Vail Daily letter: Social Security’s bad rap
Vail, CO, Colorado
I believe that our Social Security system is getting a bad rap from lots of people because its true financial status is not understood. To be more specific, the Republicans and members of the so called Tea Party would like us all to believe that it is just one more government program that is contributing to our nation’s budget deficit. And that really is not true.
Permit me to explain. From its beginning in 1935, the payroll deductions that financed Social Security were to be placed in a separate trust fund.
And since, at the outset, there were many more payees than recipients, that fund accumulated a huge surplus of cash.
By law, that was to be invested in U.S. government securities, and it was. And since they were government bonds, the fund also earned interest. That fund is now worth $2.5 trillion.
This year, for the first time, the Social Security fund will pay out more in benefits than it takes in from payroll taxes. And so it will have to reduce the $2.5 trillion reserve by a relatively small amount — perhaps $30 billion. If the current projections are correct, the value of the trust fund will continue to go down, but it will remain solvent until 2037. After that, payments to recipients will have to be reduced, the payroll deductions increased, or the age for eligibility changed.
It should be noted that the plan — as originally conceived in 1935 — would have funded the benefits long after 2037, but people are retiring earlier and living longer than was assumed in the original projections. And so there are many who believe that it would be prudent to take some modestly remedial action now, and that is worth considering.
But we should understand that the Social Security program is not contributing to our current deficit.
David Le Vine