Social Security continues to be under attack from private interests who want to use your SSI payroll contributions and risk them in speculative ventures that may or may not succeed. For most Americans, gambling with their retirement savings can have serious consequences at a time when financial security is most vulnerable.
The anti-government crowd headed by anti-tax advocate Grover Norquist wants to dissemble a secure retirement program and have you put your faith in a system that is often quite similar to casino gambling. You could walk away comfortably rich or you could walk away with nothing but the clothes on your back. To encourage this they are using the nation’s deficit structure as a fear-mongering tool to intimidate poorly informed Americans and direct them to make a choice that will assuredly benefit them and enhance their wealth at even greater levels while making no guarantees how your results will end up. As an added measure to persuade you, they would argue that Social Security is on the threshold of bankruptcy. The truth is quite different but there are issues with this system that can be easily fixed if only wealthy interests would quit creating obstacles to make such improvements
The hue and cry from the extreme right within the GOP is that public sector spending needs to be cut back to reduce the deficit. This itself is a political smokescreen that appeals to that austerity crowd who want continued cuts in social welfare programs while leaving a bloated defense budget untouched, along with leaving the Bush tax cuts for the wealthiest 2% in place.
The GOP has its sights on changing Social Security as we know it to correct it’s deficiencies while eliminating its impact on the deficit, or so they claim. But does Social Security dramatically affect the deficit? The CATO institute, a Libertarian think tank founded by billionaires Charles and David Koch, thinks it does. They have put some numbers together to support their contention. But there are equally creditable organizations who show a different story and point to the Bush tax cuts and the two wars in the mideast having the biggest affect on our growing budget. Dean Baker with the Center for Economic and Policy Research also points out something missing in the deficit hawk’s argument.
Under the law, Social Security is financed by a designated tax, the 12.4 percent payroll that workers pay on their first $107,000 of income each year. The money raised through this tax is used to pay benefits. Any surplus is used to buy U.S. government bonds. All funding for the program comes either from this tax or from the bonds held by the program’s trust fund. (The Social Security system is also credited with a portion of the income tax paid on Social Security benefits.)
Social Security is prohibited from spending any money beyond what it has in its trust fund. This means that it cannot lawfully contribute to the federal budget deficit, since every penny that it pays out must have come from taxes raised through the program or the interest garnered from the bonds held by the trust fund. SOURCE
What seems clear to a layman like myself is that projecting the future for a program so large as Social Security is not any easy task and we are dependent on the experts to give us an honest assessment of this important retirement resource for millions of Americans. We need honest, objective analyses that utilizes all data and not studies subjected to ideological dogma. Creating choices that fail to take in all considerations does a disservice to a public that is forced to trust those who are supposed to have the aptitude for such things. I like to gamble as much as most people do but when it comes to a retirement fund needed to meet my needs in old age, I don’t want to wake up one morning like many did in 2008 to find they lost most of their savings to a system that gambled on unsure bets.
What’s at stake here is a system that has served this country well for 75 years keeping many people from falling below poverty levels. It serves as a back up for those people who worked hard all of their life and still were unable to put enough away on their own to sustain them through old age. Raising a family with costly health care needs and equally costly education expenses makes the ability to set enough aside with wages that have been shrinking for several decades difficult if not impossible for some. Since the cost of living doesn’t ever really go down it is important that wages keep pace with the cost of goods and services.
The record shows that this hasn’t happened for the large majority of working families in this country. Since the 1980’s wages have been stagnant in comparison to wages for the top 1% of wage earners while the costs of goods and services continue to rise. As a result, pensions have been diminished and in a lot of cases lately, eliminated as businesses find ways to keep their profits on track. Income revenue for most Americans no longer allows people to save as they once did.
Social Security thus becomes essential in keeping many people from starving and succumbing to illnesses easier from lack of adequate health care once they lose their ability to work. It’s a system that a humane society put in place following the Great Depression of 1929 and has saved millions of lives. Each month a portion of one’s paycheck – 6.2% – is deducted and matched by their employer to pay in to the Social Security trust fund. Until 2010 there has been a surplus from this source to pay benefits for retirees who claim these benefits in old age. The economic disaster that occurred at the beginning of 2008, resulting from excessive risky investments by banks too big to fail sent the economy into a nosedive, creating massive jobs losses.
