View Full Version : CBO: Social Security Now Officially Broke
sappstuf
1/26/2011, 02:12 PM
Today’s CBO report has some bad news about the deficit. But CBO has some really, really bad news about Social Security: It’s officially broke.
The CBO’s revenue/expenditure estimates now place the program in permanent deficit. There had been some hope that payroll taxes would recover sufficiently post-recession to put the program back into the black (the theoretical black) for at least a few more years, putting off the day of reckoning for an election cycle or more. No more: The new CBO estimates put Social Security in the red for as far as the eye can see.
But there’s a bit of camouflage attached: If you include the “interest” that the federal government “owes” the fictitious Social Security “trust fund,” then the program is in the black. Which is to say, if you think that borrowing another $1 trillion from the bond market to shift money from one government account to another government account makes the nation $1 trillion richer, then everything’s hunky-dory. But if you compare the program’s tax income to its benefit outlays, without the “interest” owed, as CBO does, what you get is deficits from this year forward to 2021 of $45 billion, $30 billion, $28 billion, $30 billion, $31 billion, $33 billion, $44 billion, $59 billion, $77 billion, $98 billion, and $118 billion — by my always-suspect English-major math, about six-tenths of a trillion dollars in the hole.
President Obama has explicitly rejected the recommendations of his own bipartisan deficit panel, specifically the proposal to raise the Social Security retirement age modestly over the course of several decades (to 69 by 2075). But we can only put so many trillions on the national balance sheet before our national chit gets called in, at which point it will hit the fiscal fan.
You can find what he is talking about by going here (http://www.cbo.gov/doc.cfm?index=12039) and downloading the full summary on the right side. Nice graph on page 141.
Since Obama doesn't plan on doing anything about it, I sure hope the shipment of unicorns and pixie dust arrives soon...
OklahomaTuba
1/26/2011, 02:41 PM
I'm not worried. We're getting High Speed Rail and poor folks can get free high speed internet.
That should fix everything.
TheHumanAlphabet
1/26/2011, 02:55 PM
Cut the damn budget!
pphilfran
1/26/2011, 03:00 PM
Raise the limit from the 106,800 to 120k and increase the age to draw benefits, bump it up a couple of months each year for 5 years and then three months for an additional 5 years....
in 2007 there were 18 million returns reporting above 100k AGI...
Each return would add 12.4% on the $13,200 difference or $1636...employee would be responsible for half of the 1636 or 818 bucks...15 dollars a week (or thereabouts)...cut out a couple of Starbucks and we are good to go...
$1,636 times 18 million returns
29.448 billion...
The increased age limit should make up any other shortfall....
Not counting the interest, while useful for policy decisions, IMO is the wrong way to declare SS broke or not broke. SS used to run surplusses (more tax coming in than benefits going out)...primarily because of the baby boomers. Holding onto that money causes it to lose it's value to inflation. So they bought government bonds with it. Lending it to the government. They are due the interest. As the baby boomers retire, it is natural and expected for those surpluses to turn to deficits, pretty much until there are no more baby boomers around. It was thought that this day (of taxes finally going lower than benefits) would be a bit farther off, but that was before this recession...and with unemployment taking a much longer time to recover than GDP, and the SS tax capped at 106K or whatever it is, SS is dependent on low unemployment to get back to surpluses. If the cap were removed entirely, it would probably do a lot...
Anyway, if you think about SS and think that we shouldn't pay back the interest, this will be seen as the government defaulting on it's debt. Granted, the SS bonds are 'special issue' bonds, so it's feasable that the government could default on just those, and not the bonds that investors hold. But even then, that would have an enormous effect on the market for government bonds. The interest our government would have to pay to borrow money would shoot through the roof, because investors would be rightly worried that the US has a solvency problem.
pphilfran
1/26/2011, 04:00 PM
Yes...the interest has to be paid...though it is coming out of one fed cookie jar and being moved to another fed cookie jar...
It is asinine to have the 100% of the money in fed special issue bonds...they are making no actual return since we have to issue bonds to pay the interest on the bonds...
Shovel some of that money into the market and let somebody else pay the interest that would actually be money...
You think things are bad now just wait until interest rates rise and we have to pay ourselves even higher interest rates....
sooner59
1/26/2011, 04:09 PM
They are eventually going to be forced to push back Social Security retirement age. And really, they should. It was set back when the average lifespan was a lot lower. Now people are living longer with the same retirement age. That means more and more money is being used by retirees than was decades ago. This is similar to Medicare...in that I mean people are living much longer, therefore receiving the benefits longer.
Some "not as bad" news may be that studies are showing that the parents of Baby Boomers had more children than did the actual Baby Boomers themselves. That means, yes there are fewer workforce age people in the near future to support the Baby Boomers when they are retirees, however as the next generation begins retiring, the ratio will likely not be as bad. There should be a better workforce age/retirement age population ratio. I realize that is a long way down the road, but hey, at least its something.
pphilfran
1/26/2011, 04:12 PM
They are eventually going to be forced to push back Social Security retirement age. And really, they should. It was set back when the average lifespan was a lot lower. Now people are living longer with the same retirement age. That means more and more money is being used by retirees than was decades ago. This is similar to Medicare...in that I mean people are living much longer, therefore receiving the benefits longer.
