Thursday, January 27, 2005

More on Social Security

Derborah White put together a tight summary of the Social Security system.
Here is a partial result.

Fact – Social Security is entirely solvent and will pay full benefits at least through 2042. The nonpartisan Congressional Budget Office projects that Social Security can pay all benefits through 2052 with no changes whatsoever.

Fact – Today, the Social Security trust fund has accumulated a surplus of more than $1.5 trillion. That occurred because the fund collected more in payroll taxes from our paychecks than it paid out in benefit checks.

Fact – 48 million Americans now receive monthly Social Security checks. Of those, 38% are the disabled, and widows and their children. The remainder are retirees. More than 5 million children receive part of their family income from Social Security.

Fact – The current US Social Security program is a model of financial efficiency both for the government and for banks and businesses, in that 99% of all payroll taxes paid into the trust fund are paid out as benefits. Administrative overhead to run the program is only 1% of all monies paid in by us.

Fact – In 2018 at earliest, monthly benefit checks sent out will be higher than the monthly payroll taxes collected by the Social Security trust fund. However, the surplus will keep growing until 2028 because of the interest that the Social Security trust fund earns in US Treasury Bonds.

Fact – If nothing at all is done to “reform” social security, it will still be able to pay 70% of full benefits after 2042, at worst case.

Fact – In 75 years at the earliest, if nothing at all is done to “reform” Social Security, it could run a deficit of up to $3.7 trillion. Not $10 trillion.

Fact – Payroll taxes (called FICA) are now withheld from US workers’ paychecks on the first $87,900 of their annual incomes. That means that if a person earns $300,000 a year, he pays exactly the same FICA as the person who earns $87,900 a year. (This is called a payroll tax cap, because it’s capped at $87,900.)

Fact – If the payroll tax cap was raised to $150,000 per year, there would be no Social Security funding gap for more than 100 years.

Fact – When President Bush states that he will not raise taxes to "reform" Social Security, that means he will not ask the wealthy to pay more because he refuses to raise the payroll tax cap.

Fact – President Bush proposes that Americans be allowed to invest part of their payroll taxes into private saving accounts that would be invested in stocks. These accounts are like 401(K) accounts. This is called "privatization."

Fact – By diverting payroll taxes away from being paid to the Social Security trust fund, Social Security would no longer be able to pay full benefits. Benefit cuts would range from about 15% to 46%. Many economists project that diverting payroll taxes way from the trust fund will result in the phasing out altogether of Social Security.

Fact – President Bush says the initial cost to American taxpayers for privatizing Social Security will be $2 trillion.

Fact – Privatized accounts will be reduced even more, as much as 20% to 30% by fees charged by investment bankers, trustees and account administrators. This occurred in Great Britain, Chile and other countries that adopted privatization. In both Great Britain and Chile, privatizing Social Security has been judged a failure because retirees’ benefits were greatly decreased.

Most interesting find from this morning's reading is down the page of Josh Marshall's Talking Points memo...

According to a July 28th, 2000 article in USA Today, back in 1978 when President Bush was running for congress in Texas, "he predicted Social Security would go broke in 10 years and said the system should give people 'the chance to invest money the way they feel' is best."

1978 is in the pre-nexis era. So it's difficult to find coverage from the time if you're not on the scene. But presumably there are some local papers accessible on microfilm down in Texas that would shed more light on George W.: The Early Phase-Out Years.

There's also a link to a five-year-old article in The Texas Observer which makes interesting reading.

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