As long as I can remember, we’ve had Chicken Littles
running around warning Social Security is about to collapse. I’ve yet to read what’ll happen when this
doomsday scenario comes. Well, here it
is and the coming apocalypse
is 2033.
We all know politicians have picked the lockbox and
spent that money on pet projects. Also,
there are a record number of Americans on disability and probably some illegal
aliens as well. We should take heed,
because when this entitlement ship hits the fiscal iceberg there is not going
to be enough lifeboats to go around. This Goodship Lollipop will suck everyone down.
The 2014 report projects
depletion of the combined Old Age, Survivors, and Disability Insurance trust
funds in 2033. Social Security has no borrowing authority, and after the trust
funds are exhausted there is only enough payroll tax revenue to cover a projected
77 percent of benefits; meaning future benefit payments must be reduced by
about 23 percent. But the resulting cut in benefits will actually be much worse
for retirees, workers and the economy if we don’t act now to reform Social
Security.
In 2013, total
benefit costs offset by taxes on those benefits, plus administrative expenses,
came to $832 billion. Most, but not all, of this cost was covered by payroll
taxes ($726 billion), with the balance substantially covered by interest ($103
billion) on money Congress “borrowed” from the trust funds — which means Social
Security is currently adding to the deficit.
When the trust
funds are depleted, the upcoming year’s benefits will be suddenly and
immediately reduced by nearly $200 billion (in 2013 dollars), and not just for
that year alone. The 23 percent haircut will persist indefinitely without
legislative action. Gross Domestic Product includes government outlays,
including spending on entitlement programs. Hence, less social security
spending by definition results in a smaller GDP. Additionally, a sudden and
large reduction of social security benefits would also result in less private
consumption, since beneficiaries will have less money to spend, and this too
would presumably result in an additional corresponding negative effect on GDP.
And does anyone believe these people will tolerate a
reduction in benefits? Of course not,
our taxes will have to be raised and America will descend into a European style
stupor.
H/T:
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