The Systemic Demise of Social Security

Last month the Social Security Administration announced a 3.6% cost-of-living adjustment (COLA) for more than 60 million Americans beginning in January 2012.

Its about time. Seniors haven’t had an increase the last two years.

However, as we shall see, Social Security is the poster child for federal government mismanagement and abuse. Though most Americans depend on it in their golden years, it is the Grand Poobah of politically manipulated social programs.

Politicians for decades right up to today have actively made decisions eroding that program for future Americans. They do so with impunity year after year.

Why? Election politics!

In The Beginning…

The Social Security Trust Fund (OASI) was created by the Social Security Act of 1935 at the height of the Great Depression. Back in 1950 there were about 16.5 workers supporting every Social Security (SS) recipient.

Over the years the original 1935 Act has been amended 17 times.  It’s been expanded to include additional things like disability benefits and COLA increases.  The Disability Insurance Trust Fund (DI) was added in 1957.

Social Security benefits were expanded for the well-intentioned greater good of all Americans.

Social Security has always been primarily a pay-as-you-go (PAYGO) system. Current year collections are used to meet current year expenses.

However, the amount contributed into FICA payroll taxes was increased slowly beginning in the 1970s to build up a surplus to pay for baby boomers as they reached retirement. The excess collections, by law, are used to purchase non-negotiable treasury securities.

Today 12.4% of every paycheck issued in this country goes into Social Security to pay for SS benefits. That is about 6% of the entire GDP. That money is yours. You allow the government to hold that money in trust for you until your retirement.

Today that trust fund should have a nice little cushion of $2.6 trillion of excess collections sitting in it’s coffers and remain solvent until 2036. It doesn’t.

A History of Mismanagement

Over time the federal government has systematically contributed to the demise of Social Security in two fundamental ways:

  • Adding costly benefits over the years without sustainable ways to pay for them
  • Ignoring Social Security’s HUGE and growing unfunded liability

In the early 1980s the federal government was warned that even after they had already increasing FICA payroll taxes, that it would not be enough to keep Social Security solvent.

Politicians did nothing.

Things have finally caught up to us.

Social Security (OASDI) Revenues v. Expenses by Year

In its annual report on May 13, 2011 the Social Security Trustees say that:

OASDI program costs will exceed non-interest income in 2011 and will remain higher throughout the remainder of the 75-year period.

Translation: Beginning NOW, in 2011, SS expenses will exceed revenues for the next 75 years… at least!

According to the US Debt Clock Social Security already has a $15.3 trillion unfunded liability. That means even after we exhaust the $2.6 trillion in the trust fund we will still need $15.3 trillion more than what comes in to pay for all the promised benefits!

$15.3 trillion is approximately six times the total yearly tax revenues of the entire federal government. Over time the federal government will have to come up with that money to pay for existing services or reduce benefits.

But Wait… There’s More!

The excess collections from the 12.4% social security payroll taxes were supposed to be accumulated to pay benefits for aging baby boomers. They weren’t.

Instead the excess was borrowed and spent for other programs. That has been done every single year for decades.

That is… welll… right up until 2010 when revenues fell $49 billion short of FICA collections for the first time ever. Now we know SS will come up short every year for the next 75 years.

The last vestige of a real, existing trust fund has long since evaporated into the vast abyss otherwise known as the national debt. The trust fund only exists as IOUs in a West Virginia filing cabinet.

Your hard, cold cash has been transformed into the “full faith and credit of the United States” as U.S. Treasury securities. The real money got spent.

Some would argue that T-bills are a good, safe investment for those excess funds.

However, as SS cashes in those securities to pay for current benefits then debt will simply shift from “intergovernmental holdings” where it went when it was borrowed and spent into “debt held by the public”.

“Debt held by the public” is money we borrow from the Chinese and other outside sources to pay for government debt.

Think Greece!

Yup… It Gets Worse!

For years the PAYGO system worked out well for politicians.

Social Security’s revenues exceeded its expenses and politicians could spend the excess for other government programs. It was great. They were happy as clams to have more money to spend any ‘ol way they wanted!

They could have, for example, used that extra to pay down the national debt, but instead they chose to spend it on just about everything else and let our sovereign debt grow like wildfire.

Nature and Math Put on the Brakes

All good things must come to an end. The sugar daddy is gone.

It is estimated that beginning in January 2011 that 10,000 baby boomers per day will retire for the next 19 years!

Instead of 16.5 workers paying into Social Security for every recipient like in 1950, there were only 3 workers in 2010… and the number is dwindling!

Those pesky baby boomers have the audacity to age, retire and claim money politicians need to use for the greater good of the nation. How selfish of boomers.

Social Security was not supposed to have expenses exceed revenues for years to come. It was not supposed to run out of money until the year 2036.

So what happened? Politicians happened, that’s what!

Politicians Speed Up Social Security’s Demise

Since 2009 politicians, led by President Obama, have accelerated the demise of Social Security in two ways so far:

  • ARRA in 2009 – HR 3850
  • Job Creation Act of 2010 – HR 4853

ARRA, the so-called “stimulus’ package, included a “payroll tax credit” for both 2009 and 2010. The Job Creation Act of 2010 has a “payroll tax holiday” averaging $1,000 per worker for this year.