These job losses took with them the payroll deductions that are used to pay benefits to SSI beneficiaries causing the shortfall in 2010. But many of those years collecting revenue had surpluses. This money was set aside by purchasing U.S. treasury notes to cover Social Security in times when intakes didn’t match outputs. To the hoot and holler of many this most recent shortfall means doom for the system. It’s a scare tactic that’s been around almost since the inception of the program back in 1936.
Wealthy financial corporate interests in this country have been jealous of the fact that so much money has alluded their grasps all these years and have attempted to squeeze the life from this program so that they can access such funds for their own self-interests. And though there is something to be said for the larger returns many might see over the years by investing this money in private financial markets, there is also much evidence to weigh that shows how such a move could actually hurt more people than it helps.
“You can trust me with your retirement funds”
Social Security sets a specific amount aside and let’s simple interest enable it. It is not put into risky investments that may show high returns one year but then go belly up the next year. Organizations like the CATO Institute, the Heritage Foundation and wealthy individuals like Peter Peterson who want to privatize Social Security like to point out that “despite recent declines in the stock market, a worker who had invested privately over the past 40 years … would retire with more income than if they relied on Social Security.” What is concealed here however is that if you retired in January 2008 you would have lost half of that retirement in just a few short months as a result of the stock market crash that saw the Dow Jones go from an all time high of 14,100 on October 9th, 2007 to hit a a low of 6,547.05, a 53.78% loss over a period less than year and one that had not been seen since November 25th 1996. Social Security recipients on the other hand saw no change in their benefits.
Herein lies the devil within the details. Those who seek to end Social Security as we know it do so NOT because it’s an unworkable system but because it is so effective and they are losing out on money that their capital ventures would create for them. But under this Superman Cape of “free markets” is the reality that the values of your stock are subject to the volatility of the markets and if they collapse as they did in 2001-02 and 2008 at the time you decide to retire, then your net worth may in fact be much less than someone who is collecting social security. They don’t call it Social “SECURITY” for nothing.
Now, are there problems that could prevent benefits from continuing as they have for 75 years, including COLA increases each year? With a poor economy, a continuing high war debt, large numbers from the baby boom generation retiring and revenue cuts from lower tax rates, of course there is. The fact that the government decreased the amount of the payroll tax by 2% in 2011 to help struggling income earners hasn’t helped either.
But killing this system as we know it and turning it over to private venture capitalists and their cronies in those banks too big to fail is a gamble that will ultimately hurt many low and middle-income families whose wages will never reflect what their parent’s did in the 1950′s, 60’s and 70’s. Unless we address the serious issue of income disparity in this country, the belief that the free markets prop us up in our retirement years is as unlikely as it is to believe that homeownership is more of a reality now than it was a generation ago. Both possibilities have suffered at the hands of people whose self-interests are focused on profits – not your long term needs.
Congress can fix Social Security in one of two ways long before it reaches a state where full benefits have to be cut back in 2036.
- Eliminate the cap on the payroll tax on income above $250,000, or
- Reinstate the Bush tax cut on the top 2% of American income earners.
Either one of these quick fixes would eliminate any real or imagined threat to Social Security. As for the deficit – President Obama has put forth a budget that would reduce annual deficits, “through his proposals to raise $1.5 trillion over 10 years mostly from the wealthy but also from closing some corporate tax breaks, chiefly for oil and gas companies.”
There is plenty of room to find resources necessary to reduce the deficit without touching the Social Security trust fund, especially during these economic hard times. By making deficit reduction the focal point of their 2012 campaign on the backs of the elderly and dependent children while job losses remain high, the Republican Party has informed low and middle-income retirees and wage earners who their real constituency is.
RESOURCES:
Experts: Contrary to Mainstream Myth, ‘Social Security is Strong’ and Could Be Made Stronger
Breaking the Social Security Glass Ceiling: A Proposal to Modernize Women’s Benefits
Hansi
Maybe instead of Social security, we should have bought Face Book stock last week. great post, but I think those who want to ‘fix’ S S really just want to steal OUR money.
Sedate Me
No, Facebook stock is probably at the highest it will ever be. It’s more like to be penny stock in 3 years than be higher.
Nope. The only way to make money on Facebook was to be one of those insiders who got in before it went public (many of whom illegally) and are probably selling their vastly over-valued stock as fast as they can.
