Is Social Security Really as Solvent as Some Say?

With fiscal cliff negotiations not exactly going the way that many would have hoped, Social Security is something that has been on the minds of many.

Social Security is an important benefit for people who have worked and retired or who have become disabled and are unable to work anymore. People are filing claims all of the time because they have been injured or it is simply time for them to take advantage of the system that they paid into for so many years.

Some say Social Security is going to run out too soon, while others say it is solvent for the next couple of decades. Rep. Keith Ellison claims that this solvency does exist. This solvency still doesn’t mean anything for those that are retiring in another thirty years or so who have already paid into the system for nearly two decades. Ellison does recognize this.

Nonetheless, the argument is that Social Security is not a federal deficit issue; therefore it should be left out of fiscal cliff negotiations. There are many agreeing with this.

Ellison is siding with President Obama to oppose the Republican motion to maintain its original stance on tax cuts for everyone, including the wealthy. Ellison agrees that the wealthy should be taxed more, but does not agree with the Social Security measures.

To some, the Ellison claim may be inconclusive due to the fact the final package deal could include slowing the growth of spending on these very important benefits. This is a proposal put on the table by President Obama.

Ellison stats that the average 65 year old will receive a benefit of $17,134, but including Social Security in the negotiations will result in a $6,000 loss, which means a retiree’s first fifteen years of paying into the system will not count. In other words, benefits will shrink.

This shrinkage is evidenced by the fact that Social Security currently fluctuates with the cost of living. When the cost of living goes up, so does the benefit. However, Obama has proposed a new inflation measure that simply assumes recipients buy less or stop buying a particular product when its price goes up. For instance, ground beef prices go up, so just buy chicken instead.

Benefits would still go up under this proposed measure, but they would go up much slower than what recipients are currently used to.

What will determine the fate of Social Security will depend upon whether or not the final package includes it or it is left to be negotiated on its own.