Tags: Social | Security | Broke | benefits

CNNMoney: Social Security More Broken Than You Think

By    |   Thursday, 15 Dec 2011 02:37 PM

Social Security is in worse shape than you think. Some critics say Social Security will go broke. Actually, it already is.

The Treasury Department is already subsidizing Social Security. The U.S. Treasury Department sent the Social Security Trust Fund about $105 billion of securities this year to make up for this year's tax cut, writes Allan Sloan, senior editor-at-large, for CNNMoney.com. Workers are paying a 4.2 percent in Social Security taxes on wages up to $106,800 instead of the usual 6.2 percent tax.

In other words, taxpayers are helping to pay Social Security benefits.
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"If reduced Social Security payments continue indefinitely, as tax cuts seem to in this country, it will undermine the moral legitimacy of the trust fund," he writes.

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Social Security supporters might argue that the retired beneficiaries are getting back what they've paid into the system.

But just plunking down securities into the fund is completely different affair, Sloan writes. Sending general revenues into Social Security moves the responsibility of paying benefits from program participants and severs the link between contributors and beneficiaries.

The Social Security fund now holds about $2.6 trillion in Treasurys, which seems like an impressive size, but the fund is redeeming securities to cover its cash shortfall.

The tax cut might be good economic policy, he concedes. But it could be done more efficiently, Sloan argues. Instead of reducing taxes on all Social Security wages, he proposes a 2 percent tax cut on just the first $50,000 of wages. High-income workers don't need the tax cut and don't spend it, he asserts.

Still, the tax cut would give workers up to $1,000 a year.

The Chicago Tribune argues that extending the Social Security tax cut will add to the enormous national debt. The fund will regain money from the tax cut in future years only under optimistic forecasts.

A one-year tax cut might have made sense, but extending it will threaten the system, the Tribune argues.

"And filling any shortfall in these Social Security revenues by borrowing still more billions is beyond foolhardy," states the Tribune editorial. "It's also the same sort of we'll-gladly-pay-later-for-entitlement-spending-today that has put many nations of Europe in severe debt crises."

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Social Security is in worse shape than you think. Some critics say Social Security will go broke. Actually, it already is. The Treasury Department is already subsidizing Social Security. The U.S. Treasury Department sent the Social Security Trust Fund about $105 billion of...
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