Why We Should Worry About Social Security

Princeton economist Paul Krugman offers a disappointing defense of Social Security in his most recent column this week--arguing that the program is not in financial trouble at all.

About that math: Legally, Social Security has its own, dedicated funding, via the payroll tax (“FICA” on your pay statement). But it’s also part of the broader federal budget. This dual accounting means that there are two ways Social Security could face financial problems. First, that dedicated funding could prove inadequate, forcing the program either to cut benefits or to turn to Congress for aid. Second, Social Security costs could prove unsupportable for the federal budget as a whole.

But neither of these potential problems is a clear and present danger. Social Security has been running surpluses for the last quarter-century, banking those surpluses in a special account, the so-called trust fund. The program won’t have to turn to Congress for help or cut benefits until or unless the trust fund is exhausted, which the program’s actuaries don’t expect to happen until 2037 — and there’s a significant chance, according to their estimates, that that day will never come.

Hogwash.

Regardless of what Krugman says, a Social Security funding crisis still looms. According to the most recent Trustees report, by 2018 the OASI (the portion of Social Security that deals with retirement and survivor benefits) fund is expected to pay out more in benefits than it collects in taxes, and by 2025 payroll taxes will only be sufficient to pay 85% of anticipated retirement and survivor benefits. By 2030, this number is expected to fall to 78%. Yes, the Trust Funds will have sufficient interest and bond assets to remain solvent until 2040 (this is what Krugman uses as the basis for his claim that there is not an imminent problem). However, this financial security is more illusory than real.

These "assets", which the Social Security trust funds have amassed from years of surpluses, are nothing more than promises from the federal government for future payment (just like all bond payments). However, it is not as if the money to make these payments will magically appear--it all must come from future taxes. As a result, future taxpayers will either need to raise their own taxes, cut other government spending, or run larger budget deficits to make these future Social Security payments. Clearly, the Social Security promises we make today are placing a burden on future generations. Anyone telling you otherwise is simply not telling the truth--Nobel Prize or not.

Source: http://mickeyhepner.blogspot.com/2010/08/why-we-should-worry-about-social.html