Social Security: What Would Happen If the Trust Funds Ran Out?

[TexasTowelie]

Almost everyone who addresses this question assumes that the answer is pretty simple: if either of the Social Security Trust Funds goes to zero than benefits will automatically drop from ‘Scheduled’ to ‘Payable’ which translates to a 22-25% overnight cut depending on which Trust Fund we are talking about. But I had an interesting conversation with Andrew Biggs some years back. Andrew is a very prominent advocate of Social Security ‘reform’ which he sells on the basis that the system is ‘unsustainable’. As such he and I and Coberly and he have had some vigorous debates over the years, and mostly he is firmly in the ‘bad guy’ category on policy. For all that he is a nice guy and really, really knows the numbers and laws in play. Not least because he spent some time as the Principal Deputy Commissioner of Social Security (the no. 2) during the Bush Administration.

With that as background Biggs told me that the situation at Trust Fund Depletion was not as clear-cut as almost everyone assumed and had been the topic of some high end discussion at SSA. And their conclusion as related by Biggs to me mirrored that of the Congressional Research Service in this Report from last year.

The Social Security Trustees project that, under their intermediate assumptions and under current law, the Disability Insurance (DI) trust fund will become exhausted in 2016 and the Old-Age and Survivors Insurance (OASI) trust fund will become exhausted in 2034. Although the two funds are legally separate, they are often considered in combination. The trustees project that the combined Social Security trust funds will become exhausted in 2033. At that point, revenue would be sufficient to pay only about 77% of scheduled benefits.

If a trust fund became exhausted, there would be a conflict between two federal laws. Under the Social Security Act, beneficiaries would still be legally entitled to their full scheduled benefits. But the Antideficiency Act prohibits government spending in excess of available funds, so the Social Security Administration (SSA) would not have legal authority to pay full Social Security benefits on time.

It is unclear what specific actions SSA would take if a trust fund were exhausted. After insolvency, Social Security would continue to receive tax income, from which a majority of scheduled benefits could be paid. One option would be to pay full benefit checks on a delayed schedule; another would be to make timely but reduced payments. Social Security beneficiaries would remain legally entitled to full, timely benefits and could take legal action to claim the balance of their benefits.

The Report proceeds to outline the possible responses and is interesting for that alone. More important for my purposes though is the suggestion that the “conflict between two federal laws” precludes the option of Congress just sitting back and letting “automatic” cuts happen. Because as Biggs some years back and CRS last year point out, there is nothing automatic about this at all.

Anyway something to talk about for those of us jonesing over the release of the 2015 Social Security Report. Which my fellow junkies is scheduled for tomorrow (Wednesday) probably at 1PM Eastern. If past file name practices are observed the web version should be available via URL:

http://www.ssa.gov/oact/tr/2015/index.html

http://angrybearblog.com/2015/07/crs-social-security-what-would-happen-if-the-trust-funds-ran-out.html

[hollysmom]

1. raise the cap. so simple

[newfie11]

2. Hartman said something about this a year or two ago

If I'm remembering correctly the monthly collected amount for SS from paychecks was raised to offset baby boomers. They (we) were paying a much higher amount to cover our retirement but also for the next generation.

If the SS really is running low then yeah, raise the damn cap.

Personally I think there's a push to privatize all retirement money.

Pensions pretty much have dried up and 401s and their counterparts are the popular replacement.

I'm afraid this is the future that is being pushed on people by Wall Street and look at the money that would be going into it.

[4dsc]

4. privatize all retirement money is Wall Street's wet dream

they would like nothing better than to privatize all retirement money to fund their ponzi scheme on Wall Street.

Raise the cap is the simplest solution.

[newfie11]

5. I sooooo agree! Nt

[yurbud]

17. I've got something AS simple that would bring in more money WITHOUT raising cap:

include investment income too.

A lot of people who think they are high rolling day traders are going to go bust and end up living on SS too.

I know because I have had some of them in my community college classes getting retrained for actual jobs.

99% of those who play the market THINK they're Gordon Gecko or Lloyd Blankfein, and find out they aren't when they don't get the insider wink and nod before a bubble bursts.

[hollysmom]

18. I would go along with that, but OH the weeping of the rich.

I am tired of short term traders. they are barely being taxed. and that would take care of the heirs who just clip coupons and never work in their lives.

[yurbud]

19. Warren Buffett's ideas on inheritance should be law:

give you kids enough money so that they would feel they could do anything, but not so much that they could do nothing.

[liberal N proud]

3. What happened to all the money from surplus years?

That is what needs to be asked, and what will be done to replace that money?

[PoliticAverse]

9. The money was used to purchase government special issue securities

which is what is in the trust fund. The securities are being redeemed to pay for
social security benefits and should last until about 2033 when the trust fund will
be depleted.

[bemildred]

6. That is all horseshit.

The trust fund is based on money we paid in that the government has been spending on war and stuff, and it is a debt of the US government to us retirees. The rates and income cap were raised in the Raygun years to create the trust fund for the purpose of paying for our retirement. Before that there was no trust fund, they just paid it from income.

[PoliticAverse]

11. The 'trust fund' was created when Social Security was created, significant funds didn't accumulate

in the trust fund because expenditures were close to revenue until the 1980
'Greenspan Commission' modifications you mention.

[bemildred]

13. Right. nt

[Igel]

15. And the only way the trust fund can be exhausted if if

all that money is paid back.

SSA is already getting interest on it. Better than we get on most things.

[Man from Pickens]

7. what would happen

is that politicians of all stripes would conspire to pretend there was still money there as long as possible, two decades or more if they could swing it - then when the big reveal came it would be as a "and it's gone!" fait accompli for which, as if by magic, no one could be found responsible.

I have an inkling that this path may have been already trod starting about 20 years ago.

[PoliticAverse]

14. I think what is likely is what happened in 1980 the last time this issue came up...

a 'commission' would be created to come up with a solution. If the same party doesn't
control congress and the presidency the solution will likely be a compromise like it was
in 1980 (the 1980 compromise was basically a tax-increase coupled with an increase in
the retirement age).

[alc]

8. are we " legally entitled to their full scheduled benefits"?

The supreme court said there is no contractual right to receive Social Security payments.

This was 1960 but I can't find anything that changes it.

www.socialsecurity.gov
wikipedia


Nestor's case involves other issues (a 1954 law and deportation) but the the precedent is that there is no contractual right to benefits and Congress can change them for any reason.

[PoliticAverse]

10. That's right, according to Flemming v. Nestor Congress has full control over Social Security

benefits and can increase or decrease them.

[PoliticAverse]

12. Very interesting post. I wonder what is likely to happen with the Disability

Trust fund if it becomes depleted while Republicans still control Congress.

[Igel]

16. Narrow vision.

A number of programs are entitlements.

SpEd funding for schools is an entitlement. Schools are entitled to certain funding amounts every year.

SpEd's never been fully funded. Schools may be entitled to funding, but if the funding it's made available there's nothing to be entitled to.