Is Social Security too big to NOT fail?
This figure shows graphically the outcomes for the OAS (black line) and DI (gray line) under the three alternative scenarios Low Cost (I), Intermediate Cost (II), and High Cost (III) in the 2008 Report. Almost universally reporting on Social Security revolves around Intermediate Cost and if we examine its lines we see the standard reported outcomes, the DI Trust Fund going to depletion in 2023 and OAS in 2041. But that was then, the 2009 Report shortened up the intervals to 2017 and 2037 for Intermediate Cost, and the 2010 Report is certainly going to see DI in a state of near term collapse. Okay Intermediate Cost shows us a program in need of some fixes, immediately for DI, and in the medium term for OAS. Familiar story.
And High Cost tells the same story, only more so.
But Low Cost is different. Under Low Cost Social Security OASI is projected to be fully funded through the 75 year window and even have balances growing faster than costs after 2050 and Trust Fund Ratios never falling below 350. Would this be a good outcome. Well the fully funded part is nice, and a more or less flat tail after 2050 is nice, but a constant TF ratio above 350? Well no that is not a good thing, and the only thing worse would have Low Cost OAS look like Low Cost DI and rocketing through a TF ratio of 1000 on way to 2000. There is a point where the Trust Fund is literally too big for Social Security’s good. To understand why follow me below the fold.
What would be the ideal shape and level for this graph. Well in shape it would look like Low Cost OAS, a near term bulge to build the TF to the point that interest on it meets the challenge pending from 2026 to 2050, and then flattening out. But at a lower level. This spreadsheet represents the NW Plan http://spreadsheets.google.com/pub?key=r49_nOHQG4QdHuwcbMGmP0Q The column fourth from the Right is labeled Trust Fund Ratio and if graphed would show a perfect shape, a Trust Fund topping out with a ratio of 375 and then gradually adjusting down to ultimate levels between 123 and 130. But not that the total Trust Fund Balance only goes down during a ten year period and then by not enough to matter, under the NW Plan the principal in the Trust Fund never gets paid back. And that is a good thing.
So when supporters of Social Security claim that the tax increases starting in 1983 were designed to pre-pay Boomer Retirement they are right in spirit but wrong as to detail, in an ideally balance system those dollars are never called on directly. And by that same token it is wrong to say the Trust Fund was designed to run out, because it wasn’t, instead the expectation was that changes to either revenue or benefits would be made in a way that keeps that tail from dropping below 100. Meaning that the Trust Fund simply serves as a buffer for bad times, as it was between 1972 and real crisis in 1982 and as it is doing today.
But even given that a TF ratio of 100 is a designated minimum why is a flat 130 better than say the flat 400 seen under Low Cost OASI? Well because of the effort needed to keep a TF ratio flat. A flat TF ratio assumes that Benefits are requiring enough resources above FICA and Tax on Benefits to take up enough of Interest so that the TF grows only enough to mirror overall program growth. So if we assume ultimate interest earnings at 4% keeping a TF level steady at 400 reguires that some 12-15% of total program costs be paid by General Fund transfers and this over and above the 12.4% of payroll directly devoted to it. Which sets up three potentially contending groups. First you have beneficiaries who have an equitable claim that the Trust Fund is collectively an earned obligation to retired participants, even though most of the principal was actually contributed by previous generations. Second you have non-participants, particularly those with income from capital, who point out legitimately enough that they are picking up to 15% of program costs and getting nothing for it. In between you have current workers who are in effect paying twice, once in FICA and a second time in income taxes.
In contrast maintaining a TF ratio of 130 requires much less societal strain. Rather than an 85/15 split between payroll tax & tax on benefits/debt service the split is 95/5 where that 5% is simply the cost of recession insurance.
Now some Social Democrats would claim that not only is 85/15 okay but they would take that to 50/50 or even 0/100. Well right on brothers and sisters! But quite apart from genuine philosophical beliefs in the virtues of thrift and self-reliance there are many practical and political strengths to having worker retirement financed by workers supplemented only by a small amount of interest on a reserve fund that prevents every downturn in employment from turning into outright class war. Instead Social Democrats could turn their attention to other societal goals like health care, paid leave, real wage increases, public education all of which directly or indirectly contribute to the general welfare, including that of wage workers.
