By Bruce Krasting
Created 05/16/2011 - 07:41
Yes, that is a correct headline. In its annual report to Congress last week SS acknowledged that its condition had sharply deteriorated in 2010. This sentence from the report is all you really need to know about what the status is:
The open group unfunded obligation over the 75-year projection period has increased from $5.4 trillion (present discounted value as of January 1, 2010) to $6.5 trillion (present discounted value as of January 1, 2011).
Note that this is a present value calculation. The total unfunded obligation has grown by a cool $1.1 trillion in just a year. In other words, if we had to shore up the TF to the level that it was just a year ago the USA would have to write a check for $1.1 T. The unfunded status was a disaster a year ago at $5.6T, it got worse by 20% during 2010. The cost of “fixing” SS goes up as a result. To put things in balance one of these two extremes are now required:
For the combined OASDI Trust Funds to remain solvent, the payroll tax rate could be increased an immediate and permanent 2.15%, (or) scheduled benefits could be reduced by an immediate and permanent 13.8%.
If you think this a ho-hum result, think again. If benefits get cut across the board by 14% we will have many seniors who will fall into a hole. An increase in payroll taxes of 2.15% is simply not going to happen anytime soon. There is no support in Congress for an increase like that. It would mean that taxes on all workers/employers would have to go up by $110b in the first year and rise every year thereafter. This would be a very regressive tax increase that hurts lower end workers the hardest. For 2011 there is already a payroll tax holiday of 2%. If the required increases take place in 2012 it would mean a 3.2% reduction in wages. Kiss the economy goodbye under that scenario.
I underlined the TF’s use of the words immediate and permanent as this language highlights the fact there can be no delaying on the fixes necessary at SS. One thing that you can take to the bank is that nothing will happen with SS in 2011 or 2012. This is a problem that will simmer for at least another 24 months. This delay will prove to be very costly for all involved. Both the required tax increases and/or the required cutbacks will be much larger than today.
The NPV of the unfunded liabilities at SS are now growing by at least $100b a month. One would think that this massive cost would spur some response in D.C. Don’t count on it. As a result, SS is going to come off the rails in about two years.
4 comments:
I have prepared payroll for my company for years now. The employee share of social security has dropped this year to help the economy and by default those in the government who will look good with even more money thrown into the system. Dropping the employee's deduction for social security is doing harm to it.
Further if medicare is so underfunded an increase in the "small" amount that medicare takes from a paycheck could easily be increased with hardly any effect on the net pay of an employee.
More examples of how our govt manipulates $'s to make the current office holders look good, while trying to blame other factors. Bring back the former contributions for Social Security and raise the percent for medicare. A small but significant start to healing some of our govt woes
Simple fix....cut the billions of dollars going overseas and start making the cuts inside DC. Problem solved. Don't think for a minute an increase in taxes or decrease in SS for the retired, is going to fix the problem. There are many other avenues to handle the issues at hand. It's up to them to start, but don't hold your breath!
I suggest we do two things immediately. 1)stop letting congress get their greedy, nasty little claws on all that cash that comes rolling into the fund every month. Keep the SSI revenues in a separate account, untouchable by Congress. 2) quit paying parents $700 a month for every kid they have that gets labeled as "disabled" because they beat all the others kids up in their class and have "anger-management" disability. You would be shocked at the number of single mothers with 3-4 children who are collecting SSI checks for each their "disabled" children. Return SSI to its original intent and don't let it continue to be another revenue stream for single mothers.
The Federal Government illegally "borrowed" (ie. Stole) fromt he Social Security Trust Fund.
You cannot legally borrow money from a Trust Fund. Hence, the very definition of "Trust Fund".
Our Government is criminal in its very existence.
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