FLYING SAUCERS, THE YOUNG, and SOCIAL SECURITY

Coberly, All good points, but you can not listen to a “serious” Republican or unfortunately a majority of “serious” Democrats without them talking about the need to “reform” social security and by “reform” they mean gut it. Even too many “progressive” Democrats think that the answer is to raise the cap or means test benefits with virtually no recognition that this would undermine the plan to the extent that like Norquist’s dream of drowning government in a bathtub, I guarantee you social security would be nothing more than a cut rate welfare program within 20 years. And just as it looks like there is no way the long term unemployed in this country are going to get any benefits after the first of the year, it will only be a matter of time before the rich and powerful decide that it really is time for grandma to die because we just can not afford to feed her catfood anymore–think of all the hungry productive cats out there who are going hungry just to keep grandma alive. By the way it was just about 45 years ago today when I asked my dad what the FICA deduction was from my paycheck–which was larger than either the state or federal taxes withheld. My dad–then and now a Republican of the Barry Goldwater branch–told me it was for social security and that I would never see a dime of it. Well I will be 62 in 6 months and although I would like to wait and get full benefits at 70, I just might claim so I can tell my dad he was wrong on social security.

The reason I wanted to look up the stat noted above (be nice if I could contain all my thoughts in one comment) is that I would like to know what portion of the 18 millions’ income is above the Social Security cutoff — so I could figure out how much it would add to Social Security take if it were all taxed.
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The Trust Fund setup this, thus: the wrong tax is paying for the wrong thing all the time — while saving politicians the embarrassment of, every so often, needing to raise the right tax to pay for increasing Social Security outgo.

While the regressive FICA tax (pays back progressively; so, that’s alright) stays the same for 60 years or so, the extra money not needed to pay retirees in the beginning goes to pay for what the progressive income tax is supposed to pay for — with the mechanism of buying US bonds.

When retiree outgo finally starts to exceed FICA collections the income tax takes over paying for the extra outgo — will reach 25% of outgo by the end — with the mechanism of cashing the bonds.

When and if the bonds ever run out, income tax will be lowered and FICA will have to be raised — to where it would have been in the first place if the pols had been willing to embarrass themselves every so often.

There legitimately should be a five year surplus in bonds so that any temporary shortfall in FICA income can automatically be covered for retirees while congressional pols get around to embarrassing themselves — happened a couple of times.

Terry

I think you are about right. I am sorry about your dad. People believe what they read in the Wall Street Journal and they don’t know enough about reality to think carefully.

Denis, try this

http://www.census.gov/compendia/statab/cats/federal_govt_finances_employment/federal_individual_income_tax_returns.html

Well Denis I would quarrel a tiny bit on the phrasing and framing but you have gotten most everything right, so let me add a geek technical point.

Social Security’s official target for ‘solvency’ as defined is to have a reserve equalling 100% of NEXT year’s cost for each year of the projection period. This target is a ‘Trust Fund Ratio’ of 100. Now since Social Security will always have SOME income as long as SOME people have jobs, it can always pay out SOME level of benefits. Which in turn means that a reserve equalling 100% of cost means a reserve covering multiple years of shortfall, the amount depending of course on such things as Employment and Real Wage. And the result when you look at the numbers carefully is that a TF ratio of 100 works out to around a 4 year buffer. That is even if the long term trends are against you the politicians have that much time to get things right.

But four years is not that much time so the Trustees have imposed on themselves even a tougher test. Under the test for Short Term Actuarial Balance Social Security fails if in ANY year of the next 10 it projects to have a TF Ratio less than 100. Which actually gives the system a 13-14 year buffer.

For example the TF Ratio is currrently above 350 and actually projects to get a litle larger before the Trust Fund starts getting drawn down. And BTW conformtably meets the test for Short Term Balance. But not by a lot. That is under current projections our Canary in the Coal Mine, the Ten Year in Advance warning of a TF Ratio under 100 will get triggered in the next half decade. Leaving us with only that 13-14 year buffer before benefit cuts. Or 20 years total.

