Bloodless Coup

This Whole Social Security Debate

The left wing of the blogosphere is mostly up in arms (Kevin Drum, slacktivist, and there are others) about Bush's proposed "fix" for social security. Bush is running around saying things like this:

"As a matter of fact, by the time today's workers who are in their mid-20s begin to retire, the system will be bankrupt. So if you're 20 years old, in your mid-20s, and you're beginning to work, I want you to think about a Social Security system that will be flat bust, bankrupt, unless the United States Congress has got the willingness to act now. And that's what we're here to talk about, a system that will be bankrupt." (From Bush's speach in Utah yesterday, Link

Now, I freely admit that I don't think I entirely understand this whole debate. If someone wants to correct my mis-understandings (or, plainly, stupidity), just jump in.

Point the First: Social Security was set up sometime in the 1930s so that working people would be taken care of partially (not, and never intended to be, fully) by goverment money.

Point the Second: The system operates by puting a special tax (not a regular tax) on present workers, and sending that money to the people who have retired.

Point the Third: From the beginning of the system until now, more money has been paid in by workers than is going out to retirees. This is expected to continue for a while.

How long until the present system doesn't work? Ah, here's where (I think) it starts to get tricky.

Point the Fourth: The extra money that has been coming in for the past 75 or so years the government has put somewhere safe: US Government Bonds. In other words, the government took the money and lent it to itself.

Point the Fifth: The payments in from present workers will be less than what needs to be paid out to retirees starting in 2018 (scroll down to the chart titled "Key Dates for the Trust Fund"). In other words, the government will need to either find more money (by increasing taxes or borrowing it) to pay out to retirees or reduce the amount they pay out to retirees starting in 2018.

Point the Sixth: It isn't that simple. The Social Security system has been taking in more money that it has been spending, and lending it to the rest of the government. In theory, past 2018, the government can start cashing in those US Savings Bonds and using that extra money to pay benefits. According to the same source above, once the Social Security system starts cashing in the bonds, it can fully fund payments to retirees until 2029. Only after 2029 would the government have to either reduce payments or raise taxes or borrow money.

(Point the Sixth and a Half: The "extra" money from bonds runs out in 2041, at which point payments to retirees are made entirely from the payroll taxes of whomever is working at the time. By all available estimates, there will be fewer people working per retiree in 2041 than today, so there is no way to fully fund social security at this point. This is the crisis)

Point the Seventh: It isn't that simple. The "interest" that is used to pay retirees starting in 2018 is really just tax money: the Social Security system is getting that extra money from the rest of the government, who will need to come up with the money to give to the Social Security branch. Where will the government get the money? It will either have to raise taxes, borrow it, or change the Social Security Act to reduce payments to retirees so that it doesn't have to give the "interest" to the Social Security system.

None of this mentions Bush's "Privatization" plan, or other solutions. I'll leave that to another day, and merely ask: Is this right? Can anyone correct me where I'm wrong? (and point me to a cite?)

Posted by baltar at January 13, 2005 09:26 AM | TrackBack | Posted to Politics