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It's offical Social Security is in the RED! What does that mean?

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2010-06-14 10:20 PM

LLBarry
Beverly, MA
Posts: 299

According to this article, Social Security for the first time went into the red during the first half of 2010. Initally, it was not supposed to go red until 2015.

So what caused the early situation?
The economy has forced many people into early retirement and thus they now are relying on social security.

Is social security going to stop paying out?
No, the trust fund will continue to pay out benefits until at least 2037. However, the trust fund does not contain actual assets and as such taxpayers will be paying the diference.

Now what?
If we wish social security to continue, it needs to be revamped and Obama's administration needs to get on this and WE need to tell our senators to get on this as well.

What are your thought's should social security continue?

2010-08-10 09:29 AM

Schmidt
Colorado Springs, CO
Posts: 852

When one thinks about the so called Social Security Trust Fund, one must not forget that it was largely funded by poor and middle class payroll tax dollars plus matching funds from businesses. It is a regressive tax in the sense that once your income exceeds the annual cap, you do not pay into it any more for that year.

For example, in 2009 and 2010 you will be taxed at 6.2 percent on all of your earnings up to the cap of $106,800. If you make exactly that much your SS tax liability for 2010 is $6,621.60. Your employer will also match those funds bringing the total to 12.4 percent. Self employed people have to pay the full 12.4 percent themselves.

Now a person making $1,000,000 per year (excluding interest and capital gains) will also pay just $6,621.60 in SS taxes, resulting in his effective tax rate of 0.66216 percent. A person making $10,000,000 will pay 0.066216 percent. You get the idea. It's a regressive tax. The more you make the less you pay as a percentage of your income. Considering the interest and capital gains are not subject to SS payroll taxes, the rich make out even better than these percentages show.

Both the Social Security Administration Trustees and the Congressional Budget Office put out annual reports on short and long term projections of Social Security and in particular, the Social Security Trust Fund. At yearend 2009, the value of that fund was $2.54 trillion dollars. The SSA expects that the fund will increase in value to $3,774 trillion by 2019, at which time the Trust Fund will have to be tapped to make up the difference between revenues and expenditures. The date at which the trust fund is exhausted is highly dependent on the accuracy of the assumptions used to forecast the long term. The SSA estimates that year at 2037, but the CBO using a slightly different set of assumptions puts that date at 2049. If nothing else changes, the SSA states that SS benefits will have to be reduced by 22 percent in 2037. On the other hand, the CBO estimates a reduction of only 16 percent in 2049.

Having been involved with my previous employer in long term economics, I can appreciate how tweaking one number like expected future inflation rate can have a large effect on future projections. I don't doubt the professionalism of the respective staffs at the SSA and CBO that turn out these projections. It's almost like making long term projections of climate change.

So with all these inherent inaccuracies about projections some 30 years into the future, why the political noise about Social Security going bankrupt and such? The answer my friends lies in the tax dollars used to pay for the benefits. Remember the so called SS Trust Fund is largely accumulated from a regressive tax base plus interest...a payroll tax on essentially 100 percent of the earnings of poor and middle class tax payers and a considerably smaller percentage for the rich. For simplicity I will give it a new name: The Regressive Tax Fund.

Congress in 1983 made no provisions to invest the excess SS payments to the Regressive Tax Fund in tangible assets like the S&P 500 and or precious metals. Instead every excess penny not spent went to the General Fund, a progressive tax fund that largely taxes the middle class and rich. So in effect over the last 27 years, the Progressive General Tax Fund has "borrowed" every penny from the Regressive Tax Fund, which therefore has no real assets at this time. And with the day of reckoning in 2019 fast approaching, the super rich would just as soon not have to pony up money to repay money from the Progressive Tax Fund back to the Regressive Tax Fund.

So they use think tanks like the Heritage Foundation to scare people into believing SS is going bankrupt and that Congress needs to act NOW to cut benefits or increase the annual cap on SS payments. Doing anything like that now just pushes further into the future the date that the Progressives have to repay the Regressives. That's the crux of my argument that you will not find in the intellectually dishonest right wing think tank websites that are funded by the super rich for the super rich.

My own opinion is to do absolutely nothing about changing SS taxes or benefits until the Progressive Tax Fund pays back about 90 percent of the funds "borrowed" from the Regressive Fund and then tweak the formula as necessary to make it pay as you go (PAYGO). That date will likely be sometime in the late 2030s or early 2040s or maybe even much later depending on how the economic assumptions hold up.

