MAYA MACGUINEAS TALKS BACKWARDS ABOUT SOCIAL SECURITY
by Dale Coberly
MAYA MACGUINEAS COMMITTEE FOR A RESPONSIBLE FEDERAL BUDGET (CRFB) TALKS BACKWARDS ABOUT SOCIAL SECURITY IN THE NEW YORK TIMES…NOBODY THE WISER
Here is what she said:
“and “protecting” Social Security and Medicare, a reassuring political promise that removes over one-third of the budget from consideration.”
“trying to square the circle of balancing the budget while taking the largest contributors to spending growth — Social Security and Medicare — off the table”
“many Republicans — including, notably, Paul Ryan, the speaker of the House — have made the case for why we have to reform our largest entitlement programs, including Social Security and Medicare”
“Democrats, many of whom too often act as demagogues on entitlement reform,…”
Read the Op-Ed on the New York Times Website.
Here is the truth:
Social Security does not add one dime to the debt or the deficit.
It is paid for entirely by the workers who will get the benefits.
When Social Security “taxes” bring in more money than currently needed to pay benefits, that money is kept in a Trust Fund, which like other trust funds uses the money to buy interest earning government bonds. Then when Social Security taxes bring in less money than needed to pay current benefits, it cashes the bonds.
Note that Social Security is NOT borrowing money; it is LENDING money TO the government, and when SS cashes its bonds it is NOT causing the government to spend money for Social Security. The government BORROWED that money FROM Social Security and spent it on other things, including tax cuts. Paying the money BACK to Social Security does not increase the Federal Debt. It reduces it. Or it would reduce if it the government didn’t get the money to pay BACK Social Security by borrowing it from someone else.
But by talking backwards the Committee for a Responsible Federal Budget (CRFB) hopes to fool you into thinking that Social Security CAUSES the debt.
Then, when it’s time for Congress to pay back the money it borrowed FROM Social Security, this payment shows up in their budget as an “expense,” and because all the expenses add up to more than all the income, the budget is in deficit, and the payment of Congress’ debt TO Social Security, like all the other expenses, is said to “contribute to the deficit.”
But it is talking backwards to describe paying BACK the money you borrowed as contributing to your deficit.
Normal people would not think much of you if you borrowed money from Paul and then told them that Paul was responsible for your debt. And if you paid Paul back by borrowing from Peter, normal people would not think you were being honest if you said that Paul increased your deficit.
Social Security does have an “actuarial deficit.” This has nothing to do with the “budget deficit” or the Federal debt. What it means is that some time in the future if nothing is changed, Social Security will not have enough money to pay for all the “scheduled” benefits. This is a problem that can be fixed by raising the payroll “tax.”
[I put “tax” in quotes to try to remind people this is not like an ordinary tax, because you get your money back, with interest, when you will need it more than you do today.]
The amount of the raise that will be needed is not large. Ultimately about 2% of your wages from you and another 2% from your employer. It would be better to phase this in at a rate of one tenth of one percent per year… about a dollar per week in today’s money. This is at the same time your wages will be going up over ten dollars per week per year.
Or you could wait to the last minute and raise your tax by 2%. This would not be a burden, because by then your income will be at least 20% higher than it is today. But you would feel it as a burden if it hit you all at once. It’s the difference between getting a raise of 200 dollars a week and getting a raise of 180 dollars a week. If you had never expected the 200 dollars, you would be happy to get the $180. Especially if you remembered that your were not “losing” that $20 but merely setting it aside to help pay for a longer retirement than you had expected.
Or you could raise your tax about one percent today (and another one percent from your boss). This would take care of the “actuarial deficit” for the next seventy five years. But the enemies of Social Security like to scream “this won’t do: we have to solve the problem once and for all!” Actually we don’t. The people in 2090 will be in a much better position than we are to decide if they want to raise their tax another one percent or decide to do something else.
Thing is, we do have to do something now. We have to at least think about it carefully so we won’t be fooled by the people talking backwards, or stampeded by the people screaming Social Security is broke, flat bust” and “a huge burden on the young.”
Remember: a dollar a week each year if you start this year or next. Ten dollars per week for the next 75 years if you start this year and want to let the people seventy five years from now worry about another ten dollars (in today’s money) when their income will be more than twice ours. Or you can do nothing and wait a little more than ten years and then raise your tax about twenty dollars per week all at once, which will fix the problem forever (including those people living out at the infinite horizon).
Or you can listen to Maya and panic and let Congress cut your benefits, or increase the age you will be allowed to retire, or turn Social Security into welfare as we knew it (which will lead very soon to cut benefits and increases in the retirement age for the poor, and nothing for you while you still pay the taxes) with all the fun of gong to the welfare office every quarter to prove you really need it. The Left wants to help turn Social Security into welfare, because they think they can “make the rich pay for it.” I don’t think the rich are going to go along with that.
SSA reports that Social Security had a cash flow deficit of $66 Billion last year. This results in a $66B increase in the all important Debt Owed to the Public.
Is this a crisis? Absolutely not. But look to the future. Between today and 2032 the unwind of the TF will add $3T to Debt Owed to the Public. This will cause some problems.
https://www.ssa.gov/cgi-bin/ops_period.cgi
Krasting
as usual you get it crooked.
The “cash flow deficit” is what the Trust Fund was created to take care of.
Sort of like your “Christmas Fund” where you put in a few dollars every month so that in December you will have more money to spend than you are taking in in that month. It’s a normal part of “financing.” In fact it is the REASON for finance.
Meanwhile Congress having to pay BACK the money it borrowed FROM Social Security only results in “adding to the Debt Owed to the Public” if Congress borrows from the public the money it borrowed FROM Social Security.
The only way your concern would make any sense if is Congress never had any intention of paying BACK the money it borrowed FROM Social Security.
Apparently bad faith makes good sense to you.
that is “if Congress borrows from the public the money it needs to pay BACK the money it borrowed FROM Social Security..
You can pretend that the money the Congress borrowed FROM Social Security is not “money borrowed from the public”, but the people who paid their money into Social Security with the promise they would get it back when they needed it might think of themselves as “the public.”
Playing games with words you define in secret to mean what will fool the people is not honest. In fact it’s a damn lie.
I should point out that one of the advantages of the “raise the tax one tenth of one percent each year” plan is that it entirely avoids the problem of paying BACK the money borrowed FROM Social Security.
The additional tax (about a dollar per week each year from the people who will get the money back when they retire) will eliminate the “cash flow deficit” and allow Social Security to pay present benefits from present taxes. Since this Trust Fund will not be drawn down, Congress will not have to borrow to pay it back. And because the Trust Fund is not being drawn down, it will continue to pay interest which will keep the SS tax about 1% lower than it would have to be without the Trust Fund.
This may be too hard for Krasting to understand. It was certainly too hard for the people at “Social Security Works”, the head of which told me, when we were still friends, that there were an infinite number of solutions to the Social Security “problem.” There are, but some are better than others.
Coberly – You say:
You can pretend that the money
the Congress borrowed FROM
Social Security is not “money
borrowed from the public”
It is you who is pretending, not I. You know full well that there are two kinds of debt. Debt Held by the Public and Intergovernmental Holdings.
You are mis-stating the facts regarding your own article.
The details from the US Treasury:
https://treasurydirect.gov/NP/debt/current
Krasting,
like I said, playing with words to fool people is not honest. it’s a damned lie.
The money the government owes to social security is owed to the people who paid the money FOR their Social Security. The government can pretend that is not money “owed to the people… or “the public””, but the people who paid the money FOR their Social Security know better… even if they don’t know the “technical” words.
Besides, you overlooked the fact that by paying an extra one tenth of one percent (one dollar per week) the money owed TO Social Security never has to be paid back: it just remains on the books as “required reserve.”
Your…Krasting’s… modus operandi continues to be to read something he doesn’t understand but looks bad to him, or he thinks can be made to look bad to people who don’t understand it either, and shouts “the sky is falling! we’re all going to die! and there is Nothing we can do about it!! except cut Social Security!”
So, one more time, let me state the Truth. Social Security does not borrow money. Social Security has nothing to do with the Federal Budget or the National Debt…. except that it has lent money TO the government in a clear and legally defined manner that requires the Congress to pay the money BACK when the time comes that it is need to pay Social Security benefits to the people who paid the money in the first place. This is the law.
AND… Social Security can, and should, pay for its own “cash flow deficit” in time to prevent the Trust Fund from falling below one full year’s required reserve. This will save the government from having to pay BACK the money it has already borrowed FROM Social Security. And it will keep the payroll tax about 1% lower than it will have to be if the Trust Fund is allowed to run to zero before anything is done.
If the Trust Fund runs to zero, it will be necessary to cut benefits by 20% (hard to live on when you are living on a pension) or raise the tax all at once by 2% of payroll (plus 2% employer match). This would not be felt as a burden, but would be played by the enemies of Social Security as a “huge tax increase.” They would know that most people would not realize that they will get their Social Security “tax” back when they will need it more than they do the day they paid it.
Those are the facts. That is the Truth. Krasting and the Dongress can play games with words and ENRON accounting all they want… and they will fool most of the people unless someone with a forum explains the facts and the truth to them.
