That’s because Social Security’s disability fund is much more strained than its old-age fund, in part because disability claims rise sharply at times of high unemployment, like now. You may have heard that this year, for the first time, Social Security’s tax income will fall short of its outgo. (The gap is filled by interest income on the program’s Treasury bonds.)

Pray tell, who pays the interest income? The Feds do. But the Feds are in the red, so the money must be borrowed or raised through taxation.

Hint to Hiltzik: it’s impossible to owe money to yourself.

UPDATE:

I emailed Hiltzik and asked, “Who pays the interest income? And with what funds?” His reply:

Principally income taxpayers–that is, mostly the upper middle class and the wealthy, and therefore the same people who benefited most from borrowing the money in the first place–as the borrowings from Social Security were used to fund the 2001 bush tax cuts.

So he tacitly admits SS is insolvent because the funds to pay the interest do not exist, they must be raised by taxes.

He claims that upper middle class and wealthy will bear the brunt — exactly so, because the bottom 50% of earners pay almost no income tax. ( Bush’s across-the-board  tax cuts took millions of low earners off the tax rolls, by the way.)

His assertion that Bush’s tax cuts borrowed SS is absurd. Why not blame the spending on the Medicare prescription drug benefit or defense spending? It’s one big, upside down pot.

Such is the reasoning from the onetime sock puppet.

A puzzle from Philosophy 101: If a tree falls in a forest and no one hears it, does it make a sound? A puzzle from the prairie: If an earthquake occurs in Illinois and no one notices, is it really a seismic event?

Gov. Pat Quinn called it a “political earthquake” when the state’s legislature recently voted — by margins of 92 to 17 in the House and 48 to 6 in the Senate — to reform pensions for state employees. There is now a cap on the amount of earnings that can be used as the basis for calculating benefits. In some states, employees game the system by “spiking” their last year’s earnings by accumulating vast amounts of overtime pay.

An even more important change — a harbinger of America’s future — is that most new Illinois state government employees must work until age 67 to be eligible for full retirement benefits. Those already on the state payroll can still retire at 55 with full benefits.

The 1935 Social Security Act established 65 as the age of eligibility for payouts. But welfare state politics quickly becomes a bidding war, enriching the menu of benefits, so Congress in 1956 entitled women to collect benefits at 62 and in 1961 extended the entitlement to men. Today, nearly half of Social Security recipients choose to begin getting benefits at 62. This is a grotesque perversion of a program that was never intended to subsidize retirees for a third to a half of their adult lives.

It also reflects the decadent dependence that the welfare state encourages: Because of the displacement of responsibility from the individual to government, 48 percent of workers over 55 have total savings and investments of less than $50,000.

Because most states’ pension plans compute their present values — and minimize required current contributions — by assuming an unrealistic 8 percent annual return on investments, the cumulative funding gap of state pensions already may be $3 trillion and certainly is rising. For example, Wednesday’s New York Times contained this attention-seizing bulletin: “An independent analysis of California’s three big pension funds has found a hidden shortfall of more than half a trillion dollars, several times the amount reported by the funds and more than six times the value of the state’s outstanding bonds.” It is not news that California is America’s home-grown Greece, but the condition of the three funds, which serve 2.6 million current and retired public employees, is going to exacerbate the state’s decline by requiring significantly higher taxpayer contributions.

A recent debate on “Fox News Sunday” illustrated the differences between the few politicians who are, and the many who are not, willing to face facts. Marco Rubio, the former speaker of Florida’s House of Representatives who is challenging Gov. Charles Crist for the Republican U.S. Senate nomination, made news by stating the obvious.

Asked how the nation might address the projected $17.5 trillion in unfunded Social Security liabilities, Rubio said that we should consider two changes for people 10 or more years from retirement. One would raise the retirement age. The other would alter the calculation of benefits: Indexing them to inflation rather than wage increases would substantially reduce the system’s unfunded liabilities.

Every time I write anything about Social Security, I get at least one person arguing that everything is fine because after all, the trust fund is not going to run out until 2036 or so.

