Ok, let's do a little mythbusting on the whole Social Security debate, shall we?
Myth #1: Social Security is in a state of financial crisis.
Social Security currently runs an enormous surplus, a "trust fund", much of which has been borrowed by the government to pay for other programs. Social Security is, currently, very sound.
Myth #2: Social Security will be in a state of crisis in 2009 when the rate at which the trust fund is growing starts to decline.
This is a weird one, but I've heard it often enough that I had to include it. In 2009, Social Security will continue to run at a surplus, but not as large a surplus as in previous years. There is some concern that this will affect this general budget, since there will be less money available to borrow from the trust fund, but Social Security itself will not be affected.
Myth #3: Social Security will be in a state of crisis in 2012 when there is no more surplus and Social Security begins drawing on the trust fund.
Social Security is designed as a "pay-as-you-go" system-the money coming in and the money going out are supposed to balance. In the 80's, it became obvious that, when the baby boomers started to retire, there would be much more money going out than coming in. So, to prepare for this, they raised the Social Security taxes to create a trust fund that would balance this shortfall.
In other words, the surplus is an anomaly instituted specifically to deal with the retirement of the baby boomers. The trust fund was designed to stop growning about the time the baby boomers started retiring and be used to pay their benefits. It is extremely dishonest to refer to this process as a "crisis."
Myth #4: The trust find is an accounting fiction. It does not exist, and there is no money to pay benefits starting in 2012.
The trust fund exists in the form of treasury bonds. If the trust fund is fictional, all treasury bonds are equally fictional. Fortunately, treasury bonds are considered to be the single safest form of investment. It is also unconstitutional for the government to default on its debts. If the trust fund is a fiction, then we have much bigger problems than the continuing viability of Social Security.
Myth #5: The President and the Republicans have a plan to strengthen Social Security.
This is a myth on two levels. First, the President denies having a specific plan. This is convenient, because it allows him to dodge any criticisms of his plan. Except, of course, he's laid out ideas that sound very much like a plan and, until recently, the White House web site had a section on Social Security labelled "The President's Plan."
The other bit of misinformation is that the President's plan/non-plan would strengthen Social Security. Even the White House has admitted that the pla...er...principles or whatever we're calling it laid out by the President will do nothing to strengthen Social Security's long-term financial situation.
Myth #6: The Democrats have no plan to strengthen Social Security.
The Democrats have come forward with several plans, revolving around a mix of tax increases and benefit cuts, that would strengthen Social Security's financial outlook. Some of the plans would just be short term fixes (short term in this case being 50 years or so), some of them would be a permanent fix. No specific plan has reached the floor of Congress from either side.
Myth #7: Social Security will be bankrupt in 2052.
The trust fund will be exhausted and Social Security will only be able to pay 75-80% of the promised benefits in 2052. This is genuinely a cause of concern. Whether or not this constitutes a crisis is the key point here.
As I mentioned in the previous post, if there was no Social Security - income or outlays - in the federal budget, the entire government would be less than 70% funded by tax revenue. This figure does not include things like the cost of the war, as well as other non-war related projects that have been moved off the budgets and labelled as war-related expenses so that they do not make the budget even more embarrassing than it is.
The obvious question, then, is: "If Social Security being on 75% funded 50 years from now is a crisis, then what the hell would you call the current general budget?"
Myth #8: People would inevitably be better served by investing in the stock market than in Social Security.
The stock market has averaged higher returns than Social Security. That is an undeniable fact. It is likely, though not certain, that Americans would, as a whole, do better investing in the stock market than in Social Security.
But...there are a lot of "buts."
While the populace as a whole might do better in the stock market, many individuals unquestionably would not do better. Some of this is just a matter of timing. Some of it is luck. Some of it is investment knowlege. Remember that the current average rate of return is based on investments by people who know what they're doing, and in many cases, invest for a living. In other words, the average return we see now is the best case scenario. I'm not saying Americans are too dumb to invest their own money, but it's unlikely that the average non-professional investor will do as well as the pros.
Note, too, that the average American would be better of investing their money in the stock market than in car insurance. As a whole, the money invested in the market would exceed the amount paid in insurance claims. But the purpose of insurance isn't to make money-it's a hedge, using shared risk, against a catastrophe. Social Security is not an investment, it's insurance. It's a way of making sure that everyone has the minimum coverage in case their other retirement plans don't work out, sort of the way that everyone is required to have minimum liability coverage when they drive.