I keep hearing from those concerned about the deficit that we need to do something about Social Security, but I can’t figure out why it has anything to do with the deficit.
It is funded through a separate tax and has been running a surplus until recently. It’s sound in the immediate future, and it seems like small tweaks can keep it that way.
How would changing Social Security have any affect on the deficit?
Actually, Alan Greenspan was charged with fixing the future baby boomers problem. He started a huge fund to smooth it over. It is starting to be used now. that is precisely how it was designed, to be hit when the boomers came along and be used up when they pass through. It is solvent for 35 years and then would pay 80 percent. That is not bankrupt. It could be easily tweaked to go on for many years. The Repubs just don’t want the poor getting help with money they could skim off. It is a huge fund and they could divert a lot of it into the bankers profits. Seems right. The bankers have had it hard lately.
SS has not caused one cent of the deficit.
26 years, not 35. Social Security will start paying out more than it takes in in 2015, will be able to cover its deficit with accumulated interest until 2025, at which point, it has to start dipping into the principal. The principal will be gone in 2037. The New York Times explains:
http://economix.blogs.nytimes.com/2010/11/26/the-social-security-deficit/
But, of course, it’s more complicated than that, because the surplus that Social Security collects gets invested in government bonds/T-Bills. The Social Security fund is, in effect, loaning the General Fund money. But, starting in 2015, they won’t be able to do that, and the Social Security surplus won’t be able to offset the General Fund deficit (and, the General Fund is going to have to start paying back the Social Security Fund the interest and all that stuff). So, the overall deficit is going to increase.
There is no problem. SS taxes simply have to be increased to cover the money paid out. A simple method would be to implement a flat tax. Currently a small minority of people who make a lot of money pay a lower percentage in SS taxes than every body else. If everybody paid the same rate, the problem would probably disappear, and the flat rate might even go down from the rate currently paid by the majority.
Right, but raising SS taxes is “doing something about Social Security”.
I keep hearing this, but IIRC, the SS tax is flat. Are you talking about how you don’t pay the tax above 90 some thousand in income? That’s true, but you don’t receive benefits above that amount either, so it seems extremely, almost perfectly fair to me.
To ask people to pay taxes on money but only receive benefits for a limited portion of it seems decidedly unfair to me. SS wasn’t supposed to be yet another government handout where the poor line up to suckle at the teat of the rich. It was supposed to be a self funded, you get out what you pay in, type of deal.
The federal government has been borrowing from Social Security for years. The government owes money to Social Security and this is in addition to its spending and IOUs.
That’s the middle prediction from the Social Security Trustees. If you take their optimistic* prediction, we’re all set indefinitely. The chart here shows that scenario as I, the middle one as II (although it looks like it hits zero in 2038), and the pessimistic scenario as III (trust fund runs out around 2030).
*Optimistic in terms of the effct on Social Security, that is. Its assumptions include lower increases in lifespan than the other scenarios, which isn’t really an optimistic prediction for those of us who would be dying earlier.
But not about the deficit, right? I mean we have real problems right now in every other part of the Federal budget, but SS is solvent for decades. Isn’t it the last thing to look at?
So are you suggesting that the govt default on it’s debts to SS but still presumably pay China? If so, I’m on the barricades tomorrow.
Not quite, based on the history of how we got SS, the basis was to help the poor and the people that lost economic security.
Yes, the deficit. Don’t make the mistake of thinking that just because the money is in different sets of books, they’re separate. Let me give you a scenario. Let’s say that I have two jobs. I have my normal job, that pays me $1000 a month, and I moonlight at another job that pays me $200 a month. And just because I like to keep things orderly, I have two checking accounts, one that I use for my regular expenses; rent, food, whatever, where I put the $1000 in, and one that I just use for beer money, which I put the $200 in.
Now even I don’t drink $200 of beer a month, so at the end of each month, I take my leftover beer money out of the beer account and put it in my regular account to spend on whatever. But I make sure to write myself a note each month, saying “January, $50 from the beer account, February, $100 from the beer account, etc.”, so that I know, if there’s ever a month where I have to spend more than $200 a month on beer, I can move the money that I loaned myself back in.
