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Posted at 2:42 PM ET, 02/17/2011

Thumb-twiddling on Social Security isn't an option

By Ruth Marcus

Procrastination is rarely a cost-free strategy. That is true when it comes to fixing Social Security -- as much as the Obama administration and, even more forcefully, its allies on the left may wish to believe otherwise. Their "what's the big rush?" message goes like this: The retirement program isn't really contributing to deficits in the short run. Indeed, its finances are healthy enough that it can continue paying all promised benefits for more than two decades, until 2037. Even then, if nothing is done, Social Security would be able to pay about 75 percent of promised benefits. So where's the fire?

Here it is.

Last year, for the first time in its history, Social Security paid out more in benefits than it received in payroll taxes. The recession caused this shortfall: Seniors who lost their jobs chose to start collecting benefits earlier, while payroll tax collections fell because of high unemployment and lower wages. As a general matter, it's true -- although less than previously -- that Social Security is not a cause of short-term deficits. In fact, until last year, the surplus in the Social Security trust fund masked the true size of the current deficit. But the 2010 experience is a hint of things to come -- soon. By 2015, Social Security will be increasing the deficit every year, not obscuring it.

Still, that's not the real problem, or the strongest argument against thumb-twiddling. The reason is that making changes now will make it easier to protect the very people that the "Social Security's not a problem" brigade say they care about. The Social Security trustees make this point every year in their annual report about the system's finances: "If action is taken sooner rather than later, more options will be available and more time will be available to phase in changes so that those affected have adequate time to prepare."

The challenge isn't huge, but it is significant. As a useful paper by Charles Blahous and Robert Greenstein for the Pew Fiscal Analysis Initiative explains, when the trust funds run out, the gap between Social Security revenues and benefit payments will be 1.3 percent of the gross domestic product -- about one-fifth of the projected deficit then. Yes, Medicare and Medicaid present a bigger challenge, but the Social Security shortfall represents a significant slice of the deficit. Unlike the health programs, whose solvency ultimately depends on the uncertain enterprise of slowing cost growth, the potential fixes to Social Security are both obvious and reliable. If you raise payroll taxes, you know more revenue will come in. If you reduce benefits, you know costs will go down.

Some in the just-wait crowd argue that maybe things won't turn out as badly as the experts expect. Economic growth could be stronger. Higher levels of immigration could boost the payroll tax revenues coming into the program. Don't bet on it. Yes, long-range projections are notoriously inaccurate. But the trustees' analysis shows that there is an 80 percent likelihood the system will go broke between 2032 and 2045. The chance of no shortfall is vanishingly small.

The cost of delay is measurable. In fact, the Congressional Budget Office measured it. "With every year that goes by," it found, "larger changes would be needed to create a balance over the next 75 years between scheduled revenues and scheduled benefits."

Take the example of raising the payroll tax rate by 2 percentage points. If the increase were to start in 2012 and be phased in gradually over 20 years, the trust funds would not be exhausted until 2083. But dawdling for a decade would make it significantly harder to achieve the same result: The tax rate would have to go up by 2.6 percentage points rather than 2 points.

The same is true of benefit cuts. Imagine that benefits were cut 15 percent for new retirees beginning in 2017. That would keep the trust fund solvent until 2076. To achieve the same result but start a decade later, benefits would have to be slashed by one-third more -- 20 percent instead of 15 percent.

Dealing with Social Security now would require less in the way of punishing tax increases or benefit cuts. It would give future retirees more time to plan and save. It would reduce the burden placed on younger workers to shoulder the cost of sustaining the program. The procrastination caucus ought to embrace these outcomes, not forestall them.

By Ruth Marcus  | February 17, 2011; 2:42 PM ET
Categories:  Marcus  | Tags:  Marcus  
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Comments

Why is Marcus lying again? Just briefly:

Claim: Yes, Medicare and Medicaid present a bigger challenge, but the Social Security shortfall represents a significant slice of the deficit.