Now a perfectly sensible strategy would be to put the trigger point for actual action at the exact point the Trustees do, that is the point at which the TF Ratio is within 10 years of going below 100 and so 13-14 years from going to zero. And given what was happening with the projections between the 1997 and 2006 Report years this put the projected action point at about the 15th of Never, indeed Trust Fund Exhausion (TF Ratio of 0) was being pushed back at almost two years per year during that period. On the other hand there was a political argument for doing ‘Something’, if only to get the Bad Guys to Shut the Hell UP, We GOT This.

Thus the NW Plan was born – as a compromise between Get Them to Shut Up by Acting Now and Lets Not Do Anything Until the System Fails its Test, If Ever. Because the NW Plan codifies the Short Term Test but then presestablishes the response mechanism.

That is at the point of Test Failure, or about 13 years in advance of actual TF Failure, you start a phased in plan of payroll tax increases. And becaues you do have 13 years to play with those increases only have to be large enough to keep that 13 year window moving ahead by a year per year. Now if things get marginally better year over year you trim that increase a hair, if marginally worse, you boost it a bit. But the end resultl is that you are ALWAYS 13 years plus ahead of the crisis point and so can be said to have permanently fixed the problem. At least using the Short Term Actuarial Test.

All of which is a roundabout way of endorsing your strategy of always having that five year surplus. Not mind you 5 years of actual future cost at any one time, but 5 years or so of buffer between worse case shorter term gaps between income and cost. And then adding on enough years BEFORE that to plan and implement the schedule of fixes, or as with Northwest have the mechanism prepared in advance ready to be Triggered.

So the Trust Fund has an important role and we would miss if it the aliens came down and stamped Null and Void on all those Special Issues because it serves as valuable diagnostic and palliative tool and so eliminates the need for drastic emergency surgery.

But ‘important’ does not mean ‘day to day critical’ nor does this diagnostic role make the Trust Fund into some investment fund dependent on ROI. That the TF earns interest is just a matter of equity, the money was after all borrowed and workers deserve to have interest credited on their reserve funds. But in the end that is all the Trust Fund really is – a reserve and buffer. And the failure to understand that is why we have certain critics from the Right bleating about ROI and some from the Left decrying the fact that ‘they borrowed all the money and never want to pay it back!’. Well sorry that is a feature and not a bug of maintaining a prudent reserve set to always have 100% of next years cost at any given time which in turn would cover several years of even severe shortfall;.

But this does result in the kind of mind wrenching conclusion that fixing Social Security means never getting the Trust Fund ‘paid back’. Because the Trust Fund was NEVER designed to go to zero. And we wouldn’t WANT it to go to zero. Which means keeping a prudent reserve. Which under this particular test has to grow in nominal terms every year. Meaning we never WILL get our money back (as such) and that is a GOOD THING.

haven’t thought this through yet, but

the difference between raising the tax one tenth of one percent in 2018 and for the next fifteen years… when the trust fund would have run out without the tax raise

and just waiting the fifteen years until the trust fund runs out… that it, is has been entirely paid back by “taxing the rich”… and then boosting the tax all at once by 2% (each) in order to pay the then higher benefits… by then not so much the boomers as because you all are going to be living longer…

looks like about an average of 0.7% increase in the tax for 15 years, followed by an average 0.25% tax “savings” for five years… which would leave our mythical average worker a little “ahead” by letting the TF go to zero (or one year’s reserve) and “making THEM pay for it”… THEM being the people who are the heirs of the people who got the tax cuts.

and not counting all the intricacies of who really pays what tax and who really got the benefits of that borrowed money..

and not counting all the wailing in washington about SS running out of phony iou’s

it doesn’t seem to me to be worth it.

though, since we can’t count on sense… i would not object if we ran out the clock and then raised the tax 2% all at once. the shock would be much less than people think. a one day wonder. then we’d all go back to work… and watch our wages rise that much in two years… and of course look forward to bigger benefits over a longer life span

not to put too fine a point on it… all this sweating and shouting over a couple of percent or a couple of years one way or the other is actual bona fide verifiable insanity.

the point is you are gonna need your Social Security, and you are gonna have to pay for it, and it ain’t gonna cost enough for you to even notice.

Honestly, I don’t think most young people care about the solvency of social security. They don’t believe it is going to be there because they don’t believe that the United States is a going concern. Questions about social security aimed at young people are more a referendum on the state of the union than the solvency of the trust fund.