Saying that the government doesn’t have to pay back the Social Security Trust Fund for the roughly two trillion dollars that Congress borrowed from it, is saying that the government can’t save money in its own currency. That the idea of the US Treasury saving money makes no sense.
This is a somewhat defensible economic stance, one that the proponents of modern money theory (MMT) make. Since the US government can produce all of the money that is required for their own spending when they need it, there is no reason for them to save.
Perhaps this is why Kresting is so set in his belief that Congress doesn’t have to honor the bonds in the SST. But he should be aware that the argument cuts both ways, if it is true that the government can’t save money then by a very short extension, it also has to be true that the government can’t be in debt in its own currency. To say that it makes no sense for the government to save, that it can’t do it, has to be accompanied by the argument that the government can’t be in debt in its own currency. This is only defensible if you accept both sides of the argument.
Also, remember that Reagan and Congress raised the payroll tax to produce the excess tax collection. They raised the regressive payroll tax intended to be used to fund the baby boomers’ Social Security to fund the progressive income tax cuts that benefited primarily the wealthy. No matter how you define the terms it is raising taxes on the poor and the middle class to pay for the tax cuts for the wealthy. Not pretty.
I think of it as not a question of the economic mechanisms and nuisances involved but a sure sign that it was always intended that taxes would be raised at the proper time on the wealthy to fund the baby boomers’ retirement. Income taxes, not payroll taxes, of course.
Krasting said,
“Is this a crisis? Absolutely not. But look to the future. Between today and 2032 the unwind of the TF will add $3T to Debt Owed to the Public. This will cause some problems.”
Or you could make a back of the envelope calculation. 3 Trillion dollars over 15 years is 200 billion dollars a year. There are 200 million people paying Social Security tax. That works out to one thousand dollars per year for each worker to contribute to his Social Security tax. There are people who will cry and scram “1000 dollars a year is too much; it will cripple us.” Actually it would add up to an extra 40 thousand dollars “saved” over a 40 year career. That would pay for about two years retirement benefits. Oddly, that is just about what your life expectancy will increase by over that time.
Warning: this is very approximate. The actual calculations are a little more complicated. but they come to nearly the same thing, except that they show the entire “deficit” (not just the Trust Fund) can be closed by raising the tax about 50 dollars per year every year for about twenty years. That’s a dollar per week per year, like I have been saying.
Moreover, letting the workers pay for, save for, their own Social Security has enormous advantages in terms of keeping their retirement safe from the “damn politicians” Roosevelt warned about.
And the Congress never has to pay back the money it borrowed FROM Social Security. If you think that’s a bad thing, you still don’t completely understand how this all works. The money the Boomers paid for their own Social Security is (in part) what became the Trust Fund… used to pay the Boomers benefits, and it is doing that today. But the “after the boomers” generation is going to live longer than even the boomers, so they are going to have to save more for their retirement… pay more for their Social Security. If they start paying that today, they will be supplying the “extra” money that the Boomer generation needs (and paid for) while paying in advance for their own longer retirement. And the extra Boomer payments… the Trust Fund… just get absorbed into the “required reserve,” saving Congress from having to pay BACK the money it borrowed FROM the Boomers. The Boomers get paid out of the new gradually higher tax. And the after the boomers don’t have to pay an even higher tax in order to fill up a new Trust Fund, which will be required.
Simple Don
my analysis does not depend on the magic money theory. it is ordinary accounting. but you have to do the accounting honestly and completely.
And Social Security is not a “regressive tax.” It is an insurance (and savings) contribution (you can call it a tax as long as you understand the the people who pay it get their money back with interest) paid for by the people who will get the benefits. Because it is insurance, at the end of the day, those who ended up poor after a lifetime of work will get an insurance supplement paid for by those who ended up rich after a lifetime of work. This looks more like a “progressive tax” than a regressive one. It is neither. The words “progressive tax” are used by the Left to avoid having to think about what they are talking about.
As long as you are thinking about progressive or regressive taxes you are thinking about Social Security as if it were welfare. lt is not. It was carefully and deliberately designed NOT to be welfare.
Oh, well, just to try to be a little clearer
The reason the Congress would not have to pay back what it borrowed from Social Security is not because of any magical money tricks. It’s simply that the money would not be needed because the gradually increased tax would pay for the increased benefits as they are needed.
Nor is the money “stolen” from those who lent it to the Congress, it just becomes absorbed into the Trust Fund reserve, which would otherwise have to be restored by the taxes paid by the future payers of the payroll tax. Meanwhile the money “sitting” in the reserve is not going anywhere, so it doesn’t have to replaced by Congress “borrowing from the public,” much less “taxing the rich.
This is not very hard to understand but you might have to count on your fingers a bit to follow the money.
well, as long as I’m here…
there is another aspect of this that a lot of people find hard to understand, and some people will never understand
those people paying the higher tax will be paying for the rest of the Boomer retirement AND AT THE SAME TIME they will be paying for their own future retirement. this is because of the dual nature of money. you put money in the bank and at the same time you are paying for your neighbor to build his house (he couldn’t do it without your money) AND paying for building your own house some time in the future. the Bank credits you with the money, lends it to your neighbor, and eventually gives it back to you with interest.
the secret of capitalism.
the people who will never understand this argue that with the bank you keep title to your money so you can get it back, but that with SS you have no “claim” on your money so you (could) lose it.
well, with the bank your claim on the money depends on the governments willingness to enforce it. and with SS your money is credited to your account very formally and you will get it back…. unless the congress decides not to. the congress can do anything it wants if you let it. they can come to your house and take your only begotten son and sacrifice him to the god of war. and you let them, because your neighbors won’t help you stop them. it’s called “the draft” and is a sacred duty of citizenship.
and they could take your pension away if you were an alien communist… and your neighbors would let them do it, because, well, a communist…
but they are not likely to take your SS pension away… unless they do it one at a time, because your neighbors wouldn’t let them… unless they were fooled into believing that THEY were paying YOUR pension and they couldn’t afford it and you don’t deserve it.
That’s what Maya’s friends are trying to convince you to believe. And what I am trying to show is not true.
But people…
You WILL get your SS pension unless the enemies of SS control the government (which they very nearly do now), and if you pay for it. The price is right. All the other ways of saving for retirement are much riskier than SS…. if you don’t let Maya fool you. And your Congressman.
1) What about Medicare? That’s the real horror show in the budget. You know someone isn’t being honest when they piss and moan about social security to suck the air out of the room so that everyone completely ignores the real elephant in the room.
2) Regarding:
“Social Security does not add one dime to the debt or the deficit.
It is paid for entirely by the workers who will get the benefits.”
False. Except for the very modest trust fund, benefits are paid to PAST workers by taxes charged to CURRENT workers. The people doing the paying at any given time are NOT the “workers who will get the benefits”.
But still, there are reasonable fixes for Social Security, although they will take a major political compromise to enact. The program is too popular to be scrapped but can’t continue indefinitely to pay out more benefits than it receives in tax revenue (trust fund will eventually deplete under any accounting).
Many angles to a compromise: Taxes could increase. Benefits could decrease, or eligibility restrictions be enlarged, e.g. minimum age could increase. (Suppression of the CPI helps here already.) The nation might also import workers to pay extra taxes to pay for the rising tide of retirees. Or it could simply print the money to pay the bills and proceed with monetary inflation as well.
Welcome to AB
“benefits are paid to PAST workers by taxes charged to CURRENT workers.”
Funny, we accumulated a TF which to date is going to last into the 2030s and perhaps longer. Much of this is the result of so many of us paying into it since 1983 when Greenspan and Moynihan put the increase into play and the subsequent revenue generated from economic growth. I am eligible and just have not bothered as I get paid rather nicely to continue working. There are no reasonable fixes to SS other than get more people back to work to again generate enough funds equal to payouts.
Coberly will explain the NW Plan which Dean Baker appears to agree with.
Re: “the Bank credits you with the money, lends it to your neighbor, and eventually gives it back to you with interest.”
This isn’t true either. Banks don’t operate on a loanable-funds business model, and haven’t for decades.
The bank credits your neighbor with his new mortgage balance, the neighbor pays the builder, the builder pays off HIS construction loan, and now it’s up to your neighbor to come up with extra money to pay off the interest as well as the principal. The central banks decide when and how to raise rates to stop regular banks from issuing the fresh credit needed for all the borrowers to pay their interest, and then the creditors collect all the assets from the borrowers when they default. …
Simple – I have never said that the IOUs of the SSTF would not be paid off in full. In fact, just the opposite. As far as I am concerned there is ZERO potential for the USA to default on debt obligations to ANY TRUST FUND.
In my comment above I said that $3T of SSTF bonds would be redeemed IN FULL between now and 2032. I said that because I am certain that all of those TF bonds and interest will be paid IN FULL and on time.
But what does the Simple guy say??
this is why Kresting is so
set in his belief that
Congress doesn’t
have to honor the
bonds in the SST.
Simple you have my words 100% backwards. Do you accept that? You have made a false accusation. You did it in print when the facts of the matter are staring you in the face.