Thoughts? I put this out for discussion to see if anyone can pick holes in my analysis and will gladly admit any mistakes.

2010-08-12 07:20 AM

Schmidt
Colorado Springs, CO
Posts: 852

I should make one more point about the Social Security Trust Fund (the Regressive Tax Fund) above. It's original intent of making excess payments to the fund was to provide for a "retirement bubble" when the baby boomer generation decides to retire. Baby boomers are defined as those born in the post World War II years of 1946 to 1964. Wikipedia has a neat graph that shows this.

Just take that 18 year spike in the curve and slide it forward to the years 2012 to 2030. That's the period when the majority of baby boomers will retire, and instead of being contributors to Social Security, they will now start being beneficieries of Social Security, thereby placing an extra burden on those following generations that are still working and contributing.

Slide the bubble in the curve even more forward to the years 2028 to 2046. That's when actuaries say most of us baby boomers will have died off for good and no longer be a burden on the retirement system. But hey, aren't those dates pretty close to those dates estimated by the SSA (2037) and CBO (2049) at which the SS Trust Fund is exhausted? Well maybe the SS Trustees date is more conservative, but as I mentioned before, projecting the accuracy of these dates is subject to considerable uncertainty. So in effect the making of excess Social Security paymants in theory did pretty much what it was intended to do...provide for the baby boomer generation's retirement.

Well that sounds nice doesn't it? Except that the Social Security Trust Fund (Regressive Tax Fund) is empty of any money (every penny "borrowed" by the Progressive General Tax Fund over the past 27 years). So in effect the idea of saving for this fund to cover the extra costs of the baby boomer retirements is moot because every penny to cover us baby boomers will have to be paid out of the Progressive General Tax Fund anyway. We can thank Ronald Reagan for that, the "savior" of Social Security. But hey it's been a good con job and the reality of the con job will become apparent in the next few years as people like me become an extra burden on the young workers of America. It is ripe for setting up a new class warfare...the aged versus the young.

Unless, of course, politicians use the false premise of "Social Security going bankrupt" to place a further burden on the middle class and poor by cutting SS benefits or extending the regressive tax base. The problem, however, is not really a Social Security problem. It's a $3.8 trillion dollar "borrowing problem," and who ultimately ends up paying for that problem. My guess is that it will be as always...the poor and middle class.

2010-08-24 01:33 AM

Tony
Hawthorne, CA
Posts: 1

Let's put into plain english what Frank was trying to explain, and clarify one or two of his errors:

"This is what actually happens. When Social Security receipts exceed the amount needed to pay benefits, the surplus goes into the so-called trust fund. That money is then instantly spent by the federal government on whatever current expenditures the government chooses to use it for. It is not earmarked for a specific individual; it is not even earmarked for retirement payments in general. It is devoted to expenditures that are totally unrelated to Social Security, therefore, is not sitting there waiting to be paid back to them in their retirement; much less is it productively invested and earning interest. Some of it goes from their pockets directly to current Social Security recipients, and some goes to the federal government’s general expenditures.
After raiding the trust fund, the government then replaces the money with special non-marketable Treasury bonds…The problem here goes well beyond the fact that these are rather dubious assets, since they are special-issue bonds that cannot be sold on the open market…When the time comes that Social Security receipts are not sufficient to cover the benefits owed to recipients[as in, from now on], the bonds in the trust fund will have to be redeemed. And again, since the federal government has no money that it hasn’t first taxed away from Americans, the money to cover those bonds will come from the taxpayers [in the form of additional taxes]." -see Woods, Thomas E., Jr., 33 Questions About American History You’re Not Supposed to Ask, 106-113

So this was the original Ponzi scheme, created by FDR and his fellow progressives, some 70 years ago. Reagan had nothing to do with the current crisis facing SS, or, as you want to refer to it, the "Regressive Tax." You do well to refer to it as a tax, although when it was originally sold to the American people they vehemently denied that it is a tax (kinda like the current health care "reform").

It is interesting to note the failsafe that Congress included in the original wording of the SS bill/law:

"The right to alter, amend, or repeal any provision of this Act is hereby reserved to Congress.”

