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Ear to the Ground

David Cay Johnston: Social Security Is Not Going Broke

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Posted on May 4, 2012
Andrew Morrell Photography (CC BY-ND 2.0)

“Which federal program took in more than it spent last year, added $95 billion to its surplus and lifted 20 million Americans of all ages out of poverty?” finance columnist David Cay Johnston asks.

The answer? Social Security, which ended 2011 with a $2.7 trillion surplus—almost twice what was collected in personal and corporate income taxes during the same year and is expected to go on growing until 2021. Still, some claim that the program is “going broke” and must be privatized to be sustained.

Johnston disputes the claim that Social Security can’t sustain itself already and argues that its surpluses have been used to subsidize tax cuts for the rich. —ARK

David Cay Johnston at Reuters:

Let’s look at how Social Security taxes have grown in the last half century — a little-known tale of tax burdens shifted off the rich and onto workers. From 1961 through 2011, the year covered in the last Social Security report, Social Security taxes exploded from 3.1 percent of Gross Domestic Product to 5.5 percent.

Income taxes went the other way. The personal income tax slipped from 7.8 percent of the economy to 7.3 percent, with most of the decline enjoyed by people in the top 1 percent of incomes. The big drop was in the corporate income tax, which fell from 4 percent of the economy to 1.2 percent. Notice that the corporate income tax fell by 2.8 percentage points, an amount almost entirely offset by a 2.4 percentage point increase in Social Security taxes.

The effect has been to ease the taxes of the wealthy, while burdening the vast majority of workers. Considering how highly ownership of stocks is concentrated, the benefit of those lower corporate taxes went overwhelmingly to the top 1 percent and, especially, the top 1 percent of the top 1 percent. Considering that the Social Security tax is capped, most of the burden of the increased payroll tax went to the bottom 90 percent.

Now let’s look at how that $2.7 trillion Social Security surplus arose. In 1983, President Ronald Reagan sponsored an increase in Social Security taxes, changing the program from pay-as-you-go to collecting much more taxes than it paid in benefits. The idea was to have the Boomers prepay part of their old age benefits. The extra tax was supposed to pay off the federal debt and then be invested in federal bonds. Instead, Reagan ran huge deficits, violating his 1980 promise to balance the federal budget within three years of taking office.

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By Scott @ Engage America, May 9, 2012 at 2:07 pm Link to this comment
(Unregistered commenter)

The 2012 Trustee’s Report details the exhaustion of trust fund reserves in 2033, three years earlier than projected last year (http://1.usa.gov/Kg5KuF). Yes, it is true that even after the fund is exhausted Social Security will be able to pay 75% of benefits, but how is being able to meet only three quarters of its obligations acceptable?

Clearly, something needs to be done and reform must take place: either by raising the wage cap, by increasing the retirement age to keep pace with longevity, by means-testing and eliminating benefits for very high income seniors, or by some combination of these proposals.

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By Carly EngageAmerica, May 9, 2012 at 9:09 am Link to this comment
(Unregistered commenter)

Social Security ran a cash flow deficit of $49 billion
in 2010, and the 2011 trustees report indicates such
deficits will be the norm by 2017. The report also
reveals that Social Security’s unfunded obligation
stands at $9.1 trillion, in net-present-value terms; in
other words, it owes $9.1 trillion more in benefits
than it will take in through taxes. The program will
experience further financial strain as the worker-to-
retiree ratio keeps falling.

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By Maani, May 6, 2012 at 9:59 pm Link to this comment

macduff:

Will do.  And it is entirely psosible, since Jerry has been a supporter of USIA for decades.

Peace.

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By macduff40, May 6, 2012 at 12:52 pm Link to this comment

Maani,
I wonder if Rep. Jerry Nadler is the person I knew in the 70s where we were members of a U.S.I.A. Cultural Exhibit to the Soviet Union.  Next time you speak to him, please ask him about it for me and if so, tell him E Fields says hello and thanks very much for all that he has done.

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Blueokie's avatar

By Blueokie, May 6, 2012 at 11:18 am Link to this comment

If Social Security were in any real financial trouble would Wall Street be directing its two parties to allow them to loot it?

