Social Security Is Not Going Broke

[ProSense]

Social security is not going broke

By David Cay Johnston

Which federal program took in more than it spent last year, added $95 billion to its surplus and lifted 20 million Americans of all ages out of poverty?

Why, Social Security, of course, which ended 2011 with a $2.7 trillion surplus.

That surplus is almost twice the $1.4 trillion collected in personal and corporate income taxes last year. And it is projected to go on growing until 2021, the year the youngest Baby Boomers turn 67 and qualify for full old-age benefits.

So why all the talk about Social Security “going broke?” That theme filled the news after release of the latest annual report of the Federal Old-Age and Survivors Insurance and Federal Disability Insurance Trust Funds, as Social Security is formally called.

The reason is that the people who want to kill Social Security have for years worked hard to persuade the young that the Social Security taxes they pay to support today’s gray hairs will do nothing for them when their own hair turns gray.

That narrative has become the conventional wisdom because it is easily reduced to a headline or sound bite. The facts, which require more nuance and detail, show that, with a few fixes, Social Security can be safe for as long as we want.

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http://blogs.reuters.com/david-cay-johnston/2012/05/04/social-security-is-not-going-broke/

[msongs]

1. time for dems top to bottom to trumpet this & give up the austerity crap nt

[Dragonfli]

6. Last I heard, the Democratic leadership (Congressional and Executive) were still in love with

Cuts to "sacred cows", "making hard choices", and asking the Republicans for some tax revenue in exchange for this "balanced approach".

To finally solve our fiscal dilemma, both sides will have to give up some of what they hold dear. The President has made clear time and again that his side is willing to give up sacred cows and make hard choices
http://www.thirdway.org/press_releases/164

[TheWraith]

27. Despite Republican spin, the Democrats aren't the ones trying to cut Social Security.

And they never have been. But conveniently, right after the Republicans introduce a budget to do exactly that, we have the spin show up that it's really the DEMOCRATS who are doing that, even though they're not, but they WILL, just you wait and see. Even though the goalposts like the deficit commission, the debt deal, etcetera keep coming and going with the predictions turning to dust.

But the usual suspects keep trumpeting out that it's really the DEMOCRATS who are the enemy, not the only people who actually have a plan to get rid of Social Security.

[klook]

2. Johnston hits the nail on the head

The rumors of Social Security's impending demise are designed to shrink expectations for SS benefits, foment intergenerational conflict among the 99 percent, and eventually drown us all in Grover Norquist's bathtub.

[BlueCaliDem]

3. Let's not forget that tens of billions of that comes from undocumented workers using

legit social security cards, too.

This is a piece from 2010.

Edward Schumaker-Matos reports in the Washington Post that the amount of money paid into the Social Security system by undocumented immigrants is significantly higher than assumed, money paid for benefits that the vast majority of these workers will never see. By the account of Stephen C. Goss, identified as "the chief actuary of the Social Security Administration and someone who enjoys bipartisan support for his straightforwardness," $12 billion of Social Security revenue in 2007 came from hardworking immigrants without legal status in the U.S. That is a decent chunk of change.

http://news.change.org/stories/undocumented-immigrants-keep-social-security-solvent

They do what American corporations and millionaires and billionaires don't do. I wish more of these facts came to light.

[FogerRox]

4. If we have 20 more years of recession, yes SS will go broke around 2033

With GDP growth of 2.5% or less........

If we create jobs, and see GDP groweth of 2.8% or more....that means more FICA payments, and in 2011 the Trustees themselves suggest in the low cost scenario SS can be good thru 2085, while the staohastic model suggests 2055.....

KnR of course.

[hughee99]

5. Social security is doing well, they just invested their surplus in an entity

that's 14 trillion in debt. At some point, SS is going to have to call in that debt and hopefully the Federal government will be able to pay. As long as the federal government retains the ability to sell it's debt (Treasury bonds) at a reasonable rate, this will be fine. The SS will cash in, for example, a billion dollars of bonds. The US government will have to pay them off and when they do, they will have reduced the federal debt by that amount, enabling them to issue new bonds (to cover most of this amount). Essentially, using the money from new "investors" to pay off older investors...

Wait, I just described a fucking ponzi scheme. Please disregard, clearly I must have this all wrong.

[FogerRox]

7. I think you should try to muddy the waters more

I would try a heavier does of misinformation.

[hughee99]

13. That may help, I'm just not sure where I went wrong here, perhaps you can help

The SS trust fund is full of Treasury bonds
The Treasury bonds are backed by the US government.
The US government is roughly 14 Trillion dollars in debt.
The SS trust fund is currently running a surplus, but at some point, will not, and then need to cash some of those bonds to pay benefits.
When it redeems a bond, the federal government will pay the value of the bond.
When the government redeems a bond, it has less outstanding debt (since it just paid some off)
When it has space between the amount of debt it has and the debt ceiling, they have tended to, in the past, issue new bonds (borrowing).
If they issue new bonds, they will be borrowing money from new investors, and this amount will be close to the same that they just redeemed from old investors (the SS trust fund).

