Social Security

[ProblemAgain]

i thought this might be helpful to some of us...at the very least it contains FACTS

Smart Retirement

3/28/2013 5:30 PM ET

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By Philip Moeller, U.S. News & World Report

Social Security in the crosshairs

As Congress works to bring the federal budget deficit under control, entitlements for older Americans are certain to be affected.

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Social Security is never far from the congressional budget ax. Although it's been spared actual cuts to date, program defenders have already lost their battle to keep it from being considered for cuts. The battleground thus will be moving to specific reform proposals. Depending on who's talking, Social Security is either a runaway fiscal disaster that needs to be overhauled or a healthy program that has done its job and needs only a tweak or two.

First, a little background. Social Security is funded by payroll taxes, paid equally by employees and employers. Since 1990, each has paid 6.2% of covered wages up to a ceiling, which is currently the first $113,700 in annual earnings. This tax supports the Old-Age, Survivors and Disability Insurance (OASDI) program, which has two parts -- Old-Age and Survivors Insurance (OASI) and Disability Insurance (DI) -- that pay monthly benefits to retirees and their families and to disabled workers and their families.

There is also a payroll tax for Medicare that is 1.45% each for employees and employers; there is no earnings ceiling for Medicare taxes. The total tax for both programs for most taxpayers is thus 15.3 percent. Self-employed wage earners must pay this entire amount.

The health-care reform law has tacked on higher Medicare taxes for wealthier taxpayers. They will rise an additional 0.9% on wage incomes of more than $200,000 in 2013 ($250,000 for couples). These same income limits are also being used to trigger a 3.8 percent annual tax on net investment income.

Calculate Social Security benefits

The last time Social Security was "reformed," in the early 1980s, payroll taxes were raised to make the program self-supporting, and big surpluses began to accrue. By law, Social Security must place its surpluses in a special issue of U.S. Treasury securities, and the interest on these securities is added to Social Security revenues. The program is also credited with some of the tax revenues that the IRS receives from income taxes on Social Security benefit payments.

Every year, the trustees of the Social Security program issue a detailed annual report on the program's financial outlook. According to the 2012 report, Social Security will be able to pay all obligations in full until the year 2033 — 50 years after the last round of reforms was enacted. After that, it would be able to continue paying about 75 percent of its obligations for retirement and disability benefits. However, the DI component of the program will exhaust its funds by 2016, so something needs to be done soon. The trustees' report contains lots of variables that administrators acknowledge are uncertain: multiple projections for employment, inflation, economic growth, population, and health and longevity, just to name some big categories.

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With the spin doctors in high gear, here are factual answers to key statements about the program:

Social Security is spending more money in benefits than it's taking in.  It's broke. Social Security is not broke, regardless of how you define the term. Program expenses do exceed the amount of payroll taxes taken in by the program. However, the program is still in the black if you include its interest and other income.

We can't afford Social Security. Affordability ultimately comes down to whether you think current payroll tax rates are too steep, benefits are too big, or some combination of the two. There has been nearly no discussion that payroll tax rates should come down, so the affordability question hinges on benefits. There has been some talk of trimming future benefits for higher-income wage earners and perhaps trimming the annual cost-of-living adjustment (COLA). Studies show that lower-income workers wind up receiving more from Social Security than they paid in taxes, while the opposite is true for higher-income wage earners.

Social Security is adding to the deficit. The deficit was a contentious Social Security topic even before Al Gore's infamous "lock box" statements during the 2000 presidential race. Narrowly speaking, Social Security is distinct from the rest of the federal budget, and its defenders say it can neither add to nor reduce the federal deficit. It has its own dedicated tax and relies solely on that tax and the income it earns from investing surplus tax collections.

During 2011 and 2012, the employee payroll tax was reduced from 6.2% to 4.2%. But this economic stimulus was intended to put more money in consumers' hands. The Social Security program happened to be an effective way to accomplish this goal. Social Security was made whole for the cuts, and its overall financial position was not affected. Did this stimulus add to the deficit? Yes, but that's not the same thing as saying Social Security did so.

This issue becomes murkier, however, because of the legal requirement that Social Security place its excess money into U.S. Treasury securities. It's not as if the feds are holding the program's $2.5 trillion surplus in, well, a lock box. They spent that money a long time ago to fund government operations and gave Social Security an I.O.U., just as they do to everyone else who owns U.S. Treasury debt. Under this view, when Social Security must begin cashing in its U.S. securities to fund its operating deficits, Uncle Sam will have to go out and find the real dollars to repay Social Security. How will it find those dollars? Of course, it will need to sell more U.S. Treasury securities, adding to the national debt and to the deficit. In this indirect way, at least, Social Security's  looming shortfalls would add to the deficit. The villain in this story, if there is one, would seem not to be the Social Security program itself but overall government fiscal policy.

