There’s a reason economics is sometimes called the dismal science, and it is because government spendthrifts of both political parties have spent us into a very dismal future for our children and grandchildren.
And nothing exemplifies this better than the calculation of our “real” national debt.
As our friend Stephen Moore explained in the weekend edition of his must-read Committee to Unleash Prosperity Hotline (it’s free and we strongly urge you to subscribe) the $31 trillion national debt that we hear bandied about is bad – but it’s not the real number.
The real number is more like $94.6 trillion, and the discrepancy is found in a neat (or rather disgusting) bit of political slight-of-hand and propaganda.
As Steve pointed out, Social Security and Medicare are going bankrupt, and the trillions of dollars stored in the “trust fund” aren’t cash money, but government IOUs.
And those IOUs can only be paid by taxing America’s already hard-pressed working families.
Steve did some research and got the numbers for how large the unfunded liabilities are in these programs as of the end of the fiscal year 2021. The chart below shows the financial calamity.
As for the “trust fund” supposedly filled with the surplus payroll tax revenues over the past two or three decades, again, sorry. Congress spent those payroll tax dollars on everything from Amtrak, to foreign aid, to the war in Iraq. There is no “trust fund.” That vault is empty.
Imagine for a moment that you were the CEO of a company and you snatched the money in the workers’ pension fund and spent it on other operations. You’d go to jail for running a Ponzi Scheme. That’s what Congress has been doing for fifty years, and it’s worse than anything Bernie Madoff ever did, said Stephen Moore.
And it isn’t just Steve Moore and other practitioners of the dismal science making this prediction, the trustees of the Social Security fund say it will be “fully depleted” by 2035.
Social Security operated at a $56 billion loss last year as income failed to cover costs. Worse yet, the Board of Trustees expects that trend to continue indefinitely, resulting in the depletion of the combined OASI and DI Trust Funds in 2035.
According to the 2022 annual report from the Social Security board of trustees, Social Security’s cash reserves will be fully depleted by 2034 — one year earlier than their 2020 report indicated. Annual taxes are expected to cover only about 78% of the benefits each year after that.
Part of the problem can be attributed to longer life expectancies, a smaller working-age population and an increase in the number of retirees. By 2035, the number of Americans 65 and older will increase to more than 78 million from about 56 million today. As a result, more people will be taking money out of the Social Security system — but there will be fewer people paying into it – a hallmark of the death spiral of all Ponzi Schemes.
In contrast to the Social Security trustees’ own projections, Rachel Greszler of the Heritage Foundation reports the CBO estimates that Social Security’s combined retirement and disability insurance programs will run out of money two years earlier—2033 instead of 2035—and that the tax increases necessary to fund scheduled benefits are higher than the Social Security trustees projected—4.9 percentage points instead of 3.24.
The divergence comes from different economic and demographic assumptions—of which the CBO’s are significantly more realistic, concluded Ms. Greszler.
Payroll taxes are expected to cover about 78% of scheduled benefits. But, if the funding gap isn’t filled, retirees could get lower Social Security payments or, what is more likely given the politics of entitlements – workers are going to be taxed more to cover the benefits of the retirees.
Even though Social Security isn’t expected to run out of money until 2034-35, several options for changes have already been floated to deal with the budget shortfall. These options include:
Raising the payroll tax rate
Increasing the wages subject to Social Security taxes
Raising the full retirement age
Reducing the annual cost-of-living adjustments
Preventing insolvency through tax increases would require a 17.3% payroll tax. The CBO says that maintaining Social Security’s scheduled benefits for the next 75 years would require an immediate increase in Social Security’s payroll tax, from 12.4% to 17.3%. This would mean $12,250 in Social Security taxes for the median household that has about $71,000 of income. Adding in Medicare and federal and state income taxes would bring the median household’s marginal tax rate to about 48%, concluded the Heritage Foundation’s Rachel Greszler.
The unfunded liabilities of Social Security and Medicare used to be a bipartisan concern. Indeed, back in 1995 even Joe Biden thought it was a problem and advocated freezing federal spending to help alleviate the problem:
But then Democrats discovered demagoguing the issue got them more votes than solving the problem and the rapid slide toward Medicare and Social Security insolvency picked-up speed.
Senator Rick Scott had the right idea when he proposed “sunsetting” all laws, including Social Security and Medicare, and reviewing them for needed updates. However, Mitch McConnell has made it clear Senate Republicans will not consider any of these solutions to Social Security’s cash flow problem, meaning that the trend toward the bankruptcy of America’s social safety net will continue as long as he is Senate Minority Leader.
Real National Debt
Joe Biden administration
social securtiy trust fund
Marginal tax rates