Social Security "insolvent"? DEAD WRONG. In fact, it's healthier than last year

I saw this tweet from the Associated Press yesterday, and a similar meme appear in “Forbes”, and had to respond.

BREAKING: Government: Medicare will become insolvent in 2026, three years earlier than expected, Social Security to follow in 2034.

— The Associated Press (@AP) June 5, 2018

First of all, THOSE PROGRAMS WILL NOT BE INSOLVENT. The dates that the AP are noting is the date that the Trust Fund for those programs falls to $0. When that happens, it simply means that 1 or more of the following things (and it can be done earlier to keep the Trust Fund above $0 for a longer period of time).

1. Raise taxes that are designated for these programs
2. Cut benefits to current and future recipients
3. Use regular income taxes to pay for some/all of the program (like we do for ALMOST EVERY OTHER FEDERAL PROGRAM)
4. Borrow/print the money (which we do to fund our deficits already)

That is not insolvency…unless some evil legislators choose not to allow Americans to get anything back from all of the Social Security and Medicare taxes they have paid for decades. Yeah, can’t see that happening (I would invest in guillotine futures if Congress or a president put together a serious effort to try it).

I’ll concentrate on the Social Security side for this post (I may get into Medicare at a later point). If you dig into that report from the Social Security trustees, you’ll find that both OASI (what we general call “Social Security”) and DI (what we general call “Disability”) actually ran “profits” last year.

Social Security, Disability balances, 2017
Social Security
Social Security payroll taxes $706.5 billion
Taxes on Social Security benefits $35.9 billion
Interest of trust fund investments $83.2 billion
Total $825.6 Billion

Social Security payments $798.7 billion
Soc Security Admin, other payments $8.0 billion
Total $806.7 Billion
NET GAIN $18.96 BILLION

Disability
Disability payroll taxes $167.1 billion
Taxes on Disability benefits $2.0 billion
Interest of trust fund investments $1.9 billion
Total $171.0 Billion

Disability payments $142.8 billion
Disability Admin, other payments $3.0 billion
Total $145.8 billion
NET GAIN $25.14 BILLION

In addition, the trustees say Disability is now projected to pay its full amount for an additional 4 years without the need for any changes in the law. And the reason why is noteworthy.

The change in the reserve depletion date for DI is largely due to continuing favorable experience for DI applications and benefit awards. Disability applications have been declining steadily since 2010, and the total number of disabled-worker beneficiaries in current payment status has been falling since 2014. For this report, ultimate disability incidence rate (the percentage of people who go on disability) assumptions are unchanged from the last report. However, this year’s report has lower incidence rates over the first few years of the projection period, and a gradual rise from recent low levels, reaching the ultimate DI incidence rates by the end of the short-range period. In addition, average benefit levels for disabled-worker beneficiaries were lower than expected in 2017, and are expected to be lower in the future. Disabled-worker average benefit level were somewhat elevated in 2011 through 2016 due to reduced numbers of hearings decisions (where monthly benefit levels tend to be relatively low), as the number of applicants awaiting a hearing increased. In 2017, hearings decisions increased, thus restoring a more normal, and somewhat lower, average benefit level for disabled workers newly awarded benefits in 2017…These changes, which are partially offset by lower payroll tax revenue in the near term, are primarily responsible for the change in the DI reserve depletion date from early in 2028 in last year’s report to late in 2032 in this year’s report.

That sounds like good news. Fewer people are going on Disability (so shove that RW talking point up your ass), and the average Disability payment was lower than expected, so there is no immediate need for the rules to be changed.

As for OASDI, (aka the combined totals of “Social Security” and “Disability”), the demographic issues of retiring Boomers starts to get mitigated in 20 years as the smaller Gen X generation hits retirement age.

Projected OASDI cost increases more rapidly than projected non-interest income through 2039 primarily because the retirement of the baby-boom generation will increase the number of beneficiaries much faster than the number of covered workers increases, as subsequent lower-birth-rate generations replace the baby-boom generation at working ages. From 2040 to 2052, the cost rate (the ratio of program cost to taxable payroll) generally declines because the aging baby-boom generation is gradually replaced at retirement ages by subsequent lower-birth-rate generations. Thereafter, increases in life expectancy cause OASDI cost to increase generally relative to non-interest income, but more slowly than between 2010 and 2039.

