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[X] TRUTH IN BUDGETING
[X] INTERNATIONAL & NATIONAL MENU
[X] HOME PAGE (Main Menu)

THE SOCIAL SECURITY DEBATE:
SELECTED TOPICS

CONTENTS
[. .] Introduction
[X] 1. Debate Context
[X] 2. Truth in Budgeting
[X] 3. Social Safety-Net
[X] 4. Partial Privatization
[X] Comment and Counter-Comment
. . .[X] *** Benchmark Years *** (A separate page)
. . .[X] *** Slogan Arguments *** (A separate page)
. . .[X] *** Economic Arguments *** (A separate page)
[X] Sources of Information
. . .Links:
. . .References:

INTRODUCTION
The purpose of this page is to explain a few of the concepts, terminology, and slogans being used in the current debate on the future of Social Security. My intent is NOT to push a specific set of reforms.

Almost all of the forecasted numbers were taken from the 2004 and 2005 annual Trustees' Reports of Old-Age and Survivors Insurance and Disability Insurance trust funds. These reports are located on the Social Security Administration's web site [X]. Links and references to more detailed discussions are listed under SOURCES OF INFORMATION [X]. The sections 1. --> 4. below are devoted to "building blocks" that explain the technical terminology used in the Social Security reform debate. The reader, who is familiar with the terminology, may wish skip directly to the COMMENT AND COUNTER-COMMENT [X] section that lists the benchmark years, slogan arguments, and economic arguments. The economic-arguments page closes with the author's supportive discussion of one of the possible reforms, adjusting the retirement age with changes in the average life span.

Because of the detailed nature of this subject, there may be unintended errors on this page. If an error is suspected, the reader is urged to write to or call the author. There is enough confusion out there without this web site adding more. The following four sections are numbered for easy reference.

1. DEBATE CONTEXT
The Social-Security debate is being held in the context of our nation's current three-tier retirement system. The various Social Security reform plans usually call for shifting resources from one of these tiers to another.

• The first tier of retirement income for some 95% of people in the United States will be (or already is) a monthly check from the Social Security Administration. This old-age insurance program is part of our nation's social safety net.
  
  
• The second retirement-income tier comes from earnings on one's personal wealth and/or consumption of that wealth. This personal ownership tier may consist of investments (savings), an ex-employer retirement plan, a personal annuity, property, and personal possessions. Upon death, wealth in the second tier becomes the retiree's estate.
  
  
• The third retirement-income tier may come from post-retirement employment and/or helping-hand gifts.

To help set the stage for a comment and counter-comment dialogue on Social Security reform, sections 2. --> 4. below will give an overview of the federal accounting system, the nation's social safety net, and one generalized privatization plan. Readers already well versed on these topics may wish to skip to the Comment and Counter-Comment section below [X].

2. TRUTH IN BUDGETING
In brief, at the close of 2004, the Social Security Trust Fund owned about $1.5 trillion of the interest-bearing bonds that had been sold to cover the $7.4 trillion gross public debt.

Strange as it sounds, there are two basically different ways of looking at the federal accounting system. In many instances, the conflicting opinions on the long-term stability of the Social Security system are the result of these two different viewpoints or paradigms. These two paradigms are explained on a separate page: [X] TRUTH IN BUDGETING: A BRIEF PRIMER ON FEDERAL GOVERNMENT ACCOUNTING.

3. SOCIAL SAFETY-NET
Five of the many components included in the Federal Government's social safety-net are listed below.

1. Old-Age and Survivors Insurance (OASI)
   Under Old-Age and Survivors Insurance (OASI), monthly benefits are paid to retired workers and their families and to survivors of deceased workers. OASI is supported by its own Social Security trust fund. It is funded by 10.70% of the 15.30% payroll tax. Because it includes survivors of workers, OASI is more than just a retirement program. OASI is administrated by the Social Security Administration.
   
   
2. Disability Insurance (DI)
   Under the Disability Insurance (DI) program, monthly benefits are paid to disabled workers and their families. DI is supported by its own Social Security trust fund that is funded with 1.7% of the 15.3% payroll tax. Together OASI and DI are called OASDI and are usually referred to as "Social Security". OASDI is funded with 12.4% of the payroll tax. DI is administrated by the Social Security Administration.
   
