,965
So 11 month payouts for OASDI increased 47,077 million.

For receipts to these funds, you go to page 6. 11 month receipts for OASDI (including taxes on benefit payments) were:
09: 601,790
08: 603,961

The 11 month deficit for 09 was 601,790 - 612,042 = -10,252 million, or 10.25 billion. In 08, the 11 month surplus was 603,961 - 564,965 = 38,996 million, or 38.95 billion.

And that doesn't sound so bad, until you realize that trajectory has worsened sharply in recent months.
August receipts: 49,372
August payouts: 56,541
Thus, August alone accounted for 7,169 of the 11 month deficit. As we go into the next year, the accumulated deficit will rise sharply. The net effect on the federal budget deficit will be surprisingly large, because Social Security receipts were supposed to be in surplus by about 60 billion, and instead they will be in deficit by at least 50 billion. This adds over 100 billion to the US deficit.

What has happened is that the very bad economy has both reduced total wages, which lowers tax receipts, and has forced many more people to start taking Social Security and Disability benefits. Here is an article on the current numbers:
http://www.usatoday.com/news/nation/2009-10-01-social-security_N.htm

The bottom line is that 2.6 million people started collecting SS benefits and about 1 million people moved onto disability. Many of them on early retirement because they had no hope of a getting a job. In 2008, about 51 million people were collecting SS benefits (includes retirees, dependents, survivors of deceased insured, plus disabled), so this is about a 6.8% increase in beneficiaries. Since the retirement benefits are pretty high, and survivor benefits are lower, the net effect is larger than the 5% increase in retirees. Plus, with every year that passes more and more baby boomers reach the age for full retirement.

The trust funds are all bookkeeping efforts, not stores of money.

Compared to many other programs Social Security is in much less of a deficit, but we are now paying more benefits out than come in. It's hard to estimate what the ten year total cost will be because it really depends on how the economy does.

[merh]

22. What the right doesn't realize is, the undocumented workers that

do work and have taxes withheld from their paychecks have paid millions into Social Security that they will never and can never claim, that money just sits there collecting interest.

[Warren Stupidity]

30. billions, not millions at least 300B in the ESF

The Earnings Suspense File is approximately what undocumented workers have put into the SS trust fund with no hope of ever getting out - it is their gift to us.

[merh]

32. It began with millions and has grown to billions.

LOL

That is probably one of the reasons why there has never been any serious effort to "round 'em up and deport 'em all" - that fund likes the deposits without the responsibility.