Cutting Social Security future liabilities

Of the $3.760 billion of expected government spending in 2012, the largest share, $762 billion, or about 20 percent, will go to Social Security. But Social Security benefits are financed by contributions by employers and employees that, until this year, exceeded benefit payments. The Social Security Board of Trustees expects contributions to again support benefits in 2012 through 2014. After that, as the population ages, contributions will not be enough and the system will have find money elsewhere. Currently the unfunded Social Security future liability is estimated to be about $18 TRILLION, substantially larger than the nation's entire current national debt (which is about $13 trillion).

Of course Social Security has been putting surplus money into the Social Security Trust Fund for decades, and currently the Trust Fund holds about $2.5 trillion. If that were real money, Social Security wouldn’t have a problem for decades, but unfortunately Congress, under both parties, has been raiding the trust fund regularly for years to pay for politically popular programs, replacing the money with Treasury IOUs. So all Social Security really has in the trust fund is $2.5 trillion in paper IOUs. And so how do we cash in the IOUs? By taxing people more now in and in the future. So in effect, the result is the same as if the Trust Fund had no money at all.

So what would it take to make Social Security solvent for the foreseeable future?

According to the Congressional Budget Office, if the Social Security payroll tax was applied to all income, Social Security would be solvent for the next 75 years. Right now, because of the cap on income subject to Social Security payroll taxes, someone who earns $106,800 a year pays the same amount into Social Security taxes as a billionaire. Raising the income cap gradually over the next 5-10 years would essentially solve the problem.

There is, of course, a lot of opposition to such a proposal, but none of the opponents have suggested a credible alternate means of cutting the portion of the future deficit attributable to Social Security. In the end, there is no free lunch – if we want Social Security we have to pay for it somehow.