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Home Publications Blogs Beat the Press The Washington Post Has Not Heard of the Social Security Trust Fund

The Washington Post Has Not Heard of the Social Security Trust Fund

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Friday, 25 March 2011 03:33

This appears to be the case, since the Post featured an article, arguing that Social Security benefits should be cut, that made no reference to the the trust fund. The article tells readers:

"Social Security is the single largest federal program, dispensing about $700 billion last year to nearly 60 million people, the vast majority of them retirees. Since the program’s creation in 1935, the cost of Social Security benefits has been entirely covered by payroll taxes paid by current workers. This year, however, payroll tax revenues are projected to fall $45 billion short of covering benefits, and the problem is projected to grow as the number of retirees balloons compared with the number of working adults."

Actually, there have been prior years when current taxes did not cover benefits, but more importantly the program quite deliberately built up a surplus of more than $2.6 trillion, which is held in U.S. government bonds. It is drawing on the interest from these bonds in 2011. It will eventually rely on the principle on these bonds, which will be sufficient, together with current taxes, to cover all benefits through the year 2037.

To describe this as a problem would be like saying that retired billionaire investor banker Peter Peterson has a problem because he is no longer earning money as an investment banker and must rely on income from his accumulated wealth or even selling off some of his assets. This was part of the design of Social Security. Workers were taxed more than was necessary to pay current benefits. The surplus was used to buy bonds so that the cost of benefits when the baby boom cohort retired could be partially funded by the bonds instead of current tax revenue.

The Post is now describing the repayment of the bonds held by the Social Security trust fund as a "problem," implying that it wants to default on these bonds. This is a strong position for a newspaper to take, especially in a news story.

It is worth noting that the interest and principle on the bonds held by the trust fund come primarily from the individual and corporate income tax. These taxes are progressive. This means that defaulting on the bonds, which are owed to the country's workers, would be a massive upward redistribution of income, since the wealthy could then pay less in taxes.

The Post has a long history of supporting policies that lead to an upward redistribution of income such as the TARP bank bailout, trade agreements like NAFTA that put downward pressure on the wages of ordinary workers, and stronger patent monopolies for drug companies. The policy of defaulting on the bonds held by the Social Security trust fund is consistent with this policy of redistributing income to nation's wealthy.

Comments (11)Add Comment
Self Cannibalism is a Sin Against God, Capital Stock and Sunk Cost, Low-rated comment [Show]
Bonds repay "principal" when they mature, not "principle"
written by AndrewDover, March 25, 2011 10:00
You can describe something as a problem without advocating one particular solution.

The Post writes:
"This year, however, payroll tax revenues are projected to fall $45 billion short of covering benefits, and the problem is projected to grow as the number of retirees balloons compared with the number of working adults."

and you write:
"The Post is now describing the repayment of the bonds held by the Social Security trust fund as a "problem," implying that it wants to default on these bonds."

Mathematically, if R - B is a problem, you could increase R, OR lower B.

Logically then, calling R - B a problem does not imply that the advocate wants to reduce B.

Sanity wise, reducing benefits does not mean a
"default" on SS Trust bonds as long as promised Social Security benefits exceed its current assets (SS Trust fund bonds) and its future revenue through payroll taxes. In other words, one 1$ of benefit reduction today just means 1$ plus interest of benefits after the SS trust fund is repaid.

There are reasonable arguments against lower SS benefits, but "bond default" is not one of them.
...
written by joe, March 25, 2011 10:07
They only recognize the existence of the trust fund when talking about the 14 trillion national debt.
...
written by bmz, March 25, 2011 10:45
While I was fully employed, I paid over $1,000,000 (current dollars, after tax) into SS. But now that I'm retired and drawing out more than I'm currently paying in, I'm a part of the "problem."
Social Security
written by Orthoefer, March 25, 2011 11:23
Restore yje Bush tax cuts and if thast is not enough go farther. We need a progressive income tax anyway to preserve the (democracy?). Pay our bills especially the one to Social Security.
The Rich Will Not Get Back More in Benefit Than They Paid In Taxes
written by Dean, March 25, 2011 11:41
BMZ tells us that he paid $1 million into SS in taxes while working, but will get more back in benefits. Neither part of this story is plausible. The combined tax rate on workers and employers is 12.4 percent with a cap of roughly $107,000. This means that the maximum payment is a bit over $13,000 a year. Tax rates were lower prior to 1990 and much lower prior in 1983. There is no way that this is going to get you over a $1 million in total payments.

More importantly, the benefit structure is very progressive. The benefit for a maximum income earner who started collected benefits at age 66 last year is $28,000 a year. Ignoring any discounting, it would take a very long life span to get back more than $1 million at this rate.
...
written by samson, March 25, 2011 5:18
I'm not sure they want to default, but they definitely seem to think it would be better to 1. put off paying out for as long as possible; 2.lower the amount paid out any given as much as possible; and 3. stretch out the amortization schedule for as long as possible. The wealthy and corporate interests, and their water carriers in congress and the media want to pretend that a crisis mandates lowering benefits to achieve all these things and avoid any discussion of the wealthy and corporate types contributing more.
...
written by samson, March 25, 2011 5:21
typos!

1. put off starting to pay out for as long as possible (more grace time and even surplus time)

2. lower the amount paid out in any given year as much as possible (less shortfall)

3. stretch out the amortization schedule (interest only payments)

$1M in SS taxes?
written by libdevil, March 25, 2011 5:37
That's quite an accomplishment, BMZ. With some quick math, that means you have been paying into Social Security, at the maximum rate, on the maximum income, for the entire existence of the program, all the way back to 1937. A 73 year career at such high productivity. Impressive indeed! Not only that, you managed to pay about 50% more into the program than you owed! Such a generous soul.

Either that or you're lying.
Maximum SS taxes paid around $715,000 in 2010 dollars.
written by AndrewDover, March 25, 2011 8:10
BMZ's numbers seem excessive. Even when you note BMZ wrote "current" dollars, it does not add up to that much.

See
http://www.urban.org/UploadedPDF/social-security-medicare-benefits-over-lifetime.pdf

which calculates $290,000 as the “lifetime value of taxes” based upon the value of accumulated taxes, as if those taxes were put into an account that earned a 2 percent real rate of return (that is, 2 percent plus inflation).

$290,000 is for a "Single man earning the average wage ($43,100 in 2010 dollars)"

( 106/43 ) * 290,000 is only around $715,000.

defaulting on SSTF
written by Patrick Tchou, March 26, 2011 9:45
Defaulting on the SSTF would not only lower tax liabilities of the progressive income tax, which would benefit the wealthy, but also convert a regressive SS contribution to government tax. The FICA paycheck deduction applies only to the first 106k of income. It is a highly regressive "tax" above that income. It would be a massive coup to convert the SSTF to a regressive federal income tax.

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About Beat the Press

Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He is the author of several books, his latest being The End of Loser Liberalism: Making Markets Progressive. Read more about Dean.

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