You are just playing the children’s game of “Insult BK”. Leave that junk talk to Coberly. You don’t do it well because you don’t understand the issues.
Coberly – I said $3T. That was a fast estimate. Let’s take a closer look at this.
1) The SSTF is 2.85T today. We agree that current law is that 100% of this must be paid back between today and about 2032.
2) The TF will earn interest from today until the TF is exhausted.
3) Treasury does not pay SS % in cash. % is paid in more Special Issue Securities. (SI Notes)
4) SSA has estimates for future % income for SSTF. It will average $50b a year for the next 15 years. (750B)
5) Over the next 15 years or so a total of approximately $3.6T (current principal and future interest) will move from Intergovernmental Debt to Debt Held by the Public. (This is critical. Do you agree that Current Law brings this result??)
6) The shift from from Intergovernmental to Debt to Public will not happen on an equal annual basis. It will start small and end big. $300-500 Billion will be the last few years.
7) The actual tipping point has not been reached yet. We have felt no discomfort because the process will not start in earnest until about 2022. From then on it is a very steep slope..
Coberly – Do you disagree with any of this?
I have said, for many years, that under Current Law the payback of SS IOUs will have a significant and unpleasant consequence as and when it happens. It is my opinion that in the latter stages of the unwind there will be significant hurdles to the capital markets and the broader economy. What is today CURRENT LAW is programed to cause a big financial blow-up in the foreseeable future. This is my opinion, you are entitled to disagree with my conclusions. But you didn’t spend 40 years in the government bond market trenches.
Please don’t respond “Just raise taxes every year for the next twenty”. There is ZERO potential for that at anytime in the future.
Trump is not going to do it.
If it came to it, Pence would not do it.
In 2020 the Dems will not do it either.
Please, stop pounding the table with a “fix” that has zero potential of becoming a reality. Too much time has passed. Ten years ago your plan might have worked. But today it is D.O.A.
As your ex-friend at SS Works said, There are many, far better, options for SS than raising taxes on workers every year for next two decades. Just accept that and move on.
Krasting
I would really like to avoid insulting you. I do not mean to insult you. I try to tell you honestly how your comments look to me. Unfortunately some of the words I use are the same as those used by people who have no other motive than to try to hurt your feelings.
So help me out a bit. And help out SimpleDon who may have confused you with me about “the Congress not having to pay back the Trust Fund.
You said, “Between today and 2032 the unwind of the TF will add $3T to Debt Owed to the Public. This will cause some problems.”
What did you mean by that? What do you propose the Congress do?
It seems to me their choices are:
Default frankly.
Cut SS benefits so the money never comes due.
Raise the payroll tax so the money never comes due.
Borrow the money “from the public.”
Raise general taxes to pay the money without increasing the “debt owed to the public.”
I think they will borrow the money “from the public.”
I have tried to explain why I think raising the payroll tax one tenth of one percent (about a dollar per week) per year until the tax is high enough to pay for the expected retirement costs of the people paying the tax… is the best solution.
You have mocked that.
What is your solution? Why did you bring it up?
Krastin
point 3) is wrong in part. Treasury used to pay in more notes. Now it has to pay some of it in cash…
point 5) is partly right but mostly misleading. borrow “from the public” is used by the Big Liars to imply that the SSTF was not borrowed from the people who paid the payroll tax. it is not true that the money must move from Treasury to the Trust Fund. that can be avoided by raising the payroll tax, or destroying Social Security by cutting benefits below where SS is meaningful retirement insurance.
I do not know whether paying back the money it borrowed from the Trust Fund will cause trouble in the bond market. But you’d think Congress would have known that when it borrowed the money. Unless they never intended to pay it back.
In any case the trouble can be avoided by simply raising the payroll tax enough so it enables the people to pay for their own future retirement. Very simple. Very fair. And telling me it’s a non starter doesn’t mean that it isn’t the best solution. It doesn’t even mean that it’s a non starter. That’s just you making a meaningless noise. ) Is that an insult?) Ten years ago you were saying it wouldn’t work. Now you are saying it might have worked ten years ago. Fact is it can still work, easily for the nesxt year or two, or with more noise and friction, almost right up to the time that the TF reaches “short term financial inadequacy.”
I’ll give you this: it won’t work if someone with a forum doesn’t start talking about it. The politicians are all in the pocket of the financial industry, and the financial industry has been lying about Social Security since 1936. We need another Roosevelt. But your thinking it won’t work is not a reason for me to stop telling people it’s their best choice. their last chance.
And my former friend at “social security works” did not have a better plan… except ‘tax the rich.” And she did not understand the math at all. Let alone the politics. Or even the fairness. Or the need ordinary workers have to be able to say “I paid for it myself.”
So, your turn: what would you do?
Krasting
additionally, you have never recognized that the payroll tax is not really a tax: the people who pay it are just putting their “must have” retirement money in a place safe from inflation and market losses and insured against death, disability, and a lifetime of low wages. they get their money back with interest when they will need it a lot more than they did the day thay paid the tax.
nor have you shown any ability to understand that “one dollar per week” is not exactly enough money for anyone to worry about. it happens to be the best way to pay for your future needs. it’s like increasing the amount of money you put away for retirement every year as your income grows. something any financial advisor would tell you was a good idea.
but you want to call it “raising their taxes every year.” That is misleading and dishonest.
If a dollar a week raise every year is what offends you, you could raise the payroll tax ONCE 1.33% for the worker (matched by his employer). This would be a one time tax increase of $13 per week. The tax would not have to be increased again for 75 years, long after anyone paying the tax today would be dead.
This would be a clumsy and stupid way to do it, compared to the dollar per week per year. but at least you wouldn’t have to face that “tax raise every year” that buggers your mind.
The people in 2090 would face another tax raise of roughly the same amount. I know that CRFB and Andrew Biggs are just terribly worried about that. But unless Trumpism has destroyed the country by then, those people in 2090 will be making three times as much as we are today in real dollars. You’d think they’d be able to handle an extra one percent tax increase.
But me, personally, I’d rather pay an extra dollar per week. Even if it means I have to pay another extra dollar per week next year when my pay as gone up over ten dollars per week. I’m just funny that way.
Wisdom Seeker
I suggest you learn to seek wisdom by reexamining some of the things you think are true.
Where do you suppose the bank gets the “money” to credit your account?
I am not sure your model of how banking works explains why the bank takes my money in the first place. or pays it back to me in interest when i need it later.
your insistence that the worker today is paying for the retiree today and will have his retirement paid for by the worker tomorrow is both “true” and fatuous. When I pay for something today that I will get tomorrow, I paid for it. Not the guy who came in the door and ordered another “something” and paid for it on the same day I got my “something.”
Every dime you pay into social security is recorded to your credit. And you get it back with interest. when you retire or become disabled or die with dependents. If that’s not paying for your own benefits what is it? The guy paying in the money the day (year) you take out your money gets it credited to HIS account, not yours. . That account in the SS books acts just the way that dollar in your pocket acts… except that SS pays interest.
Seeker
looking at your theory of how banks works makes me think you must be suggesting that the government pay for your retirement by crediting your account. You can pay the money back after you are done retiring.
Have you ever asked yourself where the bank gets the money to cash the checks you write on your credited account?
“Social Security does not add one dime to the debt or the deficit.”
Google this. While I lean contrarian, no one, pretty much no one, believes this. this smacks of a social security recipient trying to protect his benefit…. coberly?
Sammy,
Sounds like pretty much everyone you know is ignorant, has been lied to, or is the liar himself.
Coberly, re: your response to Sammy:
“Sounds like pretty much everyone you know is ignorant, has been lied to, or is the liar himself.”
Yes., there’s a lot of it going around… a virulent infectious agent was let lose immediately after passing the SS Act. It continually infects approximately 50% of all voting citizens. I think the name given to this infectious agent is called “starve-the-beast”, but it is also known as “small government”, “laissez-faire”, and “states-rights”. I think it’s a member of the genus called “Grand Old Party” which is a member of the Family called “libertarianism or sometimes referred to as Jeffersonianism” and that Family is a member of Phylum “Dog-Eat-Dog.”
Longtooth
Yes. Thank you, and very funny. I agree with you.
but there is this. there is an opposite party which believes the answer to everything is “tax the rich.” and I don’t agree with them.
While a “government pays” retirement system (which would be essentially a tax the rich system) might work in other countries, it won’t work in America… largely because of the class of “rich” who control not only the Congress but public opinion.
Even I like the idea of being able to say “I paid for it myself.” Of course if I couldn’t pay for it myself, I would quickly get used to the idea of “making the rich pay for it.” But I’d rather not. If the rich pay for it, they own it, and at the very least they would expect me to be grateful to them. At the worst they either kill it outright or make it very onerous… and miserly.
I think it is possible to have a society in which work is honored and well paid and the people can pay for their own needs even if they have to use the organizational capacity of government to efficiently provide for some of those needs… and to care for those not able to work… and to consider no work of “less value” because you can always find someone desperate enough to do it for less.
