Social Security

Slouching Toward Bankruptcy

The longer Washington puts off Social Security reform, the worse the shock will be.


In November 2004, President George W. Bush was re-elected after campaigning on personal accounts for Social Security. It was unfair, he argued at the time, to make a generation of young people pay into a system that's going broke. Bush's plan promised to make the program solvent, allow younger workers the option to earn a better return by investing part of their Social Security taxes in personal retirement accounts, while maintaining the status quo for current retirees.

Republicans held substantial majorities in both houses of Congress, including 55 senators. Yet there would be no Social Security reform.

Opinions vary about why that was. Writing in Forbes in 2011, Peter Ferrara, one of the strongest advocates for Social Security privatization, argued that the proposal failed because "Bush's White House staff in charge of the Social Security reform effort never understood the politics or policy of personal accounts, and proved ineducable on the subject." On the other side of the issue, William Galston, a senior fellow at the Brookings Institution, argued in 2007 that "President Bush overestimated the amount of political capital he had banked."

In his memoir Decision Points, Bush blames the failure on the "rigid Democratic opposition" and the lack of "strong Republican backing to get a Social Security bill through Congress." He also recognizes that he bears some responsibility himself. Bush suggests, for instance, that he might have made some progress with centrist Democrats had he not personally campaigned against Democratic incumbents in 2002 and 2004. He also thinks that if in 2005 he had started with immigration reform rather than Social Security, he could have passed both and the country would be a better place for it.

Since the Bush debacle, Republicans have not had the courage to rally behind a plan to reform Social Security. But while the political will may not exist, the 77-year-old system remains in serious need of a makeover.

By the end of the 1970s, the pay-as-you-go program-in which current workers pay for current retirees-was already headed toward bankruptcy. Then it was rescued in the 1980s when President Ronald Reagan hiked the payroll taxes that fund it and increased the age at which benefits would kick in for people currently paying into the system. He left the benefits of current retirees untouched.

As a result of those changes, Social Security has not just survived; it surpassed the Pentagon in 1993 to become the single largest item in Washington's accounts payable. About 22 percent of federal spending today goes to the program. According to the Social Security Administration, the country will spend almost $816 billion in Social Security benefits for more than 58 million Americans in 2013. Those recipients include some dependent children and disabled workers, but the largest block-37 million people-consists of retirees. Retirees receive an average of $1,269 per month, with a maximum benefit of $2,533.

In 2015 spending on health care programs is expected to surpass spending on retirement, but Social Security still keeps growing. The Congressional Budget Office's latest projections, released in May, show that inflation-adjusted spending on the program is expected to increase by 75 percent from 2013 to 2023.

Beyond its high cost, Social Security suffers from a serious technical problem: There is no way to reliably pay for the program as it currently exists. As the number of contributors paying into the system falls, the number of non-working recipients increases. In 1940 there were 159 workers for each beneficiary. Today there are fewer than three.

Since 2010, today's taxes collected for Social Security haven't been enough to cover the benefits paid to today's retirees. To fill the gap, the program has been drawing from its trust-fund balances, which consist of Treasury bonds purchased with surplus payroll taxes during the many years when revenue exceeded benefits. For now, the Social Security Administration is cashing in the interest on those bonds to keep the payments flowing, but it will have to tap into the principal. The Treasury, which has long spent the extra payroll taxes collected by the program, has to borrow money to pay back what it has taken, increasing our debt load as we go.

According to a Social Security and Medicare Board of Trustees report published in May 2013, the combined trust funds for the two old-age entitlements will be exhausted in 2033. Considered separately, the Social Security retirement trust fund will peter out by 2035, and the disability trust fund, which is in much worse shape, will run dry in 2016.

These trust funds, along with the payroll tax, determine the program's spending levels. Without a positive balance in the trust fund, Social Security won't have the legal authority to pay out full benefits above what it can collect in payroll taxes. If the disability trust fund is depleted in 2016, payroll taxes will only be able to cover about 80 percent of scheduled benefits to those on disability. If Congress were to simply reallocate payroll taxes from the retirement program to the disability program to cover the revenue shortfall, that would speed up the estimated date of trust-fund depletion to 2033. Upon which, in the absence of reforms, Social Security recipients would face an across-the-board cut of 23 percent.