So, in plain english, Congress can, at any time decide, "Okay, we're done with 'Social Security'" Or worse, they can decide who may continue to receive it and who will be left on their own. With our present, Democrat-controlled Congress so tightly intertwined with Wall Street and Big Unions, where will that leave you? We are currently, and will likely forever after be in the red as far as this stupid program is concerned, so how will Congress "alter, amend or repeal" the law now that we are in a jam (and with all of the other wonderful and inspired "entitlement" programs that have been created-by FDR, LBJ, and again in the last 18 months--the jam will only get exponentially worse, because there is only so much payroll to tax, and only so much money to print, before the economy completely collapses...)

2010-08-26 01:14 PM

chipper
siskiyou county, CA
Posts: 41

There seems to be some confusion about the SS trust fund.

The SS taxes collected and not spent are invested in U.S. treasury notes. Just like the money we borrow from China or other sources. There is plenty of money there.

My gripe is about grandstanding congressmen who moan about the deficit and say we have to cut entitlements like SS and Medicare without acknowledging that they are paid for by their own taxes on working people.

Why are these endless wars not considered when looking for ways to cut the deficit?

2010-08-26 03:10 PM

EL PREZIDENTE KABOOM
Dallas, TX
Posts: 700

Aloha,

While Frank is off vacationing, I'd thought I'd step-in for him to clarify the crux of his argument......

Basically, the government has been borrowing from SS payroll taxes to pay for taxcuts to the wealthy. They have not invested the money, they have issued promissary notes. The system paid for itself and more and that is the problem. The politicians raided the liquid extra funds (SS trust-fund contribitutions) to offset revenue decreases from the federal income tax, and ultimately, the government will now have to raise taxes or borrow, inorder to honor its word on the SS Trust Fund. If it had all been set aside and invested properly, it could have easily maintained the solvency of the system during the boomer retirement period and beyond. Its wasn't a Ponzi scheme that got us here, it was a robbery to pay for an upward wealth-transfer. While Reagan cut federal income taxes more than he rose them, entitlement payroll taxes went up during his administration. This is how revisionist rightwingers claim that his taxcutting policies actually rose tax revenues, by leaving out that the increase in tax revenues is overwhelmingly due to the raid orchestrated on the SS Trust Fund and other entitlement accounts.
Hopefully, Frank will be back soon to add to this...or point out anything that I might have wrong here.

Mahalo,

El Prezidente Kaboom

2010-08-27 09:29 AM

chipper
siskiyou county, CA
Posts: 41

I appreciate the reply, El Prezidente. But I don't get this part: " They have not invested the money, they have issued promissary notes."

What is the difference between the notes issued to the trust fund and the notes issued to individuals (or foreign nations) when one buys T-bills? I don't think you would want those funds invested on wall street. That would eventually destroy SS.

When the day comes that the government can't cover those notes SS won't be our problem. The government will have collapsed.

2010-08-27 03:51 PM

EL PREZIDENTE KABOOM
Dallas, TX
Posts: 700

Well...and again Frank mentions this stuff.......the SS trust fund is filled with intergovernmental held-debt, or IOUS held by the Social Security Administration redeemable only with the U.S. Treasury........they're like T-bills...except they can't be sold on the open market. According to Frank......when SS was in the black. .we should have invested a portion of the SS Trust fund in precious metals, commodoties, and high grade commercial paper and bonds, instead it all went into the General Fund with the government swapping the income going into the SS trust fund for IOUs. Now that it's in the red, the progressive federal income tax has to pay for the shortfall. There's enough in IOUs to maintain the solvency of the system, but can the government pay all of it out?   The consensus is that it cannot without fiscal change.

Even if we end all the war abroad, we will still need to raise taxes on the rich inorder to cover these IOUs and other entitlement shortfalls expected in the future with Medicaid and Medicare.    In short, we're doomed. Hold on to your love ones tight. And build yourself a bomb shelter stocked with plenty of weapons, ammunition, canned food, medicine, and bottled water. The rightwingers will not stop until they've completely skull fucked the American dream. A Whirlwind is coming. The social mood demands destruction. "And All That Could Have Been" (NIN) will never be done.   We are entering a period of "SURVIVALISM." According to the polls, the American people are buying the Rightwing ticket, and we're all going to take one, hellishly fucked up ride. GO TO DEALEY PLAZA IN NOVEMBER! DEMOCRATS UNITE!

