Is Social Security broke?

OK, stop hyperventilating. The short answer is "not even close." But first, a couple of updates on my last post.

It now appears that the supercommittee is not looking at "clawing back" any Social Security benefits already in place. Instead, they are talking about reducing future benefit growth in a way that will result in about a 9% benefit decrease compared with the current system for someone who is now 65 by the time they reach age 90.

As I said in the last post, they want to use a different way of calculating the cost-of-living figure on which any increase in benefits is calculated each year. They claim that the current system is overly generous.

Right. That would be the overly generous system that resulted in ZERO cost of living increase for 2010 and ZERO cost of living increase for 2011. There will be a 3.6% increase in benefits for 2012, so that averages out to 1.2%/year for the last 3 years. Don't spend it all in one place! Oh, and don't forget that some of that increase will be eaten up by an increase in your Medicare Part B premium.

By the way, it turns out that the Bureau of Labor Statistics did a little experiment. They actually came up with a cost of living index based on what seniors buy. Turns out that the current figure used by Social Security is under-generous, instead of over-generous. Whoops!

Now, some idiots on the editorial page of the Washington Post are claiming that Social Security is broke because it's "cash negative" for the year. William Greider has a nice piece in The Nation called "Smearing Social Security," in which he addresses some of the more ridiculous claims. For example, the Post claims: "Adding billions to US budget woes,” the headline read. Instead of piling up surpluses, as the Social Security trust fund has done for nearly thirty years, this year the system became “cash negative.” Social Security, the Post warned, “is sucking money out of the Treasury.”

Greider goes on to say that "Last night, I heard a TV anchor remark in passing, “We just read that Social Security is in the red.” He answers: "Baloney. The truth—if truth is still relevant to Washington politics—is that Social Security has never contributed a dime to the federal budget deficits. Therefore, cutting Social Security for the elderly will do nothing to relieve the deficit problem....In fact, Social Security has piled up enormous surpluses—now $2.7 trillion—which the federal government has borrowed and spent on other things, wars or highways or corporate tax breaks."


And here's where another big lie about Social Security comes in. I'll bet you've heard someone say that there really isn't any Social Security trust fund, it's just a "bunch of worthless IOU's,"


Let's talk about that for a minute. Those "worthless IOU's" are U.S. Treasury Bonds. They're what used to be called the "widows and orphans" investment because the risk was as close to zero as you could imagine. They don't pay a ton of interest, but you're damn sure you'll get your principal back when the bonds come due.


Lots of people hold Treasuries in their portfolios and, trust me, they don't think of them as "worthless IOU's." Nations such as China have lent money to the USA and receive Treasuries in return. Trust me, China does not see these as "worthless IOU's." So why are the Treasuries held by Social Security any different. It's simple: they're not. 


According to Greider: "The nation’s largest creditor is not China. It is the working people of America and their employers who collectively have amassed Social Security’s huge surplus through the weekly FICA contributions required by law. This wealth is the nest egg that will pay for swelling benefits as the baby-boom generation retires. Far from being broke or “sucking” billions from the Treasury, the Social Security trust fund will continue to accumulate larger and larger surpluses during the next ten years, reaching $3.7 trillion by 2022, according to the system’s trustees."

Greider's full piece is well worth the five minutes it will take to read it. Here's the link again:

http://www.thenation.com/blog/164375/smearing-social-security

One last thing: The last post generated some comments at the blog. Remember that comments in the blog are "moderated," which means that they are not posted immediately, Instead, they come to me via email and I approve their posting. I check my email several times each day, but there may be several hours between when you post your comment to the blog and when it actually appears, particularly if you're a night-owl and do it at 2 AM!

I continue to promise that all comments will be posted, whether you agree with my position or not. Moderation is used to avoid the obscene, hate-filled comments which I'm sure you have encountered in other places where comments are allowed without moderation.