I want to assume good faith, but I have a hard time believing that anyone takes this argument seriously.  Today, because social security payments exceeded revenue, we’re going to either have to raise taxes, or borrow more money, in order to cover the benefits.

How would this be different if we didn’t have the trust fund?

Entitlements are a problem because they represent a growing demand on tax revenue.  You can’t fix this problem by changing the way you account for the transactions, any more than a corporation could fix runaway inventory expenses by charging them off to the IT department instead.

He was mocked by the likes of Paul Krugman for claiming that the program was a sham — the IOUs in the filing cabinet are funds the government owes to itself. No real assets (unless you count the power to tax an asset) back up the promises to millions of retirees.

Now, the AP is telling the same story.

The retirement nest egg of an entire generation is stashed away in this small town along the Ohio River: $2.5 trillion in IOUs from the federal government, payable to the Social Security Administration.

It’s time to start cashing them in.

For more than two decades, Social Security collected more money in payroll taxes than it paid out in benefits — billions more each year.

Not anymore. This year, for the first time since the 1980s, when Congress last overhauled Social Security, the retirement program is projected to pay out more in benefits than it collects in taxes — nearly $29 billion more.

Sounds like a good time to start tapping the nest egg. Too bad the federal government already spent that money over the years on other programs, preferring to borrow from Social Security rather than foreign creditors. In return, the Treasury Department issued a stack of IOUs — in the form of Treasury bonds — which are kept in a nondescript office building just down the street from Parkersburg’s municipal offices.

Now the government will have to borrow even more money, much of it abroad, to start paying back the IOUs, and the timing couldn’t be worse. The government is projected to post a record $1.5 trillion budget deficit this year, followed by trillion dollar deficits for years to come.

Social Security’s shortfall will not affect current benefits. As long as the IOUs last, benefits will keep flowing. But experts say it is a warning sign that the program’s finances are deteriorating. Social Security is projected to drain its trust funds by 2037 unless Congress acts, and there’s concern that the looming crisis will lead to reduced benefits.

“This is not just a wake-up call, this is it. We’re here,” said Mary Johnson, a policy analyst with The Senior Citizens League, an advocacy group. “We are not going to be able to put it off any more.”

I see you’re back to your ranting about Social Security. In Tuesday’s column you wrote about GOP Congressman Paul Ryan’s Roadmap for America’s Future.

Social Security comes in for particular abuse. Ryan states that “Social Security’s shrinking value and fragile condition pose a serious problem. . . . To maintain the program’s significant role as a part of the retirement security safety net, Social Security’s mission must be fulfilled . . . without bankrupting future workers.”

One doesn’t want to be picky about an elected congressman’s words, but with all due respect, these words are pure bilge. They come straight from the talking points of Social Security’s historical enemies: conservatives who have never believed that the government should play such an important role in people’s retirement planning, and mutual fund and insurance companies that hanker for the business generated by millions of Americans looking for a profitable place to park their retirement assets.

Golly, why would anyone think that?

Take my own example: my wife is a teacher and thus exempt from Social Security. Even though she has worked 12 fewer years than I, and even though the state teacher’s retirement fund (CalStrs) lost 1/3 of its value since the meltdown, she is still on track to receive twice as much per month as Social Security will pay me.

Conclusion? Social Security is a bad deal — it pays a stinking 3% return. Any stock fund with those results would be out of business.

Chile once has a system like ours (Ponzi scheme), but hired an American economist to help them convert to a mandatory, private system. Today, even the lowest peon in Chile has assets. Assets he can use for retirement or leave to his heirs.

You mock President Bush for trying to modify our system to let young people invest a small portion of their Social Security contribution into an index fund. But you and your Democrats — the party of No — threw a tantrum.

By the way, even when the program starts paying out more in benefits than it collects in payroll tax, that’s not a “crisis,” as it’s often portrayed — it’s the expected outcome of changes implemented after 1982, when the tax was raised sharply to provide a cushion against the coming wave of baby-boomer retirements. The accumulated surplus in the program’s trust fund at the end of 2008 was $2.4 trillion.

