Social Security, Simplified

It is a source of endless frustration to see otherwise intelligent and competent commentators of all varieties continue to make the kinds of confused statements about SS that have no basis in reality.

Much of the confusion can be eliminated if we can isolate the part of SS which depends on predictions of an uncertain economic future and that which depends on the structures and formulas of the present and future mandates set by law.

Without any prediction about the future path of the economy, the following things are unequivocally true :

1. Without exception, for every year in which the SS-designated tax receipts exceed the mandated SS payouts, the surplus amount will be spent by the government for things which have nothing to do with Social Security.

2. Without exception, for every year in which the SS-designated tax receipts fall short of the mandated SS payouts, the shortfall will be made up by new Treasury borrowing.

To reduce the amount of new borrowing required for any year that SS-designated tax receipts fall short of the mandated SS payouts, there are only two possibilities, applicable separately or in combination :

1. SS-designated tax receipts must be increased either by changing the formula that governs current payroll tax receipts or by creating new sources of current tax revenues to supplement the payroll tax.

2. Mandated SS benefit payouts must be reduced.

The implications of the above are as follows :

1. The Social Security Trust Fund is a factor only to the extent that it confuses people. Likewise, the nominal interest rate 'earned' on the contents of the SSTF has no significance.

2. Increasing SS-designated tax receipts in one year provides no advantage in paying for benefits in any other year.

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a lot of this is predicated

a lot of this is predicated on idiotic linear extrapolations of future interest rates and inflation, which rules out any of the goverment projections. their statistics are hedonically derived and have no basis in reality. i feel sorry for people who believe what the goverment tells them and even more sorry for the people who are relying on them. its going to be a rude awakening.

Social Security Well, I've

Social Security
Well, I've managed for quite some time now to avoid commenting on Social Security. But after reading the following paragraph in a Sacramento Bee article I felt the urge to comment on this, although my take may be a bit different from the conventional...

Nicely done. Social Security

Nicely done. Social Security really isn't that hard to understand. I'm neither an economist nor a government bureaucrat yet I don't find it all that difficult to figure out what's going on. The solution isn't nearly as difficult as politicians try to make it either. I really only see three solutions.

1. Citizens pay higher taxes to support Social Security (the corollary to this is really not going to happen, that SS benefits will be reduced, that is a political scare tactic). This is the path Pournelle predicted in his Codominium books, where the US would ultimately have two classes of citizens, Taxpayers (wage earners) and Citizens (welfare recipients).

2. A compromise solution will be found that will keep SS stable and give some increased control over it to individuals, but the ultimate issues you outline will not be addressed. This is the path Bush is on right now.

3. We will do away with Social Security entirely and reap the benefits of returning all of that individual and corporate income to our economy. This is the path I advocate, but really don't expect to see it happen.

2. Without exception, for

2. Without exception, for every year in which the SS-designated tax receipts fall short of the mandated SS payouts, the shortfall will be made up by new Treasury borrowing.

Exception: If non-SS expenditures are less than revenues from non-SS taxes (ha!), then it will be financed by taxation rather than borrowing.

2. Without exception, for

2. Without exception, for every year in which the SS-designated tax receipts fall short of the mandated SS payouts, the shortfall will be made up by new Treasury borrowing.

Exception: Until lenders cut them off.