Now, if I get a raise at my moonlighting job, does that just help me throw nicer parties, or does that help me generally?
Except that the people paying SS taxes have done so with the assurance that the taxes are going into SS, so you can not lump their contributions into a single account with money in the general fund. To extend your analogy, imagine you have a roommate who does not drink, so does not contribute to the beer fund. At the end of the month are you going to let him take money out of your beer fund to pay for a shortage in the rent account? “Dude, it’s just one big account. What’s your problem”.
Do conservatives really think they are going to raid Social Security, paid for by a regressive tax specifically dedicated to it, to pay down the budget deficit caused by other programs?
Boy I’d love to see them explain that.
But that’s what happens. The money that Social Security collects doesn’t just go into some big Scrooge McDuck Money Bin somewhere. The Social Security Administration collects the FICA tax, pays out everybody who collects Social Security, and then takes any money left over, and buys government bonds with it. Buying bonds in loaning the federal government money, and that money goes into the General Fund to be spent on whatever. This is probably a good thing, in the long run, because if they want the money to collect interest, they have to invest it in SOMETHING, and US government securities are the safest thing out there.
As our friend Wikipedia puts it:
People who are paying Social Security taxes with the assurance that the taxes are going into Social Security are laboring under a misconception about how the Social Security Trust Fund works.
That’s absurd. It’s like saying when I put my money in a bank it’s not going towards my account because the bank pools all deposits and issues loans, or when I buy groceries I’m not actually paying for them because at the end of the day all the money in the till is combined.
The only odd thing about SS is that they are buying bonds from the Federal govt. If they bought the bonds from Australia instead, would that make any difference?
Now if the deficit hawks want to default on the bonds sold to Social Security to pay down the deficit, just say that. Don’t pretend that it has something to do with Social Security reform.
That’s not what I’m trying to say. I’m trying to say that it’s like paying for your groceries when you own the grocery store. The SSA and Treasury are different departments of the same entity.
From the perspective of the Social Security Administration, no. From a debt accounting perspective, it would, because that would increase the public debt. If the Treasury couldn’t issue the Social Security bonds, which nonpublic debt, they’d have to issue public bonds, which are public debt.
Wait, that’s not what I’m saying at all. That’s the opposite of what I’m saying. I’m saying that making changes to keep Social Security viable is essential to controlling the deficit.
But Social Security is viable for quite some time. Of all the govt programs there are it’s the one in the best shape. At the current time it has no negative effect on the deficit at all, right? If it were to disappear tomorrow it might even make the deficit look worse on paper because they could not pretend that the Social Security surplus was offsetting the deficit from other programs.
Unless you removed money from the Social Security trust fund/surplus/whatever then no reforms we make will change the deficit one iota. How could it? Let’s say we raised the retirement age to 70 tomorrow; that would mean Social Security would just have more money to buy govt bonds. How does that help the actual deficit?
Because Social Security bonds aren’t part of the public debt. As long as the government can borrow money from itself, so to speak, it doesn’t need to borrow money from the public.
Why does this topic keep coming up, and with mostly incorrect answers? Has Glenn Beck been spouting lies again? 
There was a thread on this exact topic in GQ a few weeks ago. That thread had a majority of correct responses, though I’m not sure anyone’s opinion has ever been changed on this matter!
In yet another thread on this exact topic several months ago, a Doper initialed L. N. did indeed insist that the U.S. Government would be $1 billion richer for every $1 billion of U.S. bonds sold to buy Canadian bonds. (He didn’t say how he felt about Australian bonds.)
Wrong again. “Public debt” is defined to include SS holdings, etc. See http://en.wikipedia.org/wiki/United_States_public_debt . You’re thinking of “Debt Held by the Public.” 
The distinction is more than trivial semantics. The S.S. holdings are counted toward the debt ceiling; the S.S. surplus is not counted toward budget balancing.