Sherry
The real idea behind the extreme right’s position is Randian I submit–elimination of the weak and ineffectual in society to create a lean and mean workforce that is dependable, and has just enough to remain controllable. The weak and old are the responsibility of their families and various charities. This is how they want it. Its really a form of eugenics I think. It’s clearly out of Rand’s play book.
lobotero
Personally, I want to see everybody pay on their total income like the rest of us….stop cutting it off at $25,000 or whatever the figure is now. This will not completely fix the problem but it will make it more solvent until a real equitable fix can be found.
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Sedate Me
Social SECURITY just can not be achieved by betting money on something that can plunge like a roller-coaster on any given day.
When the stock market is reformed and regulated into the most boring, stable, place on Earth, maybe then it won’t be such a bad idea.
Mary Flora
Here is a great site for info on this issue.
http://www.ncpssm.org/entitledtoknow/
Joe The Economist
There is a lot of debatable material here. “The record shows that this hasn’t happened for the large majority of working families in this country.” There really isn’t credible research on this. 1983 pre-dates the 1986 reform in which people were incented to call more income wages. If you look at the cap in 1983 it was roughly $35,000. If you put that into 2012 the cap would be 82,000 instead of more than $110,000.
lbwoodgate
Again, you’re not being real clear here Joe. Are you saying there is no significant evidence that shows that low and middle income wages haven’t kept pace with higher income groups, especially those in the top 1%? I hope not because that’s nonsense.
To infer that there is not “credible research” is kind of a straw man position Joe. There’s plenty of information out there to give weight to the claim that the rich are getting richer while the poor are getting poorer but you have to be willing to consider this without looking for absolutes only on one side of the ledger. There’s no credible evidence that tax cuts for the wealthy creates jobs either but this is a common refrain that many on the right keep touting.
Joe The Economist
Show me the research. Generally it compares a dynamic variable – wages – as though it was static. The concept of wages as tax regimes change. You can’t compare wages from 1983 to 2010 and get a meaning conclusion. You get the illusion of research.
The problem is shown in full here :
http://www.fixssnow.org/blog/post/2012/05/16/Being-Fooled-Into-Raising-The-Cap.aspx
Joe The Economist
“plenty of information out there to give weight to the claim that the rich are getting richer while the poor are getting poorer ”
You have to be careful with words. Most of the research that I have seen says everyone is getting richer. The problem isn’t with the research but the way people frame it. There are people who were poor that are among the top 1% now. This isn’t the rich getting richer.
lbwoodgate
“Most of the research that I have seen says everyone is getting richer.”
Define “getting richer”. If you mean wages are increasing for everyone, that’s debatable but clearly income is increasing at a much more rapid rate for the wealthiest 1% than for most others. When your income puts you in the lower half of American income earners, do you really think they see themselves as “getting rich”?
Joe The Economist
“When your income puts you in the lower half of American income earners, do you really think they see themselves as “getting rich”?”
We are talking about research and the quality of the research. I don’t know how individuals feel.
If the research you use is based on wages when the definition and incentives of wages are changing, it isn’t credible research. As I point out in the longer article, the conclusion may be right but it has more to do with luck than research.
I find no credible research to suggest that Social Security’s cap needs to move faster than inflation. Social Security’s founding principals were that the system should not be welfare. FDR’s frequently quoted statement “No damn politician can ever scrap my Social Security program.” was based on a previous statement. “We put those payroll contributions there so as to give the contributors a legal, moral and political right to collect their pensions” Social Security was suppose to be self-funding, not welfare.
Today those high-wage earners get back the worst returns. Raising the cap will make those returns even worse. It is a tax on one to give to another on a basis that isn’t legal or moral. It is purely political. You need to be more honest about the changes here because once Social Security is a purely political priority, you will have no legal or moral claims – and every damn politician will be free to scrap it.
lbwoodgate
Having recently read Dale Colby’s article “Fixable Error, New Insight, and Social Security”. I agree with you that Social Security must not be seen as welfare but a retirement system that individuals fully fund themselves. However there is room to compensate for those people who fall between the cracks.
According to Colby in his support for the trust fund: We prefer an explicit relation between the money we “save” as individuals and the benefits we get as individuals. We prudently modify this principle enough to allow for an insurance factor whereby those who cannot save enough over a lifetime of work to pay for a decent retirement are helped out by the “excess” of those who were able to save “more than enough” in the protected savings plan we know as Social Security. But the principle is still essentially “you pay for what you get.”