Which of these is/are wrong? I'll grant you there are a few assumptions, but I am unclear as to which ones are wrong.

[Major Nikon]

22. Here's where you went wrong

OASDI is not an investment plan. It never has been and never will be. Therefore it can never be and never will be a "ponzi scheme" which is a term used to describe a fraudulent investment plan. The 'I' in OASDI stands for insurance. Calling OASDI a ponzi scheme just feeds the ignorance and misinformation campaign that seeks to discredit the most successful program in US history.

[girl gone mad]

23. The first thing that's wrong with your assumptions..

is that our government doesn't have to borrow in order to pay its debts. All of our debts are based in our own sovereign fiat money. It's simply not necessary for the federal government to borrow or tax in order to meet its same currency debt obligations.

The second thing you get wrong is that government borrowing is not true borrowing and government debt is not true debt. Think of what borrowing technically entails, then think about what actually happens when the government "borrows". You will quickly come to understand that the government is merely offering a risk-free instrument for savings with some inflation-driven yield as a service to the public.

Where the SS trust fund comes into play is as a silly and completely unnecessary accounting gimmick which was designed to keep SS off limits politically, though now that it's failed at that purpose it should probably be dumped.

[FogerRox]

25. What are the % returns on the US Treasuries current representing SS Assets?

If they issue new bonds, they will be borrowing money from new investors, and this amount will be close to the same that they just redeemed from old investors (the SS trust fund).

Flat out wrong, see my subject line.

And the number one reason youre really wrong headed is......

The US government is roughly 14 Trillion dollars in debt.

Yes ladies and gentlemen, we have our selves a defict/debt hawk. Someone who thinks the current debt levels are meaningful.

[hughee99]

35. 4.401% last year, but what does that have to do with anything.

My complaint has nothing to do with the return rate SS is getting. ZERO. They could make .01% or double their money, my issue is not with the rate of return. My issue is that the government will, at some point, have to redeem the treasuries. When it does they are going to have to get the money from somewhere, right? They can raise taxes (which they have shown a reluctance to do), the can fire up the presses and print some money (yes, I know it's all electronic these days and they don't have to actually print money), or they can re-issue the debt they just redeemed, which will work as long as other entities are willing and able to buy treasuries. Is there another option I'm not aware of?

I make no apologies for showing some concern about our current debt levels. I'd prefer if the next generation (or the current one) not be faced with the options countries like Greece are currently looking at, nor am I a fan of having our foreign policy or monetary policy influenced by the indebtedness we have with certain other foreign governments.

[FogerRox]

36. Compare if you please

The cost of floating new debt to buy old SS Assets looks like a great deal- no?

Did you infer the cost would be about the same.......

[FogerRox]

37. 4.401% is combined - special issue securities issued in the '80's

Were 12-13%, today its 2.4%.

Sounds like a great deal. Doesnt that reduce the cost ?

[hughee99]

38. It's a better deal now, but not sure it's a good long-term strategy.

In any case, they have to pay out the 13% and then issue debt to cover both the base price and the interest, so it's still losing money, just not as much as before. And if in 30 years, rates go up, you may find yourself redeeming at 4% and reissuing at 12-13%.

[FogerRox]

39. You infered the cost is nearly the same

The cost is not even remotely close.

[FogerRox]

26. Please compare rates for 30 yr Treasuries from 29 years ago to todays rates

Wee bit of a difference, isnt there.......

[ProgressiveProfessor]

8. A blogger posts something counter to prevailing actuarial opinion and everybody climbs on board

This is serious green eye shade stuff. I would listen to the pros, not a blogger.

Remember also that that eventually as our boomers move through, some of the money borrowed by the US Gov will need to be repaid. Hopefully we are in good enough shape as a nation to do that.

[ProSense]

9. Meet

"A blogger posts something counter to prevailing actuarial opinion and everybody climbs on board

This is serious green eye shade stuff. I would listen to the pros, not a blogger."

...David Cay Johnston: http://en.wikipedia.org/wiki/David_Cay_Johnston

[ProgressiveProfessor]

10. I checked on him before I posted...he is not an actuary

Last edited Mon May 7, 2012, 04:45 PM - Edit history (1)

Economics journalist he may be, but that does not give him any additional credence in this matter.

[ProSense]

11. Well,

"I check on him before I posted...he is not an actuary"

...Bernie Sanders is not an "actuary," and he says the same thing all the time. He likely agrees with Johnston.

http://www.sanders.senate.gov/newsroom/news/?id=78ef42d4-4e4b-4253-9c77-a07f18ff4dd3

Does that mean he has no "credence in this matter"?