Yet the only reform Democrats are currently contemplating is raising more revenue to pay for current and future promises. As Chuck Blahous, a member of the Social Security and Medicare Boards of Trustees, explained during an event at the National Press Club in June, that would require raising "tax revenues by the equivalent of an increase in the current tax rate from 12.4 percent to 16.5 percent-an increase of nearly one-third in worker tax burdens." In addition to inflicting pain on individuals, such a tax hike would slow down the economy, reducing the amount of revenue collected, thus pressuring lawmakers to increase taxes even higher.

Jason Fichtner, a former deputy commissioner of the Social Security Administration, has proposed an alternative method of reform: raise the eligibility age to reflect increasing longevity, means-test the program so it isn't aiding the rich, and adjust tax and other policies to encourage seniors to continue working. Better yet, the government could end the practice of paying benefits to people based on age, especially since seniors' average incomes have increased tremendously over the last 30 years. The best way to afford a safety net is to base social insurance payments purely on income.

Reforming Social Security isn't easy. Just ask George Bush. But the longer Congress delays dealing with these issues, the worse the shock will be.

NEXT: Leave It to the Experts, or, Whaddya Mean She's Having a Baby?

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  1. Slouching? More like running full speed shouting “WHHHEEEEEE!”

    1. A friend describes it by making full-body, enthusiastic shoveling motions, with a big, shit-eating grin on his face and all but yells, “I’m goin’ t’ hell, boy!”

  2. Didn’t Bastiat write about living at the expense of others over 100 years ago? People will never learn.

    1. We’ve had no reason to learn. Until there are tangible hardships for the masses stemming from our lack of fiscal discipline, it will not change.

      1. I myself have been practicing for some tangible hardships


  3. There is no way to reliably pay for the program as it currently exists … the longer Congress delays dealing with this and other issues, the worse the shock will be when the money runs out.

    You seem to be assuming that SS is paid for via the alleged “Trust Fund”. It isn’t. There’s a tax collected, all the proceeds from which are, by law, immediately dumped into the fed’s General Fund to be spent on any damned thing at all that Congress decides to waste it on.

    And then there’s the payouts to seniors on SS to buy their votes, taken from that General Fund money, entirely separate from the tax mentioned above.

    So, there is an incredibly “reliable” way of financing the vote-buying — rob people, essentially at gunpoint, via taxes.

    1. SS proceeds only get to the general fund when the Trust Fund buys US Treasuries.

      1. The trust fund consists of nothting BUT US Treasuries – a so-called “special” class of them.

      2. SS proceeds only get to the general fund when the Trust Fund buys US Treasuries.

        If by “only” you mean “always and invariably”, sure.

        All SS proceeds are required, by law, to be immediately sent to the general fund in “exchange” for fancy printed pieces of paper that are special issue US Treasuries that are then filed in a physical filing cabinet — basically, IOUs backed by nothing other than Congress’ willingness to rob taxpayers in the future or devalue the currency by printing money.

        1. I might word it differently but yes. It is rare to find three straight posters who understand the SS funding game.

        2. You’re painting is a “robing taxpayers” issue. I think it’s more morally reprehensible and more clear to people if you describe it as a STUPIDITY transgression. We have these future payments to make, and instead of investing the current income set towards it or even just saving it, we BORROW against them, AGAINST OURSELVES? How the hell can you save money in the form of a financial instrument, AGAINST YOUR OWN MONEY? It’s blatantly recursive/circular, and doesn’t make sense.

          Maybe if the word about this part got out more to people, they would understand the need for reform. Alas, the American people are stupid and reactionary. You start talking about reforming social security, and you’ll just get an immediate “YOU WANT TO GET RID OF SOCIAL SECURITY!?” Followed by immediate and endless not-listening.

  4. Bush’s plan promised to make the program solvent

    But his actual plan made SS less solvent by diverting 1/3 of employee contributions into private accounts without compensating the SS Trust Fund.

    It was such blatant underhandedness that the public caught on to it. Like everything Bush did it would leave a giant mess for a successor to deal with.

