Your Opinion: Fixing Social Security shortfall
Wednesday, December 15, 2010
How Social Security really works.
The Social Security system is pay-as-you-go. Both the employee and the employer pay 6.2 percent of gross compensation up to a limit of $102,000, making the total Social Security tax 12.4 percent.
Over the last 25 years the Social Security system has collected more taxes than it has paid out in benefits. Excess Social Security receipts are “invested” in special securities issued by the federal government. These securities are held in the (OASDI) Trust Fund. The Social Security surplus revenue that is exchanged for these treasury notes have been spent by Congress on general budget items over the last 25 years.
Currently there is $2.4 trillion in the OASDI Trust Fund, unfortunately these are just IOUs, there is nothing backing it up except trust in the United States Government.
By 2017 Social Security will take in less than it pays out and will need to begin to draw from the (OASDI) Trust Fund or draw interest owed on the notes in the (OASDI) Trust Fund to fund social security. Guess what, the government doesn’t have any money in the Trust Fund, just IOUs called non-marketable, non-transferable notes. To make up the difference the U.S. government can do all or a combination of the following:
• Increase Social Security taxes.
• Increase the retirement age to qualify for Social Security benefits.
• Reduce payments for those drawing Social Security.
• Take money out of general revenue and transfer to Social Security (in other words, borrow even more money to fund the government)
• Just print the amount of money needed to cover the shortfall for the year (after all, if we can print $1.4 trillion in money to monetize the debt in just the last year and a half, what’s a few more billion here and there).