The Social Security Administration has released the 2016 Trustees Report, which shines a spotlight on the overall fiscal condition of the program.
In previous years (2012, 2013, 2014), I’ve used this opportunity to play Paul Revere. But instead of warning that the British are coming, I sound the alarm about a future fiscal crisis resulting from demographic change and poorly designed entitlement programs.
Which is what I did in this interview on Fox Business.
It wasn’t a long interview, but I had the opportunity to touch on four very important issues.
First, I explained that the Social Security Trust Fund is nothing but a pile of IOUs. It’s money the government owes itself, which means that the bonds in the Trust Fund can only be turned into real money by taking more from the private sector.
But if you don’t trust me, perhaps you’ll believe the Clinton Administration, which admitted back in 1999 (see page 337) that the Trust Fund is just a bookkeeping gimmick.
These 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.
In other words, the Trust Fund is like putting IOUs to yourself in a college fund. When it’s time for junior to start his freshman year, you’ll have to find the money to cash those IOUs.
Second, Social Security already is in the red and the rising burden of spending for the program will lead to huge fiscal shortfalls.
Here’s a chart, based directly on the data from Table VI.G9 of the Trustees Report, showing the annual deficit in the program based on today’s dollars.
Third, it’s grossly irresponsible for politicians such as Elizabeth Warren and Hillary Clinton to agitate for higher spending in the program.
Andrew Biggs of the American Enterprise Institute weighed in on this issue earlier this year. Here’s some of what he wrote in a column for the Wall Street Journal.
Mrs. Clinton would raise retirement payments for widows as well as provide Social Security credits for individuals who take time out of the workforce to care for a child or an infirm adult.
Andrew points out that Hillary also has expressed support for increases in the payroll tax rate and letting the government impose the tax on a greater share of income.
Mrs. Clinton…has recently spoken in favor of both approaches.
By the way, the latter option is especially dangerous for the economy, as explained in this video.
Fourth, Social Security is in bad shape, but the main long-run entitlement challenge comes from health-related programs such as Medicare, Medicaid, and Obamacare.
In other words, we need comprehensive long-run entitlement reform if we don’t want to become Greece.
P.S. For reasons that I’ve already covered, I didn’t like being called a “deficit hawk” by the host.
P.P.S. While proponents deserve credit for being serious, I think the Simpson-Bowles plan leaves a lot to be desired.
P.P.P.S. Here’s the right way to fix Social Security.
[…] “Trustees Report” that summarizes the program’s financing. So every year (see 2018, 2017, 2016, 2015, etc.) I cut through all the verbiage and focus the numbers that really […]
[…] Report” that summarizes the program’s financing. So every year (see 2018, 2017, 2016, 2015, etc) I cut through all the verbiage and focus the numbers that really […]
[…] I know that I have a very easy column about this time of year (2017, 2016, 2015, etc) since that’s when the Social Security Administration releases the annual Trustees […]
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[…] don’t have to believe me. A few years ago, I quoted this passage from one of Bill Clinton’s […]
[…] In other words, the Swiss system is much better than America’s bankrupt Social Security scheme. […]
[…] prefer looking at inflation-adjusted estimates of cumulative deficits. On that basis, the 75-year unfunded liability is $37 trillion. The “infinite horizon” number presumably would be even […]
[…] is because when the make-believe Trust Fund runs out of IOUs in the 2030s, there’s an automatic reduction in benefits. For what […]
[…] Clinton goes forward with her plan to bust the wage base cap and change Social Security from an actuarially bankrupt social insurance program into a conventional tax-and-spend redistribution program, she won’t collect very much tax […]
[…] Clinton goes forward with her plan to bust the wage base cap and change Social Security from an actuarially bankrupt social insurance program into a conventional tax-and-spend redistribution program, she won’t collect very much tax […]
[…] a cylinder. This helps to explain why the inflation-adjusted shortfall for Social Security is now about $37 trillion (and if you include the long-run shortfalls for Medicare and Medicaid, the outlook is even […]
[…] bottom line is that we’re in a very deep hole and Hillary Clinton, simply for reasons of personal ambition, wants to dig the hole deeper. As I […]
[…] while approaching a cliff. In inflation-adjusted dollars, the program’s unfunded liability is a staggering $37 trillion, yet Hillary and her friends want even more spending. And they want to compound the damage with a […]
[…] Social Security’s Gargantuan Fiscal Shortfall This is a must read for everyone! […]
**((( PATHWAY to IMMEDIATE ‘ REFUNDING ” )))**
of our POLITICALLY RAVAGED SOCIAL SECURITY BENIFITS FUND.
