Social Security has nothing to do with the federal deficit. Nothing. It is, has and will be in the black, self-financed and not dependent upon tax revenues. With no congressional action whatsoever, Social Security can pay all benefits on time and in full until 2037 and at least three-quarters of scheduled benefits through 2084.
Social Security is a defined benefit pension plan sponsored by the federal government, funded primarily with dedicated contributions of workers matched by their employers. Social Security has no borrowing authority and so does not and cannot contribute to the federal deficit. It will be in balance for the next 26 years, even if current policy continues unchanged.
The dedicated contributions are part of the payroll taxes that are taken from the paychecks of every working person. The “FICA” people see on their pay stubs stands for Federal Insurance Contributions Act, a law that requires both employees and employers to fund Social Security and Medicare. Federal social insurance taxes are imposed equally on employers and employees, consisting of a tax of 6.2% of wages up to an annual wage maximum of $106,800, plus a tax of 1.45% of total wages. The employee’s contribution has been temporarily reduced to 4.2% for the year 2011.
Private employers are required to keep company pension-plan assets in trust and segregated from operating funds, and the same pertains to Social Security’s assets held in trust by the government. Although widely used, the term “Social Security Trust Fund” is a misnomer: the Social Security Administration actually oversees two separate funds that hold federal government debt obligations related to what are traditionally thought of as Social Security benefits. The larger of these funds is the Old-Age and Survivors Insurance (OASI) Trust Fund. Its board of trustees employs more than 40 actuaries to ensure that Social Security will be able to pay what it owes. Their job it is to project the program’s income and outgo for the subsequent 75 years and to report those findings to Congress annually. Despite claims of “crisis” and “bankruptcy” and sundry other hyperbole that conservatives assert upon release of the reports, the actual documents show just the opposite.
Their latest report was released Aug. 5, 2010. It states that Social Security ran a surplus of $122 billion the preceding year and had accumulated a reserve of $2.54 trillion, which will grow to $4.2 trillion by 2024. The actuaries project that Social Security will most likely face a shortfall of just 0.6 percent of gross domestic product for the entire 75-year valuation period, about the same as extending the Bush tax cuts for the top 2 percent of the income scale.
The OASI Trust Fund is not cash in some treasury repository. It consists of interest-bearing securities that the federal government promises to redeem to pay future benefits to retirees and their survivors. These promises to pay money carry the same weight as savings bonds and treasury bills, commonly called T-bills. They are legal instruments that are the country’s solemn promise to those millions of Americans who pay regular FICA deductions or self-employment tax that they will in return receive benefits in their old age.
Those who contend that Social Security is “broke” assume that the Trust Fund is nothing more than a meaningless rhetorical device invented by liberal socialists, and that believing in it is like believing in the Tooth Fairy. On the other hand those millions of working people who pay into the system have a rightful expectation that their contract will not be breached. They note that the “I” in FICA stands for Insurance, and they legitimately expect payment of the promised annuity when they are old.
There is a segment of our society that holds another view. They see that in order to make good on the securities held by the Trust Fund, the government will need a revenue stream either from the sale of new securities or in the form of taxes, in which case even rich people would have to pay their fair share. The solution, they say, is simple. Just renege on the bonds. The money is gone, spent on enterprises such as the Iraq War, so forget about it. That would seem to imply that the treasury could also renege on all other government securities including those held by rich people, although one suspects that their political lackeys would find a way to distinguish between the rights of rich people and those of ordinary hardworking citizens who invest in FICA.
The trustees of the Social Security Trust Funds see the government securities as an investment that can be expected to return some 5% per year. Conservatives deny that there is any real return, and contend that beneficiaries take out more than they pay in. Three-quarters of taxpayers pay more in payroll taxes than they do in income taxes, and many of them are no doubt less than pleased by the suggestion that the use of the term “insurance” in FICA is a sham.
And they should be less than pleased by the now universal use of the conservative-invented term “entitlement” to describe Social Security. It’s a derogatory term used to imply that Social Security is a charity, with greedy geezers sucking up the earnings of hardworking young people. It is more often than not used in the context of “something must be done about entitlements,” implying if not outright stating that we cannot go on giving away all this money to people who haven’t earned it.
The time has come for present and future recipients of Social Security to understand that they are or will be receiving the defined benefits of a plan they have paid for, and to tell the media clucks who use “entitlement” to shove it.