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With Social Security paying out more money than it has taken in and a growing number of baby boomers swelling the retirement rolls, there's concern that the Social Security trust will run out of money.
There are several proposals for extending the life of the fund. To mark an Aug. 15 visit to a group of East Providence seniors, U.S. Sen. Sheldon Whitehouse's office issued a news release mentioning one of them. We found it on his website.
"For Social Security, which is projected to remain solvent through 2033, Whitehouse has cosponsored the Keeping Our Social Security Promises Act, which would raise the cap on Social Security payroll taxes to include income over $250,000. By doing so, the bill would extend the life of the program by an additional 75 years."
We had seen a different projection for when the Social Security trust fund is expected to run out of money. We also wondered if something as simple as lifting the payroll tax cap would provide a funding solution through 2108.
We were right. The projection has changed, and not for the better.
According to the 2011 Annual Social Security and Medicare Trust Fund Reports, the interest earned from investing trust fund money into U.S. Treasury bonds -- combined with money collected each year from Social Security taxes -- will cover the costs of the program through 2022. After that, Social Security will have to start tapping the principal as well as the interest. That principal will be depleted in 2036.
But those numbers are outdated.
Whitehouse was actually citing the key number from the 2012 report showing that, as a result of the bad economy, Social Security is draining its trust fund faster than before.
Interest from investments will stop covering the costs of the program in 2021 (not 2022) and the fund's assets will be exhausted by 2033 (not 2036).
So Whitehouse was correct on that count.
Now let's talk about his plan to save it.
Under the current system, Social Security is financed by a flat income tax of 12.4 percent on the self-employed. For people who are employed, the worker and the employer split the tax.
But there's a limit to the amount a person can be taxed. Once a person's income hits $106,800, the tax is frozen. (That $106,800 ceiling goes up as average U.S. wages rise.) Thus, a person earning $106 million annually pays the same amount as someone earning $106,800.
The Whitehouse proposal would remove that cap, but in a somewhat complicated way.
Under the current system, a self-employed person earning $300,000 in 2011 would have paid the Social Security tax only on the first $106,800 of income.
If the Whitehouse proposal had been in place for the 2011 tax year, that same individual would have paid the tax on the first $106,800 and on any income over $250,000 but not on income between $106,800 to $250,000.
Why the gap? Because President Obama promised not to raises taxes on anyone making less than $250,000. (If the $106,800 cap grew to $250,000, the gap would disappear.)
That change would add a lot of cash to the system. But would it be enough to finance Social Security into the next century?
When we contacted Whitehouse's office, spokesman Seth Larson said the wording on the press release had been unclear. Changing the law to lift the cap would not extend the solvency of the trust fund for 75 years beyond 2033. It would keep the program solvent for 75 years beginning now.
Larson said, "75 years is as far as the actuary projects when looking at long-term solvency."
To back that up, he sent us a letter from the Office of the Chief Actuary of the Social Security Administration.
In fact, that report, which uses numbers from 2010, does say the proposal would keep Social Security solvent for the next 75 years by raising an estimated $6.5 trillion dollars during that period. It forecasts running out of money by 2088 or sooner, and that's assuming an annual yield of 2.9 percent when the trust fund loans money to the U.S. government to pay expenses.
After our e-mail, Whitehouse's office went to its website and changed the news release. The last paragraph now says: "Whitehouse has cosponsored the Keeping Our Social Security Promises Act, which would raise the cap on Social Security payroll taxes to include income over $250,000. By doing so, the bill would keep the program solvent for 75 years."
Sen. Sheldon Whitehouse said, "For Social Security, which is projected to remain solvent through 2033, Whitehouse has cosponsored [a bill that] . . . would extend the life of the program by an additional 75 years."
In fact, removing the income cap for collecting tax money to pay for the program would extend the viability of Social Security for 75 years from now, not from 2033.
Whitehouse's office quickly acknowledged the error.
In this case, we're talking about a difference of 21 years, between 2087 and 2108.
We rate his statement Mostly True.
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SSA.gov, "A Summary of the 2011 Annual Social Security and Medicare Trust Fund Reports," May 2011, accessed Aug. 22, 2012
SSA.gov, "A Summary of the 2012 Annual Social Security and Medicare Trust Fund Reports," accessed Aug. 22, 2012
E-mails, Seth Larson, spokesman, Sheldon Whitehouse, Aug. 22-24, 2012
SSA.gov, Letter to Sen. Bernard Sanders from Stephen C. Goss, chief actuary, Social Security Administration, Sept. 7, 2011, accessed Aug. 22, 2012
Whitehouse.Senate.gov, "Whitehouse Meets with East Providence Seniors," Aug. 15, 2012 but subsequently revised on Aug. 22, 2012
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