Last year and the year before, Social Security collected less from the taxes that fund it than it paid to beneficiaries. All was okay though, because a trust fund exists for precisely that reason. With more than $2 trillion invested in US treasuries, the trust fund collects interest that can be used to bridge the gap between Social Security payroll tax revenue and the money it spends.
But not forever… In fact, not beyond 2020.
The Trustees of Social Security, in their annual report, predict that interest from the trust fund will be inadequate after 2020 and then the system will start using trust fund money. When that runs out in 2033, beneficiaries will receive 3/4 of what had been projected.
What to do?
President Obama has said that we have to preserve the system. In Congressional debt ceiling negotiations, he agreed to change benefit rates but the deal never worked out. Now, he says he opposes benefit cuts and privatization. During the debate he stated that he and Governor Romney had similar ideas but his aids refuted that the next day.
Governor Romney emphasized that people 55 and over would be unaffected by any changes. However, to preserve the fiscal health of the Social Security program, for workers less than 55 years old, he proposes raising the benefits age by 1 or 2 years and giving less to those who are more affluent.
With Social Security having been called the third rail of US politics, you can see why their plans are rather vague.
Some final facts: Called pay-as-you-go, current Social Security payments come from current workers’ payroll taxes. The revenue travels in 3 directions: To retirees, the biggest segment; to people with disabilities, a growing and massive part of the program; and to survivors of deceased workers. On a pie graph of government expenditures including defense, Medicare, Medicaid, and net interest, Social Security is the largest slice.
Sources and Resources: This Trustees Report summary provides a firsthand look at the future of Social Security while this NY Times article insightfully describes the collision between the old and the young that Social Security creates. I especially enjoyed, though, this podcast from econtalk on the huge problems faced by distorted incentives in our Social Security disabilities insurance program and here is a related paper. And finally, this NY Times interactive on the President’s 2013 budget is superb while more on Social Security at econlife is here.
Election Economics Topics: