New column: The boomers hit 62

Justin...this is an incredibly obtuse post.

I direct you to an essay by Paul Krugman (http://www.truthout.org/docs_05/010305F.shtml) that completely and utterly refutes your points.

"...The purpose of that tax increase was to maintain the dedicated tax system into the future, by having Social Security's assigned tax take in more money than the system paid out while the baby boomers were still working, then use the trust fund built up by those surpluses to pay future bills. Viewed in its own terms, that strategy was highly successful..."

"...The date at which the trust fund will run out, according to Social Security Administration projections, has receded steadily into the future: 10 years ago it was 2029, now it's 2042. As Kevin Drum, Brad DeLong, and others have pointed out, the SSA estimates are very conservative, and quite moderate projections of economic growth push the exhaustion date into the indefinite future...."

Further down:

"...I don't know why this contradiction is so hard to understand, except to echo Upton Sinclair: it's hard to get a man to understand something when his salary (or, in the current situation, his membership in the political club) depends on his not understanding it. But let me try this one more time, by asking the following: What happens in 2018 or whenever, when benefits payments exceed payroll tax revenues? The answer, very clearly, is nothing."

And more:

"...What we really have is a looming crisis in the General Fund. Social Security, with its own dedicated tax, has been run responsibly; the rest of the government has not. So why are we talking about a Social Security crisis?"

"It's interesting to ask what would have happened if the General Fund actually had been run responsibly - which is to say, if Social Security surpluses had been kept in a "lockbox", and the General Fund had been balanced on average. In that case, the accumulating trust fund would have been a very real contribution to the government as a whole's ability to pay future benefits."

There is no hard choice about taxes and spending, except potentially removing the cap and I don't see that as a hard choice (either that or count FICA as nontaxable on our paychecks).

Consider yourself pwned.

By the way, this was the first link in a Google search with the keywords: "krugman," "social," and "security" in that order.

Uh Corey, did you read the actual column? I'm saying the exact same thing that Krugman is, albeit with some slight differences in emphasis.

That is cool about the Google result, though.

Oh, now I get it. I thought you were saying my post was the first result on that search string, which would have been kinda weird. Here's the link to Krugman's piece.

Justin,

I've got to disagree with you. Krugman is saying something different.

1) It's not going to be a big drag...there's a trust fund that's paying for it.

2) There are no hard choices to make. Social Security is funded to at least 2041 if the conservative estimate is accurate.

3) I just wanted to "pwned"

It is going to be a big drag, and there will be lots of hard choices to make. It just won't be a drag on Social Security, and the choices won't (and shouldn't) affect Social Security.

The main difference between me and Krugman on this (other than that he's a real economist and smarter and richer than me and stuff) is that he seems to think there could have been some way to actually put away the Social Security surpluses of the past quarter century in a lockbox and not spend them, and I don't see how that could have been done without investing the surpluses in something other than government bonds.

In terms of equity across generations and across income groups, the trust fund is very real and I think it's important that its integrity be maintained. But in terms of how the heck we're gonna pay for government services over the next three or four decades, this is a big deal.

But I really don't want to take away your satisfaction at pwning me. So forget everything I just wrote.

LOL...I just like the word...it's so thrillingly juvenile...and I've never used it before

As for government services over the next few decades, the solution is rather simple...return to the Kennedy tax rates, close corporate tax loop holes...

The current projection for when it goes from positive to negative is 2017.

You're dead wrong. The current projection for when the trust fund goes negative is 2029 (last time I checked --with was about two months ago).

And that's because the trust fund has two sources of revenue -- payroll taxes, and interest on existing assets.

My point is that Social Security is about to go within the space of a few years from being a big boost to the federal budget to a big drag.

Social Security isn't now a big boost for the federal budget. If we weren't borrowing money from the trust, we'd be borrowing it from somewhere else. Because we'd probably be borrowing the money on somewhat less favorable terms from 'the market', you might be able to get away with saying that Social Security does represent a tiny boost on the federal budget -- except for the fact that interest payments to the social aecurity trust fund are probably greater than the amount of additional interest we'd be paying elsewhere, so the net current impact on the federal budget itself of the Social Security system is probably a small drag.

