Archive for the ‘money’ Category

Social Security Taxes Pay for Social Security

12 October 2011

Social Security taxes pay for Social Security. Now, I can’t say, “It’s just that simple,” because there are a few fine points. A lot of people don’t know about the fine points, or they have wrong ideas about what the fine points are. Let me run a couple by you:

1. Social Security taxes are a stream of money from workers’ earnings into the U.S. Treasury. Social Security benefits are a stream of money from the U.S. Treasury to retired workers, disabled workers, and to spouses and to children of retired, disabled, or deceased workers. The stream of money in, over the long term, should balance the stream of money out. Whether they are balanced or not depends on detailed analysis that is beyond the ken of most of us. That doesn’t mean a workable balance can’t be achieved. It just means our government has to employ some nerdy financial types to collect information and crunch numbers, and we have to apply their knowledge in structuring the taxes and benefits.

2. Keeping Social Security money flows balanced for the long term entails dealing with the baby boom, which swelled the work force for several decades and now will swell the retired population for the next couple decades. For the last 30 years, the way we approached this has been to set Social Security tax rates high enough that Social Security would pile up enough extra money while the baby boomers were working to be able to pay them their benefits when they retired.

I will have further points in later posts, but these two points are a good start. Both 1. and 2. are real governing principles of Social Security, and they are good principles. However, the latest information from the Social Security trustees is that the tax and benefit schedules aren’t quite balanced for the long term, so if we are to follow those principles, some adjustments are called for.

The rest of the federal budget, unfortunately, is a lot further out of whack. We need to keep focused on fixing the general budget, and we ought to get going on that before we touch a hair on Social Security’s old gray head.