There would be room in that society for some to become rich honestly. But there would be a need to prevent even those rich, as well as those who become rich dishonestly (like Wells Fargo) from having too much power in determining government policies.
Very difficult perhaps, but less difficult if while recognizing the fallacies of the dog-eat-dog philosophy, we don’t fall into the psychology of demanding someone else pay for what we can pay for ourselves.
The problem is that the opposition to gov’t supported systems other than defense and policing / enforcement believe gov’t is akin or should be akin to a private enterprise profit making institution. This requires double-entry accounting so borrowed funds are a liability. Liabilities mean bankruptcy eventually if the borrowed funds aren’t paid back (with interest) and the interest is an expense that should only be incurred if the profit thereby created is more than sufficient to cover the interest expense, hence positive roi.
You can’t convince somebody who’s opposed to gov’t providing benefits to “those people” and especially with any borrowed funds that that gov’t doesn’t exist as it’s reason d’etre to be a profit making institution.
What this boils down to in fact, every single time, and will always boil down to this, is that gov’t borrowed funds will always be paid back by either increasing taxes or printing more money.
If taxes are increased they will be increased more on the wealthy capital owners who can better afford to pay them without enduring greater hardships.
If more money is printed it depreciates the value of the currency by inflation which reduces the value of assets held by the wealthy the most and so they end up paying the additional tax by other means anyway.
Every flat -taxer, every conservative with wealth knows this very well as does every gov’t, treasury, and central banker. The conservative with wealth doesn’t want to pay the piper and yet they know full well in the end that they will have to .. so their only option in the meantime is to oppose both paying high taxes in the present and oppose anything the gov’t does that requires more borrowing … that is unless it’s for defense which is just a round-about way of giving taxes back to the wealthy in profits for defense production and sales to gov’ts .. their own and any others.
What most don’t realize is that a gov’t exists for generations into the future… there is never an accounting deadline for investors to measure profit making ability against to ascertain whether it will go bankrupt or not. Gov’t has the unique ability to tax its citizens to always acquire the funds it needs or wants. It only needs both citizens and those citizens having income in order to obtain the tax revenue it needs.
The tax revenue it needs in the present, when borrowed, is actually being borrowed against it’s future generation’s citizens incomes which will be taxed then as now. And it actually doesn’t matter at all how far into the future gov’t will collect taxes on it’s future generations of citizens — the only caveat being the continued existence of that gov’t and continued existence of population earning income.
However gov’ts are assumed by gov’t and its citizens to be perennially in existence, with perennial populations earning income, and thus perennially having the ability to tax those incomes and thus perennially able to pay it’s debts with interest to those it borrows from.
The wealthy know this very well also. But they also realize that from time to time there will be some officials of gov’t in power at the time who will (for various and sundry reasons) decide to pay down some of the debt by increasing taxes on the wealthy and so because they know this then they want to keep the debt below that threshold that some future gov’t officials will decide they want to reduce to some lower levels.. which means increases taxes on the wealthy at some point in time.
The other fear the wealthy have is that if for some reason the economy tanks (as it does from time to time) whether for internal intrinsic or external extrinsic reasons, then the gov’t mush either tax more temporarily (or it may end up being more permanently even) or borrow more at higher interest rates thus increasing the debt even more and thus creating even greater fear among the wealthy that they’ll have to sooner or later pay that additional level of tax.
The final fear factor for the wealthy is that if there becomes a perception that the gov’t will not pay it’s debts when due or without inflating the currency, then the costs of borrowing (e.g. interest rates) go sky high and dramatically increase the level of debt very quickly which has a negative feed-back that increasing perceptions of the gov’t being increasingly unable to pay debt when due and thus forcing higher interest rates… leading ultimately to printing a lot more money which depreciates the currency and thus indirectly forcing the wealthy to pay the tax anyway (by depreciated value of the currency through inflation).
The conservative solution to keep these fears at bay or eliminate them entirely is to cut gov’t spending to the level of pay-go with zero debt and at the same time cut taxes on the wealthy to the bare minimum to provide for defense (which defends their wealth and assets) and enforcement…. plus enough “insurance” through public benefits to keep revolution from occurring… where-in the wealthy lose it all.
So it’s really very simple. If you’re wealthy or will become wealthy through inheritances or think you might become wealthy by luck of the draw (.e.g aka individualism) you fear having to pay the piper since it reduces your wealth and hence you act as if gov’t were a private enterprise profit making (or break-even) institution with minimal expenses…. translate benefits to the public.
if you’re not wealthy then you don’t really care except that you want benefits from the taxes you pay or from beneficial effects created by a gov’t’s policies.
Considering that only 10% at most and less than 2% of personal incomes in general can be considered to be in the wealthy bracket, then the other 90% of citizens aren’t in that class and only less than 2% of that 90% (e.g. 1.8% of the population) will become in that class over their lifetimes, then it’s a great piece of propaganda work that keeps half the population voting for conservative economic policies which don’t benefit them at all and reduce the benefits they receive in fact.
Propaganda works.
Coberly,
Fundamentally I don’t disagree with your take on paying for what you can afford. But we have a fundamental disagreement somewhere after that.
In essence the fact is that capital owners depend on labor and labor depends on capital owners… neither has a privilege of one of the other. But labor is limited to an individuals singular output.. it cannot be accumulated into “more labor”. Capital on the other hand can be accumulated to any level by any individual, and this then upsets the equal balance of labor and capital’s interdependency and privilege.
Gov’ts are created and composed of capital owners .. directly or indirectly, which increases capital owner’s power in laws that perpetuate and increase that power over time. This leaves labor with a lesser and lesser piece of the equal pie they share.
The only way to rebalance is by a redistribution of income through taxes… the wealthy few (capital owners) relative to the non-wealthy many (labor).
Therefore I see no philosophical or moral issue at all with a highly progressive tax all the way to the top of incomes.
The practical issue is with capital’s free flow… it will flow to where-ever it can receive the greatest after tax roi. The restriction is on risk of its use in nations where gov’t isn’t solid or in which rules may change without the capital owner having any influence.
For US citizen capital owners there is another benefit.. which is that the US can when really necessary protect US capital abroad if it wants to if that capital is in jeopardy. Basically this is what diplomatic corps are for.. protecting the interests US citizens in other nations. This is an immense benefit to US capital owners use of capital in foreign investments .. it reduces the risk considerably.
Thus US capital owners benefit by their gov’t in ways many / most other nations capital owners cannot. The rule of law within the US is a relatively solid insurance for capital owners risk bearing capacity so they can risk more capital with lower downside uncertainties.
Thus taxing them more because they benefit more by U.S. gov’t more is justified in all moral and economic measures. They will not decide to forego the benefits they receive in this regard to exit the US. Though US foreign tax policy encourages exit of US capital AND encourages re-investment of foreign earned profits in foreign nations,.. which by the way is just another major benefit .. highly disadvantaging the rest of the nation’s citizens however.
Besides that the gov’t can restrict US company’s from re-incorporating in other nations simply by imposing a large enough penalty or tax on leaving. to make it a money losing proposition to do so….which they have done and will do again to the level and extent necessary.
Capital knows no allegiances to gov’ts or nations or cultures or people. It’s sole use is to return a profit on its use (roi). There are a few isolated capital owners who have allegiances to a people, or nation or culture.. but in terms of overall capital availability this is a minor percentage. Even the philanthropic use of capital is more globally expended than in the nation or on the people who are citizens of the same nation as the capital owner.
Labor on the other hand is practically and for all intents and purposes immobile and thus restricted to one nation… with some relatively minor (proportionately) exceptions. The EU recognized this and made mobility of labor freely and more easily available throughout the EU nations where as before that labor only moved by a nation importing low cost labor via work permits. The UK balked at that last year though (shade of the US?) and is reverting back to restricted labor mobility via their Brexit initiative vote.
There’s no good reasons for anybody in the US to be in any form of or near poverty levels. There’s no god reasons for anybody in the US to be homeless. There’s no good reasons for shoddy or underfunded schools, or high student/teacher ratio’s in elementary, secondary, or public universities. There’s no good reason for poor state of roads, highways, gas pipelines (re: blowing up in CA), bridges failing, poor water resources and delivery systems. There are no good reasons for poor flood control systems anywhere in the U.S. There’s no good reason for anybody in the nation to suffer for lack of funds for decent good health care, dental care, or mental heath care.
If there are no good reasons for these things then why do they exist in spades in the US? I think you know the answer.
Coberly – The link to SS 1st Q 2017 data for OASI:
https://www.ssa.gov/cgi-bin/ops_period.cgi
Total in = $193B
Total out = $198B
100+% of income goes out the door. When you say/think that workers contributions are saved for “their” retirement you are completely wrong. The workers today are paying the benefits of those on SS. The hope is that when current workers retire other workers will pay the bill. That is the way the system works. You have a basic misunderstanding of this.
“[Borrow] ‘from the public’ is used by the Big Liars to imply that the SSTF was not borrowed from the people who paid the payroll tax.”
Indeed, buying bonds from the SSTF was borrowing from pretty much the ENTIRE public. Just because individuals don’t hold the bonds doesn’t mean it wasn’t borrowed from them.