    1. So your complaint is that Bush wasn’t as sneaky as that other bastard FDR?

      1. If you’re saying that SS was a bad idea to begin with then I agree with that.

        1. That’s part of it anyway, yeah. “Bad idea” is a bit mild for me, but yeah.

          And this from a guy who will be collecting it soon.

          1. Take those checks and shred them. It’s hypocritical for any libertarian to collect social security, so don’t. You’ve obviously saved up enough for retirement right?

            1. If the government didn’t tax an extra 12% for SS, it would be a lot easier to save for retirement. SS helps cause the problem it apparently solves.

        2. As I recall, the “architect” of Social Security was a woman by the name of Frances Perkins. I also understand that when it was initially presented to FDR that he did not care much for it.

      2. That “bastard” FDR will be remembered a long long time after you are dead and gone. Unless of course you do something considerably more than posting on this right wing anarchist website.

        1. You know who else…

          …Nah, too easy.

        2. Right wing anarchist? Really? You can refer to something as both “right wing” and “anarchist”? You actually think that makes sense?

    2. The plan didn’t make SS any less solvent. It’s already insolvent and has been for the last couple of years. The trust fund is a fiction. It’s completely equivalent to borrowing and spending your annual 401k contributions and then claiming that you still have a 401k balance because you wrote yourself IOU’s.

      Privatizing SS, even partially, was the one fiscally sound thing that Bush tried to do, which explains why you don’t understand it.

      Thankfully no one had to deal with the giant mess left by FDR and LBJ. That welfare state has turned out great!

  5. I was wondering lately why SS had disappeared as a topic lately, except that nearly every American I talked to even casually about retirement would say something about not counting on it. Is the whole country just waiting for it to go bankrupt so they don’t have to deal with it and can just point fingers?

    Anyway, I’ve been out of the country for nearly a decade and I still remember being baffled that my progressive friends were aghast at the idea of means testing for SS. No, wait, still baffled.

    1. I gave up on it, so whatever happens short of an increase in my taxes has little impact on me.

  6. As long as the government has printing presses, the money will never run out. It may not be worth anything, but it isn’t going to run out.

    1. The don’t even need printing presses and paper any more.

      1. It is interesting, however, that we still use the term “printing up money” to describe monetizing the debt. I think it stems logically from the fact that paper money is just that: paper on and from which US currency is created.

        However, the only thing that need be “printed” these days are the digits in a government computer program crediting the Federal Reserve member banks selling US securities back to the US Treasury, right?

  7. The answer from the left when the Ponzi retirement scheme inevitably blows up is for the federal government to take over(i.e. confiscate)
    everyones’ IRA, 401K and 403B retirement accounts to “manage” (i.e redistribute) the funds in them.

    Some lefists have already been sniffing around this idea and they are bound to push harder for it the closer social security gets to blowing up.

    1. That will signal the beginning of the Second American Revolution.

      1. I would like to agree with you.
        I wish I could agree with you.
        It would be fan-friggin-tastic to agree with you.
        But I think the people will scream “BAAAAAAAAAAAA!” then go along anyway.
        The shame I feel at that idea has a rather ragged edge to it.

        1. Try this: We suspect that among the NSA’s sins are the manipulation of bank account and financial market data. Suppose the market were to have another 2008 style meltdown, maybe aided by NSA chicanery, maybe not. How many low-info voters do you think would agree to: the Gov’t swooping in, “managing” their investments, with a guaranteed rate of return, as well as partially making them whole, in exchange for the accounts to be transferred to Gov’t control? Probably more than you’d hope.

          People do stupid shit when a disaster strikes. It’s understandable—they’re frightened—but you have to account for it.

          1. I think that in most cases what you say is true. But when you specify the group who have had the foresight to save and accumulate a nest egg, I don’t think many of them would react the way you have predicted.

            If it were to guarantee some group a lifetime supply of Air Jordans, the number would undoubtedly be higher.

      2. No it won’t, it’s been done in Europe a few times in the last decade.

        People under 40 don’t have much in retirement accounts, and what with the unemployment rate for under 30’s there aren’t even that many with retirement accounts to be seized.

