AFTER THE PARTY
AFTER THE PARTY
by Dale Coberly
I wrote the following note to Bruce Krasting after our earlier exchange on Angry Bear. He sent the reply below, and agreed to have it be printed here with the disclaimer that it was not originally intended for publication. My reply to him is in comments, at his request.
I have to thank you for raising the subject of the bond market. It was something I didn’t know about and will have to try to learn.
Not to be a bond trader… just not in the genes… but to anticipate where the other guys are coming from. They don’t always say.
Heck, we had to beat it out of you.
I learned a fair bit in the process. I understand the scope of this better as a result.
I understand the attitude, “Don’t touch SS. If there is problem, fix it outside of tinkering with SS.”
I do think this is going to come up for discussion in the next year or so. The debate that we framed will be part of that. Tinkering with SS can potentially have beneficial impacts to the ratio of Public vs. Intergovernmental debt. This benefit could last 5-8 years depending on what is done. Right in the scope of the election cycle. So this makes the fiscal side of this a political issue. No Administration that was thinking straight would set a course that might lead to a blow up in the debtmarket.
The numbers are so large. Others will see the shift of this ratio as a negative as I do. There is just so much public sector borrowing that can be accomplished. There is a broad awareness of this by those who think 2-5 years out. I am sure that Larry Summers, Bernanke and others are looking at what is coming and looking for ways to stall or delay the negative impacts. (not just SS, across the board of the intergovernmental side)
So yes, some non SS issues (or side effects of SS) are going to become factors in evaluating this. Steve Goss would be remiss if he did not make this case privately. He understands SS’s important role in the intergovernmental picture. It is his ‘wild card’.
The best argument against this is yours. Fix the problem outside of SS. I have come to understand that this is intellectually correct. But I do not think that it will be the basis of the choices that I believe will be implemented over the next few years. What would you do if you were the Boss? Tinker with SS or increase income taxes? I know what you would do, but you are not the boss. The folks who run the show would do anything that they can do, short of raising income taxes.
This was my reply to Krasting’s reply to me. He didn’t want it run as part of the main post. I thought the exchange would show some progress toward mutual understanding. Maybe it does.
it would be interesting to try to continue this “on the record.” maybe we can keep the tone more civil. but the problem i continue to have is this:
social security will eventually need to raise it’s tax rate… by an amount no one would notice if the tax crazies didn’t start yelling about it. the government will eventually need to raise it’s tax rate to pay down it’s debt. we might “grow our way out of” the debt without raising taxes, but if you say the bond market is going to go crazy by the current need to repay the SS debt, then it’s time to get the money from taxes and not from borrowing. the amount will not be large. but the high income people yell like stuck pigs at any tax at all no matter how small, or how badly needed, and they tell themselves stories about “killing the economy” that are just not true.
meanwhile the “liberals” are against any raise in the payroll tax. they’d rather turn it into welfare. they are dumb.
whatever “the Boss”is going to do, it looks from here like it will be criminally stupid if it does not involve at least a small tax raise on both of their houses.
i am going to ask angry bear to run your letter here and mine if you don’t stop me.
Look you and Bruce are totally correct in your ‘fix’ for SS. A minor tweak to the payroll tax. I agree. But like I have also said the problem is in the general budget and the SS excesses hide the deficit there. Once the general fund has to start repaying SS for that debt the mask comes off. Kasting is correct in his assessment of the political issue. No one wants to either raise income taxes or payroll tax, no matter how much sense it makes.
I know its frustrating and you guys are giving it a good fight. Buts its the politics thats killing you. And though I’ve convinced a ton of people, using your data, on how SS is not in trouble, its seems very tough to change the political optics of it. Especially when its seems the top leaders are still drinking the Koolaid (a very bi-partisan drink it seems). I would consider it the ultimate in irony if its Obama and the Dems who “fix” SS when it doesn’t need to be fixed.
Anyway go watch the sunrise tommorrow and keep the blood pressure down (or you will have to pay higher prices for your health insurance…).
