Friday, November 16, 2007

Article in Question: Thompson: Reduce Future Retiree Benefits

The article, “Thompson: Reduce Future Retiree Benefits,” was published by the Associated Press on November 10, 2007.

Statement from the article: “He said that without a change the program is due to run out of money in 2041, and an automatic 23 percent cut in benefits would follow. "The status quo is not having a Social Security system as we know it" after that date, he said.”

My point of view: The social security fund does not have any money!

The problem is much worse than politicians let on. First, the social security system is a pay-as-you-go system. This means that the current labor force pays in to the fund through payroll taxes and the current retiring individuals receive benefits from those taxes. As long as tax payments from the current working population is greater than the benefits paid out to the retirement population, then there is a surplus of taxes over payments in social security benefits. The federal government spends the surplus on current programs. It issues bonds (essentially IOU’s) into the fund in exchange for the surplus taxes. So you see, there is no money in the social security fund – it is simply a portfolio of U.S. Treasury securities!

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