        Besides, the seizures will come via tax law change anyway. People will be too confused to figure out if they’re going to get mulcted a lot or just a little.

      3. And I take it that you will be one of the great leaders of this “Second American Revolution”?

    2. I think that would be political suicide. No, they’ll just inflate the currency into oblivion.

      1. They may try a variant of the old “soak the rich” ploy by confiscating any retiment acccount balances over X amount.

        Or institute a general wealth tax on total indivdual net worth (including retirement account balances) over X amount.

        Or revoking the tax exempt status of Roth IRA balances over X amount.

        Or some combination of all of the above.

        Regardless of the mechanics of it, the bottom line is that the majority of the population (for whatever reasons) has saved very little for the own retirement.

        If the Social Security stool gets kicked out from under them as well, they are going to be looking to get their hands on somebody else’s money to make up the difference.

        Those who have been prudent in their savin, spending and investment habits all their lives and have managed to accumulate some wealth will have a big fat target on their backs.

        1. Wealth is not money. That’s why income is taxed, not wealth, because income is money. If they taxed wealth, then they’d have to convert it to money before they could spread it around. Who are they going to sell the wealth to? Sell it back to the rich who they’re trying to fleece? That won’t work. Sell it to the poor? Can’t do that, they don’t have any money.

          No, they’re going to inflate the currency. It’s all they can do.

          1. They’ll inflate the currency like crazy, but the envious masses will demand a little theft of the upper 45% to make them feel good. And the inflating will help the top .5% that the envious will vote for.

          2. “Wealth is not money. That’s why income is taxed, not wealth, because income is money.”

            Real property isn’t money either but that’s never stopped state and local governments from taxing it via property taxes.

            1. True, but only at relatively small amounts that the owners will pay out of cash. If the amounts get high enough that the owners actually have to sell, then the system collapses because nobody has any cash to buy.

              1. “True, but only at relatively small amounts that the owners will pay out of cash. If the amounts get high enough that the owners actually have to sell, then the system collapses because nobody has any cash to buy.”

                The owners having to sell is something that does happen all the time when it comes to paying inheritence taxes.

        2. It’s already begun. Right now, if you have wealth, but no income, when you go to you get signed up for medicaid, period. Even if you don’t want Medicaid, you get Medicaid, period. Then after you die from illness the Government comes after your estate for the cost of said care, and can confiscate it, even from your heirs if the transfer was within a set number of years, period. I believe that number is currently determined by the state. However, as we see with many of the Obamacare laws, that can change at the whim of the President, period.

          True story, check it out.

    3. “Some lefists have already been sniffing around this idea”


        1. Thanks.

      1. Stop playing dumb, assuming you’re playing. The idea of “nationalizing” (IOW, looting) private retirement accounts has been floated several times in the past five years by the usual lefty propaganda outlets. It’s always some harmless editorial in the NYT, or Huffpo, etc.

        They’ve sent up the trial balloon enough times for us to know that this idea is out there, and the collectivists are trying to figure their odds at getting away with it.

        1. I wasn’t playing dumb. I’ve only recently discovered libertarianism and truly wanted more info. I DO, however, tend to roll my eyes at a sweeping statement that’s posted without a source, so I think that a citation was called for and is typically a good thing to include.

          1. Sources just give Liberals a target to attack in an attempt to deflect from the actual point of conversation. When asked for one I just give them and tell them to prove me wrong. I feel no need to cite sources for every statement I make. If so it would not be long before they would want to see a copy of my birth certificate, long form for sure, period.

        2. This came up in the US House in 2008:

          “November 04, 2008

          RALEIGH ? Democrats in the U.S. House have been conducting hearings on proposals to confiscate workers’ personal retirement accounts ? including 401(k)s and IRAs ? and convert them to accounts managed by the Social Security Administration.”


  8. but this can’t be. All the leftists keep telling me that SS is totally solvent, just like Medicare.

    1. No, wareagle, it’s solvant, as in dissolves things.

      1. Oh, I am so stealing that!

    2. It just depends on who is in the White House.

  9. It’s as though we’re on a plane that’s losing altitude but the people flying the plane are nuts and figure as long as the plane is moving at the moment they’re oblivious to the future reality of meeting the ground along the trajectory.
    WE are in the window seats thinking “WTF? How do I get off this ride?”
    I say, “you don’t”, but if you’re smart you take as good a position as you can to survive . . . maybe.
    We are witnesses to history.

