By Sandra DeMent

Social Security: Funding crisis? Or doing just fine?


April 26, 2017

What we call Social Security is actually three federal programs that serve retired seniors; widows and widowers (and minor children); and the permanently disabled, together known as Old-Age, Survivors, and Disability Insurance (OASDI). Each program is managed through a “trust fund” which receives its share of payroll taxes and other revenues, pays out benefits, and produces an annual report on its income and expenses. As of the 2015 census, there were 49 million seniors receiving social security , and another 11 million receiving disability benefits. The average national retiree benefit was then $1,240 per month; Klickitat County households received $1,693. The combined cost of benefits for those 60 million people was over $1 trillion dollars in 2015. Social security funding comes primarily from a 12.4 percent payroll tax, paid half by workers and half by employers. Before 2015, the annual payroll tax collection was enough to pay all benefits and expenses of the Social Security Administration (SSA). In 2015, for the first time, the collected taxes were not enough to pay all benefits. The SSA began to draw on its $2 trillion reserves. The shortfall is expected to continue in future years, unless changes are made. By 2034, SSA ’s reserves are expected to be exhausted, and without further action, benefits could be cut to 79 percent of their current level, a drop of more than 20 percent. Even a booming economy will not be enough to cover the need for additional revenue. There is also a practical problem with the SSA relying on its reserves: they consist essentially of IOUs issued by the federal government. In past years, when social security tax collections were higher than needed to pay benefits, the excess funds were used to cover other federal expenses, like defense spending, highways, and the like. So, now that the SSA needs to cash in some of its IOUs to pay benefits, those funds will have to come out of the federal government’s annual budget. Already the Congressional Budget Office is warning that cashing the IOU’s on social security and Medicare, without making changes, would nearly double the national debt in the next 30 years, to 150 percent of the nation’s gross domestic product. So, while retirees are worrying how they will survive a cut in benefits, the feds are worrying about how they will continue to pay retiree benefits along with other federal expenses. Congress can make changes. For example in 2009, during the recent deep recession, workers’ share of payroll tax was cut from 6.2 percent to 4.2 percent, for a period of two years. Congress also allocates these taxes among the three trust funds. In 2016, for example, to deal with a shortfall in the disability trust fund, Congress shifted funds from the social security retiree fund to the disability fund so that full disability benefits would continue to be paid. Paul Ryan, Speaker of the House of Representatives, points out that 10,000 people turn 65 years old every day . In 2015, there were 168 million workers paying social security taxes to support 60 million beneficiaries. That means fewer than three workers support each OASDI beneficiary . When social security was set up in 1935, there were over 15 workers supporting each beneficiary . While the funding problem is partly the number of “Baby Boomers” entering retirement, the real problem is the falling US birthrate. American women are simply not having the same number of children who will grow up to be contributing workers. Today , the average birthrate is approximately two children per woman. (The US is not alone in dealing with this problem. Most western European countries, Japan, and Australia are experiencing the same falling birthrates. Japan is trying to improve childcare and pays families a “baby bonus.” Germany and other countries see immigration of young workers as part of the solution.) Recently , the editor of the CBS Money Watch wrote, “Up to now , Americans have said they’d do almost anything to avoid cutting Social Security benefits. That too can change. For a real-life example, consider how voters view state and local government pensions…


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