The Social Security Trust Funds Explained - EPIC
Social Security’s financial picture, dismal as it might be, is typically misunderstood. Those unable to grasp its relationship to overall federal governmental finances characterize it as a “Ponzi scheme.” Others persistently claim that money has been “stolen” or “misappropriated” from trust funds over the years. Still others shake their heads and walk away from explanations that show that it’s really not that complex at all, at least from a cash flow basis.
At the AMAC Foundation’s Social Security Advisory Service, we’ve fielded many complaints on this very subject, often being chided for not telling the “real story.” Our explanations have sought to debunk the myths that, for example, Social Security funded the Vietnam Conflict, that the program’s reserves were used to launch the Peace Corps, and many other strange allegations. Yet, as the public looks ahead at a much-publicized financial awakening in just a few years, the concept of “insolvency” remains surrounded by accusations of monetary misconduct.
EPIC to the Rescue
Earlier this week, a piece by Economic Policy Innovation Center’s Visiting Fellow in Workforce, Rachel Greszler, set forth a simple but complete synopsis of Social Security’s trust fund architecture. Using easy-to-understand graphics, she illustrates how payroll taxes are accounted for, how they are dispersed, and what happens to the excesses and shortfalls in a given year.
From our perspective, Ms. Greszler confirms what we’ve been saying for years. This succinct statement from her Explainer piece mirrors our responses to many of our readers: “Throughout history, every dollar that Social Security has collected in any given year has been first used to pay Social Security benefits due that year plus other program costs. Any remainder has been lent to the federal government—in the form of special issue U.S. Treasuries that avoid having to issue new publicly held debt—to pay for other, non-Social Security government spending. The balances of the OASI trust fund are classified as ‘intragovernmental debt’ and count towards the debt limit. These special issue Treasuries are essentially IOUs.”
Spotlighting the Problem
Ms. Greszler’s post goes on to showcase Social Security’s impending problem: the full depletion of trust fund reserves in just a few years. Using data from the most recent annual trustees’ report, she illustrates the rapid erosion of securities that had accumulated for decades, and reconfirms the simple truth that “The IOUs available to backfill the cost of currently scheduled benefits will be depleted in 2033. At that point, Social Security can only pay as much in benefits as it collects in revenues, which will equal about 77 percent of currently scheduled benefits.”
We commend EPIC and Ms. Greszler for their clear explanation of the Social Security trust fund structure…it’s a critical part of addressing the longer-term problem. So, where do we go from here?
What’s needed to achieve a greater level of public awareness of Social Security’s plight is bipartisan and bicameral publicity. In addition, increased attention through affected parties–and that’s pretty much everyone–contacting their congressional representatives can go a long way toward bringing the political process into focus on this significant issue. The longer it takes to achieve a resolution, the more traumatic the “fixes” will need to be.
AMAC Has a Solution
As an example of the leading thoughts on reforming Social Security, the Association of Mature American Citizens (AMAC, Inc.) believes Social Security must be preserved and modernized to meet the demands of 21st-century economics. AMAC’s position is that this can be achieved without payroll tax increases through relatively slight program modifications, including changes to the cost-of-living adjustment (COLA) process and modifications to the formulas for calculating payments to higher-income beneficiaries. Changes to the age for maximizing benefits are included in AMAC’s position, along with (1) an increase in the thresholds where benefits are subject to income tax; (2) indexing of these thresholds annually to account for inflation; (3) improved survivor benefits, (4) eliminating the reduction in benefits for those choosing to work before full retirement age; and (5) improved savings tools for future retirees, including a savings account that builds estate value. AMAC is resolute in its mission to preserve Social Security for current and future generations and has garnered the attention of lawmakers in D.C., meeting with numerous congressional offices and staff over the past decade. To learn more about AMAC’s plans, click here.