As for social security being a big drag on the federal budget.... well, that's not the case either. Even using the pessimistic Social Security Trust projections that say that once the Trust fund is depleted, payroll taxes will only provided 75% of the funds necessary to pay full scheduled benefits (which means that the year before that, 25% of social security payments would have been a buyback of trust fund assets from the federal budget), this isn't that big a deal, because that 25% will represent only about 1.55% of GDP (social security payments as a percentage of GDP is scheduled to rise from about 4.2% of GDP now to 6.2% by around 2030...and that percentage remains virtually flat through 2075.)

Now, if we compare that 1.55% of GDP to the other "drags" on the projected aspects of the federal budget (bizarre levels of military spending, ever increasing debt service, Medicare, Medicaid, etc, etc...) the impact of Social Security on the federal budget is all but negligible.

But like most establishment "capitalist" types, you'd rather write about Social Security BECAUSE the "quick fix" means that we don't have to confront the REAL problems right now. We can go on with a tax structure that redistributes wealth to the wealthiest americans, can continue to spend outrageous sums on defense in order to protect the assets of the wealthiest Americans, continue the tax cuts, and borrow and spend policies that are to the advantage of wealthy americans, and sweep everything else under the rug.

Social Security is fine. Its everything else that is screwed up --- and its that "everything else" that you should be writing about.

What will happen when benefits payments exceed payroll tax revenues? It's simple: benefits payments will have to adjust to tax revenue or eventually, if the unbalance isn't fix, cease all together. It's simple arithmetic. There isn't much time to begin to cure the sicken social security system, or we'll all pay the consequences.

What will happen when benefits payments exceed payroll tax revenues?

well for the first twelve years or so, the interest that is paid on the notes will continue to build the social security surplus. After that, the difference between income to the trust fund and benefit payments will be made up through the sceduled redemption of the debt held by the trust fund....

Of course, all the estimates are just that -- estimates -- that are based on linear economic assumptions. But the economy doesn't grow in a linear fashion, interest rates rise and fall as do inflation rates, and each and every one of these factors can have a major impact on projections. If hell freezes over, and there is strong growth over the next three or four years, or if the far more likely scenario of a recession happens that lasts for a while, today's projections will be virtually meaningless.

But if you REALLY think that Social Security demands fixing today, you don't have to touch benefits or tax levels, all you really have to do is raise the minimum wage -- just pegging the minimum wage to inflation would result in a far more "solvent" social security system, for instance --- and by raising the minimum wage a couple of percent over inflation every year for a while, you could eventually even reduce payroll taxes and have a solvent system.

You're dead wrong. The current projection for when the trust fund goes negative is 2029 (last time I checked --with was about two months ago).

And that's because the trust fund has two sources of revenue -- payroll taxes, and interest on existing assets.

Right, but that "interest on existing assets" is coming right out of the general fund budget. It's not income coming in to the federal government, it's income going from one part of the federal government to the other. It's in 2017 that Social Security benefit payments are expected to pass the payroll-tax receipts.

Right, but that "interest on existing assets" is coming right out of the general fund budget. It's not income coming in to the federal government, it's income going from one part of the federal government to the other. It's in 2017 that Social Security benefit payments are expected to pass the payroll-tax receipts.

so? Its not like interest isn't being paid right now, and won't continue to be paid for as long as Social Security has a surplus.

But the really important fact here is that the impact on the federal budget will be negligible if not non-existent, because the debt is going to be held by somebody, and interest payments will have to be made regardless of who holds that debt.

In other word, "2017" is completely meaningless in terms of the "burden" that Social Security will put on the federal budget in the future. Its a number used by demagogues to scare people --- and as someone who writes about the economy, you really should know better.

For the past 25 years, the Social Security system has been subsidizing the rest of the federal government. In 2017 (or so) the subsidy ends. And that will be felt as a strain on the federal budget. It won't be the only strain. It won't be the biggest strain. It doesn't mean Social Security benefits should be cut. But it's a predictable expense that could make the budget choices of the next president more difficult than those of the last three.

For the past 25 years, the Social Security system has been subsidizing the rest of the federal government.

c'mon. that sound like its right out of a Cato Institute blast fax.

A loan is not a subsidy. And while its fair to say that Social Security has metaphorically "subsidized" fiscally irresponsible politicians by allowing them to disguise the true extent of their deficit spending, the Trust hasn't given money (a subsidy) to the general fund, its made loans. (I mean, tell the Chinese government that the US debt it holds is just a "subsidy", and I think you'd get the same reaction you're getting from me.)