Krasting
no. i am afraid it is you who have a basic misunderstanding.
god knows, I have tried to explain it to you. maybe a hundred times over the last ten years.
you can’t understand that “cash flow” is not the whole story. not for SS or any business.
you can’t understand that you can pay for something today that you will not “get” until tomorrow. that is “paying for it yourself” even if the person you buy it from uses “your money” today for some other purpose, and ultimately has to take in money from some other customer, who is buying something for future delivery, in order to deliver to you what you paid for last week or last month or last year or forty years ago. the “paying for” is the transaction where you give up something (money) in return for a claim on something (future money or service or product.) buying a stock or a bond comes to mind.
Warren
Nobody buys bonds from the SSTF, The SSTF buys bonds from the Treasury.
Buying a bond is lending money TO the seller. Selling a bond is borrowing money from the buyer.
SSTF does not borrow from the government, or from “the public.”
Neither does the government borrow money to “pay for” Social Security. It borrows money FROM Social Security to pay for tax cuts or other goodies. It MAY borrow money from “the public” in order to pay back the money it borrowed FROM Social Security. But that is not “paying for Social Security”; it is paying BACK money it borrowed FROM Social Security.
Longtooth, your whole argument for an escalating tax structure is interesting, but I don’t see the relevance to Social Security.
Social Security might seem to be “regressive” because FICA taxes are flat and capped, but the benefit structure, in which the lowest contributions are counted FOUR TIMES as much as the highest, in which the middle contributions are counted TWICE as much as the highest, and which includes spousal benefits, makes Social Security a fairly progressive system overall.
https://www.ssa.gov/pubs/EN-05-10070.pdf
You’re right, Coberly. Insufficient coffee intake this morning. Still, you get my point, which is that a whole lot more of “The Public” has their money going to the Treasury through the SSTF than through bond sales to individuals.
“Gov’ts are created and composed of capital owners .. directly or indirectly, which increases capital owner’s power in laws that perpetuate and increase that power over time.”
Which is how we got GE’s Jeff Immelt on the “Jobs Council” after offshoring several thousand jobs.
I did not see a link to the op ed.
https://www.nytimes.com/2017/05/23/opinion/trumps-budget-deficit.html
I have not read all the comments yet, but I observe that every reference to Social Security in the op-ed is “Social Security and Medicare”.
I think readers here know how deceitful that is.
Warren
I understand about the coffee.
and I agree with you entirely about the “regressive” tax, and even about the money borrowed from the people through SS being greater than the money borrowed from poor people through “borrowing from the public.”
Longtooth
I agree about the need for progressive taxation. But there is a simpler reason for it: that’s where the money is. You simply could not run a country with the amount of taxes you could collect from the workers with a “flat” tax.
But that is money the government needs for government business… including welfare when necessary.
But it’s not a good idea to use a progressive tax to pay for what the workers can and should be paying for themselves. You really do not want to turn workers into a mendicant class. That would indeed be serfdom. And even if “the rich” were generous (they never will be) and kind, it is not good for a working man to have to beg for enough money to live. Nor is it good for them to “demand” the rich pay for their basic needs as long as they can pay for them themselves. The latter simply leads to a kind of dictatorship in the name of the masses, but really run by a small group of “leaders” at the top who will turn out to be as self-serving and pernicious as “the rich.” And the worker will still be the victim at the bottom of the pile, while “the rich” learn how to game the system.
Arne
thanks for the link. i included it in the post, but it got left out by the editor.
and you are right about “social security-and-medicare.”
Medicare’s problems are mostly caused by the obscene cost of medical care in this country. and also because Medicare was changed from a “worker paid” insurance program to a hybrid of worker paid and “government paid,” (that is paid for by “the rich”) which is exactly what the Left wants to do with Social Security… which is the short way to kill it.
I have often said that part of the problem with Social Security reform is that everyone has their own perspective. Longtooth’s comment leads me to add that everyone compartmentalizes differently.
Maya MacGuineas’ lumps SS and Medicare together, “entitlements”. Coberly has a focus on Social Security. The latter simply makes more sense.
I think Bruce K may be highlighting a meaningful issue when he observes that issuing new debt to cover depleting the TF will create problems. However, I think that he and Coberly are effectively agreeing that the compartmentalization into debt held by the public has been a flawed way to look at it.
Without a successful government to back the administration of SS it would not be a successful program. So, in a way, SS does depend on the progressive taxes that support the government in general. (Is this a paraphrase of part of what Longtooth was saying?) Nonetheless, I find it makes sense to compartmentalize SS as a program by workers for worker that should not depend too much on people who do not need insurance. (Coberly’s do not make it into welfare).
From 2004, when I started paying attention, to 2040, where the TF depletion date was in 2004, the number of retirees depending on the nations GDP is going to double as a percentage of the population. The cost of scheduled benefits goes from 5% to 6.5% of GDP. With these facts for perspective, it is clear that maintaining scheduled benefits by increasing taxes is a pretty good deal.
At the same time, the benefits that could be provided with 5% of GDP will buy a larger market basket in 2040 than in 2004. (What Bruce Webb called Rosser’s Law). With these facts for perspective, a SS system based on current tax rates would not be broken.
The number of solutions that allows SS to remain a useful program for workers by workers is infinite. What we need to avoid is allowing the draw down of the TF to be used as a wedge to break SS.
“need to avoid is allowing the draw down of the TF to be used as a wedge to break SS.”
Correct. This is not the issue as I see it either. It should have never gotten so big so as to be used to fund other things and then become an issue of paying it back creating a deficit in doing so as tax revenue is cut and allocated to the 1% of the household taxpayers.
Arne
I would agree with that if it helps people to find a way to understand each other. I would even agree with BK that issuing debt “held by the public” to replace debt owed to Social Security may cause problems in the bond market. but i have never seen any evidence that he understands anything that i am talking about, or even hears the words.
it was Bruce Webb who noticed that the Northwest plan avoided having to pay back the Trust Fund … even by “borrowing from the public.” all I had noticed was that it certainly showed that the 15 Trillion Dollar Unfunded Deficit! amounted to a dollar a week per year from the people who would get the benefits.
Krasting thinks the people won’t pay this. That’s nonsense. When polled people have already said they would pay an extra 1% to keep their benefits. about 1.3% today would keep their benefits for the next 75 years. All I add to that is you don’t have to get to that 1.3% (not a burden) one tenth of one percent at a time, while your wages are going up over one full percent t a time.
In other words, I’d be glad if you can be the peace maker, but I am not optimistic.
This year’s Trustees Report, now two months overdue, may change some of these numbers slightly. But not enough to notice.. except by those who think a few tenths of one percent change in a prediction about 75 years in the future is a huge problem
Arne
there is an infinite range of solutions. but the differences between the solutions that work are infinitesimal. All of the “solutions” on the table have fatal flaws. Even Rosser’s solution does not seem to understand that even if benefits keep up with inflation, they don’t keep up with prevailing living standards. And that is not all a matter of keeping up with the Jones’s. I’d like to see Bruce W try to live without computers. Something that was not considered in the “cost of living” in, say, 1983.
The current “schedule of benefits” does contemplate raising the real value of benefits to keep up with the real value of wages. Cutting those benefits 20% will have the same effect on the then elderly as, say, not counting a car into the cost of living would have had on the elderly after 1950 or so. Some “non inflation” rises in costs are what it takes to live in a society that is changing and demands you change with it. How would you get to your doctor, or even the grocery store without a car today. How would you even ask about your Social Security without a computer in the future when SS goes to internet only operations “to save costs”/.
Coberly,
You either missed my point or I failed to make it clear.
I’ll make it as succinct a form as I can… no elaboration or lengthy dissertation on why or how this came to be the case:
Labor does not share equitably in the output produced by the economy, due to laws and policies which overwhelming favor capital owners interests and privilege while systematically restricting labor. If labor did share equitably .. say pre1970’s share, then SS TF not be a funding issue at all. It would still be a political issue never-the-less simply because the wealthy don’t benefit from it. Taxation is a form of redistribution of income shares.. While progressive at some level, it is far from sufficiently so to restore any semblance of equitable balance.
Longtooth
actually, I did get your point. and agreed with it mostly.
i think progressive taxation is necessary simply in order to pay for what the country needs…. including welfare. The poor, the workers, simply don’t have enough money for a flat tax to pay for what the country needs.
And I agree about the exploitation of the poor by the rich, and think there ought to be laws, enforced, to limit that as best we can.
But Social Security is not even a tax. It’s a way for workers to save their own money, protected from inflation and market losses, while the workers insure each other against a lifetime of wages too low for them to save enough, even protected by SS, for a minimally decent retirement.
SS is fair, and in result very progressive. Everyone gets back what they paid in adjusted for inflation and general growth in wages. The very poor can get as much as a 10% return on their savings in order to make up for how little they were able to save. The average get about 3% (real), and those who end up “rich” after a lifetime of high wages get about 1% real. The difference in “interest” is where the extra money for the poorer worker comes from: you will note the result is highly progressive.