   
3. Supplemental Security Income (SSI)
   Supplemental Security Income (SSI) is a Federal Government welfare program for the very poor who are blind, aged, or disabled. SSI is funded by an annual appropriations from the Federal Government's general fund, as explained on the TRUTH IN BUDGETING [X] page. SSI is not funded from payroll taxes or a Social Security trust fund. However, SSI is administrated by the Social Security Administration.
   
   
4. Medicare, Parts A and B
   Medicare has its own trust fund. Much of its income comes from 2.90% of the 15.30% payroll tax. Medicare insurance typically serves people age 65 and older and has two parts. Part A (hospital insurance) is paid for with payroll taxes and is "free" to seniors drawing Social Security retirement benefits. Part B (medical insurance) helps pay for doctors' services, etc. Part B is funded from three sources: payroll taxes, allocations from the Federal Government's general fund, and user fees. Medicare is NOT part of the Social Security retirement program. Its full 2004 budget was nearly $300 billion. Medicare is administered by the Centers for Medicare & Medicaid Services.
   
   
5. Medicaid
   Medicaid provides health care for the indigent. It is funded jointly by Federal Government and the states. At the federal level, Medicaid is paid for with general fund monies, NOT from Social Security trust funds. In 2004, the federal Medicaid budget was $176 billion. Medicaid is administered by the Centers for Medicare & Medicaid Services.

4. PARTIAL PRIVATIZATION OF SOCIAL SECURITY
President George W. Bush has proposed transferring retirement funds from the public-ownership tier to the private-ownership tier. Mr. Bush states that moneys placed into a pay-ahead privately owned investment plan should give a better interest return than money placed in the current pay-as-you-go system of Social Security. A series of questions and answers on "Social Security's Future - FAQs" is located on a Federal Government web site---http://www.socialsecurity.gov/qa.htm [X].

One of the questions and answer sets (QAs) listed on this web site is:
Q. Does President Bush have a specific plan to modernize and reform Social Security?

A. No, but the President has established six guiding principles for any reform of Social Security:

• Preserve Social Security benefits for retirees and near retirees
• Use Social Security surplus for Social Security
• Keep Social Security payroll taxes level
• Do not have the government invest Social Security funds in the stock market
• Preserve Social Security's disability and survivors insurance programs
• Create individually controlled, voluntary personal retirement accounts to augment Social Security

Some reformers have suggested using 4.0% of the 12.4% payroll tax (about 1/3) for private accounts. In rounded number, this means a person could choose to use:
1/3 of payroll tax for disability and survivors insurance
1/3 of payroll tax for retirement insurance
1/3 of payroll tax for private investment accounts.

In other words, a person could choose to cut their traditional Social Security retirement benefits in half in order to use 1/3 of the payroll tax for investment purposes. Exercising this choice would shift one's payroll tax funds from the first tier (public ownership) to the second tier (private ownership) of our nation's three-tier retirement system.

COMMENT AND COUNTER-COMMENT
The COMMENT AND COUNTER-COMMENT exchanges are shown on three separate pages that discuss the:

[X] *** BENCHMARK YEARS *** (A separate page)
The benchmark years mentioned in the analysis of the long-term solvency of the Social Security retirement program are: 2008, 2018, 2025, and 2042.

[X] *** SLOGAN ARGUMENTS *** (A separate page)
Slogan arguments are grouped here because these arguments are based on either a misunderstand of the federal accounting system, use of the "single-fund paradigm", or an intentional distortion of reality.

[X] *** ECONOMIC ARGUMENTS *** (A separate page)
Economic arguments include most proposed reforms that offer an economic advantage in the long-term.

SOURCES OF INFORMATION

LINKS:
. . [X] AARP
. . [X] Center for Economic and Policy Research
. . [X] Social Security Administration
. . [X] White House

REFERENCES:
* * Running on Empty: How the Democratic and Republican Parties Are Bankrupting Our Future and What Americans Can Do About It, by Peter G. Peterson, 2004, ISBN 0-374-25287-4
* * Social Security: The Phony Crisis, by Dean Baker and Mark Weisbrot, 1999, University of Chicago Press, ISBN 0-226-03544-1

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Address:
Bill Buckel
1641 Hess Blvd.
Columbus, OH 43212
. . Ph. 614--488-8963

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This page last updated: October 22, 2005