Monday, October 21, 2013

Social Security going flop in 20!!! File under: Dick Durbin Doesn't Know How to Read Budget Reports

In 20 years Social Security, which currently has over 2 trillion in surplus reserves, is going to be flat broke![insert scary organ music]. Or so says Sen Dick Durbin who either doesn't know how to read buget reports, or thinks you don't.  Zach Carter over at Huffington Post has Durbin's nonsense from the Fox News Sunday show.

Here is some fun with logic for you.

Explain how Social Security, which will be able to pay out 77 percent of scheduled benefits once the Trust Fund is closed out to zero is going to be "flat broke" in 20 years. As I'd truly appreciate the insight.   Lets take a closer look and see if its hyperbole of the austerity crew or if Social Security truly is in crisis.

The Center for Budget and Policy Priorities had a rundown of the 2013 Social Security Trustee's report
Several key points emerge from the new report:

  • The trustees estimate that, in the absence of policy changes, the combined Social Security trust funds will be exhausted in 2033 — unchanged from last year’s report.  That date fluctuates slightly in each trustees’ report depending on economic, demographic, and other variables; over the last two decades, it has ranged between 2029 and 2042, but the overall story has been consistent.
  • After 2033, Social Security could pay three-fourths of scheduled benefits using its tax income if policymakers took no steps to shore up the program.  (Those who fear that Social Security won’t be around at all when today’s young workers retire and that young workers will receive no benefits misunderstand the trustees’ projections.)
  • The program’s shortfall is relatively modest, amounting to 1 percent of Gross Domestic Product (GDP) over the next 75 years (and 1.6 percent of GDP in 2087, the 75th year).  A mix of tax increases and benefit modifications — carefully crafted to shield recipients with limited means and to give ample notice to all participants — could put the program on a sound footing indefinitely.  Social Security benefits are very modest.  The average retiree or elderly widow receives just $15,000 a year from Social Security (and the average disabled worker even less); an unmarried elderly person, on average, has just $3,000 in annual income other than his or her Social Security.  Accordingly, taxes should make up a large proportion of a solvency package.
  • Policymakers will have to replenish the Disability Insurance trust fund by 2016.  They should try to do so as part of a comprehensive solvency package, because the retirement and disability components of Social Security are closely woven together.  Pending action on a balanced and well-designed solvency package, it is reasonable to reallocate taxes between the disability and retirement programs, as policymakers have often done in the past.
Sen Durbin thinks Social Security is gonna be out of money in 20 years because, "like the Babyboom is JUST MASSIVE YO!!!"  But the reality is less sexy and a lot more stable.  Here are some key dates...

Key Dates and What They Mean

2033 is the “headline date” in the new trustees’ report, because that is when the combined Social Security trust funds are expected to run out of Treasury bonds to cash in.  At that point, if nothing else is done, benefits would have to be cut to match the program’s annual tax income.  The program could then pay 77 percent of scheduled benefits, a figure that would slip to 72 percent by 2087.  Contrary to popular misconception, benefits would not stop.
Although the exhaustion date attracts keen attention, the trustees caution that their projections are uncertain.  For example, while 2033 is their best estimate of when the trust funds will be depleted, they judge there is an 80 percent probability that trust fund exhaustion will occur sometime between 2029 and 2039 — and a 95 percent chance that depletion will happen between 2028 and 2044.  Slightly more sanguine estimates that the Congressional Budget Office issued last year suggest there is an 80 percent probability that the combined trust funds would be exhausted between 2029 and 2045.[10]   In short, all reasonable estimates show a long-run problem that needs to be addressed but not an immediate crisis.
Two other, earlier dates also receive attention but have little significance for Social Security financing:

  • 2010 marked the first year since 1983 in which the program’s total expenses (for benefits and administrative costs) exceeded its tax income (from payroll taxes and income taxes that higher-income beneficiaries pay on a portion of their Social Security benefits).  That was long expected to happen in the mid-2010s as demographic pressures built; the economic downturn led it to occur several years sooner.  The trust funds are nevertheless still growing, chiefly because of the interest income they receive on their Treasury bonds.  In 2012, for example, Social Security’s interest income of $109 billion more than offset its so-called cash deficit of $55 billion, leading the trust funds to grow by $54 billion.[11]
  • 2021 will be the first year in which the program’s expenses exceed its total income, including its interest income.  At that point, the trust funds — after peaking at $2.9 trillion — will start to shrink as Social Security redeems its Treasury bonds to pay benefits.

Neither of these dates affects Social Security beneficiaries.  From 1984 through 2009, Social Security collected more in taxes each year than it paid out in benefits, lent the excess revenue to the Treasury, and received Treasury bonds in return.  Together with compound interest, that accounts for the $2.7 trillion in Treasury bonds that the trust funds hold today.
The drafters of the 1983 Social Security amendments purposely designed program financing in this manner to help pre-fund some of the costs of the baby boomers’ retirement.  The interest income from the trust funds’ bonds, as well as the eventual proceeds from redeeming the bond principal, will enable Social Security to keep paying full benefits until 2033.  Of course, policymakers should restore Social Security’s long-run solvency well before then.  Social Security’s diminishing cash flow does affect the task of the Treasury, which manages the government’s overall financing needs.  Nevertheless, the bonds have the full faith and credit of the United States government, and — as long as the solvency of the federal government itself is not called into question — Social Security will be able to redeem its bonds just as any private investor might do.
The effort to cut Social Security is being coordinated by a cohort of Wall Street 1%'ers who crashed the economy and would love to privitize Scoail Security so they can get their hands on some "fees"; and small Government types who hate the idea that Social Security keeps millions of Seniors out of poverty every year--thereby disproving the Dystopian Nightmare of Government programs never being able to do anything right.

The reality about Social Security is that its doing just fine; and as long as we keep Wall Street's hands off it we should be able to not only sustain current benifits but expand it to help cushion the blow for Babyboomers who's 401k's and savigngs were completely destroyed by Wall Street hacks who don't know anything about buidilng an economy that works for working people but know a whole lot about theft, graft, and corruption. 

Now if we can just start reporting projected 75-year actuarial deficit's for US Military Spending we might get some proper context on the Social Security numbers. 

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