Islam will change
“Tinker with SS or increase income taxes?”
Neither, and I would be tempted to wait until the issue is more clearly defined. An attempt to fix a program which normally generates a surplus in a good economy and now is slightly deficient in a bad economy does not make sense. Everything is down in revenue given our poor economic state. Using SS as the whipping boy for decreased revenues and greater costs is dishonest.
Some point in the future it may be necessary to increase thge payroll withholding tax for SS; but, it is fine for now. As far as income tax, let it sunset for those making >$250,000 and call it a day for the time being.
I am in favor of a small FICA/SECA tax increase now with income tax increases over and above the restored Clinton rates. Small. Not huge, just a down payment. Look at California–in debt up to its eyeballs because it’s state government is paying for what local governments can’t pay ’cause of Prop 13. Taxes must vary whether up or down over time. Otherwise, you end up with no middle class, no government, no country. NO
i think your comment said the same as my comment. and i agree about yo bama.
not sure i follow. the two tenths percent for FICA would in fact take DI out of short term fiscal insolvency right now. it would also put SS as a whole back into positive cash flow. the two tenths matcher on high incomes would be a show of good faith. and ultimately the high income brackets are going to have to start repaying the money they borrowed.
unless they cut social security
or raise wages.
I knew Krasting was a pancake.
in case anyone who doesn’t know cantab is reading this, cantab is a big supporter of Krastings original position which we showed to be wrong. as even Krasting appears to be saying here.
I am tired of doing the heavy lifting on this topic. I want someone other than Cobery, Webb and Krasting to take a look at the information that is out there and overlay a set of reasonable assumptions about what lies in the immediate future.
I want some of the dozen or so WS firms that can do this type of number crunching to put some of their numbers on the table. I know a few of them will be reading this. The MSM should be looking at this question as well.
Prove me right or shut me up. Do we have an issue or not? Two questions:
#1 In what year will the TF first run an annual deficit?
#2 What is the highest asset value that the Fund will attain and what year will that be achieved?
My answers: #1 = 2012, #2 $2.8 Trillion, this will be achieved on or before 2013.
Let’s agree on something? If I am in the ballpark with my numbers we have a problem. That problem is much closer at hand then most people are currently thinking.
Before we beat ourselves to death about what we should or should not be doing, we should make a resonable determination that we in fact do have a near term problem.
To me this is a slam dunk. So I make a challenge to the bulge bracket firms. Come up with your numbers. This is a big story.
BK define “deficit”. Do you mean “deficit” or “primary deficit” as defined by CBO? Have you properly accounted for the differences between SSA numbers as reported last May compared to CBO numbers from the August Update? Given that the current Trust Fund throws off $125 billion in interest a year how do you keep that from compounding? Your calculations would have the TF freeze as opposed to the $4 trillion plus peak projected by the Trustees? Until or unless current year shortfalls in revenue EXCEED accrued interest the TF balances will continue to increase.
It seems to me you have fatally confused what CBO calls ‘primary surplus/deficit’ and Trust Fund surplus/deficit and got yourself into a numeric mess. The latter can and does grow massively even as the former goes negative
Bruce Krasting – “I am tired of doing the heavy lifting on this topic. I want someone other than Cobery, Webb and Krasting to take a look at the information that is out there and overlay a set of reasonable assumptions about what lies in the immediate future.”
I will respond to your request. You deserve a straight answer. Have your Wall Street friends check the numbers that I reference.
I ask that you reconsider a few of your positions after a careful read of the source data which I will cite in later comments. I wouldn’t be particularly alarmed at my answers. There is no question in my mind that Social Security needs to be addressed to insure its continued solvency but the actions necessary to improve its financial well being do not have to occur all at once or necessarily overburden the U.S. economic system. The fixes are very manageable in my judgment. The sooner the small fixes are applied, the better.
