Guest Column: Social Security not bankrupt

Published 10:00 am Thursday, May 30, 2019

It is that time of year again when the Very Important People in the Media and Washington write their “SS is Bankrupt” articles and push their agenda to destroy Social Security. Larry Kotlikoff wrote an editorial that appeared May 14 “The Hill:” https://thehill.com/opinion/finance/443465-social-security-just-ran-a-9-trillion-deficit-and-nobody-noticed.

He cried, “Wolf! Wolf! Social Security ran a 9 Trillion Dollar Deficit last year and nobody noticed!” He went on to explain this was the increase in the “infinite horizon Present Value (PV) of the Unfunded Deficit.”

He neglected to explain that the infinite horizon Present Value of Taxable Payroll (the money available to pay the supposed deficit) is over ONE THOUSAND TRILLION Dollars. He also did not explain that the 9 trillion dollars did not come from Social Security spending any more money, or from old people getting more benefits, or from taxpayers running out of money. It came from revising the Discount Rate down from 2.7% to 2.5%.

The discount rate is a kind of imaginary number at the heart of Present Value calculations. It is a GUESS about the real interest rate you might expect to get from an investment. Change the guess and you change the PV calculated. The PV is a useful concept if you know what you are doing. But it can give inaccurate results if you don’t. We could ask why the Discount Rate was lowered when there is actually upward pressure on interest rates and the only explanation I can think of is someone with an Agenda of cutting SS benefits for the worker class is trying to manipulate the numbers.

A more useful number for evaluating the “unfunded deficit” in Social Security’s projected finances is the percent difference between expected expenses and expected income. That turns out to be about 4%, starting around 2030 and remaining the same essentially forever. That means an increase in the FICA “payroll tax” of about 4% starting in about 2030 or so will pay all future needed benefits essentially forever.

FICA is not really a “tax” as you get your money back with interest. It’s really a savings and insurance plan. This is the amount of money you (we) will have to pay whether we have SS or not. It is the amount that will be needed to keep old people from living in abject poverty (this means YOU when you can no longer work). This money otherwise would have to come from personal savings, investment profits, real government taxes (that you don’t get back), or living with your son-in-law.

What Social Security does is let you pay for it yourself while you are still working. It protects your money from inflation, pays interest that keeps up with the standard of living, and insures you against disability, death, or just never making enough money to save enough to live on when you can no longer work.  Since the worker only pays half of the FICA, he won’t feel the extra 2% deducted from his paycheck…especially as his paycheck will be more than 20% bigger by then. Moreover, since there is still time to raise the “tax” gradually about one tenth of one percent per year no sane person would even notice it. One tenth of one percent of a $50,000 per year salary is about $1 per week. 

The folks in Washington and the Think Tanks who have an ideological opposition to SS want to raise the retirement age on our kids and grand-kids to Age 70 because they allege we are living longer.  In reality Blue Collar and Low Wage earners life expectancy is not rising, and sticking it to our kids and grand-kids instead of allowing us all to pay $1 a week more in FICA taxes is simply wrong of our generation.

Kotlikoff offers his own plan: force you to pay 10% of your income to a mutual fund which Wall Street can skim fees from (maybe we found his agenda)? Then force you to pay real taxes to make up for the difference when what the mutual fund pays someone is less than they paid in (You pay the tax, the saver get 0% interest), with no guarantees if you lose your job, become disabled, or die with dependents. You can find all of this out for yourself by actually reading the Trustees Report, page 200, (not the summary) and “doing the math.”

It really is “about the math,” but the reporters and commentators who tell you SS is bankrupt have never done the math, or understood it. They “report” what they are told by people who hate Social Security. They run around screaming we are all going to die, and tell us to cut off our own heads because Larry Kotlikoff gets paid very well to espouse his garbage. He and the other Very Important People in Washington are pushing an agenda to make you accept that the only way to “fix” SS is to gut SS benefits and stick it to the kids and grand-kids.