Memories are short and there is some background in the current Social Security discussions in the media that is missing from media coverage.
Back when Lyndon Johnson was President and the war on poverty was in the news, the government made a "temporary" change in the way it reported budget figures so the President could claim he was supporting both "guns and butter" in his budget. Instead of keeping funds separate in the budget, all government funds were pooled to create a fund that appeared to have a surplus.
The idea of pooling all the funds made sense to Republicans and Democrats and at Nixon's request Congress wrote it into law in 1974. Social Security had a very small trust fund at the time.
In the Reagan administration people began to be concerned about the demographics of Social Security and Reagan apponted a commission, headed by Alan Greenspan, to consider reforms. The commission recommended and Congress passed in 1983 an increase in the SS payroll tax to create a surplus in the trust fund in anticipation of baby boomers retiring. That increase has been in effect ever since–thirty years now, and the trust fund is worth about $4.8 trillion and constitutes part of the total national debt of $15.8 trillion. The requirement to reimburse the trust fund is absolute and in a few years will become a necessity.
The Social Security Trust Fund holds this $4.8 trillion in non-negotiable special Treasury notes—the only way it has ever been able to hold funds at all. Since the payroll tax receipts were included with all government revenues, they have helped to reduce the annual deficit, in some years by as much as $170 billion or more. As receipts from the payroll tax fall below expenditures incurred as baby boomers retire, it will be necessary to supplement them with funds from general revenue, as required by law.
Some estimates say the fund will be exhausted around 2033 and at that point payroll tax receipts are estimated to cover only 75% of expenditures, so some changes need to be made for the future health. Privatizing is not the answer since it removes the guarantee which is the basic principle of the system.
I'm not as upset as many about the notion of chained CPI since it applies only to the COLA, the cost of living adjustment, and right now inflation is low, so the difference between using CPI and a chained CPI is estimated to be 0.3%. Increasing the eligibility age might be worrisome for more people.
Nevertheless the claim that Social Security has not contributed to the budget deficit and should be held harmless is quite true.
OK, as I understand, Obama's plan is to change the cost-of-living adjustment (COLA) for Social Security. Specifically, it will adopt a “chained CPI” (consumer price index) measure.
"401(k)s have been a boon for the rich to avoid taxes and save money that they’d be saving anyway, while it isn’t clear that average Americans have saved enough to offset declining pensions. Median wages have dropped in the recession and are likely to show little growth in the years ahead, which makes building private savings harder. There isn't a ton to cut - even the middle income quintile of retirees, making only around $20,000 a year, get 62 percent of their income from Social Security."
"There are many ways to boost Social Security, and the New America paper introduces one. But as the authors note, “[a]ny strategy that expands the reliable and efficient public share of retirement security in America would be an improvement over today’s system, which is biased toward the affluent and skewed toward private savings.” And the best way to do programs is to build out programs that already work well."
"As you read stories about the pros and cons of this change in the weeks ahead, hopefully this guide can provide some background."
Mapping Out the Arguments Against Chained CPI
Well, as you can see, I don't yet understand the pros and cons of chained CPI.
I'm not in favor of chained CPI, but it looks like the lesser of evils based on what I know so far. Raising the retirement age would be very hard on some people, not so hard on others who can and want to work in their later years. Privatizing is absolutely the worst solution. Changes to Social Security should come after the Medicare problem has been dealt with.
It was my good fortune—which my three sons will never share—to work in a defined benefit plan that was compulsory. From age 28 to age 62, every year 15% of my salary was put into TIAA-CREF. Those days are gone and people today are unable to save for retirement with the result that their old age is liable to be difficult.
Senator Bernie Sanders sent an update. This directly impacts me and every US citizen. I say it's time to raise taxes on the corportions and close tax loopholes, to PAY BACK all the money that was "borrowed" from Social Security. The fund is low because the funds were stolen away to cover other government utlays, in order for taxes to be low.
President Obama submitted a budget this week that would make significant cuts in Social Security and lower benefits for disabled veterans. “At a time when millions of working families are struggling economically, I am deeply disappointed,” said Sen. Bernie Sanders, a Senate Budget Committee member and chairman of the Committee on Veterans’ Affairs. Under the budget proposal, a 65-year-old retiree would lose more than $650 a year in Social Security by their 75th birthday. A disabled veteran who started receiving benefits at 30 would have their benefits cut by $1,425 a year at age 45 and $3,231 at age 65.
It is the Republicans who have trumpeted spending cuts for years especially any that have to do with the poor and disabled. (Those lazy good-for-nothing takers, you know.) They refused to compromise on any budget reforms and to raise taxes on corporations and millionaires who already have numerous loop holes and money squirreled away in foreign banks. (So patriotic.) You haven't heard them say peep about Social Security for this reason. I think Obama is calling their bluff. They will have to face this before 2014.
The separate funds by which the government did its accounting were combined in 1974 long before Social Security had very much in the Trust Fund. The funds were not—strictly speaking—stolen from Social Security and the fund is not low at this point—it holds about $4.8 trillion in non-negotiable government securities which must be redeemed by the government as needed. That money is the result of increased payroll taxes set up to provide for the retirement of baby boomers.