Now, the other side of the coin is the matter of whether the Congress intends to honor its obligations to reimburse the SSA combined trust funds whenever cash flow is negative, but the assets position is positive (the non-marketable bonds and interest accrued). I understand that a cash flow shortfall impacts the General Fund, creating a crowding out effect for discretionary spending. That problem, though, rests with the responsibility of the Congress to determine how it intends to manage the demands of various government programs and all debt payment obligations including publicly held debt and intergovernmental debt. Social Security doesn’t have to be carved up just because some other programs are out of control or the inbound tax revenue is insufficient to cover the other program needs. Social Security, as a rule, is paying its own way with a few funding adjustments occurring infrequently.
The Social Security system is in reasonably sound financial condition, even with the impact of the deep recession. Yes, Social Security revenues need to be increased very slightly with use of a funding increase trigger mechanism employed only when it is needed. Increasing revenues well above those needed to insure the decade by decade solvency of the Social Security system would likely lead to more Congressional spending and complaints later on that even more funds must be repaid to Social Security. We can see how poorly that has played out thus far on the political front.
I am aware that you have broad news media access. It is my opinion that you could help the public better understand the overall situation with Social Security funding and solvency. I believe that the Social Security system is in much better shape than you have indicated to date. I trust that you will give more thought to this possibility after you review the following information and other source data as you may be provided or locate elsewhere. Once the Social Security system is put back on a positive cash flow basis for the next few decades, perhaps Congress will aim its sights elsewhere as should be the case. The Social Security fixes are easy and fairly painless compared to some of the other General Fund problems that the Congress must address.
I am hoping that you can begin to appreciate that the Social Security system represents one of the smaller problems facing the Congress. I agree that it would help if positive cash flow was insured for a while to avoid further political attack, but overall funding for Social Security is on a reasonably sound footing for a few decades. That is to say if Congress and the Treasury fulfill their responsibilities in paying the accrued interest and redeeming the non-market instruments as […]
Bruce Krasting – “Two questions:
#1 In what year will the TF first run an annual deficit?
#2 What is the highest asset value that the Fund will attain and what year will that be achieved?
My answers: #1 = 2012, #2 $2.8 Trillion, this will be achieved on or before 2013.”
Movie Guy’s answers:
1. Fiscal Year 2010 is projected by CBO to be negative cash flow.
2. Approximately $4 trillion in Calendar Year 2018; higher thereafter for a number of years.
* Note that I am citing fiscal year data from CBO and calendar year data from SSA.
CBO states in its August SSA Supplemental Data that the combined Social Security trust funds will be negative cash flow in Fiscal Year 2010 (-$10 billion) and Fiscal Year 2011 (-$9 billion), returnuing to positive cash flow in FY 2012, 2013, 2014, and 2015, followed by negative cash flow for all fiscal years thereafter until funding increases occur or other adjustments are made. The heavy lifting for covering negative cash flow begins at the end of the decade and grows quite signicantly thereafter, though as a percent of the general budget and GDP the share is small. Still, it’s a lot of money after Fiscal Year 2020. I am of the opinion that the Congress should get the program back to a positive cash flow basis quickly, but only at a level necessary to cover current outlays. Thereafter, trigger adjustments will keep the positive cash flow moving along for a number of years. That, of course, doesn’t mean that Congress and the Treasury aren’t obligated to redeem the non-market instruments and accrued interest payments as may be necessary at any time later on.
The highest short term projected combined trust funds assets value is $4.0088 trillion in Calendar Year 2018 under Intermediate Cost assumptions, $4.5013 trillion under low cost assumptions, and $3.4368 trillion under high cost assumptions. I expect that the next SSA annual report will indicate smaller asset numbers for Calendar Year 2018 based on the economic events that occurred since May 2009 when the report was released.
Naturally, the projected assets value will increase after Calendar Year 2018, considering the relative size or dollar value of the principal and interest earnings plus inbound tax receipts from payroll taxes, tax on benefits, and other sources (see the August CBO Supplemental Data) in relation to annual or fiscal year outlays. I don’t know what year it will max out due to many variables and considerations including interest rates and unexpected increases in outlays. It is clear, though, that the combined trust funds assets balance is in no danger of going asset negative during this decade or perhaps the next decade unless the economy implodes. Calendar Year 2018 is the last year of the short term projections provided in the 2009 SSA report.
