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The Future of Social Security

Lies and Myths versus Reality

Many Republicans have been promoting the idea that Social Security is a primary cause of our national debt and that the problem will get much worse in the future, so it will be necessary to drastically cut benefits, or privatize the program, to save it.

The facts are quite different:

1. Social Security has not contributed one cent to the national debt, and will not in the future.

2. From 1984 through 2009, the Social Security Trust Fund was taking in substantially more cash (excluding interest earned on the surplus) than it paid out in benefits. This is the result of the legislation in 1983 to increase FICA withholding rates and increase the retirement age to 67. At its peak, Social Security was running a surplus of nearly $300 billion a year.

3. The surplus has been used to purchase Treasury bonds, earning interest at a rate determined by the average market interest rate for Treasury notes at the time of purchase. Interest earnings have averaged over 4%.

4. The Trust Fund surplus stood at $2.6 trillion at the end of 2011, and it will continue to increase through 2020, as total contributions and interest earnings will exceed benefit payments and administrative costs.

5. When total outgo starts to exceed income after 2020, the Trust Fund will start selling its Treasury notes to make up the difference. It is now projected that the surplus will be spent by 2033.

6. After 2033, if no change is made, benefit payments will need to be reduced to about 75% of normal (the estimated amount of FICA contributions into the Trust Fund after 2033 if no change is made).

7. At no time does Social Security take money from taxpayers (other than the regular FICA contributions), or borrow money to pay benefits.

8. The shortfall in the Trust Fund after 2033 could easily be avoided by removing the cap on the amount of income subject to FICA. It is now capped at $110,100, so the wealthy pay no Social Security tax on income over $110,100. That means the wealthiest people pay the smallest percentage of their income into Social Security.

The Republican Myth

- Republicans are claiming that Social Security is now increasing our debt. That is based on the fact that as of 2010, benefits payments exceeded contribution income for the first time since 1983, primarily because of the Great Recession. And Republicans donít want to count the Trust Fund income from interest earned on the Fundís Treasury notes, which will be over $120 billion in 2011.

- Republicans are claiming that the Trust Fund surplus really doesnít exist; it has all been spent. The Trust Fund did not put its surplus in Fort Knox, or bury it in the back yard; they bought Treasury bonds, and the government spent that money. So the Government will need to borrow money to cover the shortfall that will continue to grow.

- Republicans are claiming that benefits need to be cut, and retirement age increased again. Or better yet, privatize the system so everyone has their own retirement account and the Government has no responsibility. And privatizing would result in a huge benefit for stock brokers and corporations who would be the recipients of the funds from all those private retirement accounts.

Reality:

- Working Americans have been paying in extra money since 1984 to build up the Trust Fund to help ensure that there will be funds to pay their benefits when they retire. Workers have been paying in much more than they have been taking out. Meanwhile, during the Bush years the rest of the Federal Government was borrowing huge amounts to cover the shortfall on all other government programs.

- If you had a couple trillion dollars to invest, where would you invest it to ensure maximum safety? The odds are you would buy Treasury bonds, just like many other Americans and foreign investors. The Treasury notes owned by the Social Security Trust Fund need to be honored, just like we honor all other holders of Treasury notes, including foreign governments and private citizens. There is no valid basis not to honor the Social Security notes owned by the Trust Fund.

- Republicans want to view Social Security as welfare payments. It is not. Social Security is an insurance program, and American workers have been paying their premiums for many years to ensure that they would have some income in the event of a disability and in their old age if they are fortunate enough to live that long.

- There is no Social Security funding crisis. The problem is with spending for the rest of the Federal programs which has greatly exceeded tax revenues for the past ten years, largely due to the Bush Administration's tax cuts for the wealthy, and the Great Recession.


If you would like to study this issue further, or verify the above numbers yourself, you can start by going to http://www.ssa.gov/oact/trsum/index.html which is the latest Annual Report by the Trustees of the Social Security and Medicare Programs.