Colby opposes removing the income cap entirely to help rectify projected shortfalls in social security but does see the need to raise it to a level that would still encompass most wage earners who would fully benefit from it, which will be those whose incomes are at or slightly below $200,000. By raising the tax on these income earners rather than those who make much more than this (the wealthiest 2%) the trust fund would still be viewed as a legitimate retirement system where contributors to it would be seen as paying for it themselves rather than as a welfare system dependent on the very rich. He suggest that raising this tax gradually to 4% over eighty years would cover any shortfalls and allow the SS trust fund to pay out full benefits until the end of this century.
Would you have any opposition to this Joe?
Joe The Economist
I have traded emails with Dale. His ideas are the one-sided kind which work in the ceterius peribus world of academia but lack any viability in the real world.
Increasing the cap diverts taxbase away from debt control. Raising the cap when you have a debt is exactly like putting your 401K contribution on your child’s credit card. I think it is a terrible mistake because it sets-up the end that I foretell: younger workers pissed about the debt simply cancel Social Security.
I am more focused on the future. Today Dale’s ideas and the rest are really about shifting deck chairs on the Titanic so that we can put more passengers on board.
I talk to people near retirement, and it worries me. I know a guy who is retiring at 62 because he thinks that Social Security has the resources to provide benefits through 2033. That isn’t true. If the economy is good and voters continue to support the system with subsidies and payroll taxes, the system lasts past 2030. No one ever repeats the conditional clause. Telling him that the system will last until 2033 is irresponsible, and there will be a generation of low-income people who pay the price.
Social Security serves the disabled and elderly. Neither adapts well to economic change. You are worried about the low-income elderly today. I am worried about the ones in the future. We aren’t all that different.
lbwoodgate
I think you put too much emphasis on the debt and there are experts in the field who would find your opposition to some tax increases as a remedy to SS shortfalls having little merit.
Dean Baker is a reputable economists who I have found to be as reliable if not more so than those who support austerity programs. In one of his posts he addresses both of these issues
“The basic story of out of control deficits as an ongoing problem is nonsense. While people may have complained about the deficits in the Bush presidency, the debt-to-GDP ratio was actually falling by the end of his administration and was projected to continue to fall for the foreseeable future, even without the ending of the Bush tax cuts.
The factor that changed this picture was the economic downturn that followed the collapse of the housing bubble. The projections for deficits soared before President Obama even took office; the people who want to blame an Obama administration spending spree for the deficit are missing the mark.
The deficit is filling the demand gap created by the collapse of the housing bubble and the resulting plunge in construction and consumption. The private sector is not going to fill this gap overnight no matter how much we might love it. In the current economic situation, lower deficits would just mean higher unemployment as the United Kingdom is trying to prove. The financial markets understand this fact, which is why they are willing to lend the United States huge amounts of money at very low interest rates (unlike Greece).
There are longer term issues with the budget deficit, but this is overwhelmingly a problem of our broken health care system, not Social Security and Medicare.
If the gap is closed on the tax side, we could eliminate the shortfall entirely by eliminating the cap on the payroll tax. Alternatively, if we increased taxes by just one twentieth of the projected increase in real wages over the next four decades, the program could pay all scheduled benefits for the rest of the century. Many people will be skeptical that they will see these projected pay increases because they have not seen wage gains for the last three decades. But this is the result of growing inequality. If we can fix that problem, Social Security’s projected shortfall is trivial.
Medicare is projected to pose a greater problem, but only if we don’t bring private sector health care costs under control. We already pay more than twice as much per person for our health care and this gap is projected to grow rapidly in coming decades.If we paid the same amount per person for our health care as people in any other wealthy country we would be looking at budget surpluses, not deficits.”
“Social Security serves the disabled and elderly. Neither adapts well to economic change. You are worried about the low-income elderly today. I am worried about the ones in the future. We aren’t all that different.”
How would you resolve the problem then Joe? You have expressed your ideas on what you feel are the weaknesses with the system but have yet to be clear on what you feel will fix what is broken.
Brenton Smith
JoeTheEconomist is connected to http://www.FixSSNow.Org. As such his internet persona doesn’t support any specific reform. As an organization, we just want honesty in the debate.
