Reply #30: 'Follow the money' and understand 'STRENGTHENING' SS: Link and SIMPLE analogy

[ProgressiveEconomist]

Why Syzygy, I agree with everything you put in the lead-in. But you left out one crucial detail: Congress always can change the rules for Trust Fund payout to retirees and the disabled. Congress can trim substantially and repeatedly the payout rate retirees and the disabled are expecting, all the while calling it "strengthening" Social Security! Decades ago, evil genius Alan Greenspan saw to it that this could and would happen. Here's a simple analogy and a LINK to SSA cash flow projections:

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Imagine you and your spouse put away tens of thousands of dollars a year over DECADES for your retirement. You target $3000 a month in retirement income starting at age 65, and you actually accumulate $2 million in your IRA by the time you hit age 65.

Then you request monthly withdrawals in the amount of $3000. But the brokerage administering your IRA says, "Sorry. We're only going to give you $1500 a month. But just think how fast your account will grow!"

Outrageous? Not in the bizarro world of Social Security finance. As Chairman of Ronald Reagan's "Social Security Commission", in 1983 Alan Greenspan moved Social Security from a "pay as you go" system where FICA revenues each year just covered benefit payouts that year. Instead, Greenspan and Reagan raised FICA payroll taxes were raised dramatically, to generate a long-term "Trust Fund" something like a huge national IRA.

But instead of giving Social Security trustees publicly traded Treasury bonds they could cash at will when FICA revenues fell short of benefit payments, Greenspan saw to it that paying back the Trust Fund would require budget appropriations or new Treasury debt auctions.

Thirty-eight years later, the Social Security Trust Fund stands at almost $2.7 TRILLION; see the projections of revenues, outlays, and assets at http://www.ssa.gov/oact/tr/2011/lr6f8.html .

Subtract "costs" (payments to the elderly and disabled) from "income excluding interest" (FICA payroll tax revenue) to see year-by year Social Security cash flow. Thanks to Dubya's deep recession, SS cash flow already has turned negative, years ahead of schedule, and stands at $45.6 billion just for the year 2011. Projected future shorfalls grow rapidly, reaching almost $200 billion for 2022. This is the amount Congress must appropriate or Treasury must borrow to start paying back the $2.7 trillion "accumulated in the Trust Fund" since 1983, (and squandered, mainly for income tax cuts for the very wealthy, by Reagan, Daddy Bush, and Moron Bush).

Do you see clearly now why "strengthening Social Security" by raising retirement ages, increasing penalties for early retirement, or un-capping FICA payroll taxes is "on the table" for deficit negotiations? "Just think how fast the Trust Fund will grow!"

See my earlier GD thread at http://www.democraticunderground.com/discuss/duboard.php?az=view_all&address=439x1473492 .