Monday, December 3, 2012

Social Security – 2012 Results




Social Security (SS) has released its estimates for the December data for benefits payed and taxes received. With this info, I can estimate the 2012 results that will be formally reported in five-months. It was a ho-hummer of a year for SS, it tread water vigorously, and ended up with a cash deficit of $46.7B, just a tad more red ink that 2011’s $45.6B. The pieces of the pie, and YoY comps:


Payroll tax receipts:                                    $712.7B         (+6.5%)

(Includes payment from Treasury Re the 2% tax cut)

Income from Tax on Benefits                  $27.1B           (+15%) !!

(Means test)


Total Cash Receipts                                     $739.8           (+7.0%)



Benefit Payments                                         $780B            (+6.9%)

(Includes RR interchange)

Overhead                                                           $6.7B           (+4.7%)


Total cash Outlay                                           $786B            (6.8%)


Net cash flow loss                                          $46.7B           (+2.4%)


Interest income                                              $111.4B           (-1.7%)


Accounting surplus                                       $64.7B           (-2.5%)

(Paper minus cash)


Number of Beneficiaries                             56.8m            (+2.5%)


Some thoughts on these results:


- The $46.7B annual cash deficit is the third in a row. The 2012 shortfall confirms it; SS will never see a cash flow surplus again. Every dollar of the cash shortfall MUST be funded by selling additional debt to the public.


I hope this is clear. I’ll repeat it. Social Security is adding to the debt held by the public. It is forcing the country to borrow more to fund current operations. When Senate Democrats, like Dick Durbin and Harry Reid say, “SS does not add a penny to our debt.”they are lying.



- The Tax on Benefits is up to a meaningful $27.1b (+15%). The increase is the result of many newly retired folks who are  getting SS, and also have other income (investments and pensions). This forces them to add the SS income into their tax base. THIS IS A “MEANS TEST”.


I emphasize this fact as there is very strong opposition to the concept of a means tax for SS by Democrats in Washington and the liberal press (Dean Baker). But it already exists!


Liberals don’t like means testing because it undermines the principals of SS. It makes it appear that SS is a form of welfare. The fear is that if SS is labeled as welfare, the popularity of the program would quickly wane. So the staunchest supporters of SS are avoiding a fix that could patch the finances for the worst reasons. They are supporting Roosevelt’s dreams, at the expense of the base they say they are trying to protect. Only in America….


The problem with the existing Tax on Benefits is that it does not cut deep enough to fill the bucket. I advocate that the tax bite for high-end seniors be increased. I will go further, and state that the means test for SS benefits should be based on assets, not just income that can be manipulated.


My strong feelings on means testing  SS benefits are to my personal disadvantage; my SS benefits would be gone under my plan. I say this now, as I know there will be many who will throw rocks at me for my stance. I can already see the words, “I paid for it, the money is mine!” I say,”Sorry, this will come sooner or later.”


My gripe is that the generation that is causing the problem, the Baby Boomers, is getting off scot-free. All of the proposals to tweak SS (Age and inflation adjustments) would phase in over twenty-years. With this, the bulk of the baby boomers would get a free ride. This doesn’t seem fair at all to me. Society, as a whole, will have to pay for the Boomers, but the Boomers should shoulder a higher percent of the cost.  By no means should their political clout result in an unfair outcome. This is a political “Kick of the Can”, “screw folks sometime in the future”. A downright ugly plan at that.





- In 2012 the Treasury paid SS $115B to offset the drop in income related to the 2% reduction in payroll taxes for the year. The operating results (including the Treasury contribution) still produced a cash flow deficit of $46.7B. In other words, the shortfall for 2012 added $162B to the borrowing requirements at Treasury. This borrowing resulted in a dollar-for-dollar increase in the Debt Owed to the Public. 



