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March 08, 2005

MUST Read on Social Security Reform

Factcheck.org puts out one of the best discussions of the issues facing social security.  If someone really believes there is not much of a problem, then read this to cure yourself of that affliction.  The article also shows how damned difficult it is to permanently fix social security, even with "moderate" changes as proposed by Democrats or private accounts as proposed by the administration.  The sad thing is that the most likely solutions which seem to be pushed forth today will completely unravel within 10 years, at which point we may very well be talking about "fixing" social security yet again.

One problem the factcheck article (which is only looking at the 75 year window) does not address is what happens in 2018  - the year when social security starts taking in less than it gives out.  At that point, social security starts calling in the bonds from other arms of government.  These bonds were given to social security in return for the excess social security cash and has traditionally been used to cover up budget deficits.  In fact, almost 50% of the national debt is in the form of these bonds.  Social security sees this debt as an asset and some mistakenly refer to this as a lockbox of some type.  The only problem is that, as with any asset, there is a liability.  This is a liability from other parts of government that must pay back the money they have "borrowed" from the social security trust fund.  The money is going to have to come from somewhere, as either tax increases or budget cuts.   How this issue is handled will directly influence the 75 year window as it could easily create issues in GDP growth which would then effect the social security 75 year horizon.

10:25 PM in Current Affairs | Permalink

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