Tuesday, September 25, 2007


That's a thirteen with twelve zeros behind it.

Social Security in $13.6 trillion hole

Social Security is rolling toward a $13.6 trillion shortfall, and the best solutions to close the deficit are higher taxes or reduced benefits, according to a paper from the Department of Treasury.

Projections in the report show that the Social Security trust fund balance will hit its peak in 2009 at a level of $99 billion and then cash flows will become negative after 2017. If no program changes are made, then all beneficiaries will have their benefits cut back by 25% in 2041.

However, a payroll tax hike of 3.5%, which would affect all current and future workers, would help close Social Security’s permanent financing gap. This tax increase would have to go up to 5.8% if it’s delayed until 2041.

Additionally, all retirees’ benefits would have to be cut by 20.4% in 2007 in order to keep Social Security permanently solvent.

Word to the wise: See the quote to the upper right by Curtis Carlson. Emphasis on "save as much as you can."


jkruse said...

Comment #1: These predictions as to the health of the social security fund 34 years into the future are brought to you by many of the same geniuses who told us only 6 years ago that we better hurry and cut taxes, or we risk paying off the national debt too quickly. (This argument was carefully presented on a Friday. On all other days of the week cutting taxes increases federal revenue and would have resulted in disastrously high surpluses.)

Comment #2: These same geniuses (Greenspan) realized in the 1980s there would be a social security short fall and recommended increasing the payroll tax to cover it. Lower income workers disproportionately paid this capped tax for a couple of decades so we could build a trust fund to pay them back during retirement. Fast forward to 2005 and our president proclaims that this trust fund is nothing more than a drawer full of worthless IOUs. It's not clear what makes these federal bonds different than the couple of million $ worth that W owns. Presumably his aren't worthless.

jroosh said...

Yah, I know Krusey, but my point was don't count on it which is probably redundant as I don't know anyone younger than 55 that is.

jkruse said...

I think it's good advice not to count on it. I'm also not counting on my pension - if it's still there, it will be a very nice bonus.

My point was that a lot of people are counting on it. Sad, but true. What really frosts my balls is when people say things like, "cash flows will become negative in 2017!!!" in order to justify killing the whole program now. We knew all along there would be shortfalls - that's why a regressive tax was passed in the '80s - to build a trust fund that would cover the years of baby boom retirement. Now, after people have been paying into that trust fund for some 20 years, a few of our fearless leaders are arguing that a significant chunk (~30%) of today's contributions should be diverted to personal accounts. Take those contributions away, and a hypothetical shortfall 30 years from now becomes a certain, critical shortage very soon.

Bike Bubba said...

I'd like to introduce a hypothesis that no one who is counting on a pension will like; that pensions (including SS & Medicare) are inherently flawed because no actuary can accurately quantify how peoples' behavior will change due to the pension.

So yes, there IS a huge reason to end all pensions, especially the biggest of them all. More on my site.

jkruse said...

I guess you're right. Some things just shouldn't be attempted - they're too hard.

There's that great American "can-do" spirit.

Bike Bubba said...

Nope, it's the great American "sane" spirit of not attempting the impossible. Pensions by their very nature destroy the very actuarial assumptions they rely on by reducing the incentives to have children and provide for one's self (among other factors). As a result, their income plunges and their costs skyrocket as a matter of course, rendering them inherently insolvent.

To use this flawed tool when we have tools that work like IRAs is simple insanity.