Social Insecurity

Charles R. Morris has a very nice summary of the true state of Social Security vs. Bush-war's "fix". Here are some samples:

....Social Security was originally designed as a “pay as you go” system. Instead of accumulating assets to pay benefits to future beneficiaries, payroll taxes from current workers were supposed to just cover benefits to retired workers. The deal was that each generation of workers would pay for the benefits of the current generation of retirees, in the expectation that when they retired, a younger generation would pay for them. About twenty years ago, though, payroll taxes were very sharply increased to create what is called a partially funded system. That is, the taxes from current workers cover not only the payments to current beneficiaries, but also contribute to a surplus that will fund part of their own future benefits. In 2003, for example, payroll and other tax receipts were about 14 percent larger than benefit outlays. That surplus is held by the trust funds in interest-bearing Treasury bonds. The value of the trust funds’ bonds is currently about $1.5 trillion, and will rise to about $2.3 trillion (in 2004 dollars) by about 2018.... ....Payroll taxes will fully cover benefits until about 2018. After that, the trust funds will have to start digging into their accumulated surpluses. Those surpluses are expected to run out about 2042, or thirty-seven years from now. From that point, payroll taxes will cover only about 73 percent of promised benefits; by 2078, payroll tax coverage will have declined to only 68 percent of promised benefits. Those projections are not cast in stone. In 1997, the trust funds’ actuaries projected that the insolvency point would be reached in 2029, or thirteen years sooner than their most recent forecast, and there has been considerable variation in the annual estimates, both up and down, since then. The most frequently criticized assumption, perhaps, is the trust funds’ actuaries’ projection of flat 1.8-percent real growth for all years from 2015 on. A recent forecast by the nonpartisan Congressional Budget Office (CBO), using slightly different economic assumptions than the trust funds do, showed the insolvency crossover point ten years further out, at 2052. How big a problem is the funding shortfall? There are two standard ways to answer that question. The first is: How much cash would you have to deposit into the trust funds today to ensure that combined payroll taxes and interest earnings would cover promised benefits over the entire seventy-five-year forecast period? The answer is about $3.7 trillion. The second way to answer the question is to ask by what amount the payroll tax would have to be raised now to accomplish the same result. The answer is 1.89 percent. That is, instead of today’s 12.4-percent payroll tax, a 14.29-percent payroll tax would put the current system into balance over the entire forecast period. (The somewhat more optimistic scenario of the CBO, indeed, projects the payroll tax gap at only 1 percent.) In short, while the Social Security funding gap is clearly a problem, it doesn’t quite sound like a crisis.... ....Advocates frequently suggest that the bonds held by the trust funds may not be solid investments. Washington’s Heritage Foundation, one of the strongest voices for the president’s plan, says that the surpluses are just “accounting entries,” and that it is “[m]isleading the public” to claim that “Social Security is secure until 2042 or beyond.” It is true that the trust funds do not have a safe filled with hundred-dollar bills or gold bars. When they need to cash in their bonds, they will show up at the Treasury’s window and ask for their money. And the Treasury will have to find that money either from tax receipts or from borrowing. Suggestions, therefore, that the bonds may not be paid imply that the Treasury may not honor its debts. Repudiating American government bonds would be such a catastrophic financial event, for both the country and the world, that it is usually regarded as unthinkable. But it takes only mild paranoia to imagine that some “conservatives” may speculate that repudiating obligations just to the trust funds may not have such dire consequences-that external investors may somehow consider them a different order of promise; indeed, that Wall Street and other big-asset holders might be relieved to see them dispensed with. And to the mildly paranoid, the administration’s drive to make its tax cuts permanent, even as it raises the alarm over Social Security, seems almost designed to force such an outcome....

Although not steeped in detail, this article gives you a good sound understanding of the difference between what the Bush-war Administration is telling you and the actual truth.