Now, let me cite the information sources to back up my remarks. I know that you are familiar with these sources, but I will detail how to find them for the benefit of all who see this comment post.
1. CBO Baseline info:
You will want to look at the CBO Summer 2009 Baseline – CBO Combined OASDI Trust Funds (Projections) first. Then look at March 2009 Baseline – Combined OASDI Trust Funds (Projections). Both sets of information are found under the Supplemental Data released by CBO in March and August 2009. More details on how to find it if visiting CBO’s web site provide further down in the comment post.
Here’s the shortcut:
These are the two links for the single pages:
Note the amounts shown for Primary Surplus on the first line. That’s the total net cash position for both trust funds (OASIDI) as explained in the footnotes, “b/ Primary Surplus is the surplus excluding interest paid to the trust fund.”
According to CBO:
FY 2010 is negative cash flow: -$10 billion
FY 2011 is negative cash flow: -$9 billion
FY 2012 is positive cash flow: +$8 billion
FY 2013 is positive cash flow: +$18 billion
FY 2014 is positive cash flow: +$17 billion
FY 2015 is positive cash flow: +$9 billion
FY 2016 forward is negative cash flow, with the amounts growing each fiscal year; the negative cash flow after FY 2020 is substantial
You might want to note the differences between the two forecasts, comparing fiscal year to fiscal year in each of the pages. That gives you an idea of the impact resulting from the recession.
How to find the Social Security supplemental data at CBO’s web site:
Congressional Budget Office (CBO)
CBO March 2009 Baseline:
A Preliminary Analysis of the President’s Budget and an Update of CBO’s Budget and Economic Outlook
Combined OASDI Trust Funds (Projections)
March 2009 Baseline
By Fiscal Year, in Billions of Dollars.
CBO Summer 2009 Baseline:
The Budget and Economic Outlook: An Update
Supplemental Data on Social Security Projections
Old-Age and Survivors Insurance
Old-Age, Survivors, and Disability Insurance Trust Funds
Combined OASDI Trust Funds (Projections)
Summer 2009 Baseline
By Fiscal Year, in Billions of Dollars
2. Combined Social Security Trust Funds Assets projections for Calendar Year 2016 from the 2007, 2008, and 2009 SSA reports:
I compared Intermediate Cost end of year Assets projections for Calendar Year 2016 from the 2007, 2008, and 2009 SSA annual reports. All three reports have Calendar Year 2016 in the projections, so that’s the one I selected to compare. Big negative change in the projections. I expect that more bad news will follow.
By the time the 2009 report was released in May 2009, the projected end of year assets for Calendar Year 2016 had fallen from $4,459 billion to $3,722 billion. In other words, the projected assets fell from $4.459 trillion to $3.722 trillion, a projected net loss or decline of $737 billion over the span of two years’ reports.
Assets at the end of Calendar Year 2016:
In 2007, the Assets projection for CY 2016 was $4,459.3 billion ($4.459 trillion)
In 2008, the Assets projection for CY 2016 was $4,273.4 billion ($4.273 trillion)
In 2009, the Assets projection for CY 2016 was $3,722.4 billion ($3.722 trillion)
Net result: -$737 billion from 2007 to 2009 projections for Calendar Year 2016 total assets at the end of year.
Now, go back and compare the SSA 2009 report end of year assets number for Calendar Year 2016 to that reported for Fiscal Year 2016 in the CBO Summer Baseline. Granted, it’s not a pure apples to apples comparison due to a fiscal year to calendar year comparison, but CBO is projecting $3,447 billion ($3.447 trillion) for Fiscal Year 2016. I expect that the next SSA report, the SSA 2010 report, will show a further drop in the end of year assets number for Calendar Year 2016. I expect that the SSA will report $3,500 to $3,650 billion ($3.5 to $3.65 trillion) at the max. I will be surprised if the asset position is any higher than that for Calendar Year 2016. Might end up being lower.
