Election 2020 – 3 – Social Security

Posted on 9/10/2019 by Jim Pickerell | Printable Version | Comments (0)

Social Security

One of the latest White House proposals is to temporarily reduce the FICA payroll payments leaving more money in workers pockets and hopefully avoiding an economic slowdown. (This idea is on again, of again and who knows where it will be tomorrow or five minutes after that.) Such an action would reduce the amount paid into the Social Security Trust Fund which means it will be necessary to either significantly draw down even more than planned on the assets of the Trust Fund, or add to our $22.5 trillion debt, or both, in order to send those over 65 their monthly Social Security checks and pay for Medicare and Medicaid.

While the Social Security Trust Fund had $2.9 trillion in assets at the end of 2018 the money is being used at such a rate, compared to what is being paid in in new FICA taxes that the fund is scheduled to be totally depleted by 2035. Reducing FICA payments now will insure that the Trust Fund goes broke much earlier, maybe years earlier. At that point everything paid into FICA (at today’s level, not a WH discounted level) will only be enough to pay SS recipients about 75% to 80% of what they are receiving today. Unless, of course, we borrow a lot more from the China which already holds $1.15 trillion of our debt.

The “New Big Idea” this country needs is to “Pay For” what we want and need rather than expecting someone else to bail us out.

I’m 83. My wife is 78. Combined in 2018 we received $37,352 in Social Security benefits. It is my understanding that in 2035 the percentage paid to individuals would only be about 79% of the 2018 level because the trust fund assets will be used up. Thus, instead of getting $37,352 we would only receive $29,508. That’s not enough.

Originally the idea behind Social Security was that workers would pay a little into a fund from each paycheck. The money in that fund would accrue interest and be available to pay out benefits when the worker retires. But the percentage of those over the age of 65 kept growing and they kept living longer. They also kept demanding more benefits and politicians have given it to them. Now every dollar a worker pays into FICA is immediately paid out to a retiree -- and it is still not enough. More dollars must be drawn out of the Trust Fund.

A very high percentage of retirees have already received in monthly checks much more than the total FICA tax, plus interest, that they paid in. And that percentage of retirees increases every year. Some retirees say, “I paid into this fund all my working years and I have a right to the benefits now.” But, based on what they paid in they don’t have a “right” to as much as they are receiving. They are receiving much more than any privately operated insurance program could ever afford to pay. And it will end in 2035 or sooner. Nevertheless, AARP continually screams “Don’t touch my SS.”

Assuming the Trust Fund runs out of money in 2035 that means that every dollar workers pay in FICA tax will be paid out immediately to retirees for Social Security and Medicare benefits. And it won’t be enough. After 2035 the FICA Tax will probably be renamed the BOPSU (Because Our Parents Screwed Us) Tax.

It gets worse. The portion of the FICA payments that goes into the Supplementary Medical Trust Fund (HI) that pays for Medicare Part A will be used up in 2026.  Additional money will still have to be withdrawn from what is paid in regular income taxes in order to to pay these retiree benefits. For more information check out the 270 page 2018 OASDI Trustee Report.

Where To Go From Here

Lawmakers must do something to reduce the long-term financing shortfall of both Social Security and Medicare.

My children are in their early 50s and will be retiring in about 2034. My grandchildren will have a much bigger burden of annual SS payment just to keep the program viable. It’s time for myself and other retirees to do a little bit now to make life easier for our children and grand children.

In 2018 total FICA contributions were $1.3106 trillion. About 77% of that or $1.0043 trillion went to the OASI and DI (SSDI) trust funds and was used primarily to pay existing benefits of $1.038 trillion.

Only $306.6 billion, or 23% of all FICA taxes went to pay for Medicare and HI coverage. However, in 2019 Medicare and Medicaid costs are budgeted to be $1.110 trillion with $630 billion going to Medicare and the rest to Medicaid, ACA and Other Health costs.

We need to put The Social Security Trust Funds - Old-Age and Survivors Insurance (OASI) Trust Fund and the Disability Insurance (DI) Trust Fund -- on a path to solvency for a longer period of time. The OASI fund had $2.8949 trillion in it at the end of 2018 and is scheduled to be depleted by 2035. The DI reserves are expected to run out in 2032.

To keep the trust fund solvent for 75 years it is estimated that Social Security taxes would need to increase by 2.78%. Steps to accomplish this goal would include:
    A - Raise the earnings cap for SS tax from $132,900 to $400,000
    B - Raise full retirement age to 69 and eventually 70
    C - Adjust the Cost of Living formula to chained CPI (Not CPI-E formula)
    D - Gradually raise payroll taxes to 7.4% (14.8%) (We pay 6.2% today)
2.9% of the FICA tax goes to Medicare and 9.5% goes to Retirement. The percentages need to be adjusted to give more to Medicare and less to Retirement.  Medicare spending is currently 76% of Social Security retirement spending and is expected to be larger than retirement by 2040.

U.S. health care spending grew 3.9 percent in 2017, reaching $3.5 trillion or $10,739 per person.
As a share of the nation's Gross Domestic Product, health spending accounted for 17.9 percent.

About 9% of the population is Uninsured, 49% receive benefits from their employer, 7% from non-groups, 21% Medicaid, 14% Medicare, 1% other public sources. For more information check out this Bureau of Economic Analysis report.

Copyright © 2019 Jim Pickerell. The above article may not be copied, reproduced, excerpted or distributed in any manner without written permission from the author. All requests should be submitted to Selling Stock at 10319 Westlake Drive, Suite 162, Bethesda, MD 20817, phone 301-251-0720, e-mail: wvz@fpcubgbf.pbz


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