This News is Not News: Social Security is Officially Broke
The President in last night’s State of the Union address explicitly refused to take up his debt commission’s suggestion to raise the Social Security retirement age by 4 years over the next 65 years, which itself was a far-too-modest proposal. However, in light of this willful turn away from the vagaries of reality, Wednesday’s report from the Congressional Budget Office becomes far more ominous.
I am shocked, shocked, to find out that we are so deeply in debt!
Dig into the CBO report, however, and you’ll find some news that simply isn’t news. Namely, Social Security is broke. Of course we already knew this, but according to the rosiest of fictional financial predictions (also known as “normal government accounting”) the jobs growth that we were supposed to see from the stimulus should have put off the revenues-to-outlays deficit by at least another few years. Now the CBO has owned up to the error.
Unfortunately, Social Security was never structured in a way that would ensure individuals’ responsibility for their own accounts. It is a pay-as-you-go system wherein current taxpayers see their confiscated money go directly to the pockets of retirees. There is no recourse except for the promise that current taxpayers will be on the other end of the imbalance someday. This is perhaps the greatest reason for the current political fact that Social Security is unassailable.
Any surplus that was to be had was, at the time of the law’s passage, based on the assumption of unchanging demographics. That is, the idea that there would always be enough current workers to support retirees who generally die before taking too much out of the system anyway. At no point was the law updated to reflect increasing lifespans and falling birthrates. Although the law was originally written to build up immediate surpluses – and it did so – we cannot tap this “rainy day fund” now.
Of course, we have our politicians to thank for this as well. Surpluses were to go to a trust fund to be used for occasions such as, well, this one. Naturally the “trust fund” money was spent with impunity, and all that’s left are IOUs worth roughly the same as the paper they’re printed on. According to the CBO report, when you factor in the face value of this paper as a cash equivalent, plus interest, Social Security is still technically solvent. Again, reality tells us otherwise.
And thinking even more long-term, when the government’s pollyanna projections have us running trillion-dollar deficits from here to the horizon, any shortfall in the net revenues to outlays will be paid by one thing and one thing only: printing more dollars. The buying power of those dollars will necessarily erode, and this inflationary action will savage savings. Ironic, isn’t it, that savings will become worth less and less because of a government program designed to supplement … savings?
Again the solution has become the problem.