-  There was an improvement (+6.5%) in the YoY payroll tax income. A portion of the better results are annual “Adjustments”. 2012 had positive adjustments to revenue from the prior year totaling $2.1B, while 2011 had negative adjustments of $8.6B. Taken together, the real rate of increase for revenues at SS is closer to 5.2%.  This data can be used to create an estimate of total payroll income (Adjusted payroll income / Tax rate {12.4%} :


2011 estimated SS total payrolls = $5.658T

2012 estimated SS total payroll = $5.951T

YoY change = $293B (1.8%)


The ~$300B of increased pay seems like a very big number, but when you consider that inflation is running at about that same 1.8%, most folks are getting no place fast.

I draw this comparison to make a point about the huge numbers that are part of the economy. A $300B increase in worker’s incomes doesn’t move the needle at all. Amazing…

 Note: This quickie numbers analysis does not reflect the cap of $106.5K on SS tax, nor other sources of income that is not taxed by SS. I don’t think this skews the results/conclusions by much. Social Security has 155m in its pool, significantly larger than the Non-Farms Payroll (135m). These numbers cover a big slice of the American pie.



- The YoY increase in Benefits of $50.1B (6.9%) is a reflection of A)  A COLA increase of 3.6% and B) A net increase of 1.4m in the number of beneficiaries. The costs at SS rose at a pace that is far higher than the economy grew in 2012. Approximately 11,000 people enter the system every day. 7,000 current members of the club, well, they leave the system 24/7.



- Interest income is down 2.5% in 2012. The decrease of $1.1B is modest, but also significant. The passage of time and ZIRP/QE, has caught up with SS’s investment portfolio. The interest income at SS for 2011 will prove to be the zenith; from now on, the interest income at SS will be in annual decline. This is an important milestone, a decidedly negative one at that.

 The Federal Reserve has cheapened the cost of money at the expense of SS. One can argue the merits of this tradeoff, but what can’t be argued, is the consequence to SS. If the Ten-Year were at 4% (Versus the 6% long-term average) it would add $700B to SS interest income over the next (critical) ten-years.

 If you listen to Bernanke, the other Fed Doves, guys like the WSJ’s Jon Hilsenrath, and all of the economists on TV, you would think that there is no consequence to the government of perpetual cheap money. Actually, what Bernanke is doing is dramatically shortening the day of reckoning for SS. The current thinking is the SS “go bust” date is 2033. But when SS releases its annual report in May, it will confirm that the date has been brought forward a few years, and the culprit is cheap money.  I wish that someone other than the blog world would point these things out. Bernanke is no pal of SS, Very Important People, like Paul Krugman, love SS and also hail Bernanke’s endless cheap money. I guess they don’t see the conflict.



+++ (finally, sorry for running on)

- There was no crisis at SS in 2012, and there won’t be a real crisis for a number of years to come. The growing annual cash deficits are now “programmed” to happen. This gives Democrats the opportunity to say, “Hands off SS”. “It ain’t broke, so don’t try to fix it”.

 My guess is that the Democrats will prevail on SS with regard to the current fiscal cliff debate. As a result, there will be no changes to SS. Should that be the outcome, in about five years the wheels will fall off the cart. By then, SS will be running cash deficits of at least $200B a year. It will be much harder to “fix” than today.




  1. ‘ “I paid for it, the money is mine!” I say,”Sorry, this will come sooner or later.” ‘

    Or maybe we as citizens can expect the government to just be honest with us? Or maybe people can take personal responsibility for themselves instead of stealing what belongs to others? Crazy ideas, I know.

    ‘ If you listen to Bernanke, the other Fed Doves, guys like the WSJ’s Jon Hilsenrath, and all of the economists on TV, you would think that there is no consequence to the government of perpetual cheap money. ‘

    The only consequence is inflation. Inflation will reduce wages, reduce entitlements and reduce debt in real terms. It has to happen and it will actually be a good thing because it’s the only way (and an inefficient way) to deal with politicians and an ignorant electorate. Money just won’t be worth very much.

