We Should All Be as Broke as OASDI
Kash read the latest from the folks at the Social Security Administration and provided us with a nice summary, which included:
According to the “low cost” scenario, there’s no SS problem, and even something between scenarios I and II could well result in the SS problem being a rather minor issue.
Contrast this to the sky is falling nonsense from Pat Toomey:
By the year 2017, Social Security is scheduled to pay more in benefits than it receives in tax revenue, and the trust fund is scheduled to hit empty in the year 2041. The good news is that 2041 is one year later than projected in last year’s report. The bad news? There is no trust fund.
Toomey references this document, which tracks the assets in the Trust Fund that Toomey thinks does not exist. Let’s take a look at Table III.A.3 on page 25 for the 2006 accounting. As of 12/31/2005, total assets were $1858.66 billion and they grew to $2048.112 billion by 12/31/2006. Tax revenues, however, only exceeded benefits by $87.031 billion so how did assets grow by $189.452. Why yes – interest income was $102.421 billion.
Next let’s go to Table IV.A.3 which projects out to 2016 – the year that Toomey thinks this system goes broke. Sure taxes exceed benefits in this intermediate scenario by only $14.7 billion but assets are expected to grow from $4209.7 billion to $4459.3 billion. How? Again, interest income, which is expected to be $235 billion.
But Toomey says this does not exist. His lack of understanding (or complete mendacity) continues with:
But for all the talk of a funding crisis, the problem with Social Security runs deeper than its insolvency. Social Security is plagued by the negative rate of return a worker receives on his contributions to Social Security. The below-market rate of return that plagues the current system will only be aggravated by any of the three aforementioned solutions … Luckily, there is a fourth option, one that tackles insolvency and offers workers a greater rate of return on their contributions. That option is personal accounts … imagine that our hypothetical worker invests the retirement portion of his payroll taxes in a bundle of stocks and bonds, earning a modest 4.9 percent return.
Is he saying this portfolio will give only a 4.9% nominal return? Currently, 20-year Federal bonds pay more than that. But Toomey would not know that the bonds that go into the Trust Fund will have a rate fixed at what the market is paying on these bonds. After all, he doesn’t even know the Trust Fund holds bonds that pay interest. Or could Toomey be talking about real returns. Sure a 4.9% real return beats a 2.35% real return – until one realize that the higher expected returns to stocks are simply compensation for bearing the extra market risk.