    1. It’s not the fall that kills you, it’s the sudden stop at the end.

      1. Or the irate passengers taking their vengeance just before the sudden stop.

    2. WE are in the window seats thinking “WTF? How do I get off this ride?”

      I was watching an X-files episode recently where the aliens stopped the plane mid-flight and extracted the abductee seemingly pausing time while others watched…then left the rest of the people on the plane to plummet to their death. Soooo…aliens are probably the only plausible way out of this mess.

  10. He left the benefits of current retirees untouched.

    Not true. Social Security benefits also became subject to income tax at that time.

  11. This happens because the left (and left leaning Libritarians) have been sold the lie that SS is self funded making any attempt to reform it “Stealing” from somebody.

    I hate the idea as is suffers the same issues as forced health insurance; SS contributions need to go into an IRA in the individuals name that belongs to the individual. As long as SS is a sludgepot it can be used for anything other than SS.

    We have allowed the political types to use SS as a battering ram for increased government by tying it to the general budget, and letting them scare the hell out of old folks when spending cuts are talked about.

  12. If you told your grandparents or parents that they would receive hundreds if not thousands of dollars every month, but that the money they were receiving came from you, would they consent to such a deal?

    1. Enough of them did.

      1. True, but I think it stems from the mindset of ‘I paid into the system so what’s mine is mine’ which, as the system runs is actually, ‘What’s *yours* is mine.’ No one thinks critically about this anymore. It is a giant pyramid scheme, exactly as it would appear in a scam. The only way it stops is the same as how all pyramid schemes stop: when the triangle turns into a square before inverting completely.

    2. Which brings up the social aspect of the welfare state. It’s a crappy attempt to remove the social pressures involved in charity and support by making it a general-fund thing, but the negative affects are the same. You’re still robbing the young to help the old, except without the accountability that would come with it.

    3. What if the alternative is them moving in?

  13. I think the bigger question is, is it better if the inevtiable US government crash happens sooner or later. Is it even worth it to try to delay or stop it? Maybe it’s better it should happen sooner, and we should all start voting democrat and pro spending to kill the beast It seems it wouldn’t be good to drag out our inevitable demise.

    Waddyall think?

    1. Do you cut-and-paste and post this idiotic comment once a week or so?

    2. Wait about 25 or 40 years and I’m with you.

      I’m only 57.

    3. Holy Shit Edwin! Dunno, ah just dunno? We’re all just pee-ons, it is our job to get peed on! We all get flushed down the toilet sooner or later, is it better for it to be sooner or later? Beats the shit outta me, truth be told? Me-thinks the BEST solution is to beat the shit outta all that supports the Nanny State, truth be told, and THAT is what should happen sooner rather than later! You go first, I am RIGHT behind ya? I am yer athletic supporter all the way? Beat the shit outta the bahstahds, that appeals to me sense o’ smell a hell of a lot better than votin’ fer tha bahstahds?

  14. It makes no sense to speak of the solvency or insolvency of Social Security. SS consists of two separate and distinct parts in different sections of the act: 1) a payroll tax; and 2) a welfare benefit paid at the whim of Congress. This is how the act was actually written, as confirmed in 1960 by the Supreme Court in Flemming v Nestor. Our confusion about the nature of SS dated to Franklin Roosevelt’s marketing of the program as insurance, which was a complete fiction. The so called trust fund is an accounting gimmick to maintain this fiction. It has no real assets, unless an IOU from one government agency to another government agency is an asset. Those so called assets are redeemed by the issuance of new government bonds and taxes. Once the government exhausts its borrowing and taxing capacity, program implodes. This is worse than a fraud. In a ponzi scheme the participants at least have legal title to the fund’s lousy assets. We don’t get even that with SS.

    1. I’d like to take my SS funds & buy a shiny new bike someday, but right now my ass is too sore.

  15. I never understand all this “bankruptcy” stuff. There’s no magic problem that happens in 2035, except benefits probably take a cut.

