Is Social Security “Cashflow Negative” This Year? Yes and No
Yikes, there is a subtlety in the Social Security debate that just bit me in the buttocks. (Fortunately we all have health care now.)
I am participating in another “Public Square” debate, like the one I did earlier on the New Deal. (The links to that earlier debate are dead; I don’t know what the deal is.)
Anyway, I am arguing that “Social Security Is In Crisis.” I repeated the claim–made by many sources, I won’t even bother listing them here–the Social Security is already cashflow negative.
Yet we need to be careful, as my opponent demonstrated in his response. (We still have to write Round II before the whole thing is posted.)
What is true is that the “Net Contributions” into Social Security from the dedicated payroll tax are $346.8 billion from January through June, while benefit payments have been slightly higher at $347.7 billion (through June). This is what everyone means when saying, “Social Security is already in the red, and is drawing from its ‘trust fund.'”
However, the interest earnings on the “trust fund” were $59.6 billion YTD. So the Social Security trust fund was actually higher at the end of June 2010, than at the beginning of the year.
You can find out all the different components of Social Security income and outgo at this website. Make sure you break things down monthly, because there are some funky things going on. For example, one component of income is “income from taxation of benefits,” and that only hits every quarter. On the other hand, there are humongous interest payments that kick in only twice a year.
So to get the full picture of what’s going on, you should look at the income and outgo components on a monthly basis, for at least a full yearly cycle.
The easiest way to deal with SSA analysis is to simply ignore the trust fund and the interest payments altogether because they are actually meaningless. The only things that matter are the differences in the payroll tax receipts and the cash payments out the door, and whether or not the present political arrangement will allow the rest of the government revenue raising apparatus to fill the gap once it has gone negative.
In any case, here is a link to another discussion of the report itself.
Link
Oh, I 99% agree with you (and Wenzel), I’m just saying in my initial volley, I gave the misleading impression that the SS trust fund was already being drawn down this year, when technically that’s not true. I’m not sure if I even said that explicitly, but I definitely should have mentioned this nuance (had I been aware of it).
Ok, now I completely understand your argument- you opened yourself to a cheap debating tactic when you didn’t really need to.
Bob,
I think Yancey is looking at it properly here. The cash coming in is from payrolltax receipts and cash going out is SS payments made. Everything else is hocus pocus
Treasury interest paid to you or me would be positive cash flow, but for the SS trust fund it is likely a bogus transaction where the Treasury says. “Hey, we owe you $59 billion. [Wink nod] Do you want us to send you cash or do you just want to roll it over into more Treasury securities?”
SS says, “Oh wow, you still have Treasury securities for sale? Send them over!”
It’s like rolling your money over with Bernie Madoff.
Demographics and immigration trends all point to this ponzi scheme crashing sometime or another. I’d like to hear your thoughts, Bob, on how we get out of it. Do you grandfather people off it e.g. anyone born after 1985 no longer is entitled to it and contributes less & less each year or something like that? Do you couple it with an increase in financial education so people learn more about money management in high school?