Truth: The projected Medicare deficit is 7/8ths
of the projected shortfall in both programs (27 trillion to 4 trillion). When is 1/8th significant?

Claim: But the trustees' analysis shows that there is an 80 percent likelihood the system will go broke between 2032 and 2045.

Truth: Go broke means there won't be any money to pay creditors (here, that is social security receipients). In actual fact, when the system goes "broke", it will still be able to pay out 75% of its benefits. When is the last time you heard of a "broke" company paying out, indefinitely, 75% of its obligations?

Here's where Marcus is coming from:

Comment: Take the example of raising the payroll tax rate by 2 percentage points.

Response: The payroll tax could simply be extended to all levels of income and all _types_ of income. This would allow a reduction in the actual rate of payroll taxes, leading to job creation. Marcus doesn't want to mention this because that would mean the wealthy (whose water she is carrying in this whole debate) would have to pay more.

WaPo, get rid of this shill for the rich.

Posted by: garbage1 | February 17, 2011 4:37 PM | Report abuse

I once knew a woman whose husband was a lush. He would go to bars several times and week, and, big spender that he was, buy rounds for his friends. Needless to say, the credit card debt became enormous. So she started working overtime in order to make more money to pay off that debt. Problem was, he could spend it faster than she could earn it. Her sacrifice was in vain. She should have just sat on her butt on taken it easy for all the good it did her.
Any sacrifices we make to save Social Security will likewise be in vain, because the government will just spend whatever is saved, and then some. Let the government sober up first and balance the budget. Then we'll talk about Social Security's long term financial situation.

Posted by: disinterestedspectator | February 17, 2011 4:46 PM | Report abuse

Here's the nasty truth. The Social Security Trust Fund accounts for about $2.8 trillion of our national debt. But, it doesn't contribute to the deficit (until this year's "tax holiday").

As the trust fund is spent, the government must borrow money to repay the fund. THAT is deficit spending and is a fast approaching freight train. The politicians are trying desparately to avoid repaying the debt we owe to the fund.

BTW, Medicaid already uses over $200 billion a year from the general fund (deficit spending). I recommend reading the Trustees' summary report (http://www.ssa.gov/OACT/TRSUM/index.html)

Posted by: kitchendragon50 | February 17, 2011 4:49 PM | Report abuse

This is a very good article on Social Security, but like most articles, it does not deal with the "real Social Security problem." I have spent the past ten years researching and writing about Social Security, and the most crucial short-term problem is a secret to most Americans. I hope the moderators will allow me to post a recent op-ed article of mine that spells out the problem.


THE REAL SOCIAL SECURITY PROBLEM: PART I

There is so much misinformation being spread about the financial status of Social Security today that the average American does not know what to believe. As a scholar, who has spent the past decade researching and writing about Social Security funding, I would like to give my view on why Social Security is receiving so much attention these days. Let me begin by saying flatly that Social Security is not going broke, despite the fact that a lot of people would like for you to think so.


It all began in 1982, when the Greenspan Commission on Social Security reform cited the baby boomers as a threat to the future solvency of Social Security and recommended that they be required to prepay most of the cost of their own benefits, in addition to paying for the benefits of the generation that preceded them. The recommendations of the commission were enacted into law the following year, thus “fixing” the Social Security problem. The additional taxes paid by the boomers would generate Social Security surpluses for the next three decades, which were to be saved and invested to build up a large reserve in the trust fund so the boomers would no longer be a threat to Social Security. Only it didn’t turn out that way.

When the first surplus revenue from the tax increase began to flow into the Treasury in 1985, instead of saving and investing it, the government “borrowed” the money and used it to supplement the inadequate income tax revenue. Since the money would not be needed to pay Social Security benefits for another 30 years, the temptation to spend that early surplus money for non-Social Security purposes was just too great for politicians to resist.