The people who call ss a “regressive tax” aren’t thinking. They look only at the tax “rate” which is flat up to the cap. And in their thinking flat is regressive, and the cap is “the rich not paying their fair share.”
But the rich do pay their fair share for the insurance they get. Taxing them at a flat rate with no cap, or at a progressive rate as the left demands would just turn SS into welfare as we knew it. In the first place “the rich” won’t let that happen. And if “we” somehow “made it happen.” It wouldn’t be long before the Congress decided “we” couldn’t afford it, and cut benefits, or means tested it. or raised the retirement age… all rendering SS worthless as retirement savings and insurance for ordinary workers.
Besides, workers have been proud to say “I paid for it myself” for the last eighty years. You need to think about that fact of human psychology.
Progressive taxes for government needs. Fine. But NO taxes for ordinary, expected, costs of living for ordinary workers, exept in times when ordinary workers can’t make enough to pay for ordinary expenses.
Retirement is an ordinary expense, and workers today can easily afford to pay for it, under the protections of Social Security.
“the differences between the solutions that work are infinitesimal”
There needs to be steady growth of benefits while there is steady decline of the TF to a ratio of about 1, but there is a range. Scheduled benefits may be a great approximation of the optimal choice, but Elizabeth Warren may be right that they should be higher. My Normal Retirement Age is 67. My brother’s is 66. I don’t think that breaks SS.
Adjusting SS to meet real changes in economic and demographic conditions requires Congressional action (politics), so if there is no range, there is no solution.
Arne
Maybe not, but that 67 or higher retirement age will break some human beings.
You are one of the lucky ones. Good job, good pay, like the work. There is no reason you can’t work until you are eighty if your health holds out and you still like your work, and your boss doesn’t find a way to let you go to make room for someone younger.
But there are people who are worn out, physically, mentally, and psychologically long before that. 62 is a reasonable “early” retirement age, but not much good if your benefits are cut 25% or more based on a 67 or higher “normal” retirement age.
I would lean toward not keeping the voluntary late retirement ages actuarially neutral. If you like your job and you are making more money than SS, no reason you can’t keep working. But I see no reason to pay you higher benefits if you do… it’s fairly likely you will be one of those who lives past the “normal” life expectancy. so you’ll get “your” money back that way.
As for raising benefits, I’d be all for that as long as people were willing to pay for it with higher FICA contributions. The current benefits are just barely enough, but that was made that way on purpose. You want to leave people as much of their income as possible to do with as they wish. SS is supposed to be an insurance that provides minimum of what you need. The difference you get according to what you earned is a reasonable approximation of what you “can” live on in different parts of the country, city or rural, or even “what you are used to” within reason. It’s also the fairest way to give people back what they paid in.
Run
the TF was allowed to run up so the boomers could pay for their own retirement… and matter of “generational fairness.”
The bad guys would find a way to howl about SS however it was working. There is nothing wrong with the Trust Fund being drawn down, though as you may have heard, the Northwest Plan prevents that from having to be paid for by general taxes or “borrowing from the public.”
I noticed that Krasting disappeared when I asked him to tell us how he would solve the problem.
coberly:
I did not imply that drawing down the TF was bad. If you notice, what the new poster was saying about resulting deficits from drawing down the TF is technically correct even though the turning in special treasuries results in it. You could create a deficit by drawing down the TF if there was no cash on hand. It that respect they are correct. On the other hand, the country owes us the TF funds and it should be paid back unless we go paygo route and have enough funds to cover payouts. Put more people back to work and this could happen too.
I understand your Northwest plan. Heard you enough times. 🙂
Run
yes. I’m sure you’ve heard me enough times.
I’m writing for a wider audience.
And I insist that SS is not creating the deficit. The deficit was created by Congress. Paying back SS is just one item on the list of “expenses”.that add up to more money than Congress wants to take in by taxes. They didn’t talk about SS reducing the deficit when they used SS money to pay for something else they wanted.
And it was the money Congress spent on whatever it bought with the money it borrowed from SS that “created” the deficit, not SS.
coberly:
If you understand where they are coming from, you can counter them. That is all I am saying.
Coberly – you ask me what should be done.
1) The shortfall at SS is between 2 and 4% of taxable payroll. This is not such a large number. As your ex friend has said there are dozens of options to address this. Both SS and CBO have come out with long list of “fixes”. I favor a solution that draws from many parts of these lists – a combo approach). I would tweak FRA. I would tweak the payout formula. I would increase the cap (change the formula). I would means test a portion of benefits. I would change the inflation formula. (more).
2) I would not raise payroll taxes one dime. PR taxes are already far too high at 12.4% This tax is bad for the broad economy. It is especially bad for actual workers. That you advocate a plan that would raise worker’s taxes for 25 consecutive years is pure madness and stupid policy. That you advocate for that because “You fear it would turn SS into welfare ‘as we know it'” is paranoia, not logic. (just a question – why do you always add the ‘as we know it’ phrase??)
3) If I were King I would reverse OASI back to what it was designed to be in 1933. I would totally separate OASI from DI. I would make DI welfare – I would put the cost on the back of the federal government, not the workers.
The DI portion of payroll taxes is 1.185% (total of 2.38%). If 100% of this is reallocated to OASI the long term problems with the retirement program go away. Any (minor) shortfall would be made up by adjusting the cap.
NO NEW REGRESSIVE PAYROLL TAXES ON WORKERS
DI would be 100% socialized. Its fiances would be separate from payroll taxes. Once socialized by the Feds I would rip this program to shreds.
There are millions of people who need DI. I would make sure they get the assistance they need. But I would end the idea that DI is just an early retirement program that anyone can claim once they get a free lawyer. The DI program is an absolute disaster. It is sinking the OASI ship.
I know that if you asked FDR, he would strip DI from his beloved OASI.
Coberly – I have options. You have “Just tax the bastards for another 25 years”. (foolish and totally unnecessary)
Run
thanks. oddly enough I think I did understand where they were coming from a little better this time than i have in the past.
Krasting
thanks for spelling it out and putting it all in one place. I have discussed at great length what is wrong with each of your suggestions. I’ll try again a little later.
But i think the core problem between us is that you think a dollar per week is “too much” because it is a “tax.” While you don’t mind cutting benefits, making the old keep working when they are worn out and would be glad to have paid that dollar per week in order to have a couple of years rest before they die. You are willing to turn SS into welfare… tax the rich… when Roosevelt warned that that would cause the rich to take it away from them.
Fair warning… more later. And reread what you wrote so you won’t be surprised if i “insult” you. You started it.
krasting
just to get something out of the way: i agree with you that getting DI separated from OASI would help people think more clearly, Disability Insurance is different from Old Age Insurance. With Old Age there is no question. You reach a certain age, you are eligible for benefits according to what you have paid in “payroll taxes” over your lifetime. No questions asked. With Disability Insurance, it is “needs tested.” You have to prove you are disabled. This can become a nightmare. You are wrong than “anybody with a free lawyer” can use DI to “retire early.” You have been reading the lies of the people who want to destroy Social Security, and you believe them without knowledge of the reality. As it turns out the projected costs of Disability Insurance can be met until about 2050 by raising the DI part of the payroll tax about two tents of one percent… one time only. After 2050 it looks like another one tenth of one percent would be needed. (Your numbers are out of date. They show the costs at the height of the recession. The total tax rate through 2050 would need to be about 2.15%. Of this the worker would pay half or about 1.1% of wages. This is the whole “tax,” not the increase, which would be about one tenth of one percent… one time only, for the worker, and another one tenth percent for the boss… total increase through 2060. after that… if predictions that far ahead mean anything, about another half of one tenth percent each. These increases are too small for any sane person to notice, and if that is what you need to pay for your chances of becoming disabled, that is what any prudent person would pay.
I don’t know why you think turning it into welfare, “putting it on the back of the government” is better than having the worker pay for it himself. Where do you think “the government” gets the money it would use to pay for it. All turning DI into welfare (which is what your plan amounts to) would be to put Disability Insurance into the hands of the politicians instead of letting the workers pay for it directly themselves. But because DI is “needs tested” it does operate much like welfare, and the “testing” can be made as onerous as the politicians want to make it. Far from “anybody with a lawyer using it as an early retirement plan” it often turns out to be a way disabled people are denied the money they need to live on until they die and no longer need those benefits, which are not large.
I think your plan depends on not knowing what the facts are, and relying on the propaganda of the people who want to “rip the program to shreds.” But they mean telling people to “work or die.” In most cases that would me they die. On the other hand if they have paid for their own insurance, they don’t have to die just because they became disabled and can’t work, or won’t be hired.
You seem to think that “taxes” are a crime against people. You don’t seem to understand that “payroll taxes” are just an efficient way for people to pay for their own needs. The needs are not going to go away, and the cost of paying for those needs is not going to change. Let the people pay for them and stop buying the lie that these “taxes are a crushing burden,” and the people who collect benefits are “cheats.” It ain’t so.
That said, DI has problems…because of needs testing… that won’t be solved until the politicians let the program work. I would separate it from OASI just to make OASI easier to understand. I’ll talk about OASI later.
brw
the DI portion of payroll taxes is 1.8%(worker share is 0,9%). You seem to be confusing that with the “cost rate,” which is what the payroll tax would need to be to balance the DI books each year.
