Wednesday, February 08, 2023

Taking Social Security off the table is cowardly and does nothing to solve serious problem.

FACT SHEET: Social Security, Medicare, and Deficits 
February 8, 2022
In his State of the Union address last night, President Biden touched on a number of important topics, including Social Security, Medicare, and his record on fiscal responsibility. Below are a few facts to put the President’s remarks in context. 
Social Security 

  • The Social Security trust funds will be insolvent by 2035 – just 12 years from now – when today’s 55-year-olds reach the normal retirement age and today’s youngest retirees turn 74.  
  • At trust fund exhaustion, Social Security benefits will be cut by 20 percent or more across the board, resulting in a $12,000 to $17,000 benefit cut for a typical couple retiring in 2035. 
  • The President pledged to take Social Security “off the books” and has not offered a plan to make it solvent. The “do nothing” plan is a plan to allow this abrupt benefit cut to occur. 
  • Numerous bipartisan commissions and experts have studied Social Security and determined restoring solvency will likely require a mix of revenue and benefit adjustments. Even eliminating the payroll tax cap would only close 40 to 60 percent of the program’s structural imbalance. 
  • The longer we wait to make changes, the larger the changes will need to be, the fewer options there will be, and the less time we will have to phase policies in or give workers time to prepare.  

  • The Medicare Hospital Insurance (HI) trust fund, which funds Part A benefits, will be depleted by 2028 – just five years from now, when today’s newest beneficiaries turn 70. 
  • At trust fund exhaustion, Medicare payments to hospitals will automatically be cut by 10 percent, likely through payment delays that would jeopardize access to care. 
  • Total Medicare spending has grown from 2 percent of GDP in 2000 to 3 percent this year and is slated to double to 6 percent of GDP in just three decades. 
  • Numerous bipartisan options exist to reduce Medicare by lowering the cost of health care. 
Deficits and the Budget 

  • ... (portions less relevant deleted by blog publisher). 
  • Social Security, health care, and net interest explain 92 percent of projected nominal spending growth from 2022 to 2032. 
Rod's Comment: So, what will happen in 2035, when the trust fund runs dry? Does anyone think benefits will be cut?  I don't. There are only three obvious options: raise the Social Security tax cap, increase the retirement age, or cut the benefit amount. Or do a combination of all three. Both parties have pledged social security is untouchable so cutting benefits or raising the retirement age are off the table.  

Currently the maximum amount of income subject to SS tax is set at $160,200.  It goes up every year based on a formula. There is reluctance to drastically raise the cap because there is a desire to maintain the fiction that social security is a retirement plan instead of admitting that is a welfare Ponzi scheme. SS is a transfer payment where money paid in today by people who are working pays most of the benefit that current retirees receive.  Dems are now uninhibited about calling for making the rich pay "their fair share," so the reluctance to raise the cap may be diminishing.  As pointed out above however, even totally eliminating the payroll tax cap would only close 40 to 60 percent of the program’s structural imbalance. And this will have negative consequences. It will suck so money out of the economy it will slow growth, leading to less tax revenue and increasing Federal borrowing. The cost of interest on the debt will make it even harder to ever balance the budget. Alternatively, the government could borrow from the Federal Reserve, euphemistically called printing money, which weakens the dollar and leads to inflation. Either option would be unsustainable and will hasten a financial collapse. 

What I suspect will happen in 2035 is Congress will end the fiction that social security is a retirement fund and will fund the SS deficit out of general revenues. Budgets have not balanced in many years. The only way the SS deficit can be funded out of general revenue is by more borrowing or inflating the money supply. Neither option is a solution and will hasten an economic collapse.

We have known for decades the SS trust fund was running dry. Both parties kept kicking the can down the road. The longer we wait the more difficult it is to fix the problem. To take Social Security off the table is kicking the can further down the road and burying your head in the sand.  Taking Social Security off the table is cowardly and does nothing to solve the problem.

Stumble Upon Toolbar
My Zimbio
Top Stories

No comments:

Post a Comment