My name is El Prezidente Kaboom.....and I'm very proud to be a Democrat.

Mahalo, VIVA Raoul Duke!

2010-08-28 09:04 AM

chipper
siskiyou county, CA
Posts: 41

Investing SS in comodities, etc. is a bad idea. I would prefer that it not be subject to the boom and bust cycles our economy experiences.

Our service economy is unsustainable. That's why SS should not rely on it. Just raise the cap on contributions and we can limp along and maybe the economy may someday evolve into something that works..

I was a Democrat until Bill Clinton turned the party into Republican Lite. NAFTA, CAFTA - clear illustrations that we have a political system with two right wings.

But that's just how it looks to this blue collar guy who sees the dawn of neo-feudalism in America.

2010-08-28 09:11 PM

EL PREZIDENTE KABOOM
Dallas, TX
Posts: 700

Well the idea is that these investments would be held for a long time.....potentially outlasting any boom or bust cycle....I get what you're saying though......and let me be clear, I'm not for privatizing the system. There would have been riots in the streets in the fall of 2008, if Social Security had been privatized.

Now as far as the Clintonian 'rightwing' is concerned, I wouldn't exactly call him Bubba Bush, or Ronny Reagan.......Clintonian thirdway politics does represent a departure from the traditional dichotomy....and I would say, we were the better for it, even with mistakes like NAFTA, CAFTA, and other WTO, IMF, and Worldbank schenanigans.

But the reality is.....if Bill Clinton is a Republican......then the 'Republican' Republicans are actual NAZIs.....no ands ifs or excuses about it.....
and a vote for a Green instead of a Democrat is a vote for the holocaust.

Push the Democrats to the left....don't renounce the Party.....if you think Clinton is a rightwinger, well fuck him......but don't secede what it means to be a Democrat to others......define it yourself.

I represent the GONZO wing of the Democratic Party, and I'm here to tell you.....my party has a big tent ....the biggest tent of all....and we're fighting for Truth, Justice, and an American Way that doesn't kill us all. And We're The Last and Best Hope For All Mankind. Period. Join the right side of history. Help us defeat the Lizard Beasts. Help us defeat all that is cruel and viscious in the American character. Support your President. Fight for Obama.

Mahalo,

Kaboom

2010-08-29 09:53 AM

chipper
siskiyou county, CA
Posts: 41

I see what you are saying. El. And while I'm registered Green my votes have been cast for Demos. Mostly because the Greens have not put up viable candidates.

Since Nixon both parties have given business one-way trade treaties that allowed them to turn from manufacturing to importing, giving us this unsustainable economy. Now that it has collapsed there is nothing left to help us climb out of this depression. The tax code has been modified to shift the tax load to the less affluent. We are in a state of permanent war.

The Demos are better than the Repubs. But only incrementally.

Maybe the cost of constant campaigning forces all candidates and office holders to seek funds from the same sources. Therefore no candidate can win office who isn't pretty much the same on those basic corporate policies that open the donation spigots.

Unless an other FDR comes along, an unlikely event given the current political mindset, all that made America a good place to live will be gone. I see foreign domination in our future.

2010-08-29 02:19 PM

EL PREZIDENTE KABOOM
Dallas, TX
Posts: 700

Worried about the Chinese, eh?
The deficit, whew, huh?

All the more reason to support the ones FIGHTING FOR THE CORE....

The Gonzo Left is American, not American't, and neither the deficit, nor the Chinese aren't anything that we can't handle....
so long as the Republicans aren't allowed to destroy our position even further.

Kaboom

2010-08-30 07:50 AM

chipper
siskiyou county, CA
Posts: 41

I'd like to know more about the Gonzo Left.

The way things have been redefined I no longer know where the line is that defines the middle. A centrist today is yesterdays conservative.

A moderate Democrat today is yesterdays right wing Republican.

What is middle class? It used to be merchants and Doctors. Today it's everyone not dirt poor or filthy rich.

2010-08-30 09:34 AM

Schmidt
Colorado Springs, CO
Posts: 852

I’m still on the road stimulating the beer and restaurant economy, and I notice that the several threads on this Social Security discussion have evolved. Nevertheless, I will chime in and clarify some of my earlier postings. Kaboom has done a great job hitting on the key issues of social security, but I will add my two bits worth.

