Time to honor America’s debt to the retired

[mawilson 2,133]

The first American baby boomers have now become eligible to retire and start drawing

on Social Security, the government pension programme. Many politicians are telling us

that the resulting rise in Social Security “entitlement” payments will break the budget,

so we have to cut benefits to retired people. But the politicians do not want to mention

that the Social Security system has been compiling a huge surplus. Why? Because they

have been using that surplus for years to hide the real size of the current federal budget

deficit, allowing them to spend more and justify tax cuts for the wealthy.

US Office of Management and Budget data show that while government’s reported deficit

averaged about $300bn a year from 2002 to 2006 – roughly $4,000 per household – the

real current deficit was actually more than 50 per cent bigger. The government just

“borrowed” about $165bn from the Social Security Trust Fund every year – under the table.

In 2007, the real deficit was $449bn according to the OMB. However, the “official” deficit

widely reported is only $257bn, because it is government policy to add the borrowed

Social Security Trust Fund surplus ($192bn in 2007) to revenues before calculating the

“official” deficit that has to be borrowed publicly. The recently passed economic stimulus

package of $160bn is reported to raise the 2008 official deficit to about $400bn. But the

real deficit in 2008 will be about $600bn.

How does this work? Social Security was initially a pay-as-you-go system – annual payroll

taxes of workers covered that year’s payments to retired people. By the early 1980s,

however, it was clear that this system was not sustainable. Payments were increasing

faster than revenues, and when the baby boomers started retiring and collecting pensions,

there would be huge shortfalls. President Ronald Reagan had the prudence to address this

problem early enough to make Social Security sustainable. He appointed Alan Greenspan

to design a massive overhaul of the system, which was implemented.

Social Security was in effect transformed into a national pension plan. Social Security

payroll taxes were raised, creating a surplus in the trust fund that would fully cover the

future costs of baby-boomer retirement. The payroll tax now puts 12.4 per cent of each

worker’s wage income into the trust fund (half is paid by the employer, except for the

self-employed, who pay the full 12.4 per cent).

The tax is capped and applies to annual income up to $102,000, which includes the lower

85 per cent of income earners. The top 15 per cent of income earners are taxed only

on income up to the cap. Millionaires and billionaires pay the same as someone

earning $102,000. The cap supported by Reagan was initially set at 90 per cent of

income earners, but the changing distribution of income has allowed it to fall to 85 per cent.

Baby boomers, and all others who have worked since 1983, paid in more than needed for

Social Security retirement payments. They saved and created the trust fund surplus,

which now amounts to more than $2,000bn and must be invested in US Treasury bonds.

It is projected to reach nearly $3,000bn in 10 years. Then Social Security will stop

generating a surplus to subsidise the rest of the budget and will begin redeeming its

bonds to help make payments.

Current projections show that the trust fund bonds may be exhausted by about 2041.

The trust fund’s full sustainability for at least the next 75 years could be restored easily

with minor adjustments, including restoring the income cap to 90 per cent, according to

the recently retired commissioner of the Social Security Administration .

Politicians understand that, with the Social Security Trust Fund surplus declining, they

will no longer be able to borrow from them under the table while announcing fictitiously

smaller deficits to justify continued expenditures and tax cuts. And they will have to

generate funds from other sources of revenue to redeem the bonds after 2017. Rather

than admit too much was borrowed recently, and must now be repaid, they want to

reduce Social Security benefits. This puts much of the burden on the middle class, who

created most of the surplus that has been used to hide the real size of the deficits.

Fundamentally, the Social Security issue is not one of “entitlements” but of the obligation

of our government to honour its debt and not reduce Social Security benefits.

The writer, a former World Bank economist, is an economic consultant

FT

[Peikko 1,575]

Oopps, did the Gov get caught with its hand in the cookie jar?

[w¡n9Nµ7 §£@¥€r 123]

Fukc the baby boomers.

[Mr. Big Dog 10,747]

Fukc the baby boomers.

Just send them to Mexico.

[w¡n9Nµ7 §£@¥€r 123]

Fukc the baby boomers.

Just send them to Mexico.

They can swim across. Then they'll be wetbacks too.

[Amby 490]

tried to send a crazy retired lady to mexico who lives on social security...she just lives there better than she did here on her social security. dam her!

[w¡n9Nµ7 §£@¥€r 123]

You forgot to knock the old lady in the head first. She can't claim SS if she can't remember her SSN!

[Mr. Big Dog 10,747]

Fukc the baby boomers.

Just send them to Mexico.

They can swim across. Then they'll be wetbacks too.

That was cold.

[SnowyTater 0]

I kind of hate the baby boomers

Big generalities but they're so...so #######. The last generation really to get to get into good, move your way up jobs without having to go to college, the generation few years after WW2 when the economy boomed and conspicuous consumption went through the roof thus fun awesome cars and Coca Cola products, the generation that totally got away with being pot smoking hippies for years and drug experimentation as "mind enhancing" and not just an excuse to get stoned, the generation that got to do all the civil unrest stuff which was all just another big party AND the generation that now is one of the first to profit off of all our crazy medical advancements meaning they're gonna live like 20-30 years longer than anyone thought they would and they'll probably take more out of SS than they ever put in and omg *I* have to pay for it All the while like all parent generation they're doing the "back in my day things weren't nearly so crappy!" thing and ugggghhh...Oh and they're the last ones to skirt through without having to address like global business relationships/corporations or global warming/ecological damage etc etc.

I mean how lucky can you get they suck let's do like the eskimos and put them on icebergs Selfish prats.

[w¡n9Nµ7 §£@¥€r 123]

One of the things that gives me pause about universal health care ... is that it will prolong the lives of boomers ...

[Ban Hammer 13,352]

Fukc the baby boomers.

Just send them to Mexico.

They can swim across. Then they'll be wetbacks too.

That was cold.

wait till about may, the rio grande will have warmed up by then.