The first thing that you have to do is acknowledge that as far as your pocketbook goes, there is no functional financial distinction between Social Security and the rest of the federal government. Social Security and the Treasury do not have an independent financial existence from each other or from the American taxpayer. To you, financially they represent simply different sets of accounts that comprise your collective federal tax obligations, together with those of all American taxpayers.
When Social Security receives more FICA taxes than it needs for current benefit payments, it returns that excess to the general accounts and the Treasury department writes an IOU that is placed in another Social Security account. The congress has that excess money to spend. It looks like a "loan" only when people use the fiction that Social Security is not simply another set of federal accounts.
When the FICA revenue can no longer cover the amount needed to pay Social Security benefits, in about 2018, they will take out some IOUs, hand them back to the Treasury who will then go hat-in-hand to the President and Congress and ask them if they will raise your general income taxes or go more into debt to cover those IOUs; because they are simply a debt we owe to ourselves. That is unless the President and Congress have not already raised your general income taxes in anticipation of this event. The accounting fiction of these IOUs does not represent "money in the bank".
Around about 2042, we simply don't have the fictional "assets" to deal with any more. That event will not increase or decrease the addditional revenue that will then be needed to cover the benefits that are projected for that time.
I insist that some form of raising your income taxes will be needed, because the declining ratio of workers to retirees will head down to something like two workers for each retiree. Then, we could not pay the future projected benefits with FICA taxes alone, unless FICA taxes were increased to 30% or more of income. Talk about a prescription for a generational revolt.
Even if they increase the starting age for full benefits to 68, adjust benefit increases to the price inflation rate, instead of the wage inflation rate, raise the maximum income that is taxable for FICA - now about 94,000, and make some small overall reduction in benefits, there will still be no way to pay for the baby boomer benefits with FICA taxes alone.
We will pay for the "surplus" twice. We paid for it since the FICA tax rates were raised in the 1980s, to create the "surplus" and we will start paying for it again as soon as we move the IOUs from one account to another.
The naysayers hide the truth about the "surplus" so that you do not realize that any "solution", even doing nothing is going to cost billions more than the taxes we now pay.
Any scheme, like Social Security - that has been in a projected future crisis during every decade of its existence and for which the solution has always been that you are not paying enough taxes for it - is fundamentally flawed at its heart.
Having made the promises to pay the current projected benefits, we have to honor as much of that promise as possible. But any solutions should contain the prospect of gradually phasing out the present system altogether and establishing retirement accounts based on investments that belong to you and which cannot be used in any way by the politicians, with all their "benevolent" intentions.
Very well said.
Dittos.
I got a lot out of your post. How much is owed the system?
Bravo! Your cogent words should be printed on the reverse of all USA paper currency.
One thing you didn't mention is an additional strategy for covering future Social Security shortfalls -- and this is one that I've speculated will be the most successful simply because it will not be easily detected.
The Federal government will simply (if it hasn't already started) engage in a deliberate process of under-estimating the inflation rate, thereby reducing future SS liabilities to a growth rate that is somewhat less than the growth in overall wages, prices, etc. By the time 2042 rolls around, I suspect the average monthly Social Security check will be barely enough to cover three weeks' worth of dog food.