Personally I would be okay with a ratio as high as 85/15 if that was driven simply by interest on an existing Trust Fund. Because once established a TF ratio of 400 is hard to drive down, the only way to do that is to artificially drive the second term up enough to actually start redeeming principal which in turn forces the whole system more in the direction of subsidized welfare. But levels much above 400 are actively dangerous.
If we return to the graph we see that Low Cost DI shoots up to a TF ratio of 2000 within the 75 year planning period. Under that scenario and at assumed 5% the Trust Fund would be throwing off interest equal to program costs. This would have the effect of changing a worker financed ‘entitlement’ program into a pure welfare program that increasingly would be justified simply on the basis of past contributions by past generations, at some point the concept of this being an earned benefit being totally lost. Now in the particular case of Disability this would not bother me much, I have no problem sticking a big part of the societal bill onto capitalists who may have created the conditions that led to that disability to start with, and besides I think the overall duty of society to aid the helpless is pretty clear to start with. But on purely practical and political grounds I would not like to see OAS going anywhere near the 1000 level, they system loses its insulation.
Which gets me back to my title. Social Security is under current assault under the belief that costs to finance payment of the interest owed are already too high. When pressed those opponents tend to reluctantly admit that they owe the money, it is just that it would societally harmful to do so. While I could and do argue that this is just nonsensical special pleading that the transfers at point of the greatest projected strain are no more than those of wars of choice, in the end the cost of paying down a $5 trillion debt is big while the projected cost a paying down a $2.5 trillion dollar debt is with subsequent interest effects less than half as high. Freezing the Trust Fund at its current levels would eliminate, at least it seems to me, this argument that not repaying the TF is not driven from ill-will but instead from practicality. Not that I believed in the argument to start with, just that I recognize its power. Hence my suggestion of a short term cut in FICA taxes sufficient to freeze the fund combined with a schedule of future increases to stabilize it.
Interestingly it looks like the economy is kind of doing my job for me. Under my formulation a vanishing Social Security surplus is not necessarily a bad thing, though certain that which is driving it, high unemployment, certainly is. Opponents are using this period of short term crisis to make long term changes to Social Security’s benefit formula, changes which ultimately worsen the situation by swelling the Trust Fund over the medium term. If we can just stave that off Social Security might emerge from this job recession actually better situated to achieve long-term health, freed from the burden of a burgeoning Trust Fund going forward.
The very fact that there is interest on the fund at all is plenty of reason for me to oppose it.
Bruce, I agree with you on the big picture, it just seems like the short-run politics are a problem. Apparently, the CBO is estimating a $28 billion shortfall in the 2010 Social Security revenue vs. expenses (ignoring interest payments on the trust fund). This is just a short-term, fiscally small, probably one-year problem, but it does feed the arguments that we need to “do something” to fix things now. Even ignoring this year, Social Security benefits will exceed revenue in 2016, which isn’t far off.
The problem is that if we fix the problem by raising revenue, that just makes the trust fund ratio go all out of whack in the long term, even though Social Security remains solvent. So, like you say, we actually need to reduce the Trust Fund, or at least maintain its current size. For 2010, we’re good. $28 billion is a good amount to lower the fund, and certainly a manageable transfer from the non-Social Security budget. The hard part is selling the idea that we need to lower, then raise taxes to keep the annual shortfall in a similar range. It’s totally at odds with everything people think they know about Social Security.
So maybe we make trade-offs that play into the accepted narrative (feel free to check my numbers if I’m not quite right on the details). Pick a trust fund ratio at its projected peak over the next 10 years. Then pick a long-term target ratio (let’s say 100). Then put all policies on the table: benefit levels, retirement age, payroll taxes. Require the trustees to pursue the long-term target ratio over the next 40 years, so that in 2050 the TF will equal annual benefit payments. The trustees can use any combination of changing benefits and changing revenues, but you put caps on certain policies. So, let’s just say that you limit changes in revenue to +/- 2% of income. That is, payroll taxes would be fixed between 4-8% for individuals, with an equal employer match. If either limit was exceeded, the benefits adjustments would kick in. If the rate hit 8%, then the trustees would have to cut benefits (by changing eligibility or the level of individual benefits) to meet the long-term target. On the other hand, if the rate dropped to 4%, then the trustees would have to raise benefits. You could even let the politicians review the proposed benefit changes when they occur, so that the public gets a say as to whether the eligibility requirements change or the per capita benefits change.
