ECON WITH NEDA: Social security fund is depleting

Neda Ghomeshi / Columnist

By: Neda Ghomeshi / Assistant Opinion Editor

The weak Social Security system in the United States is a struggling; it is already running a temporary deficit. There will be too many retirees and not enough contributors for recipients to earn 100%.

Social Security is a simple concept: those employed are forced to contribute to a government managed fund. This fund provides for a subsistence living at retirement. In the U.S., retirees past the age of 67 receive Social Security.

However, there is a catch. The money we invest today is paid to those already retired.  This colossal endeavor can only work if the money deposited into the fund is more or, at a minimum, equal to the money distributed to qualified retirees. Unfortunately, that has not been the case for several years. As a result, a deficit has been in the making.  For starters, it is predicted that the Social Security fund will only last until 2037. After 2037, recipients  will earn three quarters of the benefits – which is equivalent to what current workers will be putting into the fund.

To make matters worse, the lawmakers continue to burden the system by reducing contributions without a commensurate adjustment in distributions; the latter is considered to be political suicide by many.

For example, in the recently passed tax law, payroll taxes were lowered from 6.2 percent to 4.2 percent for 2011.  According to Congress’ Joint Committee on Taxation, this will reduce Social Security’s cash proceeds by $112 billion. This kicking of the can attitude has continued for too long.  It is time we face up to the reality that we cannot continue to steal money from the Social Security system without facing a reduction in benefits.

To make matters worse, every year, the government borrows money from the Social Security trust. With that money, the government buys treasury bonds; essentially, the government is making a loan to itself with taxpayers money.  This is nothing but a collection of IOUs that the future generation will have to pay.  As a result, Social Security  is becoming a measure of how much money the government owes itself.

We need to face up to the realities that our nation is encountering.  The Social Security trust fund is inadequately sourced. In order to salvage the almost demolished plan, we need to revamp the system. The government needs to either increase Social Security withholding, reduce the current distribution of Social Security or possibly take action on both fronts.

Without dramatic and quick action, this minimum Social Security net will  be insolvent with many bitter memories.

Econ with Neda is an economics op-ed column that runs every other Monday. The next column will be published on January 24, 2011.