Note that the CBO fiscal year projections for ALL of the combined trust funds financial positions as outlined in the August Supplemental Data show postive asset positions (surplus) exceeding $100 billion per fiscal year. That’s the good news. Granted, the DI trust fund and OASI trust fund need to be rebalanced to bring the DI trust fund back into positive balance. Again, that’s an easy fix.
Also note that the CBO Summer Baseline SSA Supplemental Data projects that the Balance (combined trust fund assets) will increase from $2.504 trillion in FY 2009 to $3.819 trillion in FY 2019. That’s a projected positive gain of $1.315 trillion. Pretty good gain over the ten year period.
Shortcut to the links for Table IV.A3.—Operations of the Combined OASI and DI Trust Funds:
How to find Table IV.A3. – Operations of the Combined OASI and DI Trust Funds in each of the SSA reports:
Social Security Administration (SSA)
SSA Actuarial Publications
SSA Reports from the Board of Trustees
2007 OASDI Trustees Report
It is my hope that this information helps you. I believe that I’ve covered the numbers that have concerned you.
I know that the negative cash flow issue is still front and center. Correcting that situation will not require a large funding increase in terms of percentage, and it doesn’t have to occur in one slug.
Let me share with you that I also have serious concerns about the bond market. I have tried to make that case stick for the past year without any success whether discussing commercial or government bonds and securities. I’ve studied the U.S. Treasury data at length and thus far I have no justification for immediate concern. I still have the concern, but I have no data to back it up. I expect the problem to raise its head with force later in this decade. I wouldn’t want to be on the receiving end of those horns when it happens. Treasury issued over $8.8 trillion in 2009 as opposed to the $5.5 trillion in 2008. Granted, some of those issues were very short term, but still. Interest rates didn’t move much. I will keep watching it, though.
I am also a deficit hawk. My concerns are as serious as they come. That, quite frankly, is my greatest concern. When interest rates start moving up, the cost of debt issuance will pop and crowd out discretionary spending. It will be a mess.
Congress should fix Social Security quickly without a lot of fanfare and political posturing. The Members of Congress need to focus on the more serious problems as they have a full plate.
Look forward to your future posts at your fine blog.
“Let’s agree on something? If I am in the ballpark with my numbers we have a problem. That problem is much closer at hand then most people are currently thinking.”
I do not agree there is a problem. We are in the worst recession since WWII which is a far greater problem than Social Security and threatens the economy much more than Social Security which is stable for years to come. The problem is the government can not depend upon surplus revenues being generated from SS Payroll Withholding taxes which is going to either force the government to borrow more money on the market (which will impact the bond market), print more money (which will impact the bond market), or raise federal income taxes on those making >$250,000 annually returning the rate to a level higher than what was seen pre-2001 (you tell me why that should be done . . .).
SS TF will be drawn down in the short term, as it should be, to cover short falls in withholding tax revenues without regard to revenue generated from interest on the treasury notes. In the short term, so what! 20 years from now, which you or no one on Angry Bear can forecast, is more the issue. The current thought is the dart throw by the Peterson Group, Biggs, etc. is what the economy will be 20 years from now which is totally inaccurate. Tell me how you know what the economy will be so I can invest my money in the right stocks. You don’t. The better plan is to run as is for a period of time until we get to a point of a clearer picture and begin to put into play a series of small incremental increases.
One problem is the productivity gains from the economy have been skewed towards Capital as opposed to Nonfarm labor. Change the dynamics and move the economy back towards a full employment one rather than a financially driven one. We all can’t be bankers. True unemployment far exceeds the U3 numbers being touted by the media. This is a far greater problem today than any other problem ever faced by the US economy in costs today and in the future with their becoming a far greater drag on the bond market as well as the economy.