But here’s the beauty of this plan. Given intermediate cost, revenue changes alone will let you meet the targets. Benefits will never have to be cut, though the rate would increase so that the trust fund ratio was going down and the annual cost was in the range of the low double-digit billions. In the long run, a rise in benefits becomes possible, even likely. And you assuage the fears of those who think the whole thing is going to collapse at high cost (or worse) by accepting benefit cuts in the very unlikely case that things end up that bad. It looks like a compromise that both liberals and conservatives can live with politically, without actually imposing bad policy.
Goodwin can you expand on that? All kinds of financial institutions are required to have reserves and generally those reserves have at least modest returns. The Social Security Trust Fund which is actually no more than a big reserve fund holds those assets in interest earning securities. This is a problem how?
Is Social Security too big to NOT fail?
yes, but there is no need to fail since the obligation can be renegotiated at will by the government.
Well I don’t disagree on anything here. Except perhaps the politics involved.
The problem for privatizers and ‘reformers’ is that the cost of a payroll based fix is so small. I don’t know if you have looked at the numbers of what we call the Northwest Plan, the spreadsheet is here:
http://spreadsheets.google.com/pub?key=r49_nOHQG4QdHuwcbMGmP0Q
We know what it would take to fix Social Security under Intermediate Cost assumptions: 2.01%
We also know what those numbers are for the 25 year subperiods: 25 year 0.17%, 50 year 1.51%, 75 year 2.00%
http://www.ssa.gov/OACT/TR/2009/VI_OASDHI_payroll.html#131183
This tells us that we don’t have to fix everything at once, we can solve the 25 year gap with a 0.20% increase immediately, then address the 50 year gap with some changes starting 15 years out, and then close the small remaining gap with around a combined 0.30% increase in the years around 2050. And Coberly did all that in the attached spreadsheet.
Which sticks would be ‘reformers’ in an awkward place. If the goal is to deliber 100% of the scheduled benefit the cost to do so starts out super cheap ($1.50/week for the median household) and never exceeds a very small fraction of projected Real Wage. And Coberly does every bit of it with the Trustees’ own IC numbers.
Now the various contributers to the NW Plan have their own opinions about IC, me on the economic side, and Arne on the demographic, while Coberly seems willing to take them down the middle, we all collectively decided to let the Trustees set the rules here.
When Bush set up his CSSS Commission he expressly took any payroll tax based fix off the table. Given that his merry men went on to propose stealing two or three years of retirement from workings while price indexing initial benefits in a way that made Social Security a much worse deal, we can hardly supposed this nixing of tax increases was out of the goodness of their hearts and a deep concern for workers. Instead it was clear that even a partial inclusion of tax as a component made the concept of crisis evaporate.
Taking your example we could just increase FICA by 1% point for each of employer and employee. Problem solved, no need for benefit cuts, no need to raise full retirement age, on paper it is a done deal. We know that most people take early retirement already. Who out there in the workforce wouldn’t pay 1% of take home to buy an extra three years of retirement AND to get a 100% payout? Oh and per CBO the gap is a third smaller at 1.3%.
Your scheme falls apart because of a single fatal flaw. It assumes that ‘reformers’ are acting in good faith on behalf of future beneficiaries and/or tax payers. I don’t see that at all. Instead opposition to SS seems to be fueled on the one hand by a desire for tax avoidance (paying back the Trust Fund) and on the other by simple ideological opposition to social democratic solutions to problems of economic justice. Few will go on record in quite the way Friedman did and call SS “immoral” but that component is never too far from the surface.
In 1997 the projected cost of an immediate fix to Social Security for the standard 75 year actuarial period was 2.23%. In 2009 that projected cost was 2.01%. The difference is something I call “The Cost of Inactivity” and the plan I suggest in response has the formal name “Nothing”. A problem that left unaddressed moves farther out in time and has its fix shrink hardly merits the term ‘problem’. The implications of this were clear by 1999 and the publication of Baker and Weisbrot’s ‘Phony Crisis’. In this case 12 years of delay meant the equivalent of a 2.23% tax cut relative to what would have been the baseline.
