Everyone seems to be pointing fingers these days at the person or political party that is going to cause Social Security to fail. The Democrats say it’s the fault of the Republicans, who blame the Democrats. Liberals and conservatives both fault one another, in an endless stream of political rhetoric that floods the media.
Of course, no one blames the elderly, who are the beneficiaries of the program. At least not directly, that is. But it’s often implied.
In 1998, the Federal Reserve’s then-board chairman, Alan Greenspan, testified before the Senate Budget Committee in which Sen. Ernest Hollings, D-S.C., made the following observation about the Social Security Trust Fund: “What we’ve been doing, Mr. Chairman (Alan Greenspan), in all reality, is taken a hundred billion out of the Social Security Trust Fund, transferring it over to the spending column, and spending it. Our friends to the left here are getting their tax cuts, we’re getting our spending increases, and hollering surplus, surplus and balanced budget, and balanced budget plans when we continue to spend a hundred billion more than we take in.”
“… Our problem is we’ve been spending that particular reserve (for the baby boomers), that set-aside that you testify to that is so necessary. … We owe Social Security $736 billion right this minute. If we save $177 billion, we could pay the debt down, and have the wonderful effect on the capital markets and savings rate. Isn’t that correct?”
The government has been taking money from the Social Security Trust Fund and spending it as general revenue, leaving the trust fund with government IOUs. However, that’s not the way it was supposed to work.
» That participation in the program would be completely voluntary (it’s now mandatory)
» That the participants would only have to pay 1 percent of the first $1,400 of their annual income into the program (it’s now 7.65 percent)
» That the money the participants elected to pay into their Social Security account would be tax deductible (it’s no longer deductible)
» That the money the participants paid into the “Trust Fund” would only be used to fund Social Security. (Under President Lyndon Johnson, the money was moved into the General Fund and spent.)
What that means is that Social Security is now ahead of schedule on losing money and rapidly going bankrupt. Social Security is not almost broke, not just at risk of going broke, not close to being broke, it is literally broke.
Everyone knows it, yet the politicians continue to argue back and forth, left and right, about how Social Security will go broke if something isn’t done to fix it, conveniently overlooking the fact that it can’t be fixed. It’s already too late.
According to the Congressional Budget Office, Social Security was $10 billion in the red in 2010 and $9 billion in 2011. The CBO believes that Social Security may run positive for a couple of years until 2016, when the program will really start losing money.
While some critics may want to point to government waste as being the culprit of the Social Security deficit, that’s too easy an answer.
There are now so many T-bills in the Trust Fund that when the baby boomers begin to retire, the demand for funds to make Social Security payments to them will balloon, and one of two things will happen: Americans will be taxed twice for the same benefits, or the benefits will be cut.
Either way, we have a serious problem. If the benefits are cut, it’s unlikely that the retirees who are currently receiving benefits will have them reduced, but future retirees, such as the baby boomers, will receive less than their parents. Another possibility might be to raise the retirement age to 69 or 70.
Allan Sloan, editor-at-large for Fortune Magazine, noted, “This year’s cash deficit (in the Social Security Trust Fund) since the early 1980s, and the biggest ever, means the Treasury will have to borrow money to redeem some of the Trust Fund’s Treasury securities. Even at a time when Uncle Sam is borrowing $1.5 trillion a year to keep … (the government’s) … checks from bouncing, $41 billion is real money.”
In a 2009 Money News article titled “Social Security in the Red,” Dan Maugru commented, “My father once said that once you start lying, you can never stop. That’s because you have to tell another lie to cover that lie, and another lie on top of that, and before you know it, your lying is out of control. … But eventually, everyone gets caught in the lie, no matter how many lies they tell to cover it up. The truth has a way of always coming out. … For years, we’ve heard from campaigning politicians that nothing will happen to your Social Security, and that Social Security is in good shape. … Guess again. Social Security is now ahead of schedule on losing money and potentially going bankrupt.
“We have 145 million people in our workforce. There are 80 million baby boomers who will retire in the next 10 years. … It doesn’t take a rocket scientist to tell you that when you lose 80 million baby boomer workers, the remaining 65 million people won’t be able to support them all. … But don’t blame the boomers. They paid into the system and thought that they would get back what they’ve paid in, which they probably will. But all you guys who are paying in now, better luck next time.”
In a Feb. 18, 2005, commentary titled “2042: A Fiscal Odyssey,” columnist Charles Krauthammer said: “… The Social Security system has no trust fund. No lockbox. When you pay your payroll tax every year, the money is not converted into gold bars and shipped to some desert island, ready for retrieval when you turn 65. The system is pay as you go. The money goes to support that year’s Social Security recipients. What’s left over is ‘lent’ to the federal Treasury. And gets entirely spent. It vanishes. In return, a piece of paper gets deposited in a vault in West Virginia saying that the left hand of the government owes money to the right hand of the government. … These pieces of paper might be useful for rolling cigars. They will not fund your retirement. Your Leisure World greens fees will be coming from the payroll taxes of young people during the years you grow old.”
Finally, Maugru commented: “So the end sum game is this. At some point, the people have to choose. Do you want to reform Social Security, or do you want to be taxed to death to support an inefficient and potentially insolvent government program? … It’s not really much of a decision. In the end, somebody’s got to pay for the retirement of American citizens. Either you can pay for your own, or you can pay for everyone else’s. Choose.”
In the interest of full disclosure, my wife and I are both beneficiaries of the Social Security system. So, I guess we should be included among those who are participating in depriving the baby boomers of their retirement income. But don’t expect us to stop accepting the payments.
— Harris R. Sherline is a retired CPA and former chairman and CEO of Santa Ynez Valley Hospital who as lived in Santa Barbara County for more than 30 years. He stays active writing opinion columns and his blog, Opinionfest.com.