~40% of the corporate profits in the economy were garnered by the Financial industry and ~31% of the GDP can be attributed to the same industry pre-2008. Profits built on what? Adding value by selling a physical product, the productivity of Labor, etc? Not likely. We are still living with the impact of Marquette National Bank versus First of Ohmaha which opened the door for the financial industry to become what it is today.
I do not believe you have done the heavy lifting as you still do not understand the dynamics of SS and its mechanisms. You were quick to leap on the “change-SS-bandwagon” to in order fix SS when it didn’t create today’s problems, without regard for what has created today’s problems, and without a proposal to fix today’s problems created by the financial industry. Bruce has it right and Movie Guy is being kind.
Throwing down gauntlets to powerful intitutions whose interest aren’t served by taking up those gauntlets doesn’t really accomplish much. Wall Street firms will do what is in their interests. Mainstream news outlets will do what is in their masters’ interest, which is necessarily in their own interest as well.
So, you either give up or keep making your point on you own. Some people are better at making their point than others. For the rest of us, being right can be very frustrating, but calling out Wall Street and CNBC isn’t going to make things better.
Bill, Thanks for posting these web sites. I have looked at most of them when doing my number crunching. I know what the TF says and I know what the CBO says,and I think they are both wrong. We will top out the
Fund at a much lower number $2.8 T and it will come much sooner than anticipated.
In order for the Fund to stabilize we need a new stimulus program. That is not going to happen in 2010. The Mass. election has confirmed that.
Bill has done a great job compiling the existing mumbers, but he has not indicated whether they are accurate or reasonable. The existing numbers that out there are no longer correct (in my opinion). I still want someone to crunch the numbers based on where we are today in January of 2010, not rehash something from 8 months ago. Look at the 4th Q results of the Fund. Sharp deterioration versus prior years. Now extrapolate that and tell me where the lines cross now.
The CBO Summer Baseline SSA Supplemental Data is only five months old. The projections were based on what appear to be fairly realistic unemployment projections noted elsewhere in the CBO August update.
I have watched the monthly SSA data. Nothing particularly alarming there. These are the latest summary numbers from SSA.
If anything, we have been fortunate that the outlays haven’t increased nearly as much as I had anticipated.
I believe that go forward picture is still stable. It is possible that they will burn another $700 billion off of the projected combined funds. But that will put it higher than $2.8 trillion over the ten year period, say $3 trillion or $3.2 trillion. That’s reasonably sound, though the 2037 year goes away. It will probably go away after the next SSA annual report.
For argument’s sake, let’s say you’re right. That’s still $2.8 trillion, though you didn’t specify a year.
What are you projecting for monthly cash deficits going forward? What’s your projection for the negative cash flow in FY 2010?
The SSA program would still be stable if the FY cash flow deficit was $50 billion. Granted, that’s a hit on the General Fund. But the SSA program won’t crash at that burn rate for many years. Yes, I know that the cash shortfalls ramp up after 2020. It doesn’t matter if the program has cash difficulties for a couple of years. At some point, it will stabilize and resume income growth along a pretty good trend line. The cash position will be negative after 2015 anyway, but the combined funds will be generating interest income.
Number of beneficiaries receiving benefits on December 31, 2009
Total Old-Age and Survivors Insurance (3 columns) Disability Insurance
2007 49,864,978 40,944,607 34,450,034 6,494,573 8,920,371
2008 50,898,396 41,624,557 35,168,515 6,456,042 9,273,839
2009 52,522,819 42,826,421 36,416,781 6,409,640 9,696,398
Old-Age, Survivors, and Disability Insurance Trust Funds
Month Total Income Total Outgo Net Increase in Assets Assets at End of Month
Aug 2009 50,729 56,490 -5,761 2,507,931
Sep 2009 53,565 57,884 -4,319 2,503,612
Oct 2009 52,743 57,506 -4,763 2,498,849
Nov 2009 51,562 57,270 -5,707 2,493,141
You know that a Member of Congress can send a letter of inquiry to the SSA. That should be an easy way to get a current update and projection.