Goodwin

i don’t think we are ASKING the young people to learn anything from them. the bad guys are TELLING the young people lies, then polling them to see if they are getting away with it.

when i was a young person (not anyone over thirty) i didn’t know anything, except I thought Vietnam was a bad idea.

Turns out i was right, and therefore smarter than Robert MacNamara… but that wasn’t because I KNEW anything.

Though Noni is snarking you can pinpoint the origin of the Phony IOU argument.

In 1999 Dean Baker and Mark Weisbrot published a book called “Social Security: the Phony Crisis” which among other things showed that all SS needed to self-fund was for Real Wages to resume the path they had been on before the Supply Siders took over. Moreover in the six years that followed the date of Trust Fund exhaustion, which heretofore had been the acknowledged point of ‘Crisis’ was being pushed back at a rate of more than a year per year and indeed had moved from 2026 with the 1997 Report to 2042 with the 2005.

Now a crisis point that retreats at more than a year per year and indeed at almost 2 years per year (around 1.7) is maybe a crisis that will never come and as Trust Fund balances balooned to and beyond the trillion and then the two trillion it became a little embarrassing to stick with the messaging “Flat broke, and Sooner is Better than Later” when flat broke meant $2 trillion in the bank and Later proving itself better than Sooner with every new Report.

So they just recalibrated and invented a new metric for ‘Crisis’. Because they needed SOME sort of ‘Crisis’ to sell their message. And the way to do that was to make a claim that no one had ever made before, at least in such an obvious way, that Special Treasuries just were not real at all.

That is the need for ‘Crisis’ drove the re-definition and not some ‘principled’ argument that entities can’t owe debt to themselves and the rest of the claptrap.

Social Security is bad. And always has been. Even when most people thought it was good. So saith Cato and AEI. It is the job of the hirlings at those think tanks to sell that message, by foul means or fair. The argument doesn’t have to be consistent or logical, it just has to be plausible enough that it doesn’t fail the laugh test outright.

My way of making sense of this is to see the critics of Social Security in the guise of debaters engaged on this years National Debate topic. At that level of debate the teams are expected to be able to present the cases for and against the Question, that is they are being trained to be Advocates. And while it is useful for your Advocate or Attorney to actually believe in your case, it isn’t an absolute requirement and in some cases actually makes your task impossible. For example no one in or out of court really believes that big time lawyers for Mafia Dons really believe their clients are innocent or even narrowly innocent of the specfic crime for which they are being currently charged. While lawyers are restrained by various mechanisms from actually lying to the judge or in the judge’s precense, they have a lot of leeway with the jury.

In 1994 the case for ‘Crisis’ was easy. The Trust Fund was projected to go to Depeletion in the early years of the 2020s, at the point when Boomers looked to be imposing the maximum amount of strain on its financing. Similarly the general consensus that we were facing General Fund ‘deficits as far as the eye can see’ and so had no hopes of a bailout there. Hence a perfect storm. But by 1999 the storm signals weren’t so strong, General Fund deficits growth rates were slowing and the date of Trust Fund depletion started pushing out beyond the point of maximum Boomer impact. Until by 2004 the whole thing was looking ridiculous with SSA putting depletion at 2042 and CBO at 2048.

So the Mafia lawyers, er, er SS policy analysts at Cato and AEI adopted two different arguments: one presenting numbers in PV Infinite Future (adopted with the 2003 Report) and then having Bush go out on his vaunted Social Security Tour talking up ‘Phony IOUs’.

Because Social Security Bad. Per the Bad Guys. All else just works its way back to that.

Bruce,
Thanks to you (and a quick check with Wiki) I am finally getting this down right:

The 75 year thing was something projected way back when for a commission — not anything especially meaningful to today’s policy making. (PS. Never occurred to me that the TF should be enough to cover _short-fall_; without thinking I took it for covering the whole payout.)

So, what we have — approximately; if I understand correctly — is a 4 year full payout which stretches to 13-14 of shortfall. Any less than 100% projected coverage of 10 year shortfall triggers the Trustees making “help!” noises. And, in actuality, the TF is never to run out — but to keep it that just way.

