Simple Facts About Social Security

Stop scaring people with doom and gloom, and get to work and fix the problem

By Jim Elliott

I ran across an extremely interesting article on Social Security put out about a year ago by the Center on Budget and Policy Priorities (www.cbpp.org). Frankly, I have never been much worried about the solvency of the Social Security Trust Funds and have regarded the controversy surrounding the issue as so much political hot air. I was gratified to learn that, while the facts are real enough, the problems can be fixed with relatively easy measures if Congress is actually willing to use them.

Two main issues that seem to arise time and time again are that Social Security is broke and that the government keeps borrowing from it or stealing from it–your choice. Here’s what I learned. First, it’s not broke. There are two major Social Security Trust Funds, one that retirees get paid from – the Old Age Survivors Insurance (OASI) with $71 billion paid out in April 2015 and the much smaller Disability Insurance Trust Fund (DI), with $11 billion paid out. Taken together, they have run a surplus since 1984 and are expected to continue doing so until 2020. That surplus is invested in U.S. Treasury securities and has been since the mid-1930s.

Taken separately, it’s a bit of a different story; the DI Fund will run out of money to pay full benefits in 2016, the OASI in 2034. The DI issue is easy to fix, if Congress wants to, by reallocating the payroll tax split and giving a higher share to DI and a lower share to OASI. That keeps both trusts solvent to 2033. Between 2020 (the last year Social Security is projected to have a surplus) and 2033 full benefits can still be paid by using the principal and interest it has invested in Treasury securities to supplement regular payroll tax income. After 2033 Social Security will still have enough income from payroll taxes to pay 3/4 benefits. Granted, that’s not good, but it’s not the end of the world, either.

So there’s plenty of time for Congress to figure out what to do at the last moment. (Churchill said, “You can count on the Americans to do the right thing after they’ve tried everything else.”) One possibility, of course, is to eliminate or adjust the cap on income subject to Social Security taxes. Currently only the first $117,000 dollars of wages are subject to the Social Security tax. Increasing or eliminating the cap could greatly increase the amount being paid into the Trust Funds.

Is the government stealing, raiding or borrowing money from the Trust Funds? No to the first two and yes to the borrowing, just like the government “borrows” from anyone who invests in Treasury Notes. If Social Security runs a surplus, it stands to reason that it has to be invested somewhere, if only because it is really hard to stuff $2.8 trillion bucks into a mattress, even in large bills, and there is probably no mattress in existence that will pay 3.8 percent (in 2013) on what you stuff in it. So there are two choices, government securities or the stock market. Don’t think me rude if I remind folks that in 2008 the stock market tanked, but the government didn’t. The difference is low risk or high-risk investment, and there is no lower risk investment than U.S. Treasury securities. The government of the United States has never defaulted on a loan.

So, yes, the government is borrowing the money, just as it does from private investors who buy Treasury securities, but Social Security has unrestricted access to its investments at par, meaning that even though the price of the notes fluctuates, the value of Social Security investments doesn’t. Invested in the stock market the value of the funds would fluctuate.

How did we get here? The Baby Boomers born after WWII are retiring, and there are a lot of them. There are also more people in the age group that is most prone to disabling injury, 50 years old and up; and there are fewer wage-earners who contribute to Social Security.

But the most important thing is for politicians, including the president, to stop scaring people with doom and gloom, and get to work and fix the problem. This is an issue that affects all Americans, and should not be treated as a political football.

Jim Elliott served 16 years as a Montana legislator. He is from Trout Creek.

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