Social Security: In Far Better Shape Than You May Think

Probably one of the most shocked reactions I get from people when chatting about political matters is when I state the following fact: despite being more than three decades away from collecting Social Security, I am 100% confident it will be there for me and for everyone else my age and even younger.  I do say and would also emphasize ‘fact’ because, when you take a evenhanded look at the projections and numbers, it’s really in much better shape than most of the misinformation surrounding it would lead you to believe.

An article on the Christian Science Monitor’s site from yesterday details most of the important aspects of the problems involved with Social Security.  Some key points to focus on from the article:

The two trust funds (Old Age and Survivors Insurance and Disability Insurance) are legally separate. But the trustees said that if the two parts were merged, Social Security benefits could be paid in full through 2033. Then benefits would have to be cut by 25 percent.

Put another way, the projected imbalance in Social Security is equal to about 1 percent of the nation’s projected economic output over the next 75 years. So, as Ms. Munnell stated, the problem is manageable but not insignificant.

Since 2010, Social Security benefit payments have been exceeding the program’s income from the payroll tax. For old-age benefits, interest earned within the trust fund is covering the difference. On the disability side, the program is using both interest income and principal from its trust fund.

The first realization to be made from this is, even if nothing is done, the benefits would be cut in 2033, not disappear entirely.  That isn’t the most rosy picture to imagine, but the point is worth noting: money will still be coming in through the Social Security tax even if it’s not enough to cover what is being promised now.  It also must be kept in mind when considering the other elements of this debate.

FDR making history for the greater good.

The third part of the quote shows Social Security is technically still making money at the end of the year for now.  Not that it will continue making money in this way forever without some adjustments, but still not as bad as it may seem.  And consider this is coming as we are continuing to feel the effects of one of the worst economic recessions in history and with unemployment (7+%) still well above the full employment percentage (4%).

The most important part to put things into perspective is the imbalance being 1% of output over the next 75 years.  Now, that is a very large amount of money but obviously not the percentage that I’m sure most people would have assumed.  These points taken together should be somewhat comforting but there are still some other things to keep in mind.

When projections like these are made, the results are limited since we cannot accurately predict key variables that could easily change in the future, such as the unemployment rate or drastic changes in life expectancy.  An effort to reduce the severe levels of income inequality in the U.S. would also be good for Social Security since increasing pay to the average worker would be a huge bonus to the fund, but that’s another story.  That being said, the projections would probably look a little better if the economy were to perk up and stay that way for an extended period of time where unemployment maintained a healthy and more stable rate.  More workers means more tax money means more longevity for Social Security. Very simple but still not the long-term solution and something we cannot count on.

As the article states, some small adjustments now would give us this program for as long as we want it.  When times have arisen in the past where we have been concerned about Social Security’s lifespan, adjustments have been made to solve the projected problem at the time.  For example, when Ronald Reagan pushed for and signed into law a new tax on some Social Security income (yeah, that Reagan, not the mythical one people tend to believe existed).  Or when that same tax on 50% of SS income was increase to 85% of SS income under the Clinton administration.  (These facts can be read here on the SS Administration’s website since these were popular myths that needed debunking.  A second page is here.  Both are well worth the read to clear up some confusion that was permeated through mass emails virtually devoid of any factual information.  I’m sure you’ve seen many of them.)

So, once again we are faced with a not-so-great outlook of Social Security but it really isn’t as bad as most have been led to believe.  In all likelihood, the currently divided government will come up with a feasible solution to once again shore up Social Security for the future and put the program on solid ground.  The only people we should truly fear in this debate are the ones who want to unnecessarily kill the program for good and replace it with something even more unstable and dangerous.  Social Security works, has worked for a long time now, and, with some small modifications, will continue to work for many generations to come.

What the Fiscal Cliff Means for Jobs, in 1 Chart – Matthew O’Brien – The Atlantic

What the Fiscal Cliff Means for Jobs, in 1 Chart – Matthew O’Brien – The Atlantic.

One of the better articles and the best chart from the Congressional Budget Office I’ve seen concerning the fiscal cliff and the effect it will have on jobs.  The most important factor to note here is the difference in jobs with the two different Bush tax cuts options.  We’ve been led to believe by the GOP that the tax cuts for the alleged “job creators” (a.k.a. the wealthy but not technically job creators in the U.S.) are critical and our economy cannot move on without them.  But, as the author of this article puts it, “Washington is haggling over the least stimulative part of the fiscal cliff — the Bush tax cuts for the rich” (emphasis added).  Obviously, Republicans are showing they are not serious about deficit reduction as they continue to block this maneuver. The question now becomes: will the GOP cause another recession just to get their way on the most insignificant part of the fiscal cliff debate?

Tax hike for wealthy Americans won’t kill growth: CBO – Yahoo! News

Tax hike for wealthy Americans won’t kill growth: CBO – Yahoo! News.

A worthwhile read about the fiscal cliff and the potential effect of either extending all the Bush era tax cuts or extending them only for the middle class earners and below.  A critical piece of info seems to be missing here and that is the amount of revenue possibly generated to begin battling the deficit by these maneuvers.  Would be a good bit to chomp on as this debate continues.  But the crucial part to recognize in this article is the reality that a tax increase on the wealthiest in the country will not have much of an effect in the way of hurting the economy and other measures can be used to offset the smaller growth projected by it.

The Fiscal Cliff and Government Spending

Analysis: Fiscal cliff could hit economy harder than many expect | Reuters.

The “fiscal cliff” is coming and there is little doubt something must be done to avoid the damage it may do to the economy.  But one important reality should be noted about how we get out of a recession: government spending plays a huge role and it can be utilized to get the economy moving again.  As noted in the article:

Many economists think every dollar of deficit reduction will subtract nearly the same amount from economic growth.

What to do? What to do?
What to do? What to do?

By that measure, the current course could cause the economy to contract by 0.5 percent in 2013, according to estimates by the Congressional Budget Office (CBO) that have been largely embraced by Wall Street and the U.S. Federal Reserve.

But research by economists in academia and at the International Monetary Fund suggests a dollar of deficit reduction could drain as much as $1.70 from the economy, making the prospective belt tightening much more dangerous.

Considering the economic facts of history, we know cuts to government spending, such as the type the Republicans in Congress and Mitt Romney are calling for, will impede the way out of our current economic downturn.  This would be downright devastating to an unemployment rate that is still progressing its way down to more healthy levels.  The truth is we need government spending and we have to bite the bullet on the current deficit levels it is creating until a more stable time comes where cutting areas of the budget are less damaging to the country.

And despite this reality, half of the voting public are still supporting the candidate most likely to cause even more economic devastation in our lives (with very little effect on his financial well-being and his wealthy supporters).  One must ask, how fiscally suicidal are we?