Wednesday, September 5, 2012

Blahous: Is it too late to save Social Security?

Writing for e21, Social Security public trustee Chuck Blahous asks whether it is too late to save Social Security as a self-financing program, meaning an independent system that supports itself from payroll taxes rather than general tax revenues.

Blahous points to three roadblocks to reform: first, the Baby Boomers are now beginning to retire, rapidly increasing costs for the program; second, neither political party has shown the ability to compromise, which will be necessary under most foreseeable political circumstances; and third, many political leaders fail to treat Social Security’s financial problems with the seriousness they deserve.

Social Security has gained political strength by being independent and self-financing, but over time the payroll tax increases or benefit reductions needed to restore solvency may be more than our political processes can handle. As a result, it may be inevitable that Social Security ends up financed with general tax revenues, ending the claim that Social Security is an ‘earned benefit” and making the program compete with the rest of the budget for resources.

Blahous says, “If this all happens, and renders tomorrow’s Social Security benefits less secure than today’s, it would be a tragic irony: the outcome would have been brought about largely by supporters of Social Security having countenanced the tactics of delay to the point that the program’s unique political protections could no longer be preserved. Those who care about the Social Security program need to clearly understand the consequence of this ongoing neglect; that time for a realistic financing solution has nearly run out.”

5 comments:

WilliamLarsen said...

Is it too late to save Social Security? The first question that should be asked is “should we attempt to save social security?” The second question would be “who are we saving social security for?”

Is social security fair? No, those who were the first to collect paid little in taxes and reaped huge benefits at the expense of following cohorts. As Retired Commissioner of Social Security Ball stated;

“When Social Security began, benefits for those nearing retirement age were much higher than could have been paid for by the contributions of those workers and their employers. This was done so that the program could begin paying meaningful benefits even though workers nearing retirement would have only a short time to contribute.”

This is referred to the legacy debt. This has been known since its inception by all who were responsible for the program and its laws (congress and presidents). Now over 70 years later, after numerous tax increases, base increases, increase in retirement age and subjecting a portion of benefits to taxation, Social Security is actually less secure than ever before, while at the same time the cost to “fix” social security is greater than ever before. Why would this generation be able to do something far more difficult than previous generations who shied away from the problem. In fact the Greatest Generation kicked the can down the road many times.

Who are we trying to save social security for? Has anyone asked young workers if they want this program? My polls show 90% of those under 46 would rather walk away from all they paid just to be allowed to stop paying the tax. It certainly is not the young pushing to save social security. My guess it is seniors and those close to retirement age who are wanting to save social security. A bit late and $30 Trillion short. In simple terms, a minority want the majority to continue the ponzi scheme a bit longer.

Pull the plug and let it die quickly.

WilliamLarsen said...

In 1983 Social Security’s Old Age Survivors Insurance fund redeemed its last penny owed it from the trust fund. Not only did SS-OASI exhaust its trust fund, it borrowed $11 Billion from the SS-DI and Medicare Trust funds (the $11 Billion was repaid over a few years).

In 1984 United States Code Title 42, Chapter7, Subchapter VII, Sec. 911 (a), (http://www4.law.cornell.edu/uscode/42/911.html) was enacted. This prohibits Social Security and Medicare from borrowing funds ever again. General revenues (federal income taxes, corporate taxes, estate taxes, any non FICA tax) were not to be transferred or loaned to either Social Security or Medicare in the future. This is extremely important because it limits these two agencies to only their revenues from their respected dedicated taxes on wages and the funds in their respected trust funds.

If these two agencies were allowed to borrow or appropriate funds from general revenue taxes, they would consume 100% of these funds in the future and bankrupt the United States.

Congress enacted United States Code Title 42, Chapter7, Subchapter VII, Sec. 910 (a) (http://www4.law.cornell.edu/uscode/42/910.html). This particular statute requires SSA to promptly submit to congress recommendations on what needs to be done when any trust fund balance falls to 20% of any projected programs yearly expenses. In simple terms, if congress does not raise taxes, cut benefits, change the rules, then across the board cuts will take place.

The COLA statute clearly identifies when COLA can be paid. If the Consumer Price Index were to fall (deflation), then no COLA is paid in that year. In fact COLA will not resume until the year over year CPI index reaches a new high. However, there is a particular special exclusion to this rule; when the trust fund balance to any given year’s expenses reaches 30%, there is a reduction in COLA for that year based on a formula. When the ratio falls to 20%, COLA is eliminated.

These two statutes will determine the future of both Social Security and Medicare when payroll taxes are insufficient. They prohibit these two programs from growing any larger or spending any more than their dedicate payroll taxes collect from workers wages.

The statute states the trust fund must be maintained at a ratio of 20% of projected yearly expenses. If next year the projected expense is 3% larger than this year’s, that means not all of the dedicated tax revenue can be used to pay expenses, but in fact some percentage of the dedicated tax revenue must be deposited in the trust fund. The impact of this is that not only will there be no COLA’s paid, but with the increasing number of beneficiaries, yearly cuts in benefits will need to take place.

Medicare will be the first to show us just how large the impact on benefits will be. Currently Medicare is withdrawing funds from its trust fund to fund expenses. The trust fund is “subsidizing” tax revenues by at least 15%. This means Medicare is spending 15% more this year than it would if the trust fund were at the 20% limit. In the year when the Medicare trust fund ratio reaches 20%, the funds allowed to be spent to pay Medicare costs will drop by at least 15% in just one year. However, with increasing beneficiaries and inflation the cuts will be closer to 20% to 25% in the first year and smaller cuts in following years. Social Security faces the same identical problem. I do not think anyone has given this a name, but I would call it a “cliff.”

They are no different than a balanced budget amendment. They require two large agencies to live within their means. Congress has the right to alter these programs at any time without liability. Both Congress and the President have to answer to the voters. The only question is whom will they represent? Will they represent beneficiaries or those who are paying the taxes?

Lane Stalanski said...

It seems like the whole idea of the government handling our retirement account was flawed in the first place. Yes, I would love the handout when it first began. Now, at 31, decades and government failed programs later, I am not so thrilled about it. However, there is always a bright side and one not-so-bad idea is to retire overseas or live abroad

Moe Satriani said...

I think that the only option that I have right now is to hire a social security lawyer. I have been paying into social security for years, and now that it is finally my turn to collect, I can't get paid. It is ridiculous. I am thinking that a lawyer can help me because I have tried everything under the sun to get paid and nothings working.

sesilia said...

its nice post about the security thanks for providing such useful information actually there should be proper councling about the Security Course it provides a better security tricks along with to brighten someone's career.....