Social Security Policysplainer | Eur Ing Dr James P. Howard II Social Security Policysplainer | Eur Ing Dr James P. Howard II

Dr James P. Howard, II
A Mathematician, a Different Kind of Mathematician, and a Statistician

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Social Security Policysplainer

It is apparently time for another policysplainer. The New York Times, among others, covered the report that Social Security will start running a deficit in the next decade and not long after, be insolvent. This really should not be a surprise. The Congressional Budget Office pointed this out in 2016, 2013, and 2008. Social Security’s Office of the Chief Actuary has also been saying it for years. But it is suddenly news. And this leads to stupid comments online.

This post from the Journal-News, a hometown newspaper, includes many:


Here are a few samples:

  • “The government should pay back what they stole from our social security.”
  • “How can Social Security run out of money but welfare can’t?…Ok Congressional crooks please answer now!!!!”
  • “If they would stop stealing for the general fund, social security was solvent till the trust fund got big enough politicians wanted to start expanding FREE stuff programs!”

Congress does not raid the Trust Fund, like so many seem to think. In fact, Public Law 101-508 is quite clear that Congress cannot touch the Trust Fund for general purposes:

Notwithstanding any other provision of law, the receipts and disbursements of the Federal Old-Age and Survivors Insurance Trust Fund and the Federal Disability Insurance Trust Fund shall not be counted as new budget authority, outlays, receipts, or deficit or surplus for purposes of—

  1. the budget of the United States Government as submitted by the President,
  2. the congressional budget, or
  3. the Balanced Budget and Emergency Deficit Control Act of 1985.

But the myth persists and this seems to be based on the idea that the Trust Fund has a lot of IOUs. What’s really going on here is that the Trust Fund has, for decades, run surplus. With cash on hand, the Trust Fund needs to put it in the bank. For all government funds, the “bank” is the Treasury Department. Treasury, when the money is deposited, notes the balance. Of course, Treasury owes the Trust Fund a lot of money and they know it. It is just like when you put money in the bank. It’s not in your hand, and the bank owes you money.

And just like when you put money in the bank, Treasury pays interest. This is really no different than if the Trust Fund were held in T-bills. In other words, the Trust Fund is held in the same bonds that everyone else is putting their money into. It also means that of the $22 trillion or so of national debt we have, something between $3 trillion and $4 trillion is actually held by the Trust Fund.

So when the OASDI Trustees make these predictions, it is based on the assumption the deposits in Treasury are fully redeemed. And that’s a reasonable assumption. The problem is not that Congress or the President is raiding the Trust Fund.

The problem is the program is not actuarily sound. The program is not designed to be self-sustaining, but we cannot pin that entirely on the original policymakers. The program is designed for a time when people had a shorter average lifespan. That is it and that is the entire problem. There are four ways this can be addressed.

  1. Raise the age at which payments begin. This makes sense as people are working longer, anyway.
  2. Raise the payroll tax that funds Social Security. Right now, the payroll tax is 7.65% paid by each employee and 7.65% paid by the employer. Of that 7.65%, 6.2% goes to Social Security and the rest goes to Medicare.
  3. Increase or remove the income cap on payroll taxes. That payroll tax mentioned in the last paragraph is only up to an income of $132,900 per year in 2019. If you make more than that, you are not paying the payroll tax on anything over it. Raising taxes is always criticized, but above $132,900 is only about the upper 7%. You know, those who have significant income.
  4. Cut benefits. Besides being the third rail of policy, it is just a bad idea. Social Security already is difficult to live on, if one has no private retirement.

Some combination of 1, 2, and 3 is the only way that makes any sense. Social Security cannot be saved by cutting defense, cutting welfare, or cutting anything else. The only way to save Social Security is to deal with the statistical reality and adjust the program, accordingly.