The Truth About Social Security - Henderson and Floyd

The Social Security and Medicare Trustees just issued their annual report. In it, they claim Social Security will go bankrupt in 2034. One year later than last year. Medicare will go bankrupt in 2030, also one year later than last year’s report. (Medicare is a much more serious economic problem which I will discuss in another post.)

There are many reasons that the Trustee’s report about these programs is inaccurate and they downright approach the characterization of absolute lies. I will highlight only three.

First, a side bar to put your mind at ease for a moment…. Before explaining why Social Security will go bankrupt far sooner than is being predicted, it is important to explain what is meant by “going bankrupt”. Social Security and Medicare are both “pay-as-you-go” programs. Everyone’s paychecks has FICA tax or Social Security tax and Medicare tax withdrawn every pay period. If you are self-employed, you pay both the employer and employee portion of Social Security tax. If all the reserves are depleted the money that is withdrawn from our paychecks for Social Security is enough to provide 77 percent of the promised benefits. The difference has always been made up by the trust fund.

The reason you should not worry about the Social Security shortfall is that the difference will be made up out of the general revenues of the government. There are currently 100 million Americans over age 50 who will demand that to be done. By 2030, there will be 130 million people over age 50 who will require their elected officials the preserve their Social Security benefits at all cost.

Ok back to the reasons:

Probably the biggest reason why the Trustees are severely inaccurate is life expectancy. The Trustees use 75 years as the life expectancy in their calculations. Currently a male’s life expectancy is 86 years. A female’s is 89 years. As an estimate an additional two TRILLION dollars is added to the shortfall for every year difference between what is being used and reality. WOW!

The second reason is the Trustees use a much higher growth rate than almost anyone thinks is achievable. The Congressional Budget Office believes two percent average is a stretch. Many even believe deflation or no growth is possible; yet, the Trustees use 3.1 percent as an average. Reality check? We haven’t had 3 percent growth in a decade. Please remember, we are in one of the longest bull markets in history. Where will this growth come from?

The third reason is the subsidy structure of Obamacare. This structure is causing people to work less hours. Less hours means less pay. Less pay mean less paid in FICA taxes. Less FICA taxes collected, less going into social security.

There are other reasons, but why beat a dead horse over and over?

Don’t you think we should talk?

Here are a few articles to back up this article:

http://news.investors.com/blogs-capital-hill/072815-763757-social-security-trustees-report-relies-on-dubious-assumption.htm?p=2

http://www.newsmax.com/Finance/DavidStockman/David-Stockman-Social-Security-entitlement-bankrupt/2015/07/31/id/664828/