As part of my recent appearance on The Square Circle (we discussed Uvalde police, gun control, and Ukraine), I said that the new Social Security numbers were the under-reported story of the week.
For more details, I was referring to the latest Trustees Report, published yesterday by the Social Security Administration.
Most people, when that annual report is released, focus on when the Social Security Trust Fund runs out of money. But since the Trust Fund only contains IOUs, I view that as a largely irrelevant number.
Instead, I immediately look at Table VI.G9, which shows how much revenue is being collected and how much money is being spent every year.
Here is that data displayed in a chart. The left side shows actual fiscal numbers from 1970 to 2021 while the right side shows the projections between 2022 and 2100.
As you can see in the chart, revenues going into the system (the blue line) are growing rapidly.
But you also can see that Social Security spending (the orange line) is expanding even faster.
And when spending grows faster than revenue, one consequences is more red ink.
This next chart shows that annual deficits between now and 2100 will total $56 trillion.
At the risk of understatement, these two charts should be very sobering. Especially since they only show the taxes, spending, and red ink for Social Security.
If we also add the fiscal aggregates for other entitlement programs, it would be abundantly clear why we face a “crisis” and a “train wreck.”
So how do we solve this mess. I’ve written about the needed reforms for Medicare and Medicaid, so let’s focus today on Social Security.
The ideal approach is to take the current pay-as-you-go entitlement and turn it into a system of personal retirement accounts.
Many nations around the world have adopted this approach, most notably Chile and Australia.
But as I noted two years ago, there will be a big “transition” challenge if the United States decides to modernize.
P.S. I mentioned “public choice” at the end of that clip. You can click here to learn more about the economic analysis of political choices.
P.P.S. I mentioned that Chile and Australia have created personal retirement accounts. You can also learn about reforms in Switzerland, Hong Kong, Netherlands, the Faroe Islands, Denmark, Israel, and Sweden.
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Dan,
Instead of creating government mandated personal retirement accounts, I think a better approach to the Social Security problem is to gradually increase the age at which one qualifies for benefits until eventually, over a long period of time (100 years?), no one lives long enough to qualify for benefits.
We took a step in this direction back in the 1980s when the Social Security’s full benefits age was gradually increased from 65 to 67. Unfortunately that reform didn’t go nearly far enough.
The advantages of my approach are that it in the long run gets the government out of the picture altogether, and it’s less disruptive than creating government mandated personal retirement accounts. Because there would be less disruption, it’s an easier sell politically,
Chuck Wright
There are no graphics
Mr. Mitchell,
Not to mention the fact the Democrats have been salivating for quite some time over all the money in 401k accounts, which would provide ever more money for their entitlement programs.
Kevin
Susquehanna County, PA
Sent from my Behemoth Dell 690
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Scary stuff for Americans.
We here in Canada were facing the same issues in the 1980’s and 1990’s until our system was reformed to create a separate fund that is managed by an independent entity to ensure that there will be money there to meet the pension obligations.
Out system is not nearly as generous as the American system as it tops out at about $1,200 per month with annual inflation adjustments.
Before these reforms people were openly saying not to count on your CPP (Canada Pension Plan) in retirement planning. No one is saying that any more…
Jeff
Jeff Garrad CPA CGA (604) 329-5325