Why Social Security's Day of Reckoning Arrives Early- Its Worse Than We Thought
You've probably read about how social security is headed for a day of reckoning. It looks like the day of reckoning is just about on us - and the situation is worse than we thought.
The benefits paid out for current social security recipients come from current social security taxes (taxes that you and I pay out of our salaries). That's how the system was designed. For many years, the social security taxes (they're the taxes listed under "FICA" on your paycheck) the government took in were more than the government needed to pay out in benefits.
We've known for a long time that, at some point, those taxes would not cover the benefits that needed to be paid out. The number of recipients were growing, and the money needed to pay their benefits would be greater than the FICA taxes collected each year. But it's not just the benefits that will have to paid out that create a problem.
In fact, it now appears that we will be in for a double-barreled shot of cold, hard reality a lot sooner than anyone predicted. Why double-barreled? It comes down to the "ponzi scheme" the government has been running for decades right under our noses.
During the years when social security taxes exceeded the benefits that needed to be paid, you would think that prudence would require that the surplus be saved for a "rainy day." Instead, the government used that surplus money to fund the current year's budget. The so-called Social Security "Trust Fund" is filled with IOU's (bonds) that will have to be paid off in the future. There's no money in the "Trust Fund." It's all been spent.
Now while we all knew that at some point in the future the taxes that are collected will not be sufficient to pay for the benefits the government has promised, we didn't think it would happen so soon. Instead of 2017 - as predicted for many years - it could happen...well, any day now.
You see, the surpluses predicted have been recalculated. Instead of $703 billion over the next 10 years, it looks like they'll be only $83 billion. Some difference!
But it gets worse. Remember that the surpluses are used to fund current government spending every year. Well, that $703 billion projection was used in the Administration budget projections. And under their projections, government spending will increase dramatically in the coming years - except there will be almost $700 billion less in revenue to pay for all that spending. Remember the bailout and stimulus packages? They were counting on that $703 billion. Now it's gone.
So not only will we face - and very soon - the day when the social security tax collections do not meet the demand for benefits, but we're going to face even bigger budget deficits than the multi-trillion dollar deficits already projected. The government will have to come up with an additional $700 billion or so for its budget and goodness knows how many billions for social security recipients.
How is all that going to be possible?
That $64 billion dollar question is being answered right now. And there are only a few possible answers.
Now, we all know the government's not going to renege on paying social security. But they could start pushing back the age at which you can collect - even more. They've already been doing that. We'll see if they keep pushing.
Or, they could start taxing current workers even more by raising the "FICA" withholding on paychecks. Why not? It's been done before.
But if you read studies on these sorts of solutions, you'll find that there just won't be enough money generated by either of these solutions - unless, for example, FICA goes up from 7.65% of your paycheck to, let's say, 25%. But that's not going to happen.
No, it would seem the stopgap's going to be some form of printing money to meet these obligations.
And that means, of course, inflation. When and how much money the government needs to print we'll have to wait and see. But it does seem inevitable that inflation will be needed at some point to deal with what has now become an urgent need to find money to meet social security benefits.
With everything else going on (unemployment, huge Federal budget deficits, states not able to meet their expenses), the timing on this day of reckoning - if it comes soon - couldn't be worse.
The benefits paid out for current social security recipients come from current social security taxes (taxes that you and I pay out of our salaries). That's how the system was designed. For many years, the social security taxes (they're the taxes listed under "FICA" on your paycheck) the government took in were more than the government needed to pay out in benefits.
We've known for a long time that, at some point, those taxes would not cover the benefits that needed to be paid out. The number of recipients were growing, and the money needed to pay their benefits would be greater than the FICA taxes collected each year. But it's not just the benefits that will have to paid out that create a problem.
In fact, it now appears that we will be in for a double-barreled shot of cold, hard reality a lot sooner than anyone predicted. Why double-barreled? It comes down to the "ponzi scheme" the government has been running for decades right under our noses.
During the years when social security taxes exceeded the benefits that needed to be paid, you would think that prudence would require that the surplus be saved for a "rainy day." Instead, the government used that surplus money to fund the current year's budget. The so-called Social Security "Trust Fund" is filled with IOU's (bonds) that will have to be paid off in the future. There's no money in the "Trust Fund." It's all been spent.
Now while we all knew that at some point in the future the taxes that are collected will not be sufficient to pay for the benefits the government has promised, we didn't think it would happen so soon. Instead of 2017 - as predicted for many years - it could happen...well, any day now.
You see, the surpluses predicted have been recalculated. Instead of $703 billion over the next 10 years, it looks like they'll be only $83 billion. Some difference!
But it gets worse. Remember that the surpluses are used to fund current government spending every year. Well, that $703 billion projection was used in the Administration budget projections. And under their projections, government spending will increase dramatically in the coming years - except there will be almost $700 billion less in revenue to pay for all that spending. Remember the bailout and stimulus packages? They were counting on that $703 billion. Now it's gone.
So not only will we face - and very soon - the day when the social security tax collections do not meet the demand for benefits, but we're going to face even bigger budget deficits than the multi-trillion dollar deficits already projected. The government will have to come up with an additional $700 billion or so for its budget and goodness knows how many billions for social security recipients.
How is all that going to be possible?
That $64 billion dollar question is being answered right now. And there are only a few possible answers.
Now, we all know the government's not going to renege on paying social security. But they could start pushing back the age at which you can collect - even more. They've already been doing that. We'll see if they keep pushing.
Or, they could start taxing current workers even more by raising the "FICA" withholding on paychecks. Why not? It's been done before.
But if you read studies on these sorts of solutions, you'll find that there just won't be enough money generated by either of these solutions - unless, for example, FICA goes up from 7.65% of your paycheck to, let's say, 25%. But that's not going to happen.
No, it would seem the stopgap's going to be some form of printing money to meet these obligations.
And that means, of course, inflation. When and how much money the government needs to print we'll have to wait and see. But it does seem inevitable that inflation will be needed at some point to deal with what has now become an urgent need to find money to meet social security benefits.
With everything else going on (unemployment, huge Federal budget deficits, states not able to meet their expenses), the timing on this day of reckoning - if it comes soon - couldn't be worse.
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