Friday, January 3, 2025

Print our way out of the so-called Social Security crisis -- SEE UPDATED SOLUTION

FORGET WHAT I WROTE YESTERDAY (see below) ON THE TRUST FUND.

No need to print up new bonds in 2035 to stuff into the then 52 year old Trust Fund.  Just legislate some kind of new mechanism -- call it what you want -- the "Income Tax Supplement For FICA Shortfall" bill or some such -- just continuing what we have been doing all along with different revenue streams.  

"Crisis" over.  :-)
************************************** 

 

 Question: what kind of Social Security retirement system pegs a crucial part of its funding to a revenue stream that will suddenly run out (as in dry up) just as that revenue stream is making its biggest contribution (about 25% of payouts)?

Answer: the Federal Social Security's so-called Trust Fund.

For about 25 years (1983-2010), excess FICA revenue (more than needed to cover retirements) was redirected to pay for so-called "on budget" items (normally paid for by income tax) -- like court houses and bridges and aircraft carriers and FBI salaries.

For approximately the following 25 years (2010-forecast 2035) growing FICA tax shortfall is to be made up for with income tax revenue -- and here comes the crazy part -- but only up until the amount of income tax fill-in today matches the amount of FICA redirection in the past.

FICA redirection in the past was supposed to be compensated for by putting equal amount of bonds in the so-called Trust Fund -- to be drawn down in the future when FICA revenue was expected to go negative. Only problem: limited funds run out; people don't.  Or did the 1983 Congress have some prescient knowledge that the world was going to come to an end around 2035?

Simple answer: if we want to keep funding retirements partially with income tax (today, approximately 25%), just print more IOUs to ourselves and stuff them into the Trust Fund -- they were always just IOUs to ourselves anyway.

If we want to come up with a more sensible retirement system, that would be a propitious moment to build it.

No comments: