Social Security has been broke 11 times already


It’s been bantered back and forth in political circles that a certain arm of the Republican party is going to attempt to do away with Social Security benefits altogether if they ever gain total control of the house and the senate in Washington D.C..

Upon after doing a bit of research on the matter, I’ve come away with the notion that Social Security won’t be entirely done away with any time soon.

A bit of history first — before we get all off into the proposed details of any possible future Social Security reform.

In the beginning:

The Social Security Act was signed by FDR in 1935. Taxes were collected for the first time in January 1937 and the first one-time, lump-sum payments were made that same month. Regular ongoing monthly benefits started in January 1940.

The first lump-sum pay-out from Social Security went out to Ernest Ackerman for 17 cents in 1937 and Ida May Fuller from Ludlow, Vermont was the first recipient of monthly Social Security benefits, and all members of the Congress, the President and Vice President, Federal judges, and most political appointees had to start paying in to Social Security in 1984.

The term, Social Security, was first used in the U.S. by Abraham Epstein in connection with his group, the American Association for Social Security. Originally, the Social Security Act of 1935 was named the Economic Security Act, but this title was changed during Congressional consideration of the bill. (read the full account here)

Medicare was passed into law on July 30, 1965 but beneficiaries were first able to sign-up for the program on July 1, 1966.

People worry about Social Security going broke, and for good reason. So far Social Security has come up short 11 times in which the Social Security program did not take enough in FICA taxes to pay the current year’s benefits. During these years, Trust Fund bonds in the amount of about $24 billion made up the difference.

Getting rid of Social Security has kind of sort of been a bipartisan deal over the years. The Social Security ball has been passed back and forth between Democrats and Republicans since at least Bill Clinton — It just so happens that now it’s the Republicans that are sitting in the hot-seat. In a few years it’ll again be the Democrats turn to promote all of the same ideas.

As with any long term government program that has anything to do with OPM (other peoples money), the rules for Social Security have become much more convoluted and confusing over the years. There is no shortage of misinformation related to the program on the interwebs, and with this latest round of potential reforms being floated by the GOP, the misinformation has gotten much worse.

Firstly: What I’ve been able to determine so far with the idea of Social Security reform is that some lawmakers want to do away with the entitlement (Supplemental Security Income (SSI)) portion of the program. (this needs to be done before they can seriously consider privatization)

Supplemental Security Income (SSI) is a Federal income supplement program (1972) funded by general tax revenues (not Social Security taxes).
What these potential law makers want to do is discontinue the redundancy in the Social Security program. They want to discontinue SSI as it exists in it’s current form and basically call on the states to pony up the funds to cover what SSI is currently covering. If these reforms are made, then every state will have to come up with it’s own entitlement program to go along with all of the other current entitlement programs they already have. (SSI gets you free medicaid at the state level whereas SSDI requires paid premiums for medicare)

If you sit down and read the rules, you’ll discover that SSDI and SSI are basically the same, except SSDI is paid out based on employment history using funds collected through FICA tax, SSI is not.
You have to earn SSDI — you don’t have to earn SSI.
Republicans, at least on the surface, aren’t necessarily willing to eliminate the cash cow known to us as Social Security because it’s just too darned easy to borrow money from (at least for now).
SSI on the other hand, is something that some lawmakers think the states should be paying for.

Secondly: There’s the somewhat ongoing discussion of privatization.
In the context of Social Security, privatization would allow workers to save toward their own future benefits, with many of the proposals retaining some form of partial government funding and benefit guarantees. (for those who have already paid in, retired, or about to retire)

Back in the day, once everyone was convinced that gambling in the stock market was a good thing to do via your 401k, Bill Clinton floated the idea of doing the same thing with Social Security (because gambling is so much fun and offers huge pay outs) — The idea of Social Security privatization has been around ever since.

Chile became the example frequently cited by privatization proponents after successfully privatizing a failing public system in 1981.
The big privatization party sort of ended in Chile however during the financial crisis of 2008.
If you’ve ever wondered what a privatized system might look like, look no further than your 401k. You could quite possibly see your entire benefit wiped out over night.

I don’t see the federal government bailing on Social Security any time in the near future (or even the far future).
Getting totally rid of SSI, and then moving the entire system over to the private sector is a bit much for a government that can’t really govern any more. These numchucks can’t even agree on what time of day it is and then they claim that investing your SSA funds into high risk stock portfolios are going to win the day. Give me a break.

As far as Medicare is concerned? Worry no more, because you’ll be making the big bucks by investing your SSA funds privately — You’ll now be able to afford Obamacare, and you’ll get to pay taxes on all of your returns large or small.

Currently, Social Security is on a rather precarious footing already, so introducing funds from FICA to support SSI, as some have suggested doing, isn’t something that’s probably ever going to happen.

I could see possible future policy/rule changes as it relates to SSI, but that’s about as far as it’s going to go.

For a social program to endure for longer than 100 years is extremely rare (as an example – the USSR only lasted about 80 years). Social Security has been around since 1935, so it would only stand to reason that it should end in or before 2035. Social programs aren’t designed to be fixed … they run their course ’till they end. (LBJ’s Great Society social programs will end in the early 2060’s)

Social Security will end up being just one more thing the government will eventually fail all of us on. Soon, benefits might be cut 20%, and shortly thereafter, benefits may be paid out once every other month, and soon after that, there won’t be any benefit payouts at all. This is how “all” social programs work. They all end eventually.


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