During the next US president's term, Social Security will reach an important milestone. In 2019, it will start paying out more in benefits than it takes in taxes and interest income. That does not mean benefits will need to be cut, at least not right away. Social Security has a stock of US Treasury bonds that's expected to pay benefits for another 15 years. But in 2034 something has to happen--either benefits are cut, taxes increased, the government takes on more debt, or spending on other programs gets cut to fill the gap.


[Trump] claims his other economic programs will increase growth so much there needn't be any change to Social Security. Putting aside the question of whether higher growth is realistic, this strategy won't work. Higher growth means... higher wages [and] bigger promises to future retirees. The Urban Institute estimates that even a very ambitious 3.4% growth rate would not come close to filling Social Security's funding gap. Someone--either taxpayers, beneficiaries, or both--must give something up.


Clinton's website hints that investment income may also be taxed to pay for entitlements. Odds are it will not be enough to plug the current hole in the program, let alone a growing one. Even if we subjected all earned income, not just income above $250,000, to the payroll tax, we would only finance 56% of the projected shortfall.

This article only begins to hint at the disaster we face in terms of Social Security's collapse. As it admits, in 2019, the Social Security Trust Fund will have to start selling Treasurys, but then it implies that this means the fund "has money" to cover obligations until 2034. There's a teeny-tiny problem with this logic, however (even assuming what the Trust fund actually has are marketable "Treasurys") -- it will be selling Treasurys into an already-crowded market. That is, the Trust Fund's Treasury sales will be competing with the government's already-large ($500B-$1T/yr) Treasury sales. This will put additional pressure on the Treasury market and the dollar -- possibly at a very bad time, if, as it appears, the global debt bubble is now at or near its peak.

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