  2. Boomers have never, ever taken actually bucked down and done anything difficult before…and they have screwed Gen-X with their selfishness and nihilism from the start…why stop now?

    • Gen-X’ers, just wait another decade or two, then it will be your turn to screw over your younger generation.

    • And as for the “greatest generation” – they set up this marvelous Great Society we have here!

    • I am glad to see Gen-X, Y, and Millenials all get worked up over this. It’s about time. As a Boomer, I can tell you the biggest single issue vote changer will be changing Medicare eligibility age and means testing it. Try getting private health insurance in your 60s – good friggin luck! What needs to happen is cutting SS benefits to CURRENT retirees and eliminate Medicare Part D. Current retirees paid almost nothing into the system, they got Medicare part D, which was never funded. I don’t mind seeing some means testing on SS, but it should be applied across the board – probably to government employees also.

    • The oldest boomer was barely able to vote when Medicare passed. It wasn’t the boomers who voted themselves retirement benefits of 7 to 1 over contributions in real terms. The boomers will as a whole get back less than they contributed (which is more than the Gen-X will). Each generation is trying to pass on the bill that it was given. I think from where we are that we can see where the buck stops.

  3. But What Do I Know? says:

    A good overview, Bruce. Might I suggest using Medicare tax receipts to estimate payroll–as you know, Medicare taxes do not have a income cap.

    The lack of interest income due to ZIRP is merely an accounting nuisance at SS, but distressingly real at the state pension funds. The trends are the same–more beneficiaries, lower cash income–but since the states don’t create their own money, they are forced fund increased contributions to the pensions by raising taxes, borrowing money, or cutting services (employment). Generally speaking, they have chosen to do the third–and the continued reduction of jobs at the state and local government level (this includes secondary school teachers) is the main reason why the rebound has been so sluggish.

    • “The lack of interest income due to ZIRP is merely an accounting nuisance at SS,”

      This is factually inaccurate. According to the Supreme Court, the only obligation of the Federal Govt to Social Security is the held by the Trust Fund. After that, benefits are cut. The interest paid changes an unfunded promise to a funded one. What Ben Bernanke is doing will cut the benefits of future retirees.

  4. …Holy shi7, this is depressing. OMG, pretty much speechless. Except to say 1) great post, Bruce, thank you for the update, and 2) from Artemis Capital Mgmt (“Volatility of an Impossible Object”):

    “I think it is funny when academics claim that the US government will never default because it can just print
    money to pay off its debt obligations. That is the logical equivalent of saying my house will never be burglarized because if someone tried to break in I could just light it on fire.”

  5. Come on Bruce, means testing is blatantly unfair to people like us who live in high cost areas,which ironically are mostly “blue” states. I paid full freight for both my kids in college tuition because of my “net worth” which was mostly my house, which I need to live in, and my 401k and savings, which are now funding my retirement. I’m still paying off the equity loan that funded their college, while somebody from Podunk with no savings got a free ride. The 250k threshold being bandied about for higher taxes is also too low; it’s a nice amount and more than I made when I was working, but doesn’t go that far if you live in the NYC area, or most places in the northeast (or NE as per an earlier post). :-)
    I’m not sure what the solution is, but regional differences need to be part of any formula they concoct

    • I agree with Mike from NJ. Plus, why should I dock my own pay 15% a year saving in my 401K, if I know that will lead to me not getting SS in the future because I did the responsible thing and saved and therefore trigger a means threshold in the future.

      • Ah the stupidity of socialism. The world works so much better when you don’t take from one set of people to give to another according to a complicated set of rules which rewards incompetence and penalizes success. Just make everyone accountable for themselves. It’s the only path to prosperity.

