December 2004 Home   Newsletters

January 2005

February 2005

President's Message (Jackie Parnell)
Vote Count Help Needed (Arlene Ellis)
Charter Commission (Evangeline Funk & Piilani Kaopuiki)
On Social Security - Just the Facts, Please (Jean Aoki)
In Memoriam
Pay Attention to Rail Bills (Pearl Johnson)
Working for Clean Elections
Bottle Bill (Pearl Johnson)
Call for Nominations for State Board

On Social Security - Just the Facts, Please

There is so much misinformation, half-truths, manipulation of data, omissions and hype in the Bush administrations campaign to sell the American public on the critical need to reform Social Security, and probably some on the part of the opponents to his plans, that what is the public to believe?

Is there a crisis? Is our Social Security program in imminent danger of going bankrupt? What will the partial privatization of the program do to save it?

This manipulation of information to control public opinion does great disservice to the citizens of our country. It shows disrespect for the public. This is especially true in determining the future of one of the most successful social programs in the history of the United States.

Is the Social Security Program in a crisis situation?

There seems to be consensus that the payroll taxes will continue to fund a surplus for the Social Security Trust Fund till about 2018 albeit an ever decreasing surplus, at which time the payments to social security recipients will begin to outstrip the income from the payroll taxes. This date was at first predicted to be about 2012, but has since been pushed back to 2018. At that time, it will be necessary to begin redeeming the U.S. Treasury Bonds in the Trust Fund to fund the shortfall. Depending on whos figures you choose to accept, the Annual Report of the Social Security and Medicare Boards of Trustees or the nonpartisan Congressional Budget Office, it would be anywhere between 2042 and 2052 that the Trust Fund including the interest on the bonds is depleted. At that point, the payroll taxes, if they remain at present levels, are supposed to be able to pay about 73% of what is due retirees.

Assets in the Old Age and Survivors Insurance (OASI) Trust Fund at the end of 2003 were $1.36 trillion according to the Trustees report. Assets in the Disability Insurance (DI) Trust Fund were $175.4 billion. Combined as the OASIDI Trust Funds, this would add up to over 1 1/2 trillion dollars. Between 2002 and 2003, the OASI Trust Fund increased by $137.8 billion, and the DI Trust Fund increased by $15 billion, for a combined increase of roughly 153 billion dollars. We can expect that roughly that amount would have been added to the combined Trust Fund by the end of 2004.

Its Been Fixed Before

In the early 1980s, when the Trust Fund was in trouble of depletion, the payroll taxes were raised and other steps taken to assure a surplus in the years ahead in anticipation of the demands on the funds by the Baby Boomers and increases in longevity. Instead of setting this money aside, subsequent congresses and administrations used the surpluses as part of the General Fund to use for operating expenses and even to fund tax cuts. So it would seem that the 2018 problem (the payroll taxes being outstripped by the outlays) is not so much a problem for Social Security; it is a problem for Congress and the Administration and the U.S. Treasury. Unless the economy booms more than it has to date, how do they finance the redemption of the Treasury Bonds in the Social Security Trust Fund? Aggravating the problem is the fact that this administration is shrinking the tax base by decreasing and even planning to eliminate the estate, capital gains and the dividends taxes, and permanently lowering the income tax rates especially for those at the higher end.

Had the surplus payroll tax money been invested in private bonds we would not have the 2018 problem. Also, if the payroll tax is raised or the maximum income subject to the payroll tax is raised now to extend the solvency to 2075, how do we know that that money will not continue to be diverted to General Fund use and more treasury notes be stuffed into the Trust Fund? We will not have solved the 2018 problem.

Certain to be part of the plan is the diverting of a certain percentage of workers payroll taxes into private investment accounts. What this would accomplish in the immediate future is decrease substantially the payroll taxes that go into the Social Security Trust Fund to pay for the current retirees benefits. In turn, this would necessitate earlier redemption of the Treasury bonds or more borrowing. This transition cost is predicted to be between $1 trillion and $2 trillion in the next ten years.

Of course, in the long run, something must be done to make sure the social security program can meet its obligations way into the future. This has been done periodically. But for the national debate, the public needs good, honest, information, and all of the information. We dont need biased interpretations and misinformation. We dont need hype and the deliberate withholding of vital data. We want the facts so that we can come to our own conclusions, and determine which proposed solutions to support.

What we dont need, is money from the Trust Fund being used to send selected messages to the public.

Jean Aoki
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