Updated Wednesday, August 20, 2014 as of 6:42 AM ET

Social Security Deficit: Fact or Fiction?

You may have heard that the Social Security OASI (Old Age and Survivor Insurance) program is running deficits. This has been reported since 2011 and you might think the program is bleeding red ink. The truth is a bit more nuanced than these glib headlines suggest. Separating the facts from the exaggerations is confused by a number of factors including temporary tax holidays and definitions of cash flow.

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Comments (5)
The Social Security Trust is funded with Treasury IOU's, how reassuring as our Nation will sink deeper into its compulsive deficit spending once normal interest rates reappear in the future. Thanks to QE3 and the FED, current annual interest payments to service our $17 trillion of debt is a mere approximate $260 billion. However, the CBO projects this ANNUAL interest cost to mushroom to an estimated $860 within the next decade.
Add this additional INCREMENTAL $600 BILLION of annual spending (to merely service the debt) and all other federal government social welfare spending will simply be crowded out. This result will not be politically acceptable.
The result will be that you either have increased deficit spending adding to the national debt, or, you increase tax revenues to pay for the growing interest cost to service the federal governments lifetime and increasing debt.
Thus, as tax demands and burdens grow, private sector growth and vitality diminishes. As GDP growth wanes, tax revenues fall and the federal government is less able to cash flow its daunting Social Security Trust IOU payments.
To suggest that "Financial Hell" is coming? Would label you a Realist, hardly a Visionary.
Posted by Thomas S | Thursday, March 27 2014 at 2:16PM ET
One solution to a gradually increasing federal deficit is to concentrate federal efforts at enhancing the ability of the private sector to increase GDP, by eliminating counter productive regulations and restrictions on private sector opportunities to grow profits, jobs, and to become more efficient. Federal tax revenues grow when corporate and individual earnings grow thus leading to enhanced tax revenues from economic growth rather than from increasing tax rates to enhance tax revenues. Federal laws need to be carefully scrutinized to identify possible negation impacts on GDP growth. New statutes as well as existing statutes and regulations need to be grades on GDP growth impact.

We don't hear much about such considerations from Congress or the Executive Branch. WHY NOT!!
Posted by Daniel B | Thursday, March 27 2014 at 7:04PM ET
I thought the social security tax rate was 6.2% + 1.45% Medicare tax=7.65%?
The reduction in 2011 was 2% to a rate of 4.2%.

Anyway, the whole system should be invested in "AMERICA". Not the Federal Government. My calculations show that just putting all the Payroll taxes into Corporate bonds would make the whole system totally sustainable for generations.
A measley 2% interest rate from the Government is NOT the way to invest our Retirement dollars.
Just ask those Teacher and federal employee unions whose massive pensions became massive simply because they are invested in Stocks-bonds.
Here in Missouri our teacher unions get over $100,000 pensions when they retire ---A far cry from the average soc sec check of $28,000 annually.
It is time to change that.
Posted by Peter R | Saturday, March 29 2014 at 8:46PM ET
I thought the OASDI tax was 6.2%?
Posted by JUAN R | Friday, April 04 2014 at 8:23PM ET
The Wiki article says: Federal social insurance taxes are imposed on employers[15] and employees,[16] ordinarily consisting of a tax of 6.2% of wages up to an annual wage maximum ($110,100 in 2012) for Social Security and a tax of 1.45% of all wages for Medicare.[17] For the years 2011 and 2012, the employee's contribution had been temporarily reduced to 4.2%, while the employer's portion remained at 6.2%,[18] but Congress allowed the rate to return to 6.2% for the individual in 2013. [19] To the extent an employee's portion of the 6.2% tax exceeded the maximum by reason of multiple employers, the employee is entitled to a refundable tax credit upon filing an income tax return for the year.[20]
Posted by Dan S | Thursday, April 17 2014 at 3:59PM ET
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