Posts Tagged ‘social security’

The Trust Fund Is Real, and It Can Deliver

19 October 2011

When anyone tells Social Security doomsayers that the baby boomers are provided for by the Social Security Trust Fund, they tend to say that the trust fund is not real, that it is an accounting gimmick, that it doesn’t matter because the United States government still has to come up all that money it needs to pay the trust fund back, which is gong to be, like, impossible. Therefore, disaster looms.

The doomsayers have it wrong. These claims don’t hold up to scrutiny.

The trust fund is real, because it exists by law and the trustees of the Social Security system by law have the authority to redeem the Treasury obligations in the trust fund whenever they need to.

But when the Treasury needs to pay off those obligations so that baby room retirees can get their benefits, won’t that put an insupportable burden on the taxpayers? No. There will be a considerable burden, but it won’t be of any larger scale than several other major spending needs and debt repayments.

The total debt of the US Treasury at the present is 15 trillion dollars, and 2.5 trillion of that is owed to Social Security. So Social Security is a big chunk of debt but still only one sixth of the total.

To recap, then, is there money set aside to pay benefits to retiring baby boomers? Yes. Is it reasonable to believe that the government can deliver that money when it is needed? Yes.

For a later post, I’ll cover the issue of whether Social Security revenues, backed up by the trust fund, are really going to be enough to pay retirees for the foreseeable future. But the trust fund is there and will be needed, along with continued payroll tax contributions from working Americans.

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.