Sunday, April 09, 2006

Social Security Disability Program: Cash Negative in 2005

The Social Security administration has updated its tables on the Social Security Disability (DI) program. In 2005 it collected $86.077 Billion and paid out $88.018 Billion for a negative cash flow of $1.941 Billion.

The Social Security Old Age Survivors Insurance (OASI) Collected $506.9billion and paid out $441.9 Billion in benefits.

Since 1937 workers have paid $8.4 Trillion into OASI and OASI has paid out $7.7 Trillion in benefits. Total surplus taxes over 69 years total $659 Billion. If you divide this surplus by the total of 160 million workers, you would get $4,117 each. Now does anyone doubt now there is a problem? Add in interest earned on the trust fund and the balance is $1.663 Trillion.

Note I do not include interest credited to the trust fund. The reason is very simple. Under accrual accounting, we are interested in setting aside enough resources today to cover the present value cost of all social security benefits earned in 2005 based on the wages earned. The interest earned on the trust fund is meant to do "work" and ease the burden. If you start saving early, the amount you need to save yearly is less due to compounding. Compounding can only take place if you leave the interest and principal untouched until your goal is reached.

12.8 cents of every dollar you pay in OASI taxes is set aside to pay future benefits. In 1944 Altmeyer testified the cost was 7% of payroll. This means 7% of your wages should be set aside in order for Social Security to pay the benefits they have promised. Based on the 12.8 cents set aside out of each dollar, social security is setting aside just 1.36% of payroll. This is 19% of what is required.

When exactly did Enron go bankrupt? Did it go bankrupt when it filed for bankruptcy or when it began using irregular accounting? Social Security is not going broke it is broke!!


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