The opponents of Social Security know all these numbers, they just don’t want the general […]
The argument for ‘Crisis’ has always rested on a handful of slogans.
‘We can’t afford to wait”
“Sooner is better than later”
“Looming boomer retirement”
“Two retirees for every three workers”
“People are living longer”
The problem is that we have 12 years of data via post reporting and none of that really holds up, Particularly the last three are already built into the models. The Social Security Reports can be seen as an analysis of boomer demographics, and the basic numbers are relatively unchanged year to year, that is God is not making any more Boomers and while people are living longer each year the rate of change in mortality has pretty much been baked into the pie. Certainly some assumptions are changed every year, but the effect of those changes is scored and mostly they don’t move the bottom line much.
So we can afford to wait. One year at a time. For example we did nothing in 2009 and in the process pocketed the cost of the prospective fix. In effect we gambled that keeping 2.0% of payroll rather than sacrificing it for some fix would not create a much bigger cost going forward. And when the results are in we can see how much additional cost accrued to the bottom line. I am 53 and have thirteen years until retirement. How much would the payroll gap have to go up before “Nothing was a losing bet”. Assuming constant income that number is 2.0%/13 or about 0.16% of payroll. That is a pretty big jump, but is certainly possible. On the other hand the resultant 2.17% total gap is still below the 2.23% of 1997, twelve years of “Nothing” having left a lot of dough in my jeans.
Of course “Nothing” is twice as risky for someone twice as far from retirement, but given that the result to date has still been a drop in the gap going forward it has been a winning bet for everyone.
So I have a double wind behind my back. First the cash value cost of “Something” is cheap at 2.01% of payroll, if forced to it it can be done with comparatively little pain.
Second “Nothing” has a proven record.
So the challenge is clear: Produce a better and cheaper “Something” or convince me why I am obligated to subordinate my own material benefit for that of others in this particular case. A test that frankly most reformers simply fail. Mostly they work on a philosophy that says that maximizing your own self-interest is almost the most virtuous thing you can do, while collective responsibility is for chumps.
That’s an interesting comment. Certainly that’s true and certainly it’s what the entire issue is all about. It’s also interesting to note how similar are the words renegotiate and renege. Different roots, but same intent. It might also be a good idea to renegotiate the income tax structure. Or maybe the Congress could renegotiate the various military activities it has assigned to our armed forces. Or possibly the too big to fail big bank bail out could be renegotiated and some of that misspent money could be clawed back now that some of the light of the next day is exposing more of the hanky panky behind the deals that were covered up behind the scene. Every thing in life is negotiable and, thereby, renegotiable.
Jack,
Every thing in life is negotiable and, thereby, renegotiable.
In this case its a one sided renegotiation. Also, since the government can print money its not likely that they’ll run out of it and fail.
I think some of the political points got lost in my walk-through of the numbers. (I’m glad to see the revenue increase would be 2% overall and not 2% for both worker and employer. That makes it that much easier to fix economically.)
For one, I agree that the opposition is not negotiating in good faith. But they have the media narrative on their side. Here’s what bothers me politically about the status quo:
1. A large Trust Fund that is immediately spent is easily denounced as a massive liability. The larger it is, the easier it is to claim crisis and have people believe it. It’s in the interest of those of us who support Social Security to decrease this number to undermine the claims of a crisis.
2. Cutting the payroll tax will be pitched as completely irresponsible in the face of the crisis “everyone knows” exists. So there’s no political room to reduce the trust fund by cutting taxes. So we’ll have to wait for revenues to drop below annual benefits.
3. When revenues drop below benefits, the calls of “crisis” will intensify, and all sorts of counterproductive ideas will gain currency. So we should plan for this by negotiating a “fix” in advance.
4. Any fix that causes the trust fund to keep rising will aggravate point #1. So any fix has to promise to break even each year or require a small transfer from the general budget each year.
5. Uncertainty feeds fear, and it’s the worry that one year we’ll have a massive Social Security deficit even if we currently have a surplus that gets people accepting the crisis model. So any solution should aim for a stable trust fund ratio (and involve transferring as close to zero money to Social Security as possible). That should be its defining element.