Up until now nobody noticed any of this because the 100% projection has been maintained at the current tax level without any action on anybody’s part. All the heat is as you depict coming from people on the left or the right who don’t have a clue about the (hoped for) permanent state of the TF.

Meantime, if the FICA tax rate has to be raised a decade from now (when the TF starts to draw down according to Wiki), I say it shouldn’t hurt any if we do something else right in the meantime: reform the American labor market so that the 1-2% or more of _compounded_ yearly increase in per capita output goes to the 99% who can then cover the one-time 1-2% increase in FICA tax painlessly (if not silently).

On 4/13 years.

If there is consensus on what constitutes Social Security Crisis it is the projected 25% cut in benefits at Trust Fund Depletion. Certainly the policy suggestions as to how to navigate that shock vary (Biggs would phase in benefit cuts, Coberly phase in revenue increases) but most people concede it would be a political earthquake if unaddressed.

Which means that the current target level of a TF ratio of 100 would deliver nearly four years of grace assuming we just went into this fat dumb blind and happy. And setting the ninth year before going under 100 as the test of ‘insolvency’ (the TF going under 100 in year ten and then going to zero three years later) gives you the 9 plus 4 = 13.

Now there is no reason to not be proactive and put in a mechanism ahead of time, and particularly a mechanism that would automatically trigger at year T minus 13. That would allow us to say we had ‘saved’ SS without actually changing rates in the first year. Psychologically though I would have to agree Dale that SOMETHING should be done in the first year, if only to get the ‘serious, sensisble, centrist’ but also innumerate morons off our case.

But if I put on my Wirzard Hat I would implement a Denis/Steve Roth plan of attacking wages up front and then have a Coberly NW Plan for backup. That is we would have the Trigger ready to pull and yet working hard to try to avoid pulling it too soon.

On paper Social Security was at its most secure on two dates in the last half century: June 1983 and November 2004.

In June 1983 the official scoring of the legislation that came out of the Greenspan Commission had SS being solvent ON AVERAGE throughout the 75 long range actuarial period. The reaction of Cato was to organize the conference in NYC that among other things produced the paper by Butler and Germanis called “Social Security Reform: Achieving a Leninist Strategy”.

In November 2004 the date of Trust Fund exhaustion had been pushed out to 2041 and so past the point of maximum Boomer impact on the system. Moreover under the economic growth expectations projected by both the Bush Administration and under the Washington Consensus the business cycle had been broken in a way that would have fully funded Social Security. And the response of the Bush Administration was to announce the usage of the ‘political capital’ just gained from the election to launch a Social Security Tour.

That is if the question was ‘solvency’ why did the Right use the points of maximal projected solvency as action points? Why then? Why in 1983 and 2004? Because those were the points of maximum danger to their project and of maximum opportunity to the New Deal Project.

I think it is not a coincidence that the actual pressure on Social Security from the Right has diminished over the last 7 years even as projections worsened and now have TF exhaustion at 2033. The danger of ‘Solvency’ seems past.

Which also may explain the fury directed at Elizabeth Warren this week. How DARE she raise this from the near dead state the ‘serious’ folk had reduced it. Shoot Biggs might have to fire up his website again?

(And there is such, it is called ‘Notes on Social Security Reform’)

Bruce

we don’t need the 1%. we do need the 10%.

most of whom don’t know anything about SS, and will be relieved to hear that we have a plan that saves them some money.

the one tenth percent solution is not a “backup.”

it’s what to do while you are waiting for your political miracle to restore the wage growth of the working class.

definitely worth working for, but meanwhile… save Social Security just in case.

I can’t help but feel that this conversation has been going on and on and on for several years now and it hasn’t changed much. Not that the content of the comments aren’t worth while and valid, but it seems pretty obvious that the conversations regarding Social Security, where ever they may occur, at odds with the reality of the political situation. And that is critical. The Social Security “debate,” if it can even be called that, is almost totally disingenuous. Facts are repeatedly met with political rhetoric and out right propaganda. The discussions are two sided with reality facing off against political ideology and a total lack of candor. Unfortunately the propagandists are slowly, but steadily, winning the minds of the Congress if not the people. Seemingly intelligent people in the Congress don’t seem to have a clue as to the validity of descriptions like those posted here by Dale and Bruce.

