In the 2013 Annual Report to Congress, the Trustees announced:

• The combined trust fund reserves are still growing and will continue to do so through 2020. Beginning with 2021, the cost of the program is projected to exceed income.
   
• The projected point at which the combined trust fund reserves will become depleted, if Congress does not act before then, comes in 2033 – the same as projected last year. At that time, there will be sufficient income coming in to pay 77 percent of scheduled benefits.
   
• The projected actuarial deficit over the 75-year long-range period is 2.72 percent of taxable payroll -- 0.05 percentage point larger than in last year’s report..
   
• Program costs are projected to exceed non-interest income throughout the remainder of the 75-year period.

The debate about Social Security reform isn’t serious.  It is noise filled with statistics that paint a picture of convenience.  This piece comes from testimony in a hearing about Social Security reform before the Ways And Means Sub-Committee.

Despite Social Security’s great success, its growth in lifetime benefits over time has been decreasingly targeted at its major goals. Even while programs for children and working families are being cut, combined lifetime benefits for couples turning 65 rise by an average of about $20,000 every year, so that couples in their mid-40s today are scheduled to get about $1.4 million in lifetime benefits, of which $700,000 is in Social Security.

What Are The Major Goals Of Social Security?

Social Security is suppose to be old-age insurance, and has virtually nothing to do with other programs for the children and working families.  What is really meant here is that the system does not serve the major goals of the person testifying.

What About The Growth Of Benefits?

In all honesty, this couple does not expect to collect $700,000 or anything close to it.

1. When he says ‘scheduled’ he ignores the fact that this couple expects to retire after the Trust Fund is exhausted which means that they will be subjected to benefit cuts. 
2. These people would likely trigger means-testing that would claw back benefits at more than 10% per year  
3. These people may die before collecting a penny

But the number sounds impressive.  Well, until you consider how much this couple has contributed.  In all honesty, the couple depicted probably deserves more than $700,000.  Someone born in 1970, making 2/3rds of median income (roughly 34K in 2010) will lose about $600,000 in savings to Social Security.  In case of this couple, two people were contributing, and both made more than median income.

We cover a number of Chuck Saletta's pieces on Social Security.  This piece is worth reading because it is well written and well thought.

"Over the last several years, the news about Social Security's long-term health has gotten progressively worse. With nearly every passing year, the Social Security Administration's annual Trustees' Report has pulled forward the date when the Social Security Trust Funds are expected to run out of cash."

The article spells out the problem and the consequences.  It tells you about the problem, and what is being done about the problems.

Many of the experts in the Social Security debate include means-testing as part of proposals to fix Social Security. What their proposals do not include is the fact that Social Security is already means-tested, and has been since 1984.

The consequence of this point is that to be effective, the means-test has to apply to more people or to increase the impact on benefits. The means-test applied today reached up to 1/3rd of retirees, and collected roughly $24 billion in 2011.  That is a lot of people, and not much savings.

The means test on Social Security benefits is applied on your income taxes.  What appears to be a tax is actually a clawback of benefits which is returned to the Social Security system.  If a person’s total income rises above a certain level, a portion of Social Security benefits become 'taxable'. If you have substantial outside means, your benefits today are reduced. Today, the IRS collects a clawback of benefits for people with outside means.

“It is also important to note that funds raised under this provision do not go into the General Fund of the Treasury but into the Social Security Trust Funds.” ~ Social Security Administration’s website

We write elsewhere about the drawbacks of means-testing.  The point here is honesty in the debate. Any proposal which includes means-testing provisions should state that it plans to expand existing means-testing rather than implementing a means-test. The other point is that proposal should acknowledge the fact that the savings may not be very much. To collect more, the government would have to increase the number of people affected or increase the size of the clawback.

Reposted From Quinnscommentary, see full article <here>

What do you say? How should we really fix Social Security?

So far we have gone from incoming payroll taxes paying the benefits, to incoming taxes and interest on bonds paying benefits. Next the Trust will be redeeming bonds plus using incoming taxes and interest on remaining bonds to pay benefits. And once the bonds are redeemed, the incoming taxes will only be sufficient to pay about 75% of the promised benefits.

One question keeps surfacing and that is does Social Security have anything to do with the federal deficit? Sen Bernie Sanders and others in Congress say no. Look at the link below referencing Ronald Regan taking that position as well. Here is what the article says:

Reagan said, “Social Security, let’s lay it to rest once and for all… Social security has nothing to do with the deficit. Social Security is totally funded by the payroll tax levied on employer and employee. If you reduce the outgo of Social Security, that money would not go into the general fund or reduce the deficit. It would go into the Social Security Trust Fund. So Social Security has nothing to do with balancing a budget or raising or lowering the deficit.”

Back in 1984 when Reagan said those words, it was accurate, payroll taxes paid all the benefits and there was money left over to buy additional Treasury bonds so it had nothing to do with the deficit. But today things are very different!

You can draw your own conclusion, but here are the facts. When incoming payroll taxes exceeded the benefits paid, the Trust purchased special bonds from the Treasury that paid interest. Where does the interest come from? The proceeds from the sale of the bonds was used by the government for all the stuff the government spends money on – just like your taxes. Now, when the Social Security Trust starts to redeem the bonds, the Treasury must come up with the money to transfer to the Trust to be used to pay benefits. The government currently spends about $3 billion more a day than it receives in revenue so it is a pretty good bet that it must borrow more money to pay the interest on the bonds and even more to redeem the bonds when called by the Social Security Trust. So, does the borrowing of more money add to the deficit? If not, where does it come from?

Here is what the motherjones.com link below says:

What actually happened is that the Social Security surplus was invested in treasury bonds. What does that mean? It means that workers gave money to the federal government, which turned around and spent it. In return, the Social Security trust fund received bonds that represented promises to repay the money later out of the federal government’s income tax receipts. In effect, it gave workers a claim on the income tax receipts of the government at a later date in time. When that time came, the federal government would have to pay up, which would make it less profitable. If the government was already running a deficit, it would make the deficit even worse.

Yes, the current status of Social Security funding does add to the deficit and to change that will take a cut in the benefit payments in some manner and/or an increase in payroll taxes … and that’s the truth.