Attacking Social Security
By PAUL KRUGMAN
NYT
Social Security turned 75 last week. It should have been a joyous occasion, a time to celebrate a program that has brought dignity and decency to the lives of older Americans.
But the program is under attack, with some Democrats as well as nearly all Republicans joining the assault. Rumor has it that President Obama’s deficit commission may call for deep benefit cuts, in particular a sharp rise in the retirement age.
Social Security’s attackers claim that they’re concerned about the program’s financial future. But their math doesn’t add up, and their hostility isn’t really about dollars and cents. Instead, it’s about ideology and posturing. And underneath it all is ignorance of or indifference to the realities of life for many Americans.
About that math: Legally, Social Security has its own, dedicated funding, via the payroll tax (“FICA” on your pay statement). But it’s also part of the broader federal budget. This dual accounting means that there are two ways Social Security could face financial problems. First, that dedicated funding could prove inadequate, forcing the program either to cut benefits or to turn to Congress for aid. Second, Social Security costs could prove unsupportable for the federal budget as a whole.
(More here.)
NYT
Social Security turned 75 last week. It should have been a joyous occasion, a time to celebrate a program that has brought dignity and decency to the lives of older Americans.
But the program is under attack, with some Democrats as well as nearly all Republicans joining the assault. Rumor has it that President Obama’s deficit commission may call for deep benefit cuts, in particular a sharp rise in the retirement age.
Social Security’s attackers claim that they’re concerned about the program’s financial future. But their math doesn’t add up, and their hostility isn’t really about dollars and cents. Instead, it’s about ideology and posturing. And underneath it all is ignorance of or indifference to the realities of life for many Americans.
About that math: Legally, Social Security has its own, dedicated funding, via the payroll tax (“FICA” on your pay statement). But it’s also part of the broader federal budget. This dual accounting means that there are two ways Social Security could face financial problems. First, that dedicated funding could prove inadequate, forcing the program either to cut benefits or to turn to Congress for aid. Second, Social Security costs could prove unsupportable for the federal budget as a whole.
(More here.)
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1 Comments:
reading Paul Krugman is like going to a comedy act - you are just bound to find yourself laughing hysterically at the buffoonery. he can't even admit Social Security (SS) is a Ponzi Scheme and that it is under attack from its the weight of its own structural deficiency.
SS has been under attack since the day it was started because like any other Ponzi Scheme it can only remain solvent as long as there are more new investors than there are old investors. In a Ponzi Scheme a promise is made to a first investor. A larger promise is made to a second investor and the money from second investor is used to pay off the first investor...and on and on it goes. So, what happens when the system runs out of new investors and the escalating promises to prior investors have to be met? Well, the system collapses. SS is structured in exactly the same way. SS has been a wonderful program for the past 65 years because there have always been more never investors than older investors to be paid. If I run a Ponzi Scheme, I can rip off investors and make it look like everyone is getting their return on their investment....until I run out of new investors.
So, who are the new investors in SS? Successive generations. SS will remain a wonderful program as long as we have an ever-expanding population. the problem is today, that we no longer have an ever-expanding population. Our fertility rate is about even at 2.1. For SS to remain solvent and for it to meet the promised obligations, our fertility rate needs to be between 3 and 4 - forever. And 2010 is the first year that SS started paying out more in benefits than it took in. Ask Tom Pedders or Bernie Madoff about what happened to them when they finally started running out of money with their Ponzi Schemes. And just because the government runs a Ponzi Scheme does not mean it is more benevolent.
Regardless of reforms that tinker with the edges - raising the retirement age, means testing, raising the FICA tax cap, reducing benefits - none of these will do anything to stave off the eventual SS collapse. We have raised the FICA tax from 1% in 1935 to over 15% in 2010 and it's still not enough.
Oh, and that SS Trust Fund you may have heard about? well, that Trust Fund is really a special treasury bond that Congress put in place of money it borrowed from SS over the past 75 years while SS was running a surplus. When SS was taking in more in payroll taxes than it was paying out in benefits, previous Congresses would take those surplus dollars out of SS and replace them with special Treasury Bonds and then spend the surplus money on programs of the day. So, now that SS is running a deficit, the SS Administration will take one of these special Treasury Bonds and go to the Treasury to be redeemed. But, the Treasury doesn't have any money to redeem them, so the Treasure will go to Congress who will either have to raise taxes or borrow money to redeem the SS Bonds. We are then paying for the same dollars twice - once when we had the payroll tax and again when we have to pay to redeem the 'Social Security Trust Fund' bonds.
And now that reported unemployment is at 10% and reported + unreported unemployment is nearly 20%, the 15% FICA tax is not enough to pay current retirees and the system will be terminal in a matter of a few years.
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