JUST ONE ( 1 ) SINGLE POLICY CHANGE that can IMMEDIATELY
BOLSTDR this SHAMEFULLY MISUSED ” AMERICAN”S ” TRUST FUND.”
***((( SIMPLY ” STOP ALL PAYMENTS ” that are being
” GIVEN to FORIEGN COUNTRIES !” )))***
WE GIVE BILLIONS of -$-$-$-$- AWAY, TO THOSE WHO,
” TAKE OUR -$-$-$-$- ~&~ THEN BURN OUR FLAG !”
OUR POLITICIANS CREATE ~&~ ENDORSE THIS PRACTICE
WITH ” NO REGARD FOR OUR NEEDS RIGHT HERE AT HOME.”
*(( FORIEGN COUNTRIES ARE NOT OUR RESPONSIBILITY !” ))*
*(( THEY HAVE NO RIGHTS, WHATSOEVER to OUR -$-$-$- ))*
==~~~>> D.C. POLITICIANS; WAKE UP..!!!..!!!..!!! <~~~==
((( –Y-O-U– WORK FOR –U-S– !!! )))
<<>>
[…] will cripple America’s economy if left on auto-pilot. I’ve repeatedly made the point that we’re like Greece 10 or 15 years ago. By claiming at the time that there was no crisis, […]
“whereas surplus funds were spent long ago.”
Hmmm… what surplus? The system was a pay as you go model entirely from inception to 1983 – there was no surplus at all. Most of what you call surplus is today interest on interest. You have this idea that we overpaid our bills. The system has about $400 billion in excess cash, which was spent every dollar on subsidizes to SS.
” government will stop paying benefits when the “Trust Funds” run out.”
That isn’t an issue of economics. It is an issue of reading the law.
In contrast to actual law, you think we should continue paying existing retirees with general funds (yes you explicitly say it would become public debt). With general taxes, all you are doing is renaming FICA to some other tax.
In 45 years, the number of people who paid FICA would be small, but every worker would have had to pay your new tax.So today’s retirees collect because they paid into the system. Tomorrow’s retirees get nothing when they paid in even more.
You don’t mind keeping tax payers on the hook for a Ponzi scheme, so long as it doesn’t hurt the people who voted for it.
If you are going to end it, just end it.
FICA paying for Social Security and Medicare is a sham to make these programs look like insurance, whereas surplus funds were spent long ago.
You claim to be an economist, but you imply that government will stop paying benefits when the “Trust Funds” run out.
Above I state how lost revenues could be made up. True, I did not explicitly state that general revenues would cover commitments, but it was certainly implied.
If we switch now, in 45 years those who actually paid FICA will be a small minority and the amounts paid will be small.
Tax payers are on the hook for the Ponzi scheme that paid Ida Mae Fuller $22,000 for her $24 contribution, whether or not they pay FICA.
You realize that FICA is what pays current retirees so if you end it, current retirees will not get anything.
How are you going to get through 4 years much less 45 without paying senior benefits? Let me guess you are going to change the name of the FICA tax to the tax formerly known as FICA. You are going to change workers the tax for 45 years, and then tell them to take a hike.
The U.S. has a big problem which will only grow larger with time, therefore it must be stopped immediately. However, commitments have been made to citizens which must be kept.
FICA should be terminated immediately, since it is a regressive tax anyhow. The $1 Trillion in revenues lost could be replaced by eliminating all “tax expenditures” for a matching trillion. Existing commitments should be paid out of general funds and conversion of the “Trust Funds” to public debt.
Obviously, current retirees will continue to receive support at projected levels. Future retirees are only partially vested in the program, so payments should begin at a later date, effectively pushing back their “retirement date”, depending on how long they paid FICA.
Current payroll deductions should be redirected to private savings accounts that travel with the individual.
While it will take 45 years to work through existing commitments, the tax burden will decrease and tax rates should reflect the decreasing outlays.
Dan, Your fix was a solution to a problem 20 trillion dollars ago. At what point does your fix stop working?
If the U.S. were to pay down any of the three debts mentioned, rather than rolling it over or new debt, the money would have to come from tax surpluses, from the Fed’s issue of more fiat money, or from the sale of federally owned assets.
Smithatig
If the U.S. does not pay China or EU countries it will be in default. However, citizens have no claim on Trust Fund assets because of FICA payments, according to the Supreme Court ruling Flemming vs Nestor.
Treasury Owes Soc Security, just as all OTHER debt instruments the Gov’t has sold around the World. China owns Treasury Notes, Euro countries own Notes. Soc Security is NO different, so get off the Bullshit .
And if you have the misfortune of been slated to die young, all these contributions and taxes go to the lucky group that will outlive you by several decades.
That is the nature of socialism — 20% compassion, 80% self interest — oh well, at least perceived interest.