Here’s what happened the last time there was a Social Security ‘crisis’ in 1983 when incoming payroll tax receipts were just about to go below the amount of expected benefit payments going out:
- Alan Greenspan was appointed to chair an August national commission to ‘Save Social Security!’.
- Your payroll taxes went up. Way up if you were self-employed.
- The legislation started to push the retirement age for SS up to 66 from age 65 in two-month increments effective in 2003. You now have to be age 66 to receive full SS benefits. (Did you know that?)
Here’s what is going on when the very same thing, payments are out-running payroll tax revenue, is happening to Social Security today:
Nothing. Absolutely nothing.
And here’s our rhetorical question: ‘Why aren’t people going nuts because we are ‘redeeming’ the so-called precious and sacrosanct ‘Social Security Trust Fund Bonds’ that are sitting around in a vault in Parkersburg, West Virginia (seriously, that is were they are) to pay the shortfall we have now?’
The answer to the Jeopardy question in the category, ‘Great Political Acts of Prestidigitation,’ Alex, is:
“There is no ‘true’ SS Trust Fund or bond to redeem! Anywhere in the world! Including Parkersburg, West Virginia!”
It struck us when a recent CBO report came out detailing the myriad of steps that can be taken to shore up the Social Security system (click and see for yourself) so it can be in ‘actuarial balance’ in the year 2085. Some good that will do for us, huh? We are out of cash today in 2010, the ‘surplus’ will be exhausted in 2039 and in 2085, we will be around 130 years old due to amazing new advances in American medicine.
‘Actuarial balance’ is an entirely different thing than ‘reality’ so suspend your belief in ‘trust funds’ and ‘SS surpluses’ when you read this chilling report.
Here is what is going on today, in the ‘real-world’ as we continue to pay out SS benefits, even though there is far less money coming in from payroll taxes due to this nasty recession the Obama White House and Congress said was going to be ‘fixed’ by the massive stimulus bills they passed early in 2010.
The SS checks are still being paid in full to every beneficiary…almost entirely because of continued borrowing from the Chinese and other sovereign nations overseas. Don’t look at the most recently published cash-flows or balance sheets of the Social Security Administration because it will shock you…and we are still paying out full payments each and every month as if everything is just peachy keen and rosy.
‘If’ there was a real trust fund, and ‘if’ there were any real bonds to redeem to pay these commitments to SS recipients, the government would cashing them in and putting that money in a checking account…and then writing the checks to all the seniors. After all, true bonds are assets that can be cashed-in when you need the money to pay your bills and commitments when you are short on income and cash, like during this god-forsaken recession, aren’t they?
Well, in this case, they are not…not by a long-shot. What is going on right now is precisely what is going to happen when the so-called ‘actuarial balance’ is reached in a number of years. The ‘fake’ bonds are going to be ‘redeemed’ just like they are today…an accounting entry is made to debit the SS account for the amount of the shortfall and that is it.
The actual money that is being used to pay the SS commitments is borrowed from someone like the Chinese to pay the SS benefits. Congress could say that every other federal program is going to be reduced to pay the shortfall in these current SS benefits, but it won’t. Congress could raise taxes to pay for this shortfall in SS benefits, but they aren’t. Or Congress could pass some combination of spending cuts/tax hikes to pay for this shortfall, but they will not.
The same thing is going to happen in 2039 when the SS ‘surplus’ runs out and payments to seniors still need to be made. We are most likely going to continue to borrow these funds from the Chinese and Japanese…until they decide they are not going to loan us any more of their money.
The only way to correct the problem is to reduce benefits in some fashion beginning now for all future retirees, like all you Boomers out there, such as raising the retirement age or means-testing among other options in the Social Security Options paper noted above.
(But not on any currently retired person over the age of 66…you are ‘olly-olly-oxen home free’ so this debate is of no concern to you going forward)
The resistance to raising taxes on anyone nowadays, especially in the worst recession since the 1930’s, is so overwhelming that the only place to reduce the stress on the entire system is to make the logical changes to bring SS (and Medicare while we are at it) into more balance with the realities of longer life expectancies and improved health outcomes.
There is no other way around it. The time has come to pay the piper since all the chickens have come home to roost, to mix a few metaphors if you don’t mind. We might as well start doing it today and save our kids a lot of money and headaches down the road.
Frank Hill has served as chief of staff to former Congressman Alex McMillan (R-N.C.), House Budget Committee staff, Commission on Entitlement and Tax Reform staff, and as chief of staff to former Sen. Elizabeth Dole (R-N.C.).