With permission of the author the following came in response to a diatribe from one of the infamous Koch brothers. It is one of the best comments on the status of Social Security I have yet to read.
Mr. Koch’s aside comment on unfunded Social Security is distorted and disingenuous. While the retirement fund is underfunded, it is so only with respect to well-into-the-future generations of beneficiary claimants. It always has been this way because the first generation that received benefits paid little or nothing into the system and because subsequent generations of retirees have always received benefits based upon contributions through employment taxes of those who are then working. Despite this, Social Security has been a success for 70 years. To call it unfunded, though, is neither fair nor technically correct. Social Security is not insolvent on either a balance sheet or going concern basis. It is projected to be self-sustaining through 2037. Here is why.
Social Security now has an approximate $2.5 trillion surplus (approx. $2.3 trillion in the OASI (retirement) trust fund and approx. $200 billion in the DI (disability) trust fund), essentially all of which, with the implicit and explicit consent of Congress, has been borrowed and used for other purposes by every Presidential administration from Ronald Reagan through Barack Obama. The borrowed surplus is now owed back to the Social Security trust funds by the federal government.
As of December 31, 2009, the Social Security surplus was $2.5 trillion, $2.337 trillion of which was in the OASI trust fund. According to the 2010 annual report of the trust funds trustees, the $2.337 trillion of OASI assets consists of numerous assets on the OASI trust fund balance sheet, approx. $52 billion in a special issue government certificate of indebtedness at 2.875% interest and approx. $2.285 trillion in special issue government bonds of varying interest rates and varying maturity dates between 2011 and 2022.
It is expected that 2010 will be the first year there has been a Social Security deficit in the last 26 years, and though the deficits are projected to continue, the government’s repaying Social Security (or its retired and/or disabled beneficiaries) for the borrowed surplus, together with projected future employment taxes, is enough to allow Social Security to pay full benefits through sometime during 2037-2039.
Further, it is not unreasonable for those now retired or about to retire to expect future employment taxes to contribute to paying their retirement benefits. Social Security has always been a pay-as-you-go system. During the 1985-2009 25-year time period that the $2.5 trillion surplus was accumulating, the now-retired and about-to-retire were also paying Social Security employment taxes that were providing the Social Security retirement payments to their parents’ generation.
I hardly believe that these facts indicate that the Social Security system is broken or that the Social Security trust funds currently are broke. In any event, there is not an immediate financial crisis, here.
So what do we do about the potential insolvency of the retirement trust fund after 2037? The bipartisan Debt Commission has some cogent recommendations. They don’t involve shutting down Social Security, privatizing Social Security or other radical fixes. We need to consider those recommendations carefully and rationally, not just jump past them as if they weren’t out there or are anathema.
The Koch article can be found on the Wall Street Journal website.