      • There are such things as foolishness and misfortune. I think anyone who really believed that social security tax would come back to them in the form of a liveable monthly social-security check was foolish. I certainly never believed it. I remember a conversation with my accountant in the 1970s where he said “What’s going to happen when you need to retire?” and I said “Do you really think the federal government is trustworthy to take care of my money for 40 years?” I think my suspicions were justified, and I’m glad I always minimized my self-employed social-security payments. I have certainly paid for my own foolishness and poor judgment in other areas, without whining about it. So I am not very impressed by people whining, now, about their misfortune because they placed their trust, foolishly, in an untrustworthy system. The reproduction of the social security poster at the top of this column says it all. Anyone who grabs a “free money” offer of this kind is asking for trouble, whether it comes from the federal government or Bernie Madoff. Being forced to face the reality of the situation is a valuable learning experience.

        • But What Do I Know? says:

          So, are you getting Social Security or not?

          • It is easy to donate the proceeds of a SS check back to the government. They even passed a law that makes it tax deductible to do this (crazy).

            But Charles can’t avoid getting the check. At age 67 they chase you down, and force you to take it.

            • But What Do I Know? says:

              Doesn’t sound like an untrustworthy system to me . . .

              Most of us do not have the luxury that Charles Platt had when deciding how much to put into SS–it’s got nothing to do with putting trust in an untrustworthy system. They took the money from me, and promised me to give me an annuity stream in return, and I had no choice to opt out. If you come back now and tell me you’re changing the payouts I’m going to be pissed. . .

              • Social Security is a political priority. You had a vote, but didn’t make Social Security reform a priority. This year both candidates agreed : “Social Security is – you know – structurally sound”. The Libertarian actually had a plan that would make Social Security bigger. As an individual, your voice isn’t going to be heard. Have you joined an organization for reform?

                “If you come back now and tell me you’re changing the payouts I’m” my question to you is where is the “IF”. Whether it is Bruce or the Trustee who says it, it is economic gravity that the system will not pay full benefits probably sooner than 2033.

        • You might whine more if you had paid the full costs of your benefits. I wouldn’t whine if I had retired before 2010. If you did, you actually got an expected return – probably a pretty good one. That return is decreasing. The costs are increasing. As costs rise – 15.3% of wages – is gone. It isn’t possible to save when you are losing that much of your earnings. Today the largest expense most Americans make in planning retirement has a negative return. This means that more people and more people will need Social Security going forward.

  6. As we approach the fiscal cliff with a nation truly divided, it is unlikely that the ruling oligarchy is going to do what is in the best interest of the majority. Except for a few minor issues in my lifetime, no evidence would give us any indication of a positive result of the forthcoming and highly compromised changes.

    There is one thing though. A new technology has finally just been proven by a substantive institution that will, unless subverted change our world both technologically but also geo- and socio-economically. We can reduce the retail cost of electricity and other needed power by at least 80%. I’m under an NDA, so I can’t go in to it, but those with sincere interest please contact me at hskiprob-at-gmail.com. It will become public in the not too distant future for those that are just interested.

    • This is exactly the place I would expect to find a once in a lifetime completely legitimate business opportunity. I knew my time here was well spent!

      Secret sauce – I think Skip’s invention is called the ‘cave’. If we all relocate to one the electricity glut will cause a massive crash in prices for anyone foolish enough to still be on the grid.

  7. Bruce, how about running some figures on raising the SS cap to inflation adjusted 1983(?) levels, or even uncapping it altogether? After all, it’s a flat tax, so why should it be negatively regressive? As far as being politically possible, I think this is a more promising approach than means-testing.