Turning DI taxes over to OASI would come close to “fixing” OASI for the next 75 years. But then you’d still have to do something about the costs of disability. As said above, I don’t think turning it into welfare would fix the problem. The cost would stay the same. The problem of needs testing would remain the same. Only instead of having the worker pay directly for his own insurance, you would have the taxpayer (the rich) pay for the total costs as they occur. And they would not like that. In fact they would “rip the program to shreds.”
Krasting,
Let’s set aside the idea of “taxes” for a minute.
Suppose you went to your financial advisor and he said, “Mr Krasting, In view of the new research on life expectancy you should be setting aside an extra fifty dollars a month for your retirement. You might say, “Gee, I can’t afford that. I’m budgeted to the max.” Then he would say, “Well, you really can’t afford not to if you want to be able to retire at a reasonable age.” “Then you might say, “What if I just put off retirement a few years, since I’m going to be living longer.” “He’d say, “That’s not wise. You don’t know what your health will be like, or if you will really want to retire by then, or even if you won’t be laid off because the boss wants someone younger. On the other hand, if you are healthy and like your job, and don’t get laid off, there’d be no reason not to keep working, and you’d still have saved that extra money. You won’t be sorry about that.” “Well…” you’d say. “but where am I going to get an extra fifty bucks a month.today?” “Well,” he’d say, “You don’t really need to start with the whole fifty all at once; could you manage to put away an extra five dollars a month?” “Yes,” you’d say, I guess. Sure.” “Okay then,” your financial advisor would say, “start by putting away an extra five dollars a month this year. and next year, when you will have gotten a raise instead of spending all the raise, put another five dollars a month into your retirement fund.” “If you do this every year over the next fifteen years, you should come out all right.” “But, but..” you say, Five times fifteen is seventy-five and you said fifty.” “Yes,” he’d say, “but there is no free lunch. If you are not going to put the money away today, you are not going to be earning the interest it would have earned. So if you wait, you are going to have to eventually put away more each month in order to come out with enough in the end. And after ten years, you should be making maybe five hundred dollars a month more than you are today, so you won’t even notice the extra fifty by then, and after fifteen years you should be making an extra 750 a month, so the 75 a month isn’t going to reduce your standard of living. “And,” he says, sounding a little disgusted, ” retirement isn’t free. You are going to have to pay for it one way or another.
So you go home and talk it over with your wife. “How much are you making per month right now?” You say, “Five thousand dollars.” And with normal raises how much do you expect to be making in ten years?”
“Oh, at least 55 hundred.” “And after 15 years?” “Oh, maybe six thousand at least.” “But probably at least $5750?” “Yeah, sure.” “And you don’t think you can find an extra 75 dollars out of that to save for an extra two years of retirement?
Be careful what you answer here. She may decide she needs to find a smarter husband. While you are thinking about it, figure out what you absolutely need to live on when you retire.
And try to think why the word “tax” instead of “retirement saving” changes the whole picture for you. Especially when the “tax” guarantees the retirement savings.
Coberly – The current DI portion of payroll tax is 1.187. The combined rate is 2.37%. The details:
https://fas.org/sgp/crs/misc/IN10386.pdf
I think that all of that (and more) is needed to stabilize SS. SS puts the tax increase required at 2.5% while CBO estimates 4.3%.
What ever mumbo-jumbo you come up with HAS TO equate to the estimates provided. You can stretch out the NW plan over 25 years and it just makes the ultimate price higher. The NPV of your plan HAS TO be equal to the NPV of the estimate from SSA.
The DI tax is $170B in 2017. It will go up from that level for ever (inflation). $170B tax increase is a big deal. That is .85% of GDP. Nearly half our average growth.
My point- Stop trivializing what we are facing. It is not a 1$ a week. It is a percent of wages. And that % would increase every year until it equates to what SSA/CBO sets as the Immediate and Permanent equivalent. It would be another big on the economy. It is regressive at a time when income inequality has never been higher.
okay, i think we are ready for a point by point discussion of your plan for Social Security.
1) my ex friend at social security works is a lawyer and a sociologist. she has no number sense at all and has never had to solve a technical problem in her life. convincing a jury or even a symposium of ph.d. sociologist is not the same as solving a problem that has to work in the real world. there are a “large” number of “solutions” to Social Security that don’t work. All those that work are trivial variations on the one I have proposed. The Trustees “immediate and permanent” tax increase of 2.66% will work well enough, and I might settle for it, but I think the people should be given a chance to understand there is a better, and cheaper, solution…. that is raise the payroll “tax one tenth of one percent per year. It’s the difference between a tax increase of about 13 dollars per week (the Trustees), which is not a real burden, and raising the tax one dollar per week each year for a number of years. It would not be 25 years as you say, but actually only about ten years. After that further increases would be needed, but a longer and longer intervals, until by the end of the 75 years the dollar per week increases would be needed only about once every ten years. This means that people’s tax goes up only as their incomes go up more than ten times as much each year.
Compared to the Trustees immediate increase, the gradual increase avoids increasing the Trust Fund at first and then drawing it down toward the end of the 75 years resulting in the people who hate Social Security screaming “Social Security is going Broke!”
Waiting until the Trust Fund is fully drawn down in about 2033 would require an all at once tax increase of about 4%, and there would be no interest from the Trust Fund to help pay for it. There is no avoiding this as long as people are going to have to pay enough so that they will get enough in benefits to live on throughout their longer life expectancy. There is no reason to believe that even if they are going to live longer that they will be able to work longer.
You say you would “tweak” a number of parameters. “Tweak” is not a useful word. Exactly how much would you change the retirement age. Why do you think this won’t be a cruel hardship for old people? Why would people want to work longer if they can pay an extra dollar a week (or even 13 dollars a week) and pay for their own retirement at a reasonable age?
How much would you “tweak” the payout formula, and for whom? The current formula pays enough to live on to the people who contribute the least (because they make the least money), It pays the average worker enough to live on at approximately the “style to which he has become accustomed,” given that he has already bought his house and sent his kids to school and maybe outgrown his need for that vacation in vegas. It pays “the rich” enough to be a fair return on what they paid, given that what they were paying for included the insurance value of SS which would have paid them more, enough more, if their luck turned bad and they went from “high income” to “low income” toward the end of their working lives.
Increasing the cap would mean that high income people would be paying more for Social Security than it was worth for them even as insurance. They would resent this and they would work to destroy Social Security entirely.
Means testing is another word for “welfare.” It’s ugly and it’s expensive. Instead of paying a payroll tax for your own retirement, You would be paying a tax for someone else’s retirement, And if you turned out to be one of those who “needed” benefits (according to the current level of generosity of the politicians in Washington) you would not enjoy having to go to the welfare office four times a year to prove that you were poor enough to need benefits.
Changing the inflation formula is just a way of cheating people out of what they paid for as they get older and can’t do anything about it. It’s cruel and it’s stupid. Why would you cheat old people to save yourself about 20 cents per week… the amount the payroll tax would be reduced if the inflation formula was reduced. The people who say the CPI over-measures inflation are essentially liars. They play games with “people can eat chicken instead of steak. Or new cars cost more because they are “better,” not because of inflation. What they don’t give a damn about is what it actually costs old people to live, given the price of things they need, not some lying economists theory of what the prices “would be” if “inflation” were measured according to their sophisticated formula.
So far your “fixes” are not based on any actual thought at all. They are just combinations of all the lies that you have been told. Mere words and arm waving. Ways to cut benefits that you won’t need (because you are rich) and cut taxes you don’t pay. The workers who will need the benefits are the people who pay the taxes. That’s what’s fair. And since they pay the taxes there is no moral basis for anyone else to cut their benefits.
2) Krastng says, “I would not raise taxes one dime…they are already too high,… and they hurt the economy.”
The tax is exactly as high as it needs to be to generate the money it needs to pay for the basic needs of people who can no longer work. Those are the people who pay the tax. The tax most of them pay is currently 6.2%. If you want to play metaphysical games you can claim the worker “really” pays the employers share, making his tax 12.4%. But the legal fact is that the workers share is 6.2% and no one knows what the employer would pay if the government didn’t require him to pay if. The best I can say about it is that if the worker is “really” paying that extra 6.2%, then his pay is “really” 6.2% higher than he thinks it is. In actual fact it doesn’t matter. What matters is that the tax is exactly what it needs to be to pay for a very modest retirement. There is no way to get around the cost of retirement. As a country we are going to have to pay it one way or another or just let old people starve to death when they can no longer work. That cost, by the way is currently abut 4% of GDP and will go to 6% if every starts living longer. 6% of GDP does not seem to me to be much of a burden to pay for OUR OWN lives after we get too old to work. it’s not like we were paying for someone else. The “tax” is just a way of making sure we “save” or “defer” enough of our earnings so we can live after we can no longer work.
