WP - Social Security trust fund will be empty in less than 20 years

[HeadedWest2029]

Title seems alarmist until I pan down to the following quote:

Once the cash reserves are gone, the administration will only have enough revenue to pay about 75 percent of benefits through 2090

https://www.washingtonpost.com/news/get-there/wp/2016/06/22/social-security-and-medicare-still-face-shortfalls-trustees-say/

If that's worst case scenario, sign me up for 75% of the benefits. 

[mxt0133]

It will never get to 'reduced' benefits.  What they are doing is not increasing the limits where taxes are taken from you benefits*.  The current income limits have not been adjusted in years.  So as people earn more and receive more benefits, more of those benefits will be taxed effectively reducing benefits.

There will also be slight adjustment like increasing FICA taxes, increasing the income limits on FICA taxes, and last but not least increasing retirement ages.

**"For individual (single) tax filers, if your combined income is between $25,000 and $34,000, 50% of your Social Security benefits may be subject to income tax. If your combined income is more than $34,000, up to 85% of your benefits could be taxable.

For joint filers, the income thresholds increase to a range of $32,000 to $44,000 for 50% taxation, and $44,000 and above for 85% taxation. Under no circumstances is more than 85% of your Social Security benefit subject to taxation, no matter how much income you have."

[dcheesi]

It will never get to 'reduced' benefits.  What they are doing is not increasing the limits where taxes are taken from you benefits*.  The current income limits have not been adjusted in years.  So as people earn more and receive more benefits, more of those benefits will be taxed effectively reducing benefits.

There will also be slight adjustment like increasing FICA taxes, increasing the income limits on FICA taxes, and last but not least increasing retirement ages.

**"For individual (single) tax filers, if your combined income is between $25,000 and $34,000, 50% of your Social Security benefits may be subject to income tax. If your combined income is more than $34,000, up to 85% of your benefits could be taxable.

For joint filers, the income thresholds increase to a range of $32,000 to $44,000 for 50% taxation, and $44,000 and above for 85% taxation. Under no circumstances is more than 85% of your Social Security benefit subject to taxation, no matter how much income you have."

And you're certain that all that hasn't already been factored into their calculations? Since it's part of the legal status quo, it seems like it would be included in any model they would use for their projections.

[mxt0133]

And you're certain that all that hasn't already been factored into their calculations? Since it's part of the legal status quo, it seems like it would be included in any model they would use for their projections.

Most studies done with regard to Social Security deficits and benefit reduction assume that no changes current in policy are taken into account.  It's really the only way they can run projections 30 years out with certainty.  I could be wrong tough and we are really FUCKED!!

[dandarc]

Not sure how that particular factor helps, mxt.  That raises income tax - general tax not earmarked for social security.  Congress would have to act to authorize the additional money be sent to the SSA, no?

[doggyfizzle]

Good, the trust fund was designed to be depleted.  It's impressive that the program hasn't had a major revision in insurance premium (tax) rates since the 1990s to account for longer benefit drawing periods but will still be able to pay out an estimated 75% of benefits.

[woopwoop]

We'll never see significantly reduced benefits because senior citizens make up the largest voting block and politicians know they have to keep them happy. Social Security isn't going anywhere, even if they have to harvest organs from millenials in order to fund it.

[GizmoTX]

There has never been a trust fund -- it's always been Pay As You Go. This model generated a surplus in the beginning because there were many more workers being taxed to cover the few collecting, who usually died by 70. We now have the perfect storm of the reverse: too few workers paying payroll taxes to support the very large & growing number of baby boomers, of which 50% could now statistically live to 90 years old. Pay As You Go, aka ponzi scheme, is unsustainable. The benefit age will have to be raised & benefits reduced -- taxing benefits effectively does this. Dramatically improving the economy would boost employment & help turn this around, but it won't happen if the march to socialism continues.

[MilesTeg]

There has never been a trust fund -- it's always been Pay As You Go. This model generated a surplus in the beginning because there were many more workers being taxed to cover the few collecting, who usually died by 70. We now have the perfect storm of the reverse: too few workers paying payroll taxes to support the very large & growing number of baby boomers, of which 50% could now statistically live to 90 years old. Pay As You Go, aka ponzi scheme, is unsustainable. The benefit age will have to be raised & benefits reduced -- taxing benefits effectively does this. Dramatically improving the economy would boost employment & help turn this around, but it won't happen if the march to socialism continues.

Only partially true. There is technical a trust fund that is supposed to be full of the 3 trillion+ in net revenue from FICA taxes, but we decided in the 80s to allow the federal government to "borrow" from the trust fund so there is no actual trust fund as all the revenue has been taken and used for other purposes.