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PatrickHenry's avatar

By PatrickHenry, May 6, 2012 at 6:43 am Link to this comment

Take the cap off social security and we will all be fine.  There will even be money for additional programs as long as the money gets used for what it was intended.

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Shenonymous's avatar

By Shenonymous, May 5, 2012 at 2:02 pm Link to this comment

This article reads like David Cay Johnston took his essay right out of
Bernie Sanders’ playbook:

Bernie Sanders has been revealing the actual/factual lies about Social
Security lies for a couple of years now.  Maybe senior folks need to do
an Occupy Social Security in Congress protest?????

http://tinyurl.com/cwqs9n4
September 14, 2011
“Social Security is the most successful government program in our
nation’s history.  For 76 years, through good times and bad, Social
Security has paid out every benefit owed to every eligible American,”
Sen. Bernie Sanders on Wednesday told a Capitol press conference. He
introduced legislation to keep the retirement program sound for another
75 years. “The most effective way to strengthen Social Security is to
eliminate the cap on the payroll tax on income above $250,000.  Right
now, someone who earns $106,800 pays the same amount of money
into Social Security as a billionaire.  That makes no sense.  The Keeping
Our Social Security Promises Act will ensure the long-term solvency of
Social Security without cutting benefits or raising taxes on the middle
class.”

That same day, Sanders Introduces Bill to Strengthen Social Security
http://tinyurl.com/6sejz98
“WASHINGTON, Sept. 14 - Sen. Bernie Sanders today introduced legisla-
tion to strengthen Social Security by applying the payroll tax that most
Americans already pay to those with annual incomes above $250,000.”

http://tinyurl.com/86nyjrz
April 23. 2012
A new report today by the Social Security trustees showed the program’s
trust fund has $2.7 trillion in reserves and will grow to $3.06 trillion by
2021. That’s enough to maintain the unbroken record of paying every
nickel owed to every beneficiary in full for another two decades.

I find it interesting Johnston fails to even mention Sanders.

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By Don Levit, May 5, 2012 at 6:33 am Link to this comment

David wrote that Social Security took in more than it spent last year.
That is true, from an accounting standpoint.
Adding in interest income does provide a surplus.
But, according to the recent Medicare trustees report, the Social Security trust fund actually incurred a cash flow deficit and has done so since 2010, and is projected to continue to do so until trust fund exhaustion.
What is more relevant:  a cash flow deficit or an accounting surplus?
Implying there are no cash repercussions to tapping trust fund principal and interest, and that it will be 2021 before we have any budgetary problems, is absolutely false.
In addition, the surplus taxes were supposed to be invested in special-issue Treasuries, to be used exclusively for SS beneficiaries.  Instead, this money was used to pay for current expenses and lowered the deficits.  If the trust fund had been kept intact, and reserved only for SS beneficiaries, the $2.7 trillion surplus would be a pre-paid investment, the fund would be “privatized,” and it could simply be liquidated like private bonds in retirement plans.
Don Levit

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By Bill Jones, May 4, 2012 at 8:31 pm Link to this comment
(Unregistered commenter)

It’s impressive to see this level of stupidity.

If all the “Assets” you have are those of a bankrupt entity, you are bankrupt.

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By vector56, May 4, 2012 at 7:47 pm Link to this comment

It would seem that we have reached an “Orwellian” “perfect storm” where facts are only as good as the packaging provided by the Corporate Media.

Truly, if they want our opinion on Social Security or anything else they will give it to us.

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By Maani, May 4, 2012 at 4:56 pm Link to this comment

I am fairly close with Rep. Jerry Nadler, who was at one time the ranking member of the House Finance Committee.  Over the past decades, we have discussed Social Security many times.  And particularly each time the GOP and/or the media go into one of their occasional hyperbolic fits over the “danger” to the Social Security Trust Fund, Jerry has explained how this is simply not the case, and that the SSTF is in good shape, and is unlikely - even in the face of economic crises - to be in any trouble at all for at least 75 years or so.

Peace.

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