Still, what are you objecting to and where is the evidence to counter Johnston's piece?

I mean, are you saying the numbers he quoted are wrong?

[klook]

12. Silence - must be off getting an actuarial degree (n/t)

[ProgressiveProfessor]

15. Nope, was in the lab with some undergrads

After my experience with CALPERS and having seen the political machinations over Social Security over many years, I want pros, not pols running it. This bubba may well be right, but lets see some real numbers from independent people who do actuarial planning for a living.

[ProgressiveProfessor]

14. Actuaries are critical to retirement systems and planning

They tend to be very fiscally conservative about rates of returns, have good cost models for the aging population and the like. Its a specialized field but a needed one. Like auditors, no one seems to like what they have to say, but they have a bad habit of being much more correct than those with an agenda.

CALPERS is a good example of a system in trouble. Independent reviews by actuaries were sounding alarms well before the managers admitted it.

GAO and others have done studies on Social Security...and they are concerned. That a journalist and a pundit are saying a little more in coffers will solve everything does not pass the smell test.

Get someone with independence to review current forecasts, and then I will be more positive. Until then, its just so much political hype.

Social Security is important and its long term solvency matters. It has been a political football for way too long. I would love to see it taken from the hands of elected pols and run instead by competent professionals.

[ProSense]

16. So the most

"Actuaries are critical to retirement systems and planning

They tend to be very fiscally conservative about rates of returns...Social Security is important and its long term solvency matters. It has been a political football for way too long. I would love to see it taken from the hands of elected pols and run instead by competent professionals."

...successful social program ever, with a $2.7 trillion surplus, needs to be changed (even its administration) because "fiscally conservative" actuaries insist it's going broke?

[Lamm]

18. I can ask my BIL who's an actuary

to run the numbers for you. Would you like that, Prosense?

[ProSense]

19. Up to you,

I have confidence in Johnston's numbers.

[FogerRox]

30. Johnston jives with the Trustees low cost scenario SS is good thru 2090

page 66 footnote b.

http://www.socialsecurity.gov/OACT/TR/2012/tr2012.pdf

I BLOGGED about this every trustees report since 2005. SO I must be using green eye shade, per the professor... LOL

[FogerRox]

32. Not necessary

See page 66 of the Trustees report- footnote b

SS is good thru 2090, in the low cost scenario.

http://www.socialsecurity.gov/OACT/TR/2012/tr2012.pdf

[ProgressiveProfessor]

20. I would settle with being properly run by professionals

CALPERS was the darling of the retirement industry for years. They denied there were any problems. Governors raided its surplus regularly (until stopped by an initiative). Today it is in real danger of having to raise rates in a decidedly down economy for state/county/local agencies.

The sense I get from those with no serious dog in the hunt and are professionals in the field is that taken as a whole, Social Security is underfunded since its underpinnings are restricted to a special series of Treasury bonds and there has not been adequate planning for an increasingly longer lived society. I have also read that the down turn has helped since more elderly have stayed working (and contributing) rather than taking their full draw. I am among that group.

Social Security (unlike some banks IMO) is too important to fail or to be used as a political football. I just want it turned over to professionals to manage and kept out of the hands of pols, from POTUS on down.

[girl gone mad]

24. You're comparing apples to oranges.

Social Security can never become insolvent since our federal government is the currency issuing entity. California (CalPERS) is merely a currency user. SS doesn't need to be managed by financial professionals (good god, no!). The government just needs to send out the checks as promised.

[FogerRox]

31. Are you aware the SS TRustees provide 4 models in each annual report?

Last yrs report had 4 dates, SS would go broke in 2029, 2037, 2055 & never thru 2085.

[FogerRox]

33. Professor is hand waving

He has an opinion, we have the actual SS Trustees report. The report that backs up Johnstons claim.

[FogerRox]

29. Funny thing - the Actuaries agree with the blogger

See page 66 of this pdf, see low cost scenario

http://www.socialsecurity.gov/OACT/TR/2012/tr2012.pdf


Footnote b:

The Trustees estimate the trust will not be exhausted in the projection period

OASDI, in the projection period, SS does not go broke thru 2090........... Looks like theres a grain of truth to the bloggers version.

Of course you could have checked the Trustees report before posting.......

[Uncle Joe]

17. Kicked and recommended.

Thanks for the thread, ProSense.

[Egalitarian Thug]

21. Of course it isn't, but when did facts ever convince the converted of anything? K&R

The Trust Fund was created specifically to deal with the boomer bulge and is supposed to be withdrawn over the time of their retirements. At least that was the reason given by reagan for doubling FICA deductions.

[FogerRox]

34. KnR ProSense, thanks for bringing light to this very import topic

SS (OASDI) is good thru 2090 in the SS Trustees report, page 66, low cost scenario, footnote b

http://www.socialsecurity.gov/OACT/TR/2012/tr2012.pdf