As the surpluses became larger and larger in subsequent years, Congress continued to spend it, as if it was general revenue, and that practice has continued ever since. Approximately $2.6 trillion of surplus revenue has been generated by the 1983 payroll tax hike, and it has all been used to fund tax cuts, wars, and other government programs.

In the Summary of the 2009 Social Security Trustees Report, a single sentence, buried deeply within the report, spills the truth about the so-called “trust fund bonds.” That sentence reads:

“Neither the redemption of trust fund bonds, nor interest paid on those bonds, provides any new net income to the Treasury, which must finance redemptions and interest payments through some combination of increased taxation, reductions in other government spending, or additional borrowing from the public.”

Posted by: ironwoodas | February 17, 2011 4:58 PM | Report abuse

THE REAL SOCIAL SECURITY PROBLEM: PART II


The real Social Security problem is that, instead of safeguarding the $2.6 trillion surplus, Congress has spent it on other things, and left behind IOUs. These IOUs are claims against future tax collections, but they are not marketable and cannot be converted into cash with which to pay benefits. As stated in the excerpt from the Trustees Report above, they can only be redeemed by increased taxation, reductions in other government spending, or additional borrowing from the public.

The 1983 Social Security legislation has worked exactly as it was supposed to work. It has generated enough surplus revenue to pay full Social Security benefits, until at least 2037, without any action of any kind. Furthermore, various potential minor adjustments, such as raising the earnings cap on income subject to payroll taxes, would enable Social Security to pay full benefits for many more decades. In 2037, the oldest of the baby boomers will be 91 years of age and the youngest will be 73. Under no circumstances, should the American people fall for the 'entitlement crisis' ploy. Contrary to what many politicians are saying these days, there is no such crisis. It's just the government trying to get out of paying back the $2.6 trillion in “borrowed” Social Security money.

Posted by: ironwoodas | February 17, 2011 5:02 PM | Report abuse

A TABOO SUBJECT

I don't know whether or not Ruth Marcus is aware of the fact that, for the past 25 years, under five presidents, the government has routinely diverted every penny of the $2.6 trillion in surplus Social Security revenue into the general revenue fund, and used the money to pay for current government services. If she does know it she would be hesitant to mention it. I have been trying to expose the great Social Security fraud now for longer than Harry Markopolos tried to alert the SEC to Bernie Madoff's Ponzi scheme. If the SEC had taken Markopolos seriously when he firt tried to warn them about Madoff, thousands of individuals and charitable organization would have avoiced being swindled out of billions of dollars. But the SEC ignored Markopolos' warnings for eight years. Similarly, if efforts had been made to end the looting of Social Security in 2000 when I first appeared on national TV to discuss my first Social Security book, the Social Securiy trust fund would today hole $1.5 trillion in "good-as-gold" marketable Treasury bonds instead of holding no real economic assets.

If the Social Security fraud is ever fully exposed, I believe it will dwarf Watergate and become the greastest scandal in the history of the nation. But because both the Democrats and the Republicans are equally guilty in raiding the Social Security trust fund and spending the money on tax cuts, two wars, and other government programs, both parties are determined to keep the practice from being publicized, and so far most journalists are honoring the wishes of the federal government to keep the public from finding out the big dirty secret.

For more than a decade, I have tried to expose the Social Security scam. During most of that time I have been treated about the same as I would have been if I were claiming to have taken a ride in a purple UFO with little green men. But during the past year, a few journalists have broken the taboo and reported the message. Allan Sloan, Senior Editor At Large for Fortune Magazine was the pioneer in breaking the taboo. In his August 10, 2010 Wall Street Journal column, Sloan quoted me and referred to one of my books. But for the most part, I am finding the media increasingly hostile to my efforts to alert the public to the looting of Social Security. Just this week I have been banned from posting comments of this type by both Reuters blog and Mother Jones blog. After allowing my comments to stand for more than 12 hours, Reuters removed all of them. When I tried to repost one of the comments, the following message appeared on my monitor. "Sorry, but this account has been banned from posting comments. Mother Jones blog allowed me to post for 24 hours before I received the message, "Sorry, but you have been blocked from posting comments on this site." I don't believe that will happen with the Washington Post.

