The following is a summary of our recent interview with Dr. Laurence Kotlikoff, Professor of Economics at Boston University, which can be listened to on our site here or on iTunes here along with our weekly market wrap-up and Big Picture.
It’s no secret that Social Security is underfunded, but the extent of the problem is glossed over by politicians and the media.
This time on Financial Sense, we speak with Dr. Laurence Kotlikoff, William Fairfield Warren professor at Boston University and author of 19 books, about his study of the Social Security problem and his write-in candidacy for the presidential race.
Social Security Is Broken
The true health of Social Security isn’t accounted for, Dr. Kotlikoff said, and he projects a fiscal gap of $199 trillion when we take into account the present value of all projected future spending and expenditures, including servicing the official debt and Social Security.
“We’re $199 trillion in the red,” Dr. Kotlikoff said. “The country is dead broke. That $199 trillion is 53 percent of the present of taxes. So, another way of saying this is, we are 53 percent underfinanced, and we need a 53 percent immediate and permanent tax hike.”
That figure will balloon to more than 70 percent if we wait 20 years, he added. Younger generations will have to pay for the shortfall, and the problem is growing rapidly.
“It’s generational warfare and fiscal child abuse that we’re involved in,” he said. “Social Security’s fiscal gap, which is part of that $199 trillion figure, is today according to the trustee’s report … $32 trillion dollars. Last year, it was $26 trillion. It actually grew by $6 trillion.”
For those who currently have to deal with Social Security benefits, he advises not trusting Social Security pronouncements.
“If people learn nothing else from our interview today, they should know that they do not want to be asking Social Security a single question,” he said. “If they have a single conversation with Social Security, they should tape record it so they’ll have proof of misinformation if they’ve been given it. I think that’s happening half the time.”
He advises people to use his software and read his book to find out how they should approach and deal with Social Security.
The Social Security Trustees’ Report Hiding in Plain Sight
Unfunded liabilities just went up $6 trillion in a year according to the Social Security Trustees Report, Dr. Kotlikoff said, and the media at large isn’t reporting on the situation. The trustees are obfuscating the reality of the shortfall, he argued, essentially hiding key information about the fiscal gap in the report.
“It’s a major problem, and Medicare is an even bigger problem,” he said. “You don’t hear any of that ... They either don’t know what they’re talking about, or they’re lying about what they’re talking about.”
We urgently need to address Social Security, reforming the tax code, make the U.S. the most tax-friendly place in the world for businesses to operate, make sure the rich pay their fair share and get rid of the personal income tax, estate and gift taxes, among others, he said.
Dr. Kotlikoff’s Write-in Candidacy
This looming disaster with Social Security and the general lack of coherency on fiscal issues spurred Dr. Kotlikoff to run a write-in campaign for the presidency.
“We have candidates who either understand this and are not talking about it, in which case they’re lying,” he said. “And we know that both of these candidates are very adept at lying with no embarrassment whatsoever — they’re trained liars. And the other option here is, that they do not know the magnitude of our fiscal problem, which means they’re not qualified to understand anything about our economic situation.”
Dr. Kotlikoff also thinks neither candidate will be able to address the social issues they’ve brought up due to the likely division in Congress and the makeup of the Supreme Court and its prior precedents on several social issues, which it is unlikely to overturn.
Though many aren’t talking about the fiscal issues he brings up, Dr. Kotlikoff is focused on the long-term sustainability of these systems, and he feels the problems he’s discussing needs to be front-and-center for any candidate seeking the presidency.
“I’d like to freeze (Social Security) and put a new, modern system in place that will actually be funded and be here for our kids, and be affordable,” he said. “We want to be sure everybody within a generation is being treated fairly, and we also want to make sure people across generations are treated fairly. And neither of those two things is happening right now.”
Listen to this full interview with Dr. Laurence Kotlikoff, Professor of Economics at Boston University on the Newshour page here or on iTunes here. Subscribe to our weekly premium podcast by clicking here.