Gyroscope
A newsletter
for those unmoved by spin.
No. 57, January 10, 2005
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Gyroscope A newsletter
for those unmoved by spin. |
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| by John Nordin |
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Social
Security: the crisis that isn't there
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We all know that Social Security is dying, won't be there when we retire, won't be there for our kids. We all know that. Have cursed the politicians for not facing the hard facts. Everyone knows this. I've said it more than once. Except - except, it probably isn't true. Not a bit of it. The Bush regime is out to "fix" Social Security and the nonsense is flying around. Recently, Daily Howler and Talking Points Memo have been doing yeomen work in refuting the false stories. The Century Foundation is also a good source of information. Let's review the issues. The numerical data that follows comes from the Social Security Administration itself. |
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Social
Security is going bankrupt isn't it?
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| Bankrupt is a word that we associate with a business going
out of business: closing up shop, selling off its assists, leaving the creditors
holding the bag and just disappearing. Large companies who go bankrupt don't
actually do all that, but that is what we think when we hear the word.
Social Security will not go bankrupt, even if nothing is done to fix the system. What is happening is that between now and about 2018 the system is piling up a surplus. It is taking in more than it is giving out in benefits. After 2018 and running until 2042 or so, the system will give out more than it takes in and use up its surplus. After the surplus is gone, the system will not disappear, instead benefits will have to be cut so that the money going out will equal the money coming in. That might involve a 20 to 30% cut in benefits. Let's say it is a 25% cut. That's not insignificant, but it isn't going out of business. |
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In the 1930s there were 16 workers for every retiree (or 22 or 32) and in the future there is only going to be 2 workers for every retiree so we're all doomed, aren't we? |
| What happened in the 1930s isn't very important. Right now there are 3.3 people working for every retiree and the system is turning a tidy profit. As that ratio declines to 2.5 in 2020 and 2.0 in 2040 more pressure will be put on the system. But the ratio stabilizes and is projected to be 1.9 in 2080. Again, we come back to a significant but not catastrophic shortfall. It's not a change from 16 workers to 2 we have to adjust for, but a change of from 3 to 2. Above 2.6 and the system turns a profit, below 2.6 and we run a deficit. |
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Isn't there a $3 trillion dollar shortfall, or a $7 trillion or $11 trillion one? How can we come up with that money? |
| These numbers are based on money accumulated over a very long
term. Furthermore, few of us realize just how big Social Security is. Right
now there is about $1.5 trillion dollars in assets in the trust fund. Social
Security collected $630 billion last year and issued benefits of $480 billion
to 47 million people. When you're playing in a neighborhood that big, it
doesn't take very long to add up to trillions of dollars. The larger estimates
of deficits are based on projections out to infinity, projections that are
essentially worthless.
Bush's tax cut took more money out of the U.S. Government coffers than the projected Social Security deficit - several times more. |
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But we really don't know how big the problem is, do we? |
| The dates of 2018 and 2042 and the amount of the cut are
all projections based on the ages of the American population, estimates
of how long people work and estimates of economic growth. Change any of
those assumptions, even by slight amounts, and the numbers move around.
Social Security presents three estimates based on optimistic, intermediate
and pessimistic assumptions. All the numbers presented here are the intermediate
cases. So that point of using up the surplus is 2035 under pessimistic assumptions,
2042 under intermediate assumptions and never under optimistic assumptions.
Even the intermediate assumptions use projections for productivity growth lower than recent history, for example. Other people make other estimates. The Congressional Budget Office puts the date for using up the surplus in 2052, not 2042. In fact, the number of years we have until the doomsday date when the
surplus is used up has continued to move into the future as the years
have gone by. Right now it is 37 years away. |
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But that surplus is fiction, just pieces of paper, right? |
| The surplus is invested in U.S. treasury bonds just about the safest financial instruments known. Of course, some thing could happen, nothing is perfect. But this money is as well protected as it would be possible to make it. |
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OK, so I guess everything is just fine? |
| No, everything is not fine, there is a long-term problem.
But the problem is not so amazingly big and disastrous that we can't fix
it. What we should be discussing are the impacts of changing various assumptions.
Income above $90,000 a year isn't taxed, what would happen if it was? The
retirement age for full benefits is being slowly increased, what would happen
if it increased just a bit faster? You can get social security even if your
retirement income is a million dollars a year, what if benefits phased out
slowly for people with retirement income over $60,000 a year? Right now
you pay 6.2% a year in Social Security taxes, what would happen if that
was 6.3%?
These changes and others like them are what we should be discussing. |