    The problem is ongoing: young people get robbed by old people. That’s how it was in 1935, how it is now, how it will be in 2035.

  16. Sorry, the only reason the Bushies were for SS privatization is because it would have provided trillions of more dollars to their honchos on Wall Street to play around with. Who would have probably advised people invest their retirement funds in shady mortgage-backed securities because “property prices always go up!” The Wall Streeters, of course, would come out ahead with their “fees”.

    It had nothing to do with “freedom” or any of that other flowery BS. It was about cold hard cash flowing into the pockets of the already-too-rich.

    Also, stop calling a potential future default of the Social Security Trust “bankruptcy”. I hate it when that word is abused by people who just like the scary sound of it.

    1. But…they could have invested in green energy instead and their retirement outlook would have been oh so rosy.

    2. So instead we have trillions in unfunded liabilities. And default is sooo much better than “bankruptcy.”

  17. “The best way to afford a safety net is to base social insurance payments purely on income.” ? Well crap on that if Government Almighty is to make all of our charity choices for us! WTF?! What are we gonna do if the glibertardian egg-heads are conceding the high grounds to the enemy?!?! The high grounds are, the earners of income should make their own gull-danged charity choices fer themselves! Our ultimate “social insurance” is the free-will good-will of our fellow humanoids, and telling the coercion-addicted parasites and bahstahds to BUTT OUT!!! I’d rather donate a bottle of whiskey to the bum under the bridge, than supporting some of the parasites I have personally known, who have weaseled and whined their way onto “social security disability”!

    1. Very well put. Bad spelling, but then you are one of the nice guys! You’ll never get a spot on MSNBC

  18. Base it on income at retirement age?

    How about basing it off what you actually put into the program?

    Here is the fix: Give people their money back, what they put into the program, and let them privatize.

  19. Oh, everything would be great if Bush had acheived private accounts for workers. I don’t think so. Because of rule changes during the Clinton Administration, the US investment banking system has become a criminal fraud operation. The workers’ accounts would have been wiped out. Instead of being on a leaking ship slowly sinking, workers’ retirements would have gone down like the Titanic. The only difference would have been that the banksters would have “earned” massive fees for stearing these investments into worthless derivitive paper and other risky investments.

    1. Partial privatisation of SS would have worked only if the investment alternatives would have been limited to stock and bond index funds managed for 5-10 basis points, Vanguard style.

      Most people are not aware that those the better off cross-subsidise the benefits of the worse off. Partial privatisation would cripple these cross subsidies, and would either force a cut in benefits to those with weak work histories, are a sharp rise in the FICA rate. Which defeats the whole purpose of privatisation.

  20. Bankruptcy sounds unbelievable.
    Besides, obd2life is a professional obd2 supplier.

  21. As a recent retiree, I use cap loses to offset cap gains to kill my tax burden and income.
    We are screwed . Only a wealth based welfare program will work. Since there is no contract to supply us with these SS funds … The government can just cancel the program outright when the time comes.
    I took my payments at 62 1/2.
    Or really make it a personal account. Although you wouldn’t catch me investing in Treasuries. Thank you congress, you suck.

  22. uptil I saw the draft for $8854, I accept …that…my brother was like realie earning money in their spare time online.. there brothers friend haz done this 4 only about seven months and recently paid for the depts on there home and bought a gorgeous volvo. see page

  23. Social security is a welfare program. Was designed as one, should be now, and can only continue to exist as one.

  24. Make benefits fully taxable.
    Raise the normal retirement age to 70. This will lower the benefits earned by those who retire before the age of 70.
    Reward delaying the uptake of benefits after one turns 70.
    Index benefits to the lower of consumer price inflation and wage inflation.
    Much of this was set out by Gale and Orszag in 2004.

    The Medicare tax will have to be increased from 2.9% to 4%.
    The ceiling on the FICA tax will probably have to be increased to 200K.

    Nobody seems concerned about disability being on the brink of insolvency. This is the height of self-delusion.
    By 2035, Medicare will only cover health care supplied in hospitals owned by the Federal govt., VA style. Those who want a higher class of healthcare will have to pay for it privately.

  25. majorities in both houses of Congress, including 55 senators.

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