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Debunking the Myth of Social Security Solvency

Faithful devotees on the Left continue to peddle the notion that Social Security is not in crisis, that it doesn’t contribute to the deficit, and there is no need for reform. However, reading through this year’s just-released Social Security Trustees report, the annual “State of the SSA”, we find that the Trustees tell a different narrative — one that is grim indeed. The following primer pulls directly from the report and then explains the statement in layman’s terms. It is copied text from summary of the entire report.

What it actually says:
“Social Security’s total expenditures have exceeded non-interest income of its combined trust funds since 2010, and the Trustees estimate that Social Security cost will exceed non-interest income throughout the 75-year projection period”.

What it means:
Non-interest income includes payroll taxes, taxes on scheduled benefits, and general fund transfers. Expenditures (payouts to beneficiaries) have exceeded (been more than) income (taxes collected ) since 2010. Social Security has not been paying for itself for the last three years. Anyone telling you otherwise is patently false.

What it actually says:
“The deficit of non-interest income relative to cost was about $49 billion in 2010, $45 billion in 2011, and $55 billion in 2012″.

What it means:
Again, right here the report describes that there is a deficit occurring and provides a tangible figure for each year. It directly contradicts the notion the idea that Social Security is PAYGO. It is not.

What it actually says:
“The Trustees project that this cash-flow deficit will average about $75 billion between 2013 and 2018 before rising steeply as income growth slows to the sustainable trend rate after the economic recovery is complete and the number of beneficiaries continues to grow at a substantially faster rate than the number of covered workers”

What it means:
The deficit is only going to worsen by about 30% over the next 5 years to $75 billion a year. Then the deficit is going to RISE STEEPLY because even more people will be claiming benefits than those working and paying into the system.

What it actually says:
Redemption of trust fund asset reserves by the General Fund of the Treasury will provide the resources needed to offset Social Security’s annual aggregate cash-flow deficits.

What it means:
The Government is using Trust Fund Asset Reserves by the General Fund of the Treasury NOW — and has been for three years — to meet its Social Security obligations. What the Left fails to understand or deliberately doesn’t explain is that we are already borrowing from reserves (think using savings) just to meet basic program costs.

What it actually says:
“Since the cash-flow deficit will be less than interest earnings through 2020, reserves of the combined trust funds measured in current dollars will continue to grow, but not by enough to prevent the ratio of reserves to one year’s projected cost (the combined trust fund ratio) from declining. (This ratio peaked in 2008, declined through 2012, and is expected to decline steadily in future years.)”

What it means:
Remember, we are talking about the reserves now. The reserve amount (savings) will still grow slowly even after paying the Social Security deficit, until about 2020. This is how the Left claims that there is a Social Security “surplus”. They count the Social Security Trust Fund (deficit) + Trust Fund Asset Reserves (savings) = surplus. That is not a true surplus. That is fuzzy math.

What it actually says:
“After 2020, Treasury will redeem trust fund asset reserves to the extent that program cost exceeds tax revenue and interest earnings until depletion of total trust fund reserves in 2033, the same year projected in last year’s Trustees Report”.

What it means:
By 2020  (that’s 7 years from now) the Social Security Trust Fund deficit amount will grow and finally outpace any growth (surplus) in the Trust Fund Asset Reserves (savings). This outpacing will continue until 2033: that’s the year that the Social Security Trustees project a depletion of total trust fund reserves (the savings account runs out!). Yet because this projection date, 2033, was also in last year’s report, the Left can dismissively remark that there are “relatively few changes or surprises” in this year’s report — so that no one bothers to actually read it.

What it actually says:
“Thereafter, tax income would be sufficient to pay about three-quarters of scheduled benefits through 2087″.

What it means:
Even though you’ve faithfully paid in, you’ll only be able to get back 75% of the money. One-fourth of it gone. Poof. That means the Trust Fund Asset Reserves (savings) will have been propping up the Social Security Trust Fund a full 25% by 2033, and that Social Security will have been under-funded for 23 years by that time.

What to do about it?
Well, the very first paragraph of the Social Security Trustees report urges action:

‘Neither Medicare nor Social Security can sustain projected long-run programs in full under currently scheduled financing, and legislative changes are necessary to avoid disruptive consequences for beneficiaries and taxpayers. If lawmakers take action sooner rather than later, more options and more time will be available to phase in changes so that the public has adequate time to prepare. Earlier action will also help elected officials minimize adverse impacts on vulnerable populations, including lower-income workers and people already dependent on program benefits”

So, despite what the media and the Left tell you, Social Security is not fully funded. There is no surplus. Its current modus operandi takes the benefits being paid today and uses them to pay their current beneficiary obligations (instead of being held in trust like its original intent). It also borrows from reserves (savings) in order to meet just those basic current obligations.

The Trustee Summary concludes,
“Lawmakers should address the financial challenges facing Social Security and Medicare as soon as possible. Taking action sooner rather than later will leave more options and more time available to phase in changes so that the public has adequate time to prepare.”

It is signed by the Trustees:

Jacob J. Lew, Secretary of the Treasury, and Managing Trustee of the Trust Funds.
Kathleen Sebelius, Secretary of Health and Human Services, and Trustee.
Charles P. Blahous III, Trustee.
Seth D. Harris, Acting Secretary of Labor, and Trustee.
Carolyn W. Colvin, Acting Commissioner of Social Security, and Trustee.
Robert D. Reischauer, Trustee.

Therefore, the next time someone claims that Social Security is not in a crisis, is solvent, is able to meet all of its obligations, and/or is running a surplus, show them this primer. And show them the Trustees report about the real situation — in the Trustees own words.

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