Michael, do you really think we’re that gullible?

Yes, there is a file drawer with IOUs from the federal government for $2.4 trillion owed to SS. But the feds are deep in the red, so how can they make good on the debt? By taxing people who still have jobs!

Seriously, how can debt owed by one arm of the government to another be counted as an asset?

You might not care, but I have kids and grandkids who will be stuck paying this off. I guess that’s just the price we pay for folks like you who make a fetish of government control.

Yours,

Jim Bass

Social Security and Medicare are fading even faster under the weight of the recession, heading for insolvency years sooner than previously expected, the government warned Tuesday. Social Security will start paying out more in benefits than it collects in taxes in 2016, a year sooner than projected last year, and the giant trust fund will be depleted by 2037, four years sooner, trustees reported.

Medicare is in even worse shape. The trustees said the program for hospital expenses will pay out more in benefits than it collects this year, just as it did for the first time in 2008. The trustees project that the Medicare fund will be depleted by 2017, two years earlier than the date projected in last year’s report.

The trust funds — which exist in paper form in a filing cabinet in Parkersburg, W.Va. — are bonds that are backed by the government’s “full faith and credit” but not by any actual assets. That money has been spent over the years to fund other parts of government. To redeem the trust fund bonds, the government would have to borrow in public debt markets or raise taxes.

Just like Bernard Madoff.

President Bush, in 2005, tried to tackle the problem, but was rebuffed by Congressional Democrats (see video below).

Young workers will get stuck with the tab for this, even as they struggle to pay off the trillions in additional debt the Drunken Sailor Democrat party has added in just 100+ days.

But listen to the Democrat clown claim (at about :50) that their resistance to reform was about “the children having a safety net.”

Obama implies that Bush ignored the problem. Not so. President Bush courageously touched the “Third Rail” of politics in 2005.

How did the Democrats respond? Like spoiled children who cram fingers into ears and hum to drown out reason. Here’s a taste:

MaxoutMama posted on this at length.

 There is so much misinformation about this issue. It is causing a lot of anger and confusion, as in this DU thread. However, the confusion over the issue has been fed by loopy idiots like Paul Krugman, as in this interview, and politicians like Pelosi, who apparently believes that the trust fund has assets in the same way she believes that natural gas is not a fossil fuel and that the Supreme Court is just like God.

There isn’t a Social Security trust fund in the form of any assets other than year by year taxation of US persons. There is a “trust fund” that serves as a bookkeeping device for how much money we “owe” to future retirees, but there are no independent assets in there. So as soon as Social Security current receipts stop exceeding benefits paid out, the general fund (i.e. corporate and personal income taxes, excise taxes and the like) will have to be used to pay benefits.

The way Social Security works is that current workers pay in taxes every year, and those funds are used to send checks to current retirees. That’s all. It’s a pass-through program. The surplus is moved over to the general fund and is used for other purposes.

The last time the surplus ran out (in the early 1980s), the current system was put in place. Since then there have been minor revisions, but basically Social Security taxes have been used to defray other taxes.

The 2008 Social Security Trustees report (which covers operations in 2007) shows what is happening. In 2007, the 12.40% of wages (up to the max) amounted to 560.9 billion. The total cost of the benefits program was 494.5 billion, leaving a 66.4 billion dollar surplus. That money was given to the general fund (the rest of the government).

The total cost of the benefits program is composed of benefits paid out (489.1 billion), administrative costs (3.1 billion) and the railroad benefits exchange (3.6 billion).

Because the surplus is given to the general fund, the bookkeeping entry for interest and taxation of benefits means nothing. The bottom line is that when the cost of the benefits program exceeds the revenues paid in, we are either going to have to borrow money to pay benefits (and pay the interest on that borrowed money virtually to infinity) or we must raise other taxes or the SS payroll tax to pay for benefits.