Bruce. I only look at one thing. The only thing that matters in my opinion. Cash flow.
What are the anticipated pieces of the cash flow as we know them (the big ones – $4b and up) for the next four years.
At this point your base case should be stable FICA and SECA. I think the tax revenue will be less than assumed. Interest at <5%. You know all the pieces. What happens if you fall below this base case?
It does not work. At least not for long.
In my opinion it is a problem for the Unified Defictit and the ratio of public to intergovernmental. And that takes you back to the issue I see with the bond market,
MG, thanks for all opf this. I just posted a response to Bruce W. I tried to shape a basis for modeling the flows.
Please take a look. Using that approach what does it look like in terms of the timing of future deficits?
I understand that you can say that my base case expecations of flat FICA SECA for the next 3 years are too low. Keep in mind it was negative growth last year. We started 09 with a higher level of employment (contributors) than we ended the year. ( minus 7mm jobs – BLS). There is no expectations at the moment for that to change. We continue to lose some jobs every month. We would have to have 700k Non farm payroll a month to stabilize quickly. That is not in the cards.
i agree with you. but the tax increase on high incomes should start at the social security cap… about 106 thousand per year. that balances things nicely. a similar percent for payroll tax below the cap and for income tax above the cap will solve the social security need on the one hand, and the budget need on the other.
the needed tax increase in both cases would be about one tenth percent per year, phased in faster on the higher income, but then they get to stop paying it in about 2036, while the increase in payroll tax will likely be permanent.. as we will need to pay a higher percent of our income to pay for a higher percent of our lives in retirement. that last is not a bad thing, in spite of what young people might think while they are young.
Two different issues and I believe I was detailed enough to differentiate between the two. I suggested they raise Federal Income tax (separate from payroll withholding tax) as the solution to the short fall in tax revenues resulting from lesser amounts of federal income tax revenue and not depend upon SS revenues to fill out the general fund. One way to accomplish the federal income tax increase is to allow the 2001/2003 tax breaks sunset for those making >$250,000 annually as they experienced the most benefit the most from those breaks.
I believe you are addressing the SS payroll withholding tax and your planned increases of 1 tenth of one percent per year for employee and employer, to which I am in tune. Are you now suggesting an increase of similar magnitude to the Federal Income also? This would be a change from what I remember you discussing previously or else I absent-mindly missed it.
PS: Who is the guy on the soap-box shouting at? Lots of noise and critique and no substance.
Let me frame the situation as I understand it and make sure I know your concerns;
1) Currently, the amount of money that we take in for SS pays the benficiaries and gives us a surplus.
2)This surplus amount has been rolled into our trust fund and we have issued bonds for that money.
3)There are people using the interest off those bonds for things other than SS benefits.
4) Because of our current crisis the amount coming in has fallen sharply while we have HAD to continue to pay the beneficiaries.
5) We will meet the time one day where we have completely spent the trust fund money and simply are funding the beneficiaries with current workers. That date is up for debate.
6) With the arrival of that date and a worsening ratio of workers to retirees it is feared we will not be able to afford it.
Now these bonds that have been issued are the highest graded bonds anyone in the history of the planet has ever held correct? They are getting a high rate relative to bonds issued this year so their yield in the secondary market must be fantastic no? It is the secondary market that is your main concern no? You do not want these bonds to have to be redeemed early right? We need to make sure we continue these bonds which are probably thirty year maturity and issued in the last 10-15 yrs right?
Are you saying we need to make sure we reduce payments/raise revenues enough so that we can always have an excess which we can convert to high grade bonds?
Are you suggesting that the only way we can “finance” SS is by the means we have been using for 70+ yrs, even when our understanding of our monetary system may be such that we do not need to fund it this way?
I know this is a lot of questions but they are not intended to be smart ass. These are real questions from a concerned citizen who believes that MAYBE the way we have been doing it all along is not only unnecessary, expensive (why issue a bond that PAYS interest when its not necessary) and not taking the true economic questions seriously just the “financing” ones.
