Jun 9, 2007
Over the past few months, a lot has been said about the future of Social Security. And most of it is not very pleasant. Most of us are wondering whether we will be able to reap the benefits of our Social Security in our old age.
Reading an article recently I found some interesting information about Social Security, the present state and the future. Presently Social Security is taking in more money that it needs to pay the beneficiaries. This surplus is being delivered to the U.S. Department of Treasury, which in exchange gives the Social Security Administration an IOU in the form of special non negotiable bonds (at present there are $1.9 trillion worth of these bonds with the Dept of Treasury). So when the tax revenues going into the Social Security system start to fall short, the SS Administration will start cashing in the IOUs. The Treasury has already spent that money, so when the SS starts cashing in the IOUs, the Treasury will have to look for ways to raise the money- hike taxes, reduce spending on things like education, infrastructure.
Even though we will be able to reap the benefits of Social Security, we will be paying more taxes and getting worse services (education and infrastructure being a few).
But the Social Security system will be in trouble once the IOUs are redeemed. The system will then have a deficit and will have to reduce the benefits or increase the payroll taxes.
One solution to the problem as suggested in the article was to change the way the benefits are calculated. Instead of raising the benefits at the rate at which the wages are increasing, i.e 1-1.5% higher than the cost of living indexes, they should be raised by the increase in cost of living. This would always give you the same purchasing power. It will reduce the burden on the system and help get the system back on its feet.
Till a solution is put into place we can all hope that some day we will be able to reap the benefits of the Social Security tax we pay today.