Yep, my generation really is the “middle children of history” (although I’d argue against the “no Great Depression” statement after the 2008 meltdown).

Hey, I always am up for a reason to insert "Fight Club" clips.

As for the panicky talk about “costs will be more than benefits in 2018”, it’s largely due to a one-time flattening of incoming revenues on payroll taxes in 2018 (only up 1.1% vs 4.1% last year). In 2019, Social Security is bolstered by receiving a bit more of the 12.4% in payroll taxes that are paid (likewise, Disability gets less, which is why its Trust Fund starts dropping next year), and Social Security is projected to be profitable for 2019.

And yes, the Piece of Shit tax bill passed by the GOP Congress and signed by President Trump also will hurt Social Security’s finances in the coming years, as the trustees note.

The Tax Cuts and Jobs Act, Public Law 115-97, was enacted on December 22, 2017. This law will have several effects on the actuarial status of the OASDI program. The law reduces tax rates for individuals, alters the tax brackets and their indexing, and repeals the individual mandate of the Patient Protection and Affordable Care Act. The repeal of the individual mandate is expected to cause some individuals to drop their employer sponsored health insurance, which is estimated to increase OASDI covered wages and taxable payroll slightly. The tax rate and tax bracket changes will affect income to the trust funds from taxation of Social Security benefits. Because the law reduces tax rates through 2025, and the tax bracket thresholds will grow more slowly in the future due to the change in indexing, income from taxation of benefits relative to last year’s report is decreased through 2025 and increased thereafter. In addition, temporary changes for certain small businesses will have effects on reported self-employment income. As a whole, the law has a significant net negative effect on the financial status of the OASDI program over the short-range projection period and a negligible net positive effect over the long-range projection period.

So it’s not just because of lower revenues and higher future deficits that the GOP Tax Scam has threatened Social Security, but because of a few direct provisions in the law itself. Yes, you have a right to be angry about that.

Another issue that the trustees bring up is that with Trump rescinding DACA and trying to limit immigration, this will reduce the number of people paying into Social Security, both now and in the future. That’s another strain that wasn’t in the forecast when the last report was made, and something that could be cleaned up quickly with an immigration reform bill …if Paul Ryan and other Republicans in Congress cared more about the big picture instead of wanting the votes of xenophobes and other trash.

Now, even with the reallocation of funds starting next year, Social Security is projected to start paying out more than it takes in starting in 2020, and Disability starts running a deficit in 2019. These may be things to note and possibly adjust, but let’s also remember that there is a lot of money that is set aside in both trust funds to pay all benefits IN FULL for more than a decade.

Trust Funds total
Social Security $2.82 Trillion
Disability $71.5 Billion

As we saw in 2017, that money can gain interest before it is used. In a time of rising interest rates, this may end up bolstering that trust fund total in at least the next couple of years.

Lastly, let’s not forget that there are a lot of people not paying the full 6.2% into Social Security/Disability. And no MAGAs, it isn’t “illegals” or people on welfare, but it’s the richest Americans. Once someone makes $128,400 in 2018, he/she won’t pay another dollar toward Social Security/Disability, meaning that person gets an extra tax break on top of what you were already given by the GOP Tax Scam. If you look at the 2016 stats, slightly more than 5% of Amercian wage earners get this backdoor tax cut from the Social Security cap.

Seems like “scrapping the cap” would be an easy solution for the future, and possibly combined with a minor cut in what 95% of us are currently paying into these programs. You want to talk about real “tax reform” that improves the lives of Americans, that sure sounds like it. Bottom line, Social Security and Disability is actually in better shape than it was this time last year, but it’s being needlessly endangered by GOP giveaways to their rich, corporate donors. All it takes is some simple tweaks to the current system to put things on even better footing for the next 40 years.

But as a certain “non-Democrat” put it a few years ago, there are right-wing interests that want an unknowing media and populace to be scared that Social Security and Disability is endangered, and give up benefits that WE ARE OWED, to make us the indentured servants to the rich and corporate.

Listen to Bernie, and don’t fall for the “Social Security is in crisis” BS that is sure to be trotted out by Paul Ryan and other right-wing hacks in the coming days.