As for being a burden on the economy? How? In what way does my saving 6 or 12 percent of my income so i can eat when i get old burden the economy. Or have you failed to notice that with pay as you go, the money i don’t spend now is spent the same day by someone else who is no longer working. Many people who aren’t very smart think this means I am paying for some other persons retirement, because they think i must mark my bills, so when someone else buys groceries with them i can say “aha!” you are spending my money. These people can seem to find the link between “pay now” and “eat later”. but that’s what “pay for” means. It means i give you money to establish a claim on something to be delivered in the future. It’s the way money works. Nor is there any loss to the “money available for investment.” Money you invest today is used today to pay for someone else’s groceries when they cash in their investment or collect dividends. The amount that goes into “capital”.. new machines or new businesses in general… is the amount left over after paying for the groceries of former investors. Since SS only collects enough in taxes to pay for the groceries of “former investors” you, investors, have the rest of your money to “invest” in “real” investment. That real investment must, and does, take place to grow the economy, but SS does not subtract from the amount of money available for investment after the groceries of the old are paid for.
Your words “too high”, “bad for” , “madness,” “stupid”, “paranoia,” are just noises, not arguments. I have provided arguments. You have failed to answer them.
I talk about “welfare as we knew it” because supposedly Clinton ended welfare as we knew it. I’m not sure he did, but I don’t hear much about it any more.
I already discussed DI in my first (of three) replies to your “plan.” My plan has numbers… that are connected to other numbers. Not just pulled out of a hat by someone who looks at “a dollar a week” and thinks it’s a crushing burden that no one would pay.
Like I said, if people can’t understand the “dollar a week per year”, I’d settle for the Trustees “13 dollars a week right now.” But I know which way makes more sense.
Krasting
your last reply contains errors and shows you haven’t thought about anything i have said.
the present value of my dollar per week per year is exactly the same as the present value of the Trustees 2.66% (combined) immediate and permanent. you don’t seem to be able to calculate that. even after i sent you the spreadsheet.
you are still confusing the DI tax rate with the DI cost rate, and probably counting the amount lent to DI from OASI. It would take me a few minutes to figure out where your error is coming from. a few minutes i don’t have right now.
well, bless my old blind eyes.
i’ll have to give you this one. the payroll tax rate for DI was raised TEMPORARILY by borrowing from the OASI tax rate for three years.
now explain to me how this affects the rest of the argument.
Yes Coberly, you were wrong about what the current level of the DI tax is.
You were also wrong when you said this:
point 3) is wrong in part.
Treasury used to pay in
more notes. Now it has
to pay some of it in cash…
100% of interest due to SS is paid in SI Notes. None of it is cash. This is why SS excludes interest income when it establishes the definition of Cash Flow.
Krasting
so where does the cash come from that pays the SS benefit checks?
Krasting
i think this may be another of those “facts” that doesn’t make any difference to the problem. or it may be that i used the word “cash” too loosely.
but while Treasury borrows money from SS by issuing bonds to SS, and while Treasury pays the interest on those bonds by issuing more bonds, when SS cashes in some bonds in order to pay benefits because the “cash flow” from taxes is less than the “cash flow” in benefits… the Treasury has to redeem some of its bonds with cash.
This is what I meant. Tell me if I am misunderstanding something, or just said it wrong, and if it matters to the question of solving SS “actuarial deficit”.
Coberly – You ask:
where does the cash come from that pays the SS benefit checks?
This kills me. You are touted as the SS “expert” by folks at AB, yet you ask a completely uninformed question like this.
The cash comes from taxes paid and in deficit months extra cash comes from redeeming TF notes and Bonds.
This the deficit from the month of march. To make all the benefit payments SS redeemed $5B of notes:
https://www.ssa.gov/cgi-bin/ops_period.cgi
Coberly – You know well the difference between the cash flow deficit and the actuarial deficit. You are just playing with the readers of this screed.
The Cash Flow deficits can only exist while the SSTF is in surplus. The actuarial deficit will last forever.
Krasting
I have been trying to be nice to you. Please stop being stupid. I know very well where the cash comes from. I was asking you what you mean when you say Treasury buys its own notes back with more notes. It makes sense that Treasury would pay the interest it owes to SS with more notes when there is not a “cash flow deficit” at SS. But it doesn’t make sense that they would pay BACK the money they borrowed with more notes… SS needs the cash (entries in a bank account they can write benefit checks against that people will cash. There is a possibility that Treasury writes new notes to cover the interest it owes, while cashing old notes to provide the cash needed. But that is an exremely trivial point, if true. It makes no difference to the actual “money” needed by SS (from its own savings) to pay benefits… and it is why we worry about the TF “running out.”
It is hard to say all the complications in a few words, but if you pounce on the words while ignoring the facts, you are simply being dishonest. I’ll try to correct the words if they are seriously misleading, but I am still waiting for you to come to grips with the facts.
And I well know the difference between cash flow deficit and actuarial deficit. I’m not playing with anyone. I’m trying to make things clear. It is you who are just putting words together without seeming to care what they mean, or what they have to do with what i said.
Meanwhile you have completely ignored the substantive points I have tried to make about your “plan.” And I suggest you read the little parable about your financial manager and see if you can understand what is going on without using the word “taxes.” The money question for the person who needs to save for retirement is the same. The only difference is that using SS to “save” part of the money he will need, gives that money protection it cannot get from “the market.”
I will be out for the rest of the day, so take your time.
and i think i’ll take back “giving you this one” about the temporary DI tax increase. You were definitely talking about it as though it were the permanent rate. It is not.
I expected that the Congress would borrow the money DI needs from OASI trust fund. “borrowing” the tax rate was not something i expected, But borrowing money from OASI fixes nothing. I suspect they used the tax rate instead of the Trust Fund in order to eliminate any question of DI paying back OASI, or maybe they did it that way because it makes the accounting much harder to keep track of by someone who doesn’t do this full time.
In any case you are still focusing on non material trivialities. I ask you again, how do you plan to fix SS: Answer the objections i raised to your “word plans” (you give no numbers so your “plans” amount to just a selection of CATO talking points… It’s like six year olds talking about building a car with no idea how it works or where the materials come from.
Until you come up with something reasonable and coherent I will continue to regard you as one of the kids in the back of the class who make rude noises and think they have said something clever.
In fact the “actuarial deficit” need not last any longer than it takes congress to either raise the tax or cut the benefits. The plan I suggest closes the actuarial deficit forever as far as the eye can see, without cutting benefits, and without raising taxes enough to cause anyone a moment’s discomfort.
as for the cash flow deficit existing only when the TF is in surplus. i guess that’s true but seems kind of a silly point. and it doesn’t have anything to do with my question to you : how, exactly, does Treasury pay the interest it owes SS during times of “cash flow deficit” and what does the exact way have to do with the problem of the acturarial defict?
your answer was so non-responsive that one can only suspect serious mental dysfunction or just fast talking and arm waving to distract anyone from noticing that you haven’t answered the question and hoping you can slip in an insult that will make the ignorant think you have scored a point.
this is why i get angry talking to you. you talk nonsense… complete nonsense… and slip in insults… then show your injured paw when i finally get angry enough to give a name to what you are doing: either extremely dishonest or extremely stupid.
so much for trying to be nice to you.
Coberly – this got me to laugh:
i think i’ll take back “giving
you this one” about the
temporary DI tax increase.
“Take back”?? How old are you now? 7 going on 8??
Please don’t play games. Your ex friend says there are limitless options. SS has a 20 page report on the options. This list has been discussed dozens of times at AB. Take this list and find some combo that adds up to a 100% fix. There are many ways to achieve this, But a single solution of just raising taxes is not even on the list as it is an unfair and unworkable idea.
The following is a list of options from SSA. You have a single solution of just raising taxes for several decades. That plan is not even on the list from SSA. The NW plan will never see the light of day. Face it…
https://www.ssa.gov/OACT/solvency/provisions/summary.pdf
Run says Dean Baker supports the NW plan. Ok. please provide a link that confirms this. I say there is no way DB would support a single solution, tax increase only plan.
This thread has gotten tired. I doubt anyone but you and I are reading this. Let’s give it a rest until after the (late) Trustee’s Report is released.
Krasting,
I told you what was wrong with the Chinese Menu of options. All of them hurt people. The only fix that is fair and cheap and doesn’t hurt anyone is a tiny tax increase each year that keeps up with the cost of benefits and the incomes of the people paying for the benefits.
You’ve got nothing but words. Somewhat nasty and stupid words.
I’ll let Run supply his own citation if he thinks it worthwhile. To be honest I knew that Baker agreed that my plan would work, but I thought he had joined those calling to “tax the rich,” which I don’t think will be allowed to happen, or would be good for the workers if it did.
Roosevelt insisted that SS not be a “tax the rich” plan but a worker paid insurance plan, “so no damn politician can take it away from them.
“Means testing is another word for ‘welfare.’ It’s ugly and it’s expensive.”
And it punishes prudence and thrift. “What, you saved for retirement? No help for you!”
Warren
exactly. but remember that half the audience doesn’t believe “the poor” (workers) should have to pay anything for their retirement. and the other half of the audience doesn’t think that a government plan to protect the savings of workers is moral because it is “the government.”
i have to go try to pull out a ground rod before the horses get hurt on it. will be gone all day.