AARP is wrong! wrong! Wrong!
After 2015/2018(take your choice) the SS will not have sufficient income to pay its obligations, therefore we, the Government, must begin repaying the 1 to 3 trillion dollars, and increasing,(again, take your choice) owed to the fund to pay its monthly recipients. This means MORE TAXES or DECREASE in monthly benefits no matter which way it is posed. The money owed SS runs out about 2042 and it is then BROKE and recipients must then be paid fully from the general taxation fund, less the taxes collected on individual payroll. Today many pay more in payroll taxes than in income taxes. It has been calculated SS pays about 2% on the individuals invested dollar, and the risk is mounting. The S & P has averaged 6% to 8% over a 20 or 40 year span with moderate risk.
With proper investment controls even this risk can be moderated. I compare my 401k and IRA'S's over my life span and find the return from SS pales in comparison, and I also have the ability to leave a legacy to my family or charity as desired. Not so with SS. Those who object to changes in SS also conveniently forget to mention the huge interest payments from the general fund each year to the (invisible)SS trust fund. In 50 or 100 years from now, whatever it takes to get out from under this Ponzi Scheme the citizen and we, the government, will be much wealthier with a higher return for the citizen and a removal of the interest payment from the general fund and a subsequent lowering of taxes(Hah!) The interest saved from paying SS can be used to support those who fall outside the new system. This change to the SS system has been put off too long. It must begin now before it is too late for all.
KM
Social Security's fictitious trust fund
BRIAN RIEDL DAVID C. JOHN
President Bush wants Congress to make Social Security reform a top priority. This is because the program is in real trouble — worse trouble than most politicians and a surprising number of reporters are willing to admit.
Although Social Security will fall into deficit into 2018, some assert that the program's trust fund will make up the shortfall, and therefore delay any tax increases or benefit cuts, until 2042. That is simply wrong. There is a trust fund, but it has no money in it — and it never did. No money has ever been saved for future retirees.
This means that the common myth that Congress and the president are raiding the trust fund is wrong also. As inventive as politicians are, even they can't steal money that was never there in the first place.
Since 1940, the Social Security benefits received by retirees have been funded by the payroll taxes that workers pay. As long as there are enough workers to pay all the benefits owed to current retirees, the system is fine. Unfortunately, that's about to change.
Today, there are just 3.3 taxpayers for each retiree. This is a sharp drop from 1950, when there were 16 taxpayers per retiree. In order to work properly, Social Security needs about three taxpayers per retiree. But with millions of baby boomers about to retire, and a much smaller number of new workers, by 2018 the program will have fewer than three workers per retiree and begin spending more each year than it takes in. That number will keep dropping until, around 2030, there will be two workers per retiree. At that point, a married couple will have to support themselves, their children — and their very own retiree.
Supposedly, that's where the "trust fund" comes in. Although it has existed since the 1930s, it got a new purpose back in 1983, when the Greenspan Commission came up with an idea to pay for baby boomers' future retirements by raising the Social Security tax well above the amount currently needed to fund the program, and putting the extra money in the trust fund. Between 2018, when the program begins running a deficit, and 2042, the trust fund is expected to provide $5.7 trillion, about $100,000 per family, to pay benefits.
One problem: the federal government wasn't allowed to actually save this money. Since 1939, federal law has required Social Security to "invest" its extra money in Treasury bonds. In other words, the government lends the money to itself. Those funds are then mixed in with all other tax revenue and spent on programs such as education, foreign aid and defense.
So in 2018, when the Social Security program tries to redeem these bonds, the Treasury (having already spent that money over the previous 35 years) won't be able to repay Social Security from any pre-existing store of cash. Taxpayers will be forced to pay extra taxes in order to fund Social Security's 40 million retiring baby boomers.
It's like a family that borrows money from its retirement fund each year to pay for vacations and expensive dinners. When they finally retire, their retirement fund consists of nothing more than paper IOUs.
Some observers erroneously blame the budget deficits for the empty trust fund. Whether it is President Bush's tax cuts or John Kerry's health care plan, critics regularly assert that any policy increasing the budget deficit would mean "more money taken from the Social Security trust fund."
That claim is also wrong. The Social Security surplus is spent each year regardless of whether the budget is in surplus or deficit. When the federal budget is in deficit, the Social Security surplus funds current government programs. When the budget is in surplus, the Social Security surplus pays down the national debt. Either way, nothing is saved for future retirees.
The demographics are already set. All of the taxpayers who will exist in 2018 have already been born. One way or the other, Social Security will need extra money starting that year.
Given that, this country faces a choice. It can either condemn future generations to ever-higher taxes or sharply lower Social Security benefits, or it can change the system by allowing younger workers to place part of their taxes in safe, controlled investments. That will cost money also, but the money in those accounts would be really saved — and grow into pools of money that could pay some of the owner's Social Security benefits.
However, before we can make that choice, we have to stop being distracted by thoughts of trust funds — especially ones that really have no money in them.
Riedl is the Grover M. Hermann fellow in federal budgetary affairs at the Heritage Foundation, 214 Massachusetts Ave. NE, Washington, D.C. 20002. John is a senior research fellow for Social Security at the foundation. |