[GizmoTX]

Social Security was originally sold with the "trust fund" language, but it has never functioned that way. The IOU nonsense was simply an excuse to justify spending the surplus, which was in reality overtaxation. It's as noneffective as writing an IOU to yourself.

[Drifterrider]

Social Security was originally sold with the "trust fund" language, but it has never functioned that way. The IOU nonsense was simply an excuse to justify spending the surplus, which was in reality overtaxation. It's as noneffective as writing an IOU to yourself.

Except that:  In the future we get to "pay ourselves back with interest" from the general fund.  So we get to pay more taxes to replace the taxes we already paid, that was spent on "other than social security".

If it were anyone but congress, they would be in jail.

[Spork]

Original language, just for fun:

Meanwhile, the Old-Age Reserve fund in the United States Treasury is drawing interest, and the Government guarantees it will never earn less than 3 percent. This means that 3 cents will be added to every dollar in the fund each year.

and my favorite:

After the first 3 year--that is to say, beginning in 1940--you will pay, and your employer will pay, 1.5 cents for each dollar you earn, up to $3,000 a year. This will be the tax for 3 years, and then, beginning in 1943, you will pay 2 cents, and so will your employer, for every dollar you earn for the next 3 years. After that, you and your employer will each pay half a cent more for 3 years, and finally, beginning in 1949, twelve years from now, you and your employer will each pay 3 cents on each dollar you earn, up to $3,000 a year. That is the most you will ever pay.

Get that?  It was sold as employer + employee amount was 6% and that was the most you would ever pay.

from: https://www.ssa.gov/history/ssb36.html

[MoneyCat]

The solution is obviously to raise the age of retirement because clearly if people are living into their 70s, then they can continue working into their 70s. The human body does not break down and age no longer affects the ability to work because... reasons, I guess.

[randymarsh]

I don't get the disagreement about the trust fund. The money in the trust fund is used to buy US Treasuries right? Those are basically IOUs from the government, no? So the trust fund has always been one big IOU.

[SteveRyeCurd]

From Wikipedia:

Unlike a typical private pension plan, the Social Security Trust Fund does not hold any marketable assets to secure workers' paid-in contributions. Instead, it holds non-negotiable United States Treasury bonds and U.S. securities backed "by the full faith and credit of the U.S. government". The trust funds have been invested primarily in non-marketable Treasury debt, first, because the Social Security Act prohibits "prefunding" by investment in equities or corporate bonds and, second, because of a general desire to avoid large swings in the Treasuries market that would otherwise result if Social Security invested large sums of payroll tax receipts in marketable government bonds or redeemed these marketable government bonds to pay benefits.

The Office of Management and Budget has described the distinction as follows:

These [Trust Fund] balances are available to finance future benefit payments and other Trust Fund expenditures – but only in a bookkeeping sense.... They do not consist of real economic assets that can be drawn down in the future to fund benefits. Instead, they are claims on the Treasury that, when redeemed, will have to be financed by raising taxes, borrowing from the public, or reducing benefits or other expenditures. The existence of large Trust Fund balances, therefore, does not, by itself, have any impact on the Government’s ability to pay benefits. (from FY 2000 Budget, Analytical Perspectives, p. 337)

Source: https://en.wikipedia.org/wiki/Social_Security_Trust_Fund

[forummm]

It will never get to 'reduced' benefits.  What they are doing is not increasing the limits where taxes are taken from you benefits*.  The current income limits have not been adjusted in years.  So as people earn more and receive more benefits, more of those benefits will be taxed effectively reducing benefits.

There will also be slight adjustment like increasing FICA taxes, increasing the income limits on FICA taxes, and last but not least increasing retirement ages.

No, that's something they *could* do. Under current law, the actuarial report the OP cited is correct. Any changes to the program are speculative. If they change nothing, we could still get 75% of benefits. And not changing the level on benefits taxation doesn't put more money into the trust fund--it puts money in to the general Treasury. The law does not credit that money back to the trust fund.

There has never been a trust fund -- it's always been Pay As You Go. This model generated a surplus in the beginning because there were many more workers being taxed to cover the few collecting, who usually died by 70. We now have the perfect storm of the reverse: too few workers paying payroll taxes to support the very large & growing number of baby boomers, of which 50% could now statistically live to 90 years old. Pay As You Go, aka ponzi scheme, is unsustainable. The benefit age will have to be raised & benefits reduced -- taxing benefits effectively does this. Dramatically improving the economy would boost employment & help turn this around, but it won't happen if the march to socialism continues.