Posted by: ironwoodas | February 17, 2011 5:41 PM | Report abuse

I first stumbled onto the great Social Security scam more than ten years ago while doing research for my first Social Security book, "The Alleged Budget Surplus, Social Security, and Voodoo Economics." On September 27, 2000, I appeared on CNN with anchor Lou Waters to discuss the newly published book. I tried my best to convince Waters that Social Security money was being spent for non-Social Security purposes, but he seemed more amused than interested in what I was saying, and he finally asked me, "Are you a voice crying in the wilderness?" As things turned out, I was a voice crying in the wilderness in 2000, and I continue to be such a voice a decade, and three books, later. Every penny of the $2.6 trillion in excess Social Security revenue, generated by the 1983 payroll tax hike, has been spent on whatever politicians chose to spend it on.

When my book, "The Looting of Social Security," was published in early 2004, I thought I was about to expose the Social Security scam and end the looting. On February 26, 2004, I was one of two invited guests to appear on the CNBC morning news to respond to Fed Chairman Alan Greenspan's call for Social Security benefit cuts the previous day. I used the occasion to hold my new book in front of the camera and say, "Alan Greenspan should be ashamed of himself for what he is not telling the American people." By doing so, I apparently drove the final nail into the coffin of my new book. Several weeks later, the book mysteriously disappeared from bookstores nationwide, and was listed as "unavailable" by Amazon.com. I tried to get my publisher to revert the rights to the book back to me so that I could publish it elsewhere, but the publisher refused. An early review in the Boston Globe had hinted at the explosive revelations in the book, and someone, or some group, decided that the book should be pulled from the market.

Allen W. Smith, Ph.D.
Professor of Economics, Emeritus
Eastern Illinois University
Website: www.thebiglie.net
Email: ironwoodas@aol.com
Phone: 1-800-840-6812


Posted by: ironwoodas | February 17, 2011 8:05 PM | Report abuse

The surplus revenue generated by the 1983 tax hike should have been used to buy pre-existing marketable Treasury bonds in the open market. The trustees could then have resold these bonds in the open market to raise funds with which to pay benefits to the boomers. If this had been done, Social Security would not even be in the news today. The trust fund would hold $2.6 trillion in "good-as-gold," default-proof marketable Treasury bonds which would be enough to pay full benefits until 2037. BUT THIS WAS NOT DONE. Greedy politicians chose to divert the surplus revenue into the general fund and use it for other programs. The money was replaced with government IOUs which are nothing more than claims against future tax collections. The IOUs are not marketable, cannot be converted into cash, and cannot be used to pay benefits. Thus, ever dollar of the $2.6 trillion in surplus Social Security revenue has been spent on other government programs. Much of it ended up in the pockets of the super rich in the form of unaffordable income tax cuts under Reagan and George W. Bush.

The looting of the trust fund began in 1985 when the first surplus revenue began flowing into the Treasury, and it has continued to this very day. A few members of Congress expressed their rage in the early years, and Senator Moynihan of New York even introduced legislation to repeal the 1983 tax hike so there would be no money to loot. Senator Ernest Hollings of South Carolina, in a speech on the Senate floor on October 13, 1989, issued the following warning:

“…the most reprehensible fraud in this great jambalaya of frauds is the systematic and total ransacking of the Social Security trust fund…in the next century…the American people will wake up to the reality that those IOUs in the trust fund vault are a 21st century version of Confederate bank notes.”

On January 21, 2005, David Walker, Comptroller General of the GAO tried to remove any lingering doubt about the trust fund holdings. He said,

“There are no stocks or bonds or real estate in the trust fund. It holds nothing of real value to draw down.”

ironwoodas@aol.com, www.thebiglie.net


Posted by: ironwoodas | February 17, 2011 8:12 PM | Report abuse

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