Greg Ransom
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Ransom Papers
Let's start with basics. The Social Security system has no trust fund. No lockbox. When you pay your payroll tax every year, the money is not converted into gold bars and shipped to some desert island, ready for retrieval when you turn 65. The system is pay as you go. The money goes to support that year's Social Security recipients. What's left over is "lent" to the federal Treasury. And gets entirely spent. It vanishes. In return, a piece of paper gets deposited in a vault in West Virginia saying that the left hand of the government owes money to the right hand of the government.The way Krauthammer describes the moral and intellectual makeup of the people and the politicians he seems to take it for granted that we will be seeing endless and ruinous borrowing. I think he's right. Posted by Greg RansomThese pieces of paper might be useful for rolling cigars. They will not fund your retirement. Your Leisure World greens fees will be coming from the payroll taxes of young people during the years you grow old. That is why 2042 is a fiction. The really important date is 2018. That is when this pay-as-you-go system starts paying out more (in Social Security benefits) than goes in (in payroll taxes). Right now, workers pay in more than old folks take out. But because the population is aging, in 13 years the system begins to go into the red. To cover retiree benefits, the government will have to exhaust all of its FICA tax revenue and come up with the rest -- by borrowing on the world market, raising taxes or cutting other government programs.
We have to reform the system. There is no free lunch. Private accounts are a fine idea for other problems, such as dependency and transferability to heirs. They are irrelevant to the solvency problem. We would have to raise taxes or cut benefits -- or borrow, endlessly and ruinously.
