Social Security is not “going broke” because Social Security cannot go broke

Dan Crawford commends John T. Harvey’s blunt reminder, “Why Social Security Can’t Go Bankrupt.”

It is a logical impossibility for Social Security to go bankrupt. We can voluntarily choose to suspend or eliminate the program, but it could never fail because it “ran out of money.”

… It’s not a pension fund into which you put your money when you are young and from which you draw when you are old. It’s an immediate transfer from workers today to retirees today. That’s what it has always been and that’s what it has to be – there is no other possible way for it to work.

… This is how Social Security actually operates. As you can see, this needs no prior financing or savings, nor would that appear to be particularly helpful. At the national level, maintaining a class of retirees (whether via Social Security or private pensions) means redistributing existing output, not putting money under your mattress. Although you can run out of money for retirement, we, as a nation, cannot.

What, then, you may ask, is the Social Security Trust Fund, the pool of money that people say will dry up and make it impossible for anyone to receive their Social Security payments? It is the surplus that resulted from having collected more in taxes than was necessary to pay out to retirees. Let me say that again: it is how much existing workers were overtaxed relative to the need to pay retirees in the past. It was never the source of the money we’ve been paying to Social Security recipients all these years. Strictly speaking, it’s completely unnecessary if we are able to precisely and continuously match tax revenues and pay outs.

Yes. Please remember this: Anyone who tells you that Social Security is “going broke” is either lying to you or, at best, does not have the first clue how Social Security works.

Social Security is not going broke. Social Security cannot go broke.

It is not an account that can be depleted, it is an arrangement between generations. As long as there are generations, then Social Security will continue to exist.

There is no debt or deficit that can interfere with that arrangement. The arrangement, like any promise, can be deliberately broken, but it cannot go broke.

Only two scenarios can be imagined to make Social Security stop working:

1. Our grandchildren all turn out to be selfish assholes and oath-breakers, deciding en masse to screw over their retired parents and grandparents while also being so short-sighted as to invite their own children and grandchildren to screw them over in turn upon their retirement. If all of our children turn out to be evil and stupid, then Social Security will not be sustainable. But then if all of our children turn out to be evil and stupid, nothing else will be sustainable either.

2. Some kind of science-fiction, P.D. James, Children-of-Men scenario in which the human race mysteriously becomes incapable of reproducing. That would mean no future generation of workers to pay for Social Security benefits, and thus would entail the end of Social Security. But since it would also entail the end of everything else, including the human race itself, it’s hard to view such a potential problem as a flaw in the design of Social Security.

 

  • EllieMurasaki

    …right.

    Okay, I give. Social Security’s fucked, despite all evidence to the contrary.

    What’s your solution? What do you propose we do to ensure that every retiree has enough money to live on?

  • jekyllisle

    If you raise minimum wage then you inflate expenses on the employers paying them which increases the costs of goods which taxes the middle class & poor even more

    Do you have an economics or finance background at all

  • EllieMurasaki

    So index minimum wage to inflation and provide incentive for businesses to cut profits instead of raising prices.

  • jekyllisle

    Nice – what evidence do you have that SSI is fine?

    And I already said SSI was fine, you just haven’t looked at Medicare yet – that is how SSI will be paid for, have you looked at the CBO projections of the Budget, Medicare & SSI yet?

    When you do, you will see that the Budget & SSI flatline while Medicare goes through the roof and you do know that Medicare is now being means tested right?

  • EllieMurasaki

    What’s your solution? What do you propose we do to ensure that every retiree has enough money to live on?

  • jekyllisle

    Looks good on paper, but unfortunately with business pegged to the Stock Market and to shareholders the ever demand for more profits is the real motivator.

    Your idea is great, the problem is greed

  • jekyllisle

    The problem is the system is designed for them not to have enough money to live on.

    Medicare is now mandatory, means tested and the income that Medicare uses is everything from Wages, Social Security to your 401(k) and the sale of your home.

