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
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.