What really matters for SS are only two things – the ratio of wages taxed to benefits, and the ratio of workers to beneficiaries. If Congress passed a law wiping out the “trust fund”, absolutely nothing would change about the funding of Social Security. Nothing.

Mr. Obama announced his plans for a “fiscal responsibility summit” next month, even before his first budget is unveiled, “to send a signal that we are serious” about getting the long-term budget under control. These sorts of events can be window dressing, cosmetic exercises to talk about hard choices rather than make them. Yet Mr. Obama deserves the benefit of the doubt when he says that, once an economic recovery is underway, “we’ve got to bend the curve” of rising spending and get entitlement costs under control.

“There are going to be some very difficult choices, and issues of sacrifice and duty and responsibility are going to come in because what we have done is kick this can down the road,” he said. “We are now at the end of the road and are not in a position to kick it any further.” Mr. Obama declined to tip his hand about what sacrifices he envisioned, but he said a commission to make recommendations on entitlement spending that would then go to Congress for an up-or-down vote is “something worth talking about.”

In any event, he said, “Whether there was a commission or not, you have to have a president who is willing to spend some political capital on this, and I intend to spend some.” We look forward to that.

Good luck. President Bush tried to reform Social Security and met stiff resistance from Democrats. Congressional Dems even held a march outside the Capitol, holding hands as Tom Petty’s “Won’t back down” played in the background.

Seriously.

SHARED SACRIFICE: So one theme we’ve heard in criticizing President Bush is that, post 9/11, he didn’t require “sacrifice from the American people.” This is generally a euphemism for “higher taxes.”

It seems likely that no matter who is elected President, we’ll see higher taxes. But an awful lot of Americans don’t pay income taxes, or pay only very small amounts — and their numbers will grow under both the Obama and McCain tax plans. Raising top marginal rates won’t affect them. So if we’re to see shared sacrifice, what might that mean? It seems to me that shared sacrifice is not only about some people paying more to the federal government, but also about others taking less. And, yeah, that’ll hurt, but that’s what “sacrifice” is about, right?

There’s some evidence that Obama, at least, is quietly moving toward raising the Social Security retirement age. This is inevitable, and the sooner it happens the better. Adjustments should also be based on the cost of living, rather than wages, which would help keep increases under control.

We should also cut back generally on spending for entitlements — say a 10% across-the-board cut, to start. Economic subsidies (“corporate welfare” and farm subsidies, for example) should be cut even deeper. In fact, a 10% across-the-board cut in nondefense federal spending, in both entitlement and discretionary programs, would be a good place to start. This seems unthinkable, but states with budget problems make big across-the-board cuts all the time. (In Tennessee, Phil Bredesen is talking about a 3 percent across-the-board cut, but Tennessee’s budget problems aren’t nearly as bad).

The fact is, the coming entitlements crash is as big a threat as global terrorism, and one that requires a lot more in the way of “shared sacrifice.” We’re not seeing much talk from either party about that, but if we are, in fact, seeing a new seriousness on economic matters, and not just a sham seriousness for the election runup, then that will change. But it’s clear that the federal government can’t spend as much as it’s committed to spending, and can’t raise taxes enough to make up the difference without killing the economy. And the economic bailout-and-regulation talk now doesn’t make me think that we’ll see enough economic growth over the next five or ten years for this problem to fix itself, which was never likely and seems less so now.

In the meantime, though, we’re looking at the largest Social Security COLA in 25 years. That’ll help . . . .

On a related note, I think we should rethink this business of having lots of Americans who don’t pay income tax. As the Tax Foundation comments: “It is time for a serious public discussion of whether it is desirable to have so many Americans disconnected from the cost of government and what the consequences are of using the tax system as a vehicle for social policy.”

Personally, I’d like to see everyone pay at least some income tax, and I’d like to see the amount of tax paid, by everyone, go up or down every year in tandem with federal spending. That would encourage fiscal discipline directly. It would also make it harder for politicians to promise everybody a free lunch, but hey — why shouldn’t they sacrifice something, too?