This Day On The Street
Continue to site
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Social Insecurity: Inside the 'Trust Fund' Illusion

By Charles Hugh Smith, DailyFinance

NEW YORK ( DailyFinance) -- The recent tax deal approved by Congress and the president cut the payroll taxes that employees will contribute to Social Security for 2011 by about a third, and that $112 billion reduction in receipts has advocates of the program worried that the political meddling in Social Security's finances may threaten its viability.

Unfortunately, the Social Security Administration's (SSA) finances have been meddled with for decades, and a one-year tax holiday is the least of the program's problems. As I reported on DailyFinance this week, Social Security is already deep in the red, with outlays exceeding payroll tax revenues by $76 billion in 2010 -- a deficit that wasn't expected to occur until 2018.
More from DailyFinance
Mortgage Mess: Blame Banks, Not Homeowners
Auto Recalls Accelerated in 2010
Why It's Becoming More Dangerous to Cross the Street

Though the program's trustees continue to reassure the public that Social Security's funding is secure through 2037, rising outlays and slumping revenues -- not even counting the "tax holiday" cut -- call that rosy outlook into question. And the trustees' short-term projections have been so far off the mark that the validity of their longer-term estimates must also be in doubt. Their estimate of total revenues was too high by $50 billion in 2010, and their estimate for 2011 income is $855 billion -- fully $114 billion more than the system's 2010 income.

It would require a stupendous increase in employment to hit that mark, and precious little evidence suggests such a powerful hiring boom is in the works. Instead, there's plenty of evidence that the current recovery is a jobless one: 9 million jobs -- 8% of all private-sector jobs -- have vanished since 2008, and another 8% more have slipped from full-time to part-time or temporary. America's millions of self-employed, freelance and contract workers have seen their incomes decline by 5%.

But if payroll taxes don't rebound strongly in 2011 and beyond, the long-term viability of Social Security will be in doubt, because with the baby boomers beginning to retire en masse, the number of people receiving benefits is climbing rapidly.

About One-Fifth of the Federal Budget

To understand the basics of Social Security's cloudy future, we need a quick refresher on the system.
1 of 3

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Real Money

More than 30 investing pros with skin in the game give you actionable insight and investment ideas.

Product Features:
  • Access to Jim Cramer's daily blog
  • Intraday commentary and news
  • Real-time trading forums
Only $49.95
14-Days Free
14-Days Free
AAPL $93.66 -0.09%
FB $118.57 0.84%
GOOG $698.30 0.76%
TSLA $241.82 0.44%
YHOO $36.53 -0.19%


Chart of I:DJI
DOW 17,891.16 +117.52 0.66%
S&P 500 2,081.43 +16.13 0.78%
NASDAQ 4,817.5940 +42.2360 0.88%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs