HolyCoast: Social Security is Now a Giant Sucking Hole

Monday, October 31, 2011

Social Security is Now a Giant Sucking Hole

And when the Washington Post dared to mention that fact the left went nuts.  Jim Geraghty has more from Morning Jolt:
An Insecure, Liberal Reaction to Hard Social Security Facts

Much of the blogosphere is abuzz over Sunday's cover piece in the Washington Post, which offered some scary thoughts worthy of this Halloween season:

Last year, as a debate over the runaway national debt gathered steam in Washington, Social Security passed a treacherous milestone. It went "cash negative."

For most of its 75-year history, the program had paid its own way through a dedicated stream of payroll taxes, even generating huge surpluses for the past two decades. But in 2010, under the strain of a recession that caused tax revenue to plummet, the cost of benefits outstripped tax collections for the first time since the early 1980s.

Now, Social Security is sucking money out of the Treasury. This year, it will add a projected $46 billion to the nation's budget problems, according to projections by system trustees. Replacing cash lost to a one-year payroll tax holiday will require an additional $105 billion. If the payroll tax break is expanded next year, as President Obama has proposed, Social Security will need an extra $267 billion to pay promised benefits.

Paul Krugman and the rest of the lefty blogosphere are irate that the Postdared to write this: "The WaPo makes a big deal of the fact that Social Security is currently taking in less in payroll taxes than it's paying out in benefits. Yet this means nothing, except as a favorite point used to create confusion by those who want to kill the program."

Wait, why? Even if one can argue that the presence of government bonds mitigates the problem, where do our friends on the left think that the money from those government bonds comes from? The federal government. This is like insisting that we don't have to worry about the lack of money from our left pants pocket because we can always get some more money from our right pants pocket. Except that the source of the money is the same.

As I read it, the lefties insist that the Social Security system isn't really cash-negative because the government really, really, really promises to pay the money needed to keep it going.

Walter Russell Mead summarizes:
The payroll taxes coming in are not enough to cover the pension payments going out.

Ah, you say sagely, but that is not a problem. The Social Security trust fund has been carefully putting money aside for decades. Now we will simply draw from the savings account to cover the extra costs.

Not exactly. The government has been spending the money that came in as Social Security payroll taxes for years. It has "invested" the payroll tax revenues in Treasury bonds: that it, the government has been 'saving' money by investing in IOUs to itself.

Now that the program is cash negative, annual social security payments result in a net flow of cash out of the government every year.
If you're my age you're probably not going to see much effect from all this because any reforms that are likely to be enacted probably won't change my benefits (when I can start collecting them). However, younger Americans can pretty much count on the fact that their benefits will be a shadow of what current retireds are collecting.

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