As an individual, my opinion is this. We can agree to disagree about the merits of Dean Baker’s work.
I think that it is a mistake to try to make a 1-size fits all solution for Americans. That is the biggest problem that Social Security has.
While our site doesn’t support any specific reform, we provide an example of what ‘fixing’ the system means. It is designed to make the system more efficient. It is intended to be part of a larger solution. We only provide it because we get the question that you asked.
Social Security introduces economic incentives which are insane. It encourages people to retire at 62 and equally discourages people from working past 62. I am not a fan of privatized accounts, but I would introduce them for people at the age of 62 to get people to work longer. We need to keep people in the work force longer.
There are many reforms which would make the system safer. Nothing will make the system safe without honesty about the state of the system. Hiding its problems only means that they grow. As people wake to the mess, they will be pissed, which creates the potential of a transition with terrible human consequences .
Today only 22% of the voting public expects to be unaffected by the run-dry date. Hiding problems from the majority invites an unstable end for the system. Look for the run-dry date to come in again next year.
lbwoodgate
Thanks for you input Brenton and I appreciate any sincere effort to have an honest and open conversation about Social Security. I too feel there is not a “one-size fits all” solution for this trust fund. And neither do I see it as something that people should set as a goal for their only source of retirement. That being said though, it is the only source of revenue for millions of people who often fail to have adequate resources to finish out their life for reasons not often of their own doing.
I disagree that it “encourages” people to retire at 62. Many like myself found themselves unemployed as a result of a poor economy that was generated from people who poorly managed the financial resources they were responsible for. At age 61 I could not find comparable work, having to compete with 5-6 others who were also unemployed. To keep my head above water I reluctantly decided to start collecting my Social Security investment. It, along with my wife’s job and a small stipend I collect from an IRA I transferred my 401k to, keeps us at a level we’ve been accustomed to.
People are often forced to utilize ssi resources because the promise of “free markets” often fails to accommodate them. That’s not to bad-mouth how our economy works. It’s just a fact of life. It’s not that people don’t want to work but what work they are fortunate to find often fails to supply the income they need to adequately meet essential needs for them and their family. I take the position that under such difficult times that those who have been able to do well need to provide those programs that help others get by until the markets are once again capable of serving as the primary and even sole means of income for them. This view holds that everyone should make those sacrifices but that those who have much more should give much more. As I see it, their greater success doesn’t come in a vacuum and contributing larger portions of their wealth from time to time to necessary social programs acknowledges that their good fortune is often a factor of the collective efforts of many who don’t make a livable wage.
We seem to be in agreement that eliminating high rates of unemployment will cure what ails Social Security but seem to dispute what we do about those who find themselves in such ranks until the job situation improves. The free markets can only offer so much but it can offer less when we allow a handful of people to dictate terms that serves their self-interests to the detriment of the general public. We need job training to adapt to the changes in the markets. Subsidizing such training is a solution but there are those in society who do not think they should help contribute to this, even if it means in the long run that their lives are made better from fuller employment.
Growth dictates that status quo solutions must change if their record shows they are part of the problem. Collecting vast amounts of wealth that serve no purpose other than displaying such wealth to the rest of the world is immoral in my opinion and one that leads me to defend the position that such people should be required to give back some of that wealth in a manner that enables other to earn an honest income from their efforts.
Social Security is not the bogey-man many people try to make it as they attack it for its affect on the debt. There are other factors that determine how big our debt grows and without equal efforts to address those then I can’t subscribe to a philosophy that tries to undermine entitlement programs that prevent many from slipping into the abyss of poverty.
Brenton Smith
We are looking at this from different points of view. You are looking at where the system works and overlook the conseqences. I look at the consequences, and simply conceed that early retirement is a bad idea no matter how many times it works.
“I disagree that it “encourages” people to retire at 62.”
Off the top of my head I know two people who retired at 62 solely because of Social Security. They felt that they had worked hard, and deserved to retire early. The only reason that they thought 62 was a suitable age – Social Security put that age in their head.
In terms of SS, early retirement is a foolish policy. The inducement is particularly sensitive to people who are the high-wage, net-contributors to the system. So we sub-select the audience that is the worst for the system. Then we penalize workers who earn more than $14,000. Taking benefits from those who continue to work. How is that not an encouragement to retire?