    The object is to get enough people into the income surcharge bracket and fund everything else, if the government bleeds retirees dry so be it, they can go on Medicaid.

    As for SSI, by the year 2047 most people won’t be receiving a SSI check since they will have to pay for their Medicare premiums through it.

    Ultimately, those with assets will find themselves not receiving a SSI check at all but still having to pay tax on it as though they got it

    And by the way if you run the numbers this impacts those people who only earned $50k a year for their entire life

  • EllieMurasaki

    Okay, that’s the problem. What’s your solution?

  • jekyllisle

    The only solution is to plan. For those that are 55 & younger they need to look at Roth IRA/401(k) investments and Life Insurance. Take the assets that are being earnmarked for traditional IRA’s & 401(k)’s and invest in Roth’s or Life Ins.

    For those 60 & older need to Annuitize assets so not to get nailed by the RMD rules at age 70 to keep their income low, they should also look at Reverse Mortgages and change their distribution model to use tax deferred assets first

    Those in between can go either way, it will come down to assets and time.

    For those that haven’t saved and that are in trouble, well they will still get aide from either State or Fed levels it just won’t be great aide.

    As I posted the deficit, SSI & even Medicare have been solved, no one of importance has stopped to look/say why yet.

    That will happen soon enough though and when it does people will finally see that this wasn’t some master plan by one man, it has been in the works since 2003

  • EllieMurasaki

    So basically people need to pour their money into the stock market and pray (to nonexistent gods) that it doesn’t crash again.

    Yeah, that’ll end well.

  • http://apocalypsereview.wordpress.com/ Invisible Neutrino

    If you believe the official measure of GDP growth, then the USA is back to growing at around 2% per year.

    Given that you’re adding 2% per year to a base of around $10 trillion, it’s not hard to figure that the USA is definitely going to produce enough to keep pace with population growth and thereby also produce enough incomes to tax to keep up with Social Security.

    Chicken Little alarmism about Social Security reveals a profound lack of understanding that just as the SS fund produces a surplus right now and gives money to the government, the government can always give money to the SS fund when it goes into deficit.

    No crisis.

  • P J Evans

     You really are incredibly ignorant, as well as stupid.

    IRAs have been around for more than 30 years. That means that BOOMERS HAVE IRAs. And I can tell you, as many others could, that they lost 25 to 30 percent of their value when the market crashed in 2008, and that money isn’t going to magically reappear.
    BOOMERS HAVE 401(k)s, too. Those also lost 25 to 30 percent of their value, and THAT money isn’t going to magically reappear, either.
    At the same time, people at the top of the income charts, the ones who have 40 percent of all the wealth in the country, didn’t take a major hit to their retirment funds at all. Because their annual income is more than most of uns will make in a lifetime of work.

    Now, instead of telling people they have to get paid less to make owners happy, try to get it through your vacuum-packed brain that the people at the top are happy with the way the system works. They think you’re a useful tool.

  • jekyllisle

    Wow how dumb are you?????

    I suggest you educate yourself boy and figure out the truth – here is the what SSI even states “income is lines 37 & 8b of the IRS 1040″ http://ssa-custhelp.ssa.gov/app/answers/detail/a_id/1601/~/calculation-of-modified-adjusted-gross-income-%28magi%29

    You do know what a 1040 is right?

    It’s the thing that people with jobs get when they file their taxes.

    Again, you are moron who has no idea what is in store for you – God bless your parents for feeding you

  • jekyllisle

    Hopefully the will never do that, hopefully they look to insurance, bonds, safety and income management

  • jekyllisle

    Hey MORON you know what RMD stands for right? Say goodbye to what you think you have.

    As for the rich, why you so envious of others…did you get made fun of in gym class?

    Also, dummy really rich people pay themselves through Dividends, either through stocks or Life Insurance. Notice how Buffett doesn’t pay as much as his secretary – he funds his expenses through Life Insurance.

    To quote the Duke “Life is hard. It’s even harder when you are PJ Evans”


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