First, it’s the cap on Social Security that makes it a regressive tax and yes that cap was always there from the earliest days. But until 1983, the Social Security was “pay as you go” or PAYGO. That is Congress had to approve funds every two years to meet the needs of retirees for the next two years. In principle there is nothing wrong with PAYGO…I support it. However, many conservative politicians hated it because it put them into the untenable position of having to approve funds every two years for what they perceived as “socialism.” Actually they hated Social Security period and were constantly looking for ways to undermine it. Among those critics was Ronald Reagan who advocated for making SS optional and allowing individuals to “invest” their SS taxes…kind of like the current 401Ks.

So in those years when those government economists, whose job it was to forecast the SS revenue and payments, under estimated the payments, the conservatives used it as a propaganda tool to claim the SS was “going to bankrupt the nation.” Yes that was one of the favorite media talking points in the late 1970s and early 1980s. I don’t want to be too critical of the economists at the SS Administration or the CBO. It is a very difficult and tenuous job to forecast a few years into the future, let alone 30 or more years. Hell they weren’t even able to predict the current recession when it started two years earlier. The public seems to expect perfection and exactness in economic forecasts that are often not any better than weather forecasts. But it is that inexactness that provides political fuel for those politicians that choose to capitalize on it.

With talk of SS bankruptcy in the early 1980s, Ronald Regan appointed Alan Greenspan to head up a bipartisan commission to “fix” SS once and for all. There were several options available to them and I’ll just name a few.

They could have lowered SS taxes for the middle class and poor by removing the cap on income and making it a flat tax (similar to medicare) and keeping it PAYGO.

They could have lowered SS taxes for the middle class and poor by extending the tax to interest, dividends and capital gains and keeping it PAYGO.

They could provide for a future surplus to cover the baby boomer generation by keeping the tax rate the same, but increasing revenues by removing the cap and/or extending the tax to cover interest, dividends and capital gains. And then invest that surplus in tangible assets like the stock market and precious metals. This was part of what Ronald Regan argued for at one time…the ”investing” part…not the additional taxes.

They could have done any or all of these things, but they didn’t do any of them. Instead they raised the payroll taxes on the middle class and poor, keeping the cap in place to preserve the regressive tax, and then, by not designating how these annual surpluses should be “invested”, by default allowed these funds to go directly to the treasury to be spent. One can argue about the “special issue bonds” all you like, but they are not the same as the government bonds held by the Chinese and Japanese. I have no doubt that we’ll never renege on those obligations. But the special issue bonds that we “owe to ourselves” will become a political football as our government is faced with honoring this debt at the same time we are faced with massive deficits. And if the conservative right wing and tea partiers ever take control of government, we can be sure that SS benefits will be cut to “save Social Security” once again.

It just gets under my skin when I read about how Ronald Regan and Alan Greenspan are heralded for “saving Social Security.” They didn’t save anything. They just kicked the can down the road 30 plus years and in the process extracted more tax revenues from the middle class and poor to finance the Reagan tax cuts for the rich. It’s been a hell of a free ride for the rich and one of the biggest con jobs done on the public in history. The sad thing is that the public doesn’t even know it…not yet.

My two bits worth as I drink a Moosehead here in Vancouver, BC. I wrote this last night with Moosehead on my brain but will post it this morning.

2010-08-30 11:24 AM

EL PREZIDENTE KABOOM
Dallas, TX
Posts: 700

What up, Frank! Good to hear from ya' ...glad you commented....cause I'd like to compare your style of politics to my own for the sake of explaining to chipper what the Gonzo left is......

But let us begin with what it means to be a liberal:

"I believe in human dignity as the source of national purpose, in human liberty as the source of national action, in the human heart as the source of national compassion, and in the human mind as the source of our invention and our ideas. It is, I believe, the faith in our fellow citizens as individuals and as people that lies at the heart of the liberal faith. For liberalism is not so much a party creed or set of fixed platform promises as it is an attitude of mind and heart, a faith in man's ability through the experiences of his reason and judgment to increase for himself and his fellow men the amount of justice and freedom and brotherhood which all human life deserves." - excerpt...

JFK
Acceptance Speech of the New York Liberal Party Nomination
September 14, 1960

Displaying 1 - 15 out of 25 Forum Posts for the Thread:

It's offical Social Security is in the RED! What does that mean?

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