Some "not as bad" news may be that studies are showing that the parents of Baby Boomers had more children than did the actual Baby Boomers themselves. That means, yes there are fewer workforce age people in the near future to support the Baby Boomers when they are retirees, however as the next generation begins retiring, the ratio will likely not be as bad. There should be a better workforce ago/retirement age population. I realize that is a long way down the road, but hey, at least its something.
40 or 50 years out things get a lot better...but it won't hold together that long without changes...
Yes...the interest has to be paid...though it is coming out of one fed cookie jar and being moved to another fed cookie jar...
It is asinine to have the 100% of the money in fed special issue bonds...they are making no actual return since we have to issue bonds to pay the interest on the bonds...
Shovel some of that money into the market and let somebody else pay the interest that would actually be money...
You think things are bad now just wait until interest rates rise and we have to pay ourselves even higher interest rates....
Shoveling that money to the market would be bad too, but for other reasons. Primarily among them: 1) Risk of loss. Considering that by law, we have made promises, a loss in the value of SS's investment would also mean SS would have to borrow from the federal government. 2) Imagine they shoveled the money into the market simply by buying stocks. This could be seen as the government 'picking winners and losers'. Same thing if they bought corporate bonds. People would howl. If they put the money in some fund, or had a selection of private funds that people could buy into, how corrupt would the process of the government choosing which fund(s) to us be? Who wouldn't want to run a fund with a guaranteed large revenue stream? Buying government bonds avoids this issue.
sooner59
1/26/2011, 04:19 PM
40 or 50 years out things get a lot better...but it won't hold together that long without changes...
Oh I agree that changes will have to be made before that. But I'm only 26, any good news about my retirement is welcomed at this point. I'm already going to try to fund my own without relying on anything else to be there. If it is, then yay us.
dwarthog
1/26/2011, 04:54 PM
Maybe reducing the Social Security payroll tax from 6.2% to 4.2% will help. :confused:
pphilfran
1/26/2011, 04:55 PM
Shoveling that money to the market would be bad too, but for other reasons. Primarily among them: 1) Risk of loss. Considering that by law, we have made promises, a loss in the value of SS's investment would also mean SS would have to borrow from the federal government. 2) Imagine they shoveled the money into the market simply by buying stocks. This could be seen as the government 'picking winners and losers'. Same thing if they bought corporate bonds. People would howl. If they put the money in some fund, or had a selection of private funds that people could buy into, how corrupt would the process of the government choosing which fund(s) to us be? Who wouldn't want to run a fund with a guaranteed large revenue stream? Buying government bonds avoids this issue.
Risk of loss is a lame excuse...we are currently losing ALL of the interest being paid because we are paying ourselves...
Invest in quality issues and the risk of loss is minimal...bonds outside of treasuries pay a higher yield to make up for the increased risk...I am not talking stocks, only bonds...
If every one of the corporate or muni bonds defaulted we could just do like we do today...print up a bunch of special issue bonds and keep on truckin....:D
Risk of loss is a lame excuse...we are currently losing ALL of the interest being paid because we are paying ourselves...
Invest in quality issues and the risk of loss is minimal...bonds outside of treasuries pay a higher yield to make up for the increased risk...I am not talking stocks, only bonds...
If every one of the corporate or muni bonds defaulted we could just do like we do today...print up a bunch of special issue bonds and keep on truckin....:D
But still you have the problem of government favoritism. Bond purchases could (and most likely would) be used to bail out, prop up, or give undue advantage to companies that are seen in a favorable light to the current administration.
pphilfran
1/26/2011, 05:29 PM
But still you have the problem of government favoritism. Bond purchases could (and most likely would) be used to bail out, prop up, or give undue advantage to companies that are seen in a favorable light to the current administration.
Like we have a perfect system at the current time...
I still think paying ourselves interest is asinine...
KantoSooner
1/26/2011, 05:39 PM
The Singapore solution:
12% of your salary is deducted and matched by your employer. It's put in an account with your name on it. You can use the account to pay for a primary residence, college education for you or a nuclear family member or for medical not covered by national health (like if national health wants to give you steel teeth and you'd prefer more expensive real looking ones in case of an accident...)
Plus you're allowed to invest it in a list of approved (mostly orphan and old folks type super conservative) investments or government bonds.
No, it doesn't satisfy the Levellers because the bank president ends up with a hell of a lot more than the taxi driver....but even the cab driver ends up with a retirement and you can walk up to a 'pension' kiosk on the street, tap in your pin and check out your nest egg 24/7.
Me likee.
OklahomaTuba
1/26/2011, 05:40 PM
Bush suggested something similar to that.
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