We say early retirement is for low-wage workers who have a shorter life-expectancy, but it seems to be for affluent workers. It introduces an inducement with immediate need at the expense of an uncertain future.
Before Social Security, many people couldn’t retire. They didn’t know how long they would live, and didn’t want to out live their assets – I have seen it happen. Social Security is suppose to provide some certainty in people’s lives. It shouldn’t encourage them to put their future at risk.
Worse, I know people who want to retire so that they can get something back before the whole thing collapses. It is suppose to be old-age insurance. 62 isn’t old age anymore.
Today, earnings are different than they were 30 years ago. We hit peak earning years much earlier. I have friends who are 50 that can’t find comparable work – hello Starbucks. When SS was founded, you didn’t have nearly as many people in late career transitions. This isn’t a problem with free markets. In my case, the technology that I used went out of style.
lbwoodgate
Let’s be clear on one thing Brenton/Joe. I have not nor do I advocate early retirement at age 62. I merely point out that in today’s economy when people have been forced out of the jobs market, collecting social security at the early retirement age is a choice they HAVE to make, not one they want to make. It clearly wasn’t my choice to start collecting early retirement or even be unemployed at age 61. Had the job market been healthy I would have been right back in there working until my savings were at a sufficient amount and my bills cleared that would allow me to retire comfortably. Life unfortunately simply didn’t work out the way I wanted it to.
“Off the top of my head I know two people who retired at 62 solely because of Social Security.”
Let’s be careful here not to extrapolate our personal experiences into the reality of the larger universe. Though many people due collect ssi benefits at 62 “many of these people have no choice, due to economic reasons (e.g., they are unable to work because of health problems or can not find suitable work)”
Your protestations against people collecting early age benefits is understandable at a time when incoming revenue is behind outgoing benefits but to make this a moral issue by calling it foolish is unfounded. Your comments are speculative since you provide no data to support your contention that early retirement seems to be for affluent workers. Logically this doesn’t make sense.
Also there is nothing onerous about collecting benefits that people have paid into all their lives at the early age of 62. When SS was first set up back in 1936 life expectancies were shorter then they are today and it seemed only fair then I’m sure to make sure that most people could collect on their investments before they died at early ages. You must also keep in mind that many people who have worked all their lives and put into the system never collect a penny if they die before they turn 62. This factor may counter-balance some of your concern about early retirement beneficiaries depleting the fund. But please don’t think all or even most people are collecting early retirement for selfish reasons. Not in today’s economy and not with the high cost of health care.
Brenton Smith
I didn’t mean to imply that you did advocate early retirement. You look at the system and see where it works. I look at it from the opposite prospective – where it doesn’t work. Today more than 60% of first time checks go to people before full-retirement age. The consequences of that aren’t good for the system, and I don’t mean that in a moral sense. It is just technical – people leaving the work force at any age is bad for the system.
Joe The Economist
According to the Trustees, Social Security has a 20.5 trillion dollar shortfall – page 15 of the Trustees Report. That figure is more than the system has collected in all forms from all Americans since its inception.
According to the Trustees the OASDI will reach the run-dry in 2033, only 22% of voting aged-Americans can expect to be unaffected by the automatic benefit cuts.
2033 is dependent upon a good economy so these items are a favorable outcome.
lbwoodgate
I went to page 15 of the Trustees report Joe and didn’t see the comment you were referring to. There’s a mound of data there. That and your comments here appear to be trying to tell me something but it’s not exactly clear. The link you provide – http://www.FixSSNow.Org/ – isn’t too much help either. It does appear that you favor privatization over any any tax increase, like raising the cap on taxable income.
You seem to be muddying the waters here more than helping Joe so, can you explain things a bit more clearly here so we can know exactly what it is you’re offering? Thanks
Joe The Economist
Favor privatization?
http://www.fixssnow.org/contentdetails_Newts-Plan-Social-Security_53.aspx
Your position that you must rise taxes or lower benefits is a false dichotomy. Neither is very smart because they lower the economic return in the system. All these ideas will do is make the system highly unstable as more workers flee the system.
Joe The Economist
Here is the link to the report, http://www.socialsecurity.gov/OACT/TR/2012/tr2012.pdf
Here is the quote from page 15 :
“Through the infinite horizon, the unfunded obligation, or shortfall,
equals $20.5 trillion in present value, which represents 3.9 percent of future taxable payroll or 1.3 percent of future GDP”
I have no desire to muddy the waters. We do the exact opposite. We ask questions to help people see the problem.
