The New York Times
Dear Mr. Krugman,
Well, Mr. Krugman, I agree with your commentary "Social Security: Where federal government
excels;" in which you extol the concept & benefits of social security -
except . . . well, there are some problems.
On
face value, it appears the Social Security Trust fund is NOT in immediate danger of going broke. The 2013 calendar year Trust Fund Report
submitted on July 28, 2014 to Congress indicates the fund took in $855 billion
and spent $823 billion leaving a $32 billion surplus to be added to the Trust
Fund Assets bringing the total to more than $2.764 trillion. Of the $855 billion income, $752 billion was
non-interest income and $103 billion was interest earnings.
The
real problem is the Social Security Trust Fund has no actual cash because
several generations of political leaders replaced all these funds with Treasury
notes and IOU's. The "Feds" simply cannot
keep their hands off the excess pension funds, which, in fact, were treated as
another form of tax income. But now that
the surplus comes from the interest on the treasury notes our government
provided, the "free" ride is over and the Fed is forced to pay the difference
out of pocket. Accordingly, any need to
draw money from surplus assets would require more government borrowing of funds
to pay for the funds already borrowed - or raising taxes which would result in Social
Security benefits being taxed twice.
Proper
management of the Social Security Trust would prohibit government borrowing of
trust funds and instead allow investment in the private sector.
Suppose
someone, who averages at least $40,000. per year and OASDI contributions (12.4%
50/50 with employer), has his Social Security deductions invested in some form
of private sector secured investments drawing, let's say, 5.5% interest. At the end of 30 years - including compounded
interest - his retirement principal would be $379,463.90 and would provide
annual interest of $20,870.52 or $1,740 per month. Obviously, those who earn more would get a
greater return.
Because
this pension fund is providing benefits from interest on investments, it would
no longer matter how long the retiree lived, and, as retirees die off, their
investment principal would continue to provide income to the trust. Eventually, Social Security funds would catch
up with pension demands and allow pension payments based on what was actually
paid in. Accordingly, this fund could
grow to massive proportions allowing excessive reserves to assist in Medicare
expenses.
Obviously,
this change is too simple to consider.