I suppose that you could argue that the existence of the Social Security surplus kept rates on the interest on the debt lower than they would be otherwise (under the theory that lower demand for loan = lower rates for loans), but again that big pile of cash will continue to grow until 2029.

But it's a predictable expense that could make the budget choices of the next president more difficult than those of the last three.

sorry, but as I've already noted, the Social Security Trust continues to show a surplus through 2029 -- and no "budget choices" will be forced because of social security. Choice should be made because of the massive continuing general revenue deficits, ever-increasing total debt and higher interest payments on that debt --- but that really has nothing to do with "Social Security". Social Security itself only becomes a "problem" before 2029 is we wind up running such big surpluses for the next 20 years that we wipe out all of our non-SS debt before that year -- and personally, I'd love to have the "problem" of more money than I can spend...

Social Insecurity
The Social Security program has been working out very well over the last 70 years and is currently at a point that the accumulated Social Security surplus represented by about $1.8 Trillion Dollars in US Treasury bonds is sufficient to pay Social Security benefits with no reductions in benefits or changes to the FICA tax rates required for approximately forty additional years.

In addition, The Social Security Trust Fund will continue purchasing US Treasury bonds through 2016, meaning that they have been accumulating US Treasury securities since the overhaul of Social Security and Medicare financing in 1986.

Unfortunately, many conservatives are very upset that the Social Security Trust Fund has indicated it anticipates beginning to redeem the US Treasury securities in 2017.

Many Americans deliberately ignore that the current (working and retired) demographic of the entitlement program of Social Security has paid in $1.844 Trillion Dollars more than has been paid out by Social Security. The excess has been BORROWED AND SPENT by the Federal Government to cover ongoing non-Social Security expenditures since 1986. The US Government has issued US Government Bonds to be held by the Social Security Trust Fund which are no different than those purchased by China and Saudi Arabia in very large amounts).

Regarding Medicare, the current (working and retired demographic) for the entitlement program of Social Security Medicare currently has accumulated $338 Million Dollars more than has been paid out for Medicare B expenses. As above the accumulated surplus of $338 Million Dollars has been BORROWED AND SPENT by the Federal Government to cover ongoing non-Medicare expenditures since 1986.

The “full faith and credit” of the US Treasury securities applies to Saudi Arabia and China, and anyone else who buys US Treasury securities, and they are perfectly free to redeem their US Treasury securities and bonds when they come due.

Unfortunately, far too many people feel that the “full faith and credit” of the U.S. Government does not apply to the US Treasury securities and bonds amounting to $1.844 Trillion Dollars held in Social Security Trust Fund and the $338 Million Dollars held in various Medicare Trust Funds.

Perhaps the politicians complaining how unfair it is for Social Security to redeem bonds don't realize that the redemption of US Treasury securities by China, Saudi Arabia, and other Mid-East countries is accomplished by selling new bonds that total or exceed the bonds redeemed. In other words, the National Debt goes down by the amount of US Treasury bonds redeemed by Social Security, China, Saudi Arabia, etc. and up by the amount of new bonds sold to cover the redemptions.

Reminder: The US Treasury has not redeemed any of the various US Treasury bonds held by the Social Security Trust Fund since 1983 and is not expected to begin gradually redeeming any of them before 2017 (a 34-year period). In contrast, the bonds held by China, Saudi Arabia and our other overseas lenders are issued for a maximum period of 10 years. To the best of my knowledge, the US Treasury has been successfully processing redemptions of US Treasury securities since the U.S. Government floated the first U.S. Treasury bond.

I don't understand why it is bad for the US Treasury to pay interest and return the principal on funds borrowed from American worker FICA payroll tax contributions, .i.e. the Social Security Trust Fund and Medicare Trust Fund proceeds, but it is good to pay interest and return principal to countries like Saudi Arabia and China?

Perhaps it has something to do with a combination of Fair Trade, greed, and an abysmal lack of ethics and morality on the part of the political, business, and financial leaders of our country.

I am not surprised since most of the allegedly leaders complaining are not willing to serve in the Armed Forces to defend our Liberty and they are not willing to pay the taxes to support our defense needs (or any other needs). With that being the case, why would they be willing to pay back money they borrowed from the FICA payroll contributions of Americans?

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