No matter whether you call it a “credit” or a “holiday” it amounts to the same thing… Social Security revenues were cut!

A linchpin of the American Recovery and Reinvestment Act of 2009 (ARRA) was a $116 billion dollar reduction in Social Security revenues given as a $400 payroll tax credit for individuals and an $800 credit for couples in 2009 and 2010.

The bedrock of the Job Control Act of 2010 was $114 billion taken from Social Security. That one is a 1-year “payroll tax holiday” giving the average worker $1,000 more take-home pay this year.

For those counting… that is a $230 billion reduction in Social Security’s income since President Obama took office.

Another Nail in the Coffin

Earlier this year President Obama proposed another “payroll tax holiday” for 2012.

This time the average worker would bring home $1,500 more take-home pay AND corporate contributions to Social Security would be cut by 1/2.

That was in President Obama’s recently rejected American Jobs Act. However the SS part is expected to be resurrected in one of the pieces taken from it. It is expected to pass before the end of this year.

If that gets passed as proposed then Social Security revenues for 2012 will be reduce approximately $342 billion. I base that estimated on the CBO’s 2011 projection for this year’s cut and this new proposal is 3 times bigger. It is a 1-time election year salary boost to voters.

For those still counting… that is a total cut of $552 billion in Social Security revenues over 4 years.

That is over half a TRILLION, folks!

Back to the COLA Increase

My dear sweet mother got two nice letters from the government in the last two years explaining that she would not get a COLA increase that year.

This year she’ll finally get a nice letter explaining she’ll get a modest 3.6% COLA increase in 2012.

Now don’t get me wrong, it is both legal and moral that seniors get their deserved COLA increase. That is not in question. There are no political shenanigans being played with COLA.

However, with a half trillion in revenue cuts from Social Security where is the money to pay for the COLA increase coming from?

Yup… that is right… NOWHERE!

It’ll be tacked right onto the national debt just like the half trillion will be and the $49 billion was last year!

Conclusions

What politicians are proposing for Social Security this time to save their pathetic, snivelly little political necks in an election year is disgusting.

Their short-sighted treatment of the program these last 3 years literally insures even more drastic cuts to it will have to be made in the near-term future.

You can’t keep adding costs and decreasing revenues without hitting a brick wall.

Somehow tar and feathering them and running them out of town on a rail doesn’t cut it. Anatomical penalties, perhaps?

And don’t you smug fiscal conservative Republicans think you are any better than Democrats. Democrats and Republicans alike are equally to blame for this travesty.

Bipartisan gutting of Social Security is one of the few places both Republicans and Democrats agree these days.

Oh… they will tell you they are doing all this for you in order to reduce taxes and create jobs. They will tell you it is to save the economy. They will tell you Social Security benefits won’t have to be cut and that we can once again put off reforming it until AFTER the 2012 elections.

Bull pucky!

They chose to cut Social Security revenues only because it is “off-budget” and does not show up as a deficit in the federal budget in newspapers and on TV. It is quietly added to the national debt that we collectively like to conveniently ignore.

And all the while each political party will wag fingers claiming the other guys are the ones who want to ruin Social Security.

If politicians were really looking out for your best interests and were serious about cutting taxes to stimulate the economy then they would cut INCOME TAXES instead of the payroll tax and leave revenues in an already jeopardized Social Security program alone.

But that is not what they want. They will do anything, including destroy Social Security, to achieve their real goal.

A politician’s real goal is to get reelected!

—————————————————————————————————————————————————————

Addendum:

Other related Social Security/payroll tax holiday articles can be found here:

Payroll Tax Cut: Victory for Obama?
-Azleader, Inform The Pundits!, 12/27/2011

Payroll Tax Cut: How Many Jobs?
-Azleader, Inform The Pundits!, 12/21/2011

2-Month Payroll Tax Cut Extension – Huh? What??
-Azleader, Inform The Pundits!, 12/19/2011

2012 Payroll Tax Cut Holiday Extension – Democrats vs. Republicans
-Azleader, Inform The Pundits!, 12/15/2011

Payroll Taxes: Good News/Bad News
-Azleader, Inform The Pundits!, 12/9/2011

Payroll Taxes… Change of Venue
-Azleader, Inform The Pundits!, 11/22/2011

President Obama’s Jobs Proposals
-Azleader, Inform The Pundits!, 9/1/2011

Don’t Extend the Payroll Tax Holiday
-Azleader, Inform The Pundits!, 8/21/2011

Extend the Payroll Tax Cut Holiday… into 2012?
-Azleader, Inform The Pundits!, 7/1/2011

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About azleader

Learning to see life more clearly... one image at a time!

Posted on Nov 15, 2011, in Debt, Economy, Election, Job Creation, Jobs, news, Politics, Social Security, Taxes. Bookmark the permalink. 6 Comments.

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