Eden Hill Journal

Comments, dreams, stories, and rantings from a middle-aged native of Maine living on a shoestring and a prayer in the woods of Maine. My portion of the family farm is to be known as Eden Hill Farm just because I want to call it that and because that's the closest thing to the truth that I could come up with. If you enjoy what I write, email me or make a comment. If you enjoy Eden Hill, come visit.

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Location: Maine, United States

Saturday, January 29, 2005

Social Security

Can someone clear up the Social Security debate for me? I'm confused. As I understand it, the Social Security "payroll taxes" run a surplus each year. These payroll taxes amount to a 13 or 14 percent flat tax on the first $80,000 plus of earned income. From this income, the Social Security Administration meets its obligations to the program. Since more money is taken in than is expended each year, there is a yearly surplus.
That surplus gets invested in Treasury bonds or something like that. That is to say, the US government borrows the surplus from Social Security and spends it the same way it spends our income tax. The current accumulated taxpayer debt to Social Security is somewhere on the order of three trillion dollars. If left untouched, this system would continue in this condition until the year 2018 or so. At the rate we're going now, in 2018 the Social Security payroll taxes would just about equal Social Security expenses. Since it is projected that Social Security will continue to run an annual surplus till 2018, the big nest egg which is now three trillion dollars would be more by that time. However, after 2018, that nest egg would need to be tapped. It is projected that as the system now stands, that nest egg would expire sometime in the 2040s. This is how things would work if the current laws are kept in place and the current rates and benefits are left unchanged.
But President Bush is saying that Social Security will reach critical mass in 2018 and after that date, Social Security will be in trouble.
My question is, if there is a three or four trillion dollar nest egg of US government bonds that can be cashed in after 2018, why is 2018 a critical time for Social Security. If anything, I would think it would be a critical time for the taxpayers because taxes would need to be raised to pay back that debt to Social Security. Is President Bush somehow suggesting that taxpayers should escape having to pay their debt to the Social Security recipients?
Could someone who understands this situation explain it to me in plain English?

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