No, there most definitely is a Social Security Trust Fund. And there's $2.8 trillion dollars in it. The money is invested in Treasuries (currently 3.2% interest and 7 year average YTM). Treasuries are the most trusted financial instrument in the world. Here's a picture of President Bush looking at the register of Treasuries that the Social Security Trust Fund owns:



https://www.ssa.gov/oact/progdata/fundFAQ.html#&a0=0

[randymarsh]

Are they really kept on paper or was that just a photo op?

[SteveRyeCurd]

No, there most definitely is a Social Security Trust Fund. And there's $2.8 trillion dollars in it. The money is invested in Treasuries (currently 3.2% interest and 7 year average YTM).

They're not regular Treasuries - they're non-marketable securities.  See my post above.  And if you Google "They do not consist of real economic assets that can be drawn down in the future to fund benefits" it will take you right to the CBO report.

[forummm]

Are they really kept on paper or was that just a photo op?

The photo was 10-15 years ago. I'm sure there are digital records now too. But they probably still keep paper records.

No, there most definitely is a Social Security Trust Fund. And there's $2.8 trillion dollars in it. The money is invested in Treasuries (currently 3.2% interest and 7 year average YTM).

They're not regular Treasuries - they're non-marketable securities.  See my post above.  And if you Google "They do not consist of real economic assets that can be drawn down in the future to fund benefits" it will take you right to the CBO report.

Federal employees holding the G fund in their retirement plan also have nonmarketable Treasury securities. One reason both are nonmarketable is the way they are designed, which eliminates interest rate risk. Marketable or not, they are still backed by the full faith and credit of the US government. If the US decides to default on Treasuries of any kind it would be a nightmare with potentially decades of repercussions.

[Tyson]

Only partially true. There is technical a trust fund that is supposed to be full of the 3 trillion+ in net revenue from FICA taxes, but we decided in the 80s to allow the federal government to "borrow" from the trust fund so there is no actual trust fund as all the revenue has been taken and used for other purposes.

Gee, who was in charge during the 80's again?

[fattest_foot]

These [Trust Fund] balances are available to finance future benefit payments and other Trust Fund expenditures – but only in a bookkeeping sense.... They do not consist of real economic assets that can be drawn down in the future to fund benefits. Instead, they are claims on the Treasury that, when redeemed, will have to be financed by raising taxes, borrowing from the public, or reducing benefits or other expenditures. The existence of large Trust Fund balances, therefore, does not, by itself, have any impact on the Government’s ability to pay benefits. (from FY 2000 Budget, Analytical Perspectives, p. 337)

Source: https://en.wikipedia.org/wiki/Social_Security_Trust_Fund

That makes it sound like the Trust Fund is all an illusion. We've got $3T on the "books" but in this case, that's just keeping track of the excess funds collected (and subsequently spent) from withholdings on earned income. The part about "redeeming the claims has to be financed" is what leads me to that conclusion.

Either that, or the Wiki article is just worded incredibly poorly. My understanding up until this point is that withholdings are "immediately" paid out to current SS retirees. When there are more workers than retirees, that excess is placed in the Trust Fund to be used at a later date when the ratio of workers to retirees is lower.

[SteveRyeCurd]

In actuality, there are no "funds" there - the CBO admits this.  Whenever money from the fund needs to be spent, it will have to be taxed or borrowed into existence.  It's really just a promise to cover any shortfalls by taking it from someone else - either directly through taxation or indirectly via inflating the currency (i.e. borrowing it into existence).

If the things in the trust fund can't be sold, then how is that functionally any different from just not having a trust fund?

[Yaeger]

In actuality, there are no "funds" there - the CBO admits this.  Whenever money from the fund needs to be spent, it will have to be taxed or borrowed into existence.  It's really just a promise to cover any shortfalls by taking it from someone else - either directly through taxation or indirectly via inflating the currency (i.e. borrowing it into existence).

If the things in the trust fund can't be sold, then how is that functionally any different from just not having a trust fund?

It's not. That's why mandatory spending programs like Social Security are going to start putting pressure on cutting discretionary spending programs like Defense, education, and infrastructure as it starts to eat up funding from the general fund pile and deficits start increasing.

I think we need to make serious changes in rolling back the slow creep in benefits over the years, Social Security is looking more like a welfare program now and it was never meant to be.

[beltim]

In actuality, there are no "funds" there - the CBO admits this.  Whenever money from the fund needs to be spent, it will have to be taxed or borrowed into existence. 

Yes.  But doing so won't change the net debt of the government, which makes the rest of your post wrong.