Social Security in the future
Michael Tanner, a senior fellow at the CATO institute, explains that the rate of return on social security will be much lower for todays youth.
“Saving the American Dream: The Heritage Plan to Fix the Debt, Cut Spending, and Restore Prosperity,” Heritage Foundation, May 10, 2011 by Stuart Butler, Ph.D. , Alison Acosta Fraser and William Beach is one of the finest papers I have ever read. Over the next few days I will post portions of this paper, but I will start off with the section on Social Security. I am also going to give attention to the thoughts of Milton Friedman on the subject too. Here is the second portion:
What Is Social Security?
Social Security, today’s largest single federal program, provides (1) retirement income to workers and their spouses, (2) survivors benefits to the family members of deceased workers, and (3) disability benefits for workers who have been injured and are unable to work and to the families of those workers. The program is funded by a 12.4 percent payroll tax that is paid equally by both the worker (6.2 percent) and his or her employer (6.2 percent). Employers correctly see their contribution as a part of the employee’s total compensation.
In 2009, the most recent year for which data are available, Social Security spent a total of $685.8 billion providing these benefits. That was also the last year that Social Security collected more in payroll taxes than it paid out in benefits. Starting in 2010, the program started to run cash-flow deficits that the Congressional Budget Office says are unlikely ever to end. The annual Social Security deficit will increase every year until about 2030, when it will reach about $350 billion annually in 2010 dollars (without including any inflation), and stay at approximately that level permanently.
Social Security does have a $2.5 trillion trust fund from the surpluses that it collected between 1983 and 2009—but that money isn’t there. Rather than build up real assets in a real trust fund, Congress actually spent that money on everything from roads to corporate welfare. That trust fund is filled with special-issue Treasury bonds that the U.S. Treasury is required to finance when they are needed to fund Social Security’s deficits. As they are bonds not backed by any real assets, the government will have to either borrow or raise taxes to pay for them.
In essence, then, these bonds are really a demand on future tax collections—a lien. In 2010, the Treasury started to redeem these bonds, or tax liens, by tapping into other tax sources in order to cover Social Security’s deficits. Around 2037, even those special-issue bonds will run out. From that time on, under the provisions of current law, every retiree—no matter how wealthy or how poor—will have his or her Social Security benefits cut by about 22 percent.
The Debt Bomb: A Decade of DC Spending is Driving America Closer to an Economic Apocalypse
Alexis Garcia reports on America’s exploding debt. Experts blame entitlements like Social Security and government spending. But what is the solution? Can we raise taxes without crushing the economy and the middle class? Does Obama really want to lower the debt, or does he support continued deficit spending? See interviews with Douglas Holtz-Eakin, Brian Riedl, Jason Peuquet and former Congressman Ernest Istook (R-OK).
The Daily Hatch 