The infinite shortfall is the accurate number to use. The 75 year number is a joke. The 75 year shortfall is less than half of the real number. Do you seriously think that Social Security’s problems are 76 years away? Which number do you think is muddying the waters.
lbwoodgate
The 75 year figure from my understanding reflects SS solvency provided we make some adjustment now like raising the income cap on what SS can be taxed on. The 2033 or 2036 year figure reflects the year the trust fund will no longer be able to pay out 100% of benefits IF nothing is done. But even if it isn’t, the trust fund can still pay out up to 75% of benefits for the about 25 more years.
The red flag going up here is that the trust fund is not insolvent yet but will face serious shortages within this generation’s lifetime if we don’t make some fixes now. My post recommended two that consist of getting people with higher incomes to pay in more. You seem to disagree, so are you suggesting privatization or some form of it is necessary?
Joe The Economist
The problems with privatization are significant – the least of which have to do with market risk.
The problem with the 75 year number is that it factors in all of the revenue which comes in over 75 years but ignores the cost of the promises created. For someone born today, it projects 49 years of revenue because all of it falls in the 75 year window. Shows only 8 years of projected cost. For someone born in 10 years, it shows 49 years of revenue but no costs.
The 75 year solvency shortfall is 8.6 trillion (or so). The infinite is 20.5 trillion. Do you seriously more than half of SS’s financial problems are 76 years away? The accounting is laughably bad.
Joe The Economist
“The fact that the government decreased the amount of the payroll tax by 2% in 2011 to help struggling income earners hasn’t helped either.”
This is factually common misrepresentation. Social Security is a net beneficiary of the payroll tax-holiday. The general taxpayer paid $103 billion in 2011 to Social Security to make up the short-fall. Assuming that the tax-cut did create jobs – it is a plus for the system.
lbwoodgate
“Assuming that the tax-cut did create jobs – it is a plus for the system.”
I’m not sure we want to assume this is a plus. Are we in fact creating enough jobs from this tax holiday to offset the revenue it generates for socials security?
Joe The Economist
The general taxpayer is “backfilling” the shortfall. Social Security gets more from a tax-holiday. The Treasury paid the 2% that was lost to the holiday in dollar for dollar deficit spending – 103 billion in 2011. Any jobs created by the tax holiday are the gravy.
The general taxpayer is not the same as the covered worker. Millions of Americans have no stake in this system. People who work for Galveston County neither pay into nor collect from Social Security. Well, now they pay into a system from which they cannot collect. They pay into it, but get no credit.
The payroll tax holiday is a terrible idea. It hides the degree of failure in the system from the voters. Most of the people who are depending upon this system think that the general taxpayer is the backstop. It isn’t backstop now. It is in play. It is unwise to put the backstop into play without telling anyone. While politicians get elected this year, it means that the crisis will be much more severe when it comes.
lbwoodgate
“Any jobs created by the tax holiday are the gravy.”,/i>
You keep making this assumption but have yet to show the data that supports this. Also, if jobs were created from this tax holiday were they sufficient to provide enough revenue and then some for the loss of revenue when the tax(es) are reduced?
“The general taxpayer is not the same as the covered worker. Millions of Americans have no stake in this system. “
That’s crap Joe. Everyone has a stake in this either directly or indirectly. Without a minimum retirement fund for most people there would be an undue burden on their family and the community to accommodate the basic needs of health care and nutrition. Insurance rates increase for everyone when people are forced to use emergency facilities at local hospitals because they can’t be seen by a doctor from lack of health insurance coverage. Cost of health care for everyone goes up when hospitals have to cover the costs they lose from people who can’t pay but they have to serve.
Simply ignoring the plight of low income people doesn’t resolve the social responsibility we have for people that can no longer benefit from “free markets”. This form of self-interest is pretends that the conditions low-income people like elders and children find themselves in is of their own doing when in fact much of what effects them is an economic system that often fails them. People who want to work often fail to find jobs that provide enough income to set enough aside for retirement while they attempt to deal with the the day to day cost of living, including rising prices on goods and services they have no control over.
“The payroll tax holiday is a terrible idea.”
I agree. That’s been my position all along yet you seem to think there are employment benefits to be gained from this. Have I misread your comments on this?
