A Fun Way to Solve Social Security Insolvency by Matt Bruenig

[tweet_dis2]A Fun Way to Solve Social Security Insolvency[/tweet_dis2]

The Social Security Trustees report was released earlier this week and the headline is that “Social Security will become insolvent in 2034.”

So-called Social Security insolvency refers only to the point at which the Social Security Administration’s (SSA’s) trust fund redeems its last special-issue Treasury bond. When that happens, SSA will need to pay out benefits using current payroll tax receipts. If those receipts are too low (i.e. the payroll tax rate is set too low), then benefit checks will be lower than the current benefits formula promises.

The obvious way to fix this problem is to ensure that the payroll tax is set at whatever level is necessary to pay out Social Security benefits. The Trustees say that means increasing the rate by 2.78 percentage points today or by 3.87 percentage points in 2034. These amounts would be lower if we also eliminated the payroll tax cap to ensure that payroll taxes apply to all earnings, not just those below $128,400.

One less obvious, but more fun, way to fix this problem would be to have the Federal Reserve give a bunch of its Treasury bonds to the Social Security Administration. The Trustees say the SSA currently has $2.9 trillion of Treasury bonds in its various trust funds. The Federal Reserve meanwhile is sitting on almost $2.4 trillion of Treasury bonds. If they just moved a bunch of those over to the SSA balance sheet, then “insolvency” could be avoided for many decades more.

This maneuver would be an accounting gimmick of sorts, but that is all the SSA trust funds are anyways.

This article was originally posted on [source]

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