Social Security

I'll try not to write too much about Bush's plan to impoverish the elderly, but I just saw the most ill-informed piece on CNN Headline news, and want to rant. Please disregard if compound interest isn't your thing.

The social security trust fund is US government bonds bought by taxing the working class at slightly higher rates than necessary to pay current obligations. Hence, SS is running a surplus. In 2018, this surplus will turn in to a deficit, according to non-partisan predictions. However, it should be noted that the deadline for this event keeps getting pushed back every year. But lets assume that this deficit happens on schedule. SS then starts drawing down the accumulated trust fund - accumulated by a regressive tax on the poor, designed to ease the retirement of baby boomers. Whee! Isn't this fun?

The trust fund will, if predictions hold, be emptied sometime around 2040. At this point, social security will not be able to pay scheduled benefits. It will, however, be able to pay three quarters of those benefits. Headline News took this number, repeated it three times*, and then divided the current average payments by three quarters to give people an idea of what this meant. Now, this would be accurate if it weren't totally unforgivably wrong. The US economy will be, in real (inflation-adjusted terms) larger in 2040 than it is now, barring a round of hyperinflation. Therefore, someone who gets 75% of their benfits in 2040 will almost certainly be getting more than 100% of current benefits. If the US economy performs as well as it has historically, 75% of 2040's benefits are likely to be (again, in real terms) something like 200% of today's benefits.

But you know, the media is here to keep you informed!

* Seriously, the newscaster said something along the lines of "73% - that's almost three quarters. If you take 27 from 100, that's 73% - three quarters. If you have four apples, and I take one..." It was unbelievable. The quality you get in a half-hour broadcast.