This is not a debate that can be won with facts and figures. If the electorate doesn’t wake up to what is being done to them by their own elected officials all the facts will amount to little and deceit and deception will wear down the opposition. The problem isn’t the Social Security program. The problem is the distorted wealth and income distribution
curves. We have a bi-modal economy. Until that changes, and its only been getting worse each year for the past several decades, we will be sitting around trying to figure out all manner of complicated plans and mechanisms to make benefit programs work. Even those like Social Security which is funded by the very people who will eventually benefit from the program. We need to talk more about the deceit and deception so prevalent in our Congress and in the media. It’s a revised representation that is needed not draconian schemes regarding how to live within a world of avaricious greed and the propaganda that is constantly broadcasted in order to maintain the status quo..

Dale I’m not quibbling with your post. I guess I’m expressing the frustration of listening to reports of the “budget compromise” agreement coming out of the joint meetings between Darth Vader and Patty what’s her name. The only thing being compromised in that agreement is the social ideals that all involved keep claiming to be preserving.

Social Security has been shielded for the moment, but it’s only a matter of time and a few more compromise agreements between the deceivers and the acquiescers. The description of how Medicare has been protected is an example. As the announcer tells us that both Medicare and Social Security are left unscathed the footer notes that “Medicare reductions continue in place until 2023.”

Yes, all the good descriptions have to continue. But a greater emphasis has to be put on the fact that it isn’t a debate. It is valid argument vs. political bull shit. It is not an argument that is resolved by yet another compromise some time in the near future. It is a venal point of view trying to over whelm the facts of the issue.

u.mm…… didn’t the socsec $ get used to pointlessly destroy Iraq, Afghanistan, Libya, murdering millions of their citizens, putting our own loved ones in harm’s way, vastly increasing risks of terrorism, degrading America’s int’l reputation, promulgating enrichment of greedy evil unethical private contractors who returned to use their resources to do harm in the domestic class war?

I believe there are lots of conservative people who think SS is a good thing. They may even support raising taxes to pay for the increase in scheduled benefits that they have gotten used to since 1983. I anticipate a pushback from putting the NW Plan triggers in place without having a limit on how fast the taxes could increase.

While thinking about this problem I had an aha moment. We already have triggers on the benefit side. The COLA adjustment linked to CPI is a trigger. The use of AWI to calculate Average Indexed Monthly Earnings is a trigger.

But there is no trigger to adjust (benefits or taxes) for how many years people collect benefits. From 1941 to 1983 we depended on Congress to change rates. Since 1983 we have depended on momentum.

Since we have triggered adjustments for benefits, we should be able to have triggered adjustments for revenue, but I think we need to work harder on explaining triggers and may need some work to put checks and balances on those triggers.

“didn’t the socsec $ get used to pointlessly …”

When you borrow money from the back, they don’t care whether you successfully renovated and flipped the house you bought, or lived in it while the value went down. They just want to be repaid.

It is true that the rich pay higher taxes, so it is not true that income tax payers are exactly the same as payroll tax payers, so it matters to SS beneficiaries that the loans are repaid in the same way it matters to the bank. (relating the analogy with the original post, the bank won’t go bankrupt if it sees some defaults, but it will run more smoothly)

well, i didn’t see any “ergo” in Wat’s proposition

and while it’s true that if the money is paid back, the “bank” (us?) don’t care what it was spent on

and while it’s true that the personnel from 1983 were not the personnel from 2001, there is some over lap in world-view.. not that SS, or raiding SS figured in any of their calculations

nevertheless it is not stupid to observe that some 3 Trillion dollars worth of money collected from people who thought they were paying for their Social Security… and I do count interest on that money… and interest on the interest… just the way the rest of the word does..

that money was used to buy war toys and other things. the fact that it doesn’t need to be paid back… point out by one Bruce Webb… should lend a degree of credibility that the Boomers “extra” payroll tax was used to help fund the rest of the government at a lower general tax rate, or borrowing from the public rate, than would otherwise have been the case.

not … as i have tried to show… that this amounts to anything we need to worry about

but “stupidest”? i don’t think so.