Proposed changes to Social Security will hurt current retirees. Generally, major reform proposals issued so far would have little effect on people 55 and older, and would not change benefits for retirees for upwards of 20 years. This primarily involves raising the retirement age and any specific proposals that would affect benefits. An exception could be if the annual COLA were made less attractive. That might take effect sooner, although opening up the COLA for discussion will also bring out lots of proposals to increase it, particularly to reflect sustained inflation in health-care costs. Another likely reform measure would raise the annual ceiling on taxable earnings, but this would affect workers, not retirees. There will also be proposals to means-test Social Security benefits, which could affect payments to more affluent retirees. The key there will be the effective date of any changes.

We're all living longer, so raising the retirement age is a logical and easy fix. Yes and no. Wealthier people are certainly living longer. People in white-collar jobs may be living longer. Poorer people are not living longer. The longevity revolution has not worked its magic on them. Many lower-income Americans take early retirement, at 62, because they are worn out by physically demanding jobs. Suggesting that these people work until they're 70 is not realistic. Extending the full retirement age -- now at 66 and headed to 67 for people born after 1959 -- thus may have its greatest impact on these early retirees. Most proposals that raise the retirement age can pay for themselves only by reducing the relative level of benefits for early retirees. Social Security has analyzed the major reform proposals and assessed their impact on the program's long-term sustainability.

[Wayne Goodwin]

May not be supported in this statement but If Government would keep it's greedy hands off Social Security and Medicare , it might be able to support it self . ?

[ProblemAgain]

so you haven't bothered to read the article?

[Wayne Goodwin]

Yes i read the article  the other day and again now . I guess all presidents have borrowed money from the system with very little chance of paying it back with adding to the dept .  It won't effect me anyhow since i have few years , days to live ... I was 55 when i got hurt and couldn't work anymore . I didn't intend on retiring early , it just happen . If i could have waited i could have drawn over 500 per month more . Maybe just maybe i don't understand what i read which get me in trouble with my comments ...

[frenchy]

there's a crossroads commin for sure .. and they'll have to figure out what to do .. so far social security is like the third rail .. nobody wants to touch it because they know if they do thats the end of their political career .. everyone says we gotta do somethin .. and they all agree .. and then they say ok .. you go first .. like penguins jumpin in the water .. one stops they all stop .. its solveable if they can get everyone to agree that yeah some taxes have to be raised a little bit .. better a little bit now than a lot more later .. and if the gubment would just keep their cotton pickin hands off the money thats already acrued .. they keep tryin to say social security is broke or that social security is the reason our defecit is so high .. well if they never touched it to begin with that wouldn't be a problem .. but knowin this much ain't you really glad that bush never got his social security bill passed .. what a fucken goatrope that woulda been huh ?? talk about everybodies ass in a sling .. the gubment coulda just changed its name to usa madeoff..  

[Wayne Goodwin]

Like a Ponzy skem (SP) . Even if some of the dept is paid off they would find a way to spend it ....

[uno,dos,3]

There are some real issues, like our longevity, that need to be addressed.  I was born in 1945 and thus the age for full SS retirement 'benefits' was already raised somewhat when I retired at 62 yrs. of age. It seems to me that the easiest partial fix would be to phase in another raise in the age for attaining full 'benefits while still allowing partial payments to  begin at 62 yrs. old. Payments would be slightly lowered as their percentage as computed against full retirement age would go down for early retirees.  Social Security was never meant to be anything more then a safety net for people.  

Social Security disability is another can of worms. I'M NOT TALKING ABOUT PEOPLE WHO ARE GENUINELY DISABLED......but if you research disability recipients you will probably find that there has been an explosion in numbers of the disabled population in recent years and those numbers pretty much mirror the number of unemployed people who are no longer counted as unemployed because they are 'no longer looking for work'. Coincidence? I doubt it. I believe that the #1 cause of disability is now the hard to disprove 'back problems'.

And then of course there is the culpability of government in getting their hands on our funds and then having the nerve to say we have a funding problem. Same thing is happening with pensions on the State level. Aside from the headlines over what seems like truly exorbinant pension benefits.......the majority of State pensioneers in this country do NOT have exorbinant pensions and most of the State pensions that face, what is being described nationally as a funding problem, actually seem to have a problem because many State governments chose to not make their contracted contributions into the funds for years.....which then became an enormous problem when when times were no longer good. Then of course the 'problem' became those 'pension' obligations........with the focus on the recipients.....the government's culpability....forget about it. And of course other then the money the federal government just prints on what seems like a whim....the only real money they get comes from taxpayers....it is so much easier to turn the public against pensions and social security and the like as our 'leaders' explain the hardships, those recipients, are causing the working public. Forget that we are mostly talking about money that most recipients have earned......why use the words 'earned money'....when you can use a more loaded term such as BENEFITS.    

