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Social Security Trust Funds: Headed for Insolvency?

  
  
  
  
  

The 2012 Social Security Board of Trustees recently released a report on the financial status of of OASI (Old Age & Survivors Insurance) and DI (Disability Insurance) Trust Funds. The report indicates that if Congress takes no corrective action that the Retirement and Survivors Trust fund will only be able to pay 100% of scheduled benefits through 2033. Thereafter, again if no action is taken by Congress, approximately 75% of scheduled benefits would be funded from new tax revenues.

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The Disability Insurance Trust Fund has more immediate concerns as it is projected to become inadequate by 2016. Some news reports suggest that the DI Trust Fund will be "insolvent", or even "bankrupt" with an inability to pay any SSDI benefits as early as 2016. In reality, payroll tax revenues (F.I.C.A.) would permit the DI Trust Fund to pay approximately 79 percent of scheduled benefits. 

Of the 6.2 percent payroll tax (Federal Insurance Contributions Act), 5.3 percent is allocated to the OASI Trust Fund and 0.9 percent is allocated to the DI Trust Fund. There have been prior incidences in which there was an imbalance in funding benefit payments between the two Trust Funds.  In 1983 and then again in 1994 Congress authorized inter-Trust Fund borrowing to ensure scheduled benefit payments were accomplished. It is reasonable to believe that Congress may consider doing so again before the DI Trust Fund "inadequacy" would occur in 2016.

Once the Baby Boomer generation (1946-1964) moves through the disability prone ages of 50-66 the DI Trust Funds would again produce excesses for the DI Trust Fund. The Boomers will graduate from the DI Trust Fund to the OASI Trust Fund by calendar year 2030.

Current concern about the solvency of the Social Security Trust Fund(s) is a priority elected officials and Congress must address. There are currently sixty two (62) proposals for Social Security Reform that have been put forth by committees, elected officials, and advisory panels. Over a dozen have been put forth in the last year. http://www.ssa.gov/oact/solvency/index.html

Social Security has been described as "A compact Between Generations". The Congressional "fixes" to the system may include a combination of tax increase (unchanged since 1990) http://www.ssa.gov/policy/docs/statcomps/supplement/2010/2a1-2a7.html#table2.a3, Tax base (amount of earnings subjected to taxation http://www.ssa.gov/oact/COLA/cbb.html, or adjustments in benefit formulas and Cost Of Living Adjustment (COLA) increases.

The 2012 Trustees’ Report is available on the SSA Office of the Chief Actuary website, http://www.socialsecurity.gov/OACT/TR/2012/.

If you have comments or questions please feel free to contact the GENEX Social Security Program by emailing terry.binder@genexservices.com.

 

Comments

If nothing changes, Social Security faces insolvency before 2037. That was projected when the current recession severely crimped payroll deductions. If just the pension benefits presently scheduled are to be continued, they will consume 51 percent of all federal revenues by 2037, not including Medicare. That date is moving ever closer. Current law requires that when its Trust Fund is depleted, payments cannot exceed monthly income and thus must be reduced proportionately. Total federal taxes would then have to be raised to 26 percent of GDP!—46 percent of all taxable incomes—just for Social Security pensions!—not including health care. The longer a solution is postponed, the more onerous will be its effects. The major impediment to solving this highly emotional issue is the lack of sufficient national income to finance it—and political demagoguery. There are a number of partial solutions: 
1. Raise payroll taxes by an additional 1.1 percent to a total of 73 percent for both employer and employee. 
2. Tax all wages—not just those under $106,800. 
3. Achieve 75 percent lower shortfall if cost of living increases are reduced one percent/year. (But none were paid in 2010-11!) 
4. A 75 percent saving would accrue from bumping up the full benefits age from sixty-seven to sixty-eight. Unfunded benefits will decrease sharply if ages are bumped up every few years. In any case, this will definitely become necessary as longevity increases. 
Cover deficits with a national income set-aside from licensing fees. This only suffices if such fees come from more resources: (e.g., water rights, oil, natural gas and mining exploration leasing fees, wellhead production taxes). 
You can buy this book now on any of the following websites: 
 
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Posted @ Monday, January 14, 2013 4:16 PM by Henry Markant
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