  8. Bruce:
    I find it very interesting that the $45 billion cash deficit did not include the 2% reduction in FICA taxes.
    The general revenues which replaced the lower payroll taxes are an immediate budget expense, and add to the deficit.
    Did the report consider those general revenues as cash income or non-cash income?
    Don Levit

  9. In My Opinion:
    Social Security started out being a insurance- designed after a mutual fund insurance design was modified by the Fed government. The employer and and employee both paid into this trust fund. The premium amount has been raised several times. The payments to the beneficiaries are now also traxed. The employee with SS & medicare pays 7.5% of his/her gross income into SS trust fund. The employer also pays 7.5% into the SS Trust fund held by the U.S. government. This fund did not draw any interest to start with. When a person died the amouint paid into the fund was kept by the Feds. Later the payout was modified to get votes by Congress. They added the wife and children under 21 years of age. They then added SS SI et al. This fund grew and grew. Congressman Pepper from NY started a crusade to get the money lent out to the Feds at 3% annually. This turned out to be a Trojan Horse. The IOUs were located in lockers in New Jersey about 2 years ago. The Dakota Congress men who located the IOUs added them up. They had a face value of over a trillion dollars. The feds have never paid the interest and never plan on it now. The Feds have used this money to fight wars all over the globe and to influence, in their mind, dictators in some cases who turned out to be enemies. The Feds have not given the recipiants of SS a true COLA for over 10 years. If it were true, the percentage increace would match the increase that Congress and the President get.

    The Feds now want the 401Ks, IRAs, private pension funds, Civil Service, Teacher retirement funds, State retirement funds and Militaary Pensions all put into a National Cookie jar. This pooled money will be raided at will by Congress and the President by decree. The money will be used to keep the American people in crisis, ballon bubbles and continous wars and still be a Fed Santa Claus 24/7. They have the MSM blarring that the party will never end!

    Due your won owe due diligence. LOL

  10. Bruce, It was my understanding that the ‘tax’ is really returned to Social Security. It is a clawback for people who have outside means. What I was unaware of is that anyone actually doubts that it is a means-test. Here is what you said “I emphasize this fact as there is very strong opposition to the concept of a means tax for SS by Democrats in Washington and the liberal press (Dean Baker).” But you don’t provide a link. How does anyone justify that the clawback isn’t a means test?

  11. Maggie the Canuck says:

    Canada already has means testing – if your gross income, including CPI/SS income, exceeds $65K, then the clawback starts. And why shouldn’t it? For those of us who need it, it’s there for us. For those of us who don’t – because we make over $65K a year in total from our pension benefits and assets – consider it just your contribution to society, a way to ensure old people have a basic way to make ends meet in their old age. Not everyone is smart enough or fortunate enough to have been able to save enough to put them over that $65K threshold.

    • Social Security shouldn’t be means tested because it is not a welfare system. It is a system that produces more promises than it collects. Means testing will only increase the dependence that the system has when it fails. Means-testing is a stop-gap to failure that is no different than shifting deck chairs on the Titanic in order to make room for more passengers.

  12. The mafia apes in DC want to steal an additional $500B per year from us.
    This will require a 10% VAT and $2 gas tax.

  13. Hello, after reading this awesome piece of writing i am as well delighted to share my familiarity here with

  14. Check out what is really going to become of the U.S. “After America: Rebuilding” is available on Amazon Kindle. It even has a new Constitution. Pretty neat read.

  15. The most nefarious thing Obama did in his first term was the payroll tax cut. Cutting payments to an annuity product only depresses its future value. He’s continuing at a lower level. Well who is going to pay for the shortfall when people want to collect SS?

    Second, you assume that Obama is actually interested in fiscal responsibility. He isn’t! His interest is entirely political. He and his “progressive” comrades have no desire to keep the same system that we all grew up in. Anyone who thinks he is just another Democrat liberal hasn’t either done their homework and seen where he’s come from and who his friends are, or haven’t been paying attention to what he DOES instead of what he says.

    Third, the Federal government cannot tax assets! The Constitutional amendment was specific and the SCOTUS has upheld numerous times that it permitted an INCOME tax – period! That’s why SS is based on income, and that is why Roberts said the same thing about Obamacare.

  16. Useful info. Lucky me I found your website by chance, and I’m surprised why this accident did not took place earlier! I bookmarked it.