[P.A.]

The solution to the social security problem if there is one is so simple even I can figure it out. Everybody just needs to pay the same rate into the program then there would be a huge surplus.

[frenchy]

put congress and the executive branch on it and see how fast they make it a priority ..its hard to get anyone to act on somethin that don't really effect them one way or the other .. why bother ?? don't make me no nevermind .. but put em on the hook same as us and see how all of a sudden it becomes so important to fix .. 

[Wayne Goodwin]

Yes there are a lot of people out there claiming to be disabled and are not . I know one that got on disability because his knees were bad . Now both knee joints are replaced and he run's a farm and hauls junk . I became disabled because i fell through the floor of my mobile home and tore the tendons away from my knee cap .Even after surgery only way i could walk was with crutches . At the age of 55 . That injury too away all the things i enjoyed doing like building things and working on cars and stuff .

[ProblemAgain]

think about these lines for a minute...

"The last time Social Security was "reformed," in the early 1980s, payroll taxes were raised to make the program self-supporting, and big surpluses began to accrue. By law, Social Security must place its surpluses in a special issue of U.S. Treasury securities, and the interest on these securities is added to Social Security revenues. The program is also credited with some of the tax revenues that the IRS receives from income taxes on Social Security benefit payments."

By law, social security surpluses are placed in treasury securities....the government then pays interest on those securities...so in essence the money is already borrowed because the taxpayers are paying interest on it. therefore it is prudent for the government to use that money since to do otherwise would be to have a pile of money they pay interest on and then go borrow another pile of money and pay interest on THAT. government always borrows money and government always pays it back..thus you do have treasuries and bond issues. and with rare exceptions govt debt is considered the best, far and away above corporate debt thus it is cheap debt i.e. low interest

at the time social security was begun, families were large...and grew ever larger...lots of neighbors were the Duggars...there might be 10, 13, 16 kids in a family. and about half or more of those kids who survived grew up to go into the ranks of the work force.  population control and birth control were not issues. in fact an extreme example of the attitude was germany with their tributes to mothers producing sons for der vaterland. but with the large families being replaced by small nuclear families, the numbers change....thus the baby boomers draw down on social security will not be met with an ever larger stream of revenue from their 5 or 6 or more kids working and paying into the pot. combine that with the fact that benefits have had some rising due to cost of living while the working class has not had much in the way of income increases and there will be eventual problems due to the fact that ss is funded by a per centage taxation. the way to fix that funding is to take the caps off the income limits on contributions .

"According to the 2012 report, Social Security will be able to pay all obligations in full until the year 2033 — 50 years after the last round of reforms was enacted. After that, it would be able to continue paying about 75 percent of its obligations for retirement and disability benefits. However, the DI component of the program will exhaust its funds by 2016, so something needs to be done soon."

so take that as a separate issue. what it means is there has to be funding found for the disabled from other sources.

and wayne.....social security and medicare...if you want the government to keep it's greedy hands off them, there wouldn't be any social security or medicare...they are government programs...social security is supported thru joint employer-employee contributions and medicare is supported by that greedy government. medicare has never been a self-supporting entity

[Wayne Goodwin]

Thanks for clearing that up ...

[Shadowman]

As the article points out, "currently the first $113,700 in annual earnings" is what SS tax is collected on. In other words if a person were to make a million they would be taxed the same as a person making $113,700. Legislators have quibbled over raising this in recent years as this would extend the life of Social Security for decades more even if it were raised to just $117,000 or so.  As for the claims of stealing Social Security funds, they have to be put somewhere.  There is not a big mattress in Washington that they stuff the funds into and if there were, it would lose money due to inflation. So the money in invested, mostly in Treasury Bonds and a lot of these to support recent wars are sold. Investment experts call them the safest investment in the world but one that brings a low rate of return. When I was younger they were even called War Bonds and it was considered patriotic to buy them. Oddly, the greatest patriots by those standards are now the Chinese, Japanese and Arab countries.  So the money is invested and politicians that rant about it being stolen are never able to explain what they mean. Let's just be glad it wasn't all just stuffed in one of the failed banks a half dozen year's back where it would have gone out the door for CEO and executive bonuses. Now that would be stolen.