6. It’s conventional wisdom that fixing Social Security will require cuts in benefits. We know that’s not true. So you call the bluff, and accept those cuts but only contingent upon the finances of the system getting out of whack. Keep the 4-8% range for payroll taxes, and you’ve got even more buffer to deal with things. We’ll never even get to much above 7%, and so the benefit cutting provisions will never kick in.
7. By also adding a provision to increase benefits if revenues drop on the other side, we create the possibility for the program to be expanded down the road, automatically. We could probably drop this provision, but I worry that we’ll just end up fixing this problem and then having to fend off claims to reduce the tax decades down the road to “return the money to the taxpayers” or some such. One would hope that our politics are better by then, and most of us here will be gone by then, but someone should think of the next generations.
8. By doing this, you take the mantle of “reform” away from the crisis-mongers and force them to look like obstructionists if they don’t accept this. They might just take the long-term hit of losing on Social Security in order to avoid the short-term political cost. It’s political ju jitsu.
I looked at the Northwest Plan numbers and I see that you get down to a 140 TF ratio by 2050. That’s probably good enough, but I’d be curious to see a spreadsheet that let you change the target TF so that you could get numbers for different target level scenarios, such as my 100% target.
Bruce, You have done the analysis before and pointed out the social/political problems with a self funding social security situation, but I am wondering why that is and whether your concern for coupon clippers who never pay in is misplaced. I know that the trust fund has to be loaned to the government and I think that is a good thing. What if there was no national debt? What if the government had 2.3 trillion or whatever and had no place to spend it? What if that money was instead loaned to diverse business interests of impeccable financial rating? Then all of the problems you see with too large a trust fund disappear don’t they? And doesn’t this put it right back where it belongs–the only reason anyone wants to “reform” social security is that we are running very large deficits, our national debt has increased enormously and like Willie Sutton robbing banks, social security is where the money is? If I did not pay enough general income taxes then nail my butt to the wall–increase my income taxes now, bring back the estate taxes even tax all my social security benefits, but do not suggest that social security needs reforming because the rest of government has been profilgate.
Cascadian an admirable post but let me a few things.
One the NW plan drives TF ratios to 123 then has them rise slightly to 130 and then drop back to 123. If I understand Coberly right it will need another small boost in about year 80. Get the numbers closer to 100 would require a much more frequent set of adustments while not reducing debt service enough to make it worth.
Two the spreadsheet supplied is for combined OASDI the plan actually separates out OAS and DI and while I have to check the result is to keep each fund closer to 100. For example DI is bleeding principal now so all of the initial fix is directed there. On the other hand OAS really doesn’t need attention until 2026.
Three the NW Plan is actually set to go into operation only if certain triggers are pulled. The changes can be moved forward and pushed back in response to actual results.
So I think the fully articulated plan is close to what you propose.
Terry my concern is not with coupon clippers per se, I would happily tax those dividends as regular income at pre-Reagan rates. My concern is with a much older principle: “He who pays the piper calls the tune”
the strength of Social Security is that not only is it’s funding mostly walled off from the General Fund but more importantly that all that funding ultimately derives from wages. Social Security drawing nothing from capital owes nothing politically to capital.
Trying to draw on capital by raising the cap or applying FICA to gains on capital or simply by letting the Trust Fund mushroom by that same token legitimizes capitals interference with Social Security and so drains juice from the Third Rail of American Politics. To screw with a program that works based on vague calls on concepts of equity and income inequality is a mistake when those efforts would be better focused on other areas like child health and education.
Of all the long term components of the Progressive Agenda Social Security should, with the exception of fixing DI, be far down the list.
Terry your point about diversification is correct but that horse kind of left the barn in 2000. If you subtract out interest accrued which can’t be loaned out in the way you suggest the cash surpluses are just not there anymore.
At this point we are mostly stuck with the Trust Fund we have and projected interest accruing to it. You are perfectly correct in principle just ten years late in time.
Bruce
don’t encourage him. can’t you recognize a crank when you see one. there is interest on the Trust Fund for the same reason there is interest on any borrowed money… mostly so it doesn’t lose value to