Joe The Economist
Actually there is no assumption in my statement. The statement is qualified by the reader. Any jobs are gravy. You may think that no jobs are created, ergo no gravy. Another reader may think that many jobs were created. It is up to the reader.
CBO estimates 2.5 to 7 million jobs would be created. I don’t place a lot of faith in that estimate. Whether it is zero or 7 million, the fact remains that “any” jobs created provide incremental income to the system.
“were they sufficient to provide enough revenue and then some for the loss of revenue when the tax(es) are reduced”
Many people today misrepresent how the holiday works. Every dollar of ‘loss of revenue’ is made-up by the general taxpayer. Social Security is not the general fund. The holiday is not a tax-cut. It is a tax-shift from the covered worker to the general taxpayer.
lbwoodgate
“The holiday is not a tax-cut. It is a tax-shift from the covered worker to the general taxpayer.”
What? How is that possible? If the 2.1% cut in payroll taxes, the tax that funds social security, affects only income earners who contribute to this special tax, how do others in the “general taxpayer category” benefit from this income generated from the lower payroll tax rate?
“Actually there is no assumption in my statement. The statement is qualified by the reader. Any jobs are gravy.”
What people think and what the CBO “estimates” seems irrelevant to me. Why bring the point up at all regarding social security if there is no hard data to substantiate a jobs benefit from this “holiday” tax cut? The fact that general revenue has to cover this loss is for me at least better than losing this revenue altogether but I would rather that the tax holiday not occurred at all because it hurts the trust fund more in the long run while giving ammunition for its critics to link it to the deficit.
Joe The Economist
“What? How is that possible? If the 2.1% cut in payroll taxes, the tax that funds social security, affects only income earners who contribute to this special tax, how do others in the “general taxpayer category” benefit from this income generated from the lower payroll tax rate?”
Wage-earners taxes are reduced – but they continue to earn credit for benefits as though they did contribute.
The reduced tax collection creates a revenue shortfall. That shortfall is a cost to the general taxpayer. So the general taxpayer does not benefit. They are the ones who are picking up the bill – $103 billion in 2011.
Joe The Economist
“Simply ignoring the plight of low income people doesn’t resolve the social responsibility we have for people that can no longer benefit from “free markets””
Who is the one who is ignoring the plight of low income people. I am the one who is arguing that the system is unstable now, and will go into crisis. We are projecting a 25% benefit cut in the future at a time when we can’t have cost-of-living adjustments match the actual cost of living.
The different here is that I have equal concern for the low-income people across time. Those people who argue that it is OK to cut benefits by 25% in the future couldn’t give a damn about low-income people.
Brenton Smith
I don’t see any edit button. Oh well…
“Your comments are speculative since you provide no data to support your contention that early retirement seems to be for affluent workers. Logically this doesn’t make sense.”
To be clear the problem is higher-wage workers but affluent workers are drawn to early retirement as well. It is a matter of incentives. The incentives have more impact on someone who values time over money.
I go to church with a guy who is 70. The reason he doesn’t retire is that he can’t afford to retire on what Social Security pays. People who do not have some financial cushion are not in a position to retire on Social Security alone. When I get to 62, I am cashing in.
I understand that the economy is a major factor in early retirement. It is also a major factor the problems in Disability. It is about incentives and where they are most effective. It isn’t that early-retirement is designed for the affluent, but the incentives have a greater impact on those who can choose to retire.
lbwoodgate
“I go to church with a guy who is 70. The reason he doesn’t retire is that he can’t afford to retire on what Social Security pays. People who do not have some financial cushion are not in a position to retire on Social Security alone.”
Understandable. This 70 year old who still has a job is something of an anomaly in this economy today. To have a job and still have no financial cushion to retire on also speaks to the wage structure in this country that seems to forsake a livable wage that allows people to save for retirement. Did his job allow him to put some away in a 401k or was there no pension fund set up? Has he been working at his current job long enough to put some away for retirement? Of course this 70 year old may just simply be guilty of poor planning.
Brenton Smith
“This factor may counter-balance some of your concern about early retirement beneficiaries depleting the fund. But please don’t think all or even most people are collecting early retirement for selfish reasons.”
Again, I am not looking at the individual. I am looking at the system’s influences on the individual and the impact that it has on the system as a whole. I don’t see anyone as selfish. I see them making a sensible decision.