New post is up. The TF cannot peak at $2.8 trillion in the short term. It’s rate of growth could conceivably be slowed at a pace that would leave you at $2.8 trillion in two years rather than projected $2.85, but in order to freeze it at that point you would have to have a drop in total payroll in covered employment of something more than double the current total such payroll.
if you are still here: the one tenth of one percent increase in the payroll tax takes care of Social Security… taken as needed.
the one tenth of one percent increase in the income tax high brackets is “new” for me on this issue, only because i have to address the real problem… that is the deficit, which has nothing to do with social security. in order to “bring down the deficit” they are going to have to raise taxes. ultimately the tax increase looks to me like it will be about 3% on incomes over 100k. hardly a burden. not an injustice. but that is the price they have to pay for the money they borrowed.
krasting seems to still not get the point OR he is talking about the “fact” that Congress will not raise taxes to meed the call on its debt to the Trust Fund and will simply cut Social Security so the debt never has to be paid. Krasting sounds like he’d be fine with that. I call it theft. Stealing from widows and orphans.
if you only look at cash flow, you are saying the people who trusted the full faith and security of the united states of america were suckers. the money they have in the bank does not need to be given back to them, because it would hurt the cash flow situation of the people who borrowed the money.
your average criminal “only looks at one thing” until someone finds an honest cop.
continues to talk as if the only issue was maintaining positive cash flow in social security … that is ignoring the money social security put in the bank for just such an expected negative cash flow situation as we see today and expect in the next decade…
he may well be right that this is all the bond traders, and the congressmen, look at. it is still theft.
and as far as the bond traders go, an adequate answer would be to simply raise the income tax enough to pay back the money borrowed as needed.
The last line in the preceding comment is wrong, the post has now been corrected.
In either case Krasting arithmetic is clearly wrong. So when he asks us:
“Let’s agree on something? If I am in the ballpark with my numbers we have a problem. That problem is much closer at hand then most people are currently thinking. “
My answer is that his numbers are not in the ballpark, or if they are they have been fouled back into the stands.
You guys are my heroes on this. I have many ‘smart’ friends who think they have a clue on whether SS does or does not need fixing, and they’re full of it.
Until you really get into it, and have the discussion you guys are having, you can’t begin to understand SS. It is SO valuable to me have you guys lay it out, over and over, and thank you to all sides for continuing to put forward questions and strawmen (intentionally or not). Keep up the good work.
I’m sorry, we really can’t count on a single other person on the planet to do it. Really. It may be that this collection of blogs/people will be the only ones who have a handle on the exact weight of the Titanic as it sinks, without being able to do anything about it, but I for one am happy to at least have a partial understanding.
Now what I really want to hear is a description of the bond market panic scenario. What does that look like? How certain are you about it and what it means. Can it be something that sucks but we just get through it and come out on the other side with a nation and some semblance of an economy, or does it mean anarchy and nuclear war?
I take it, and PLEASE correct me if I’m wrong, but the bond market panic that is mentioned is triggered by the change in SS Trust Fund behavior. Current behavior: supplying annual surplus money to Congress, by buying special bonds issued by the government. New behavior: the SS Trust fund decides to sell its bonds, which the government has an obligation to honor, including future (and past?) interest payments.
It sells those bonds to either the government itself, which somehow comes up with the money and is basically retiring debt, or to the larger fixed income buying bond market. Are these prices negotiable in any way? How does that sale work?
And the problem foreseen by some is that this would be so many bonds, of such large total value, that it would flood the market and cause…what exactly?
If supply of bonds is high, prices would be low, I guess – but we’re not talking about issuing new debt where the interest rate is negotiable, we’re talking about re-selling existing bonds…I think.
See…I’m deeply confused – describe the marketplace for this debt, please…and then maybe I will or won’t believe that it will cause a panic in some other existing market.
Describe a panic in the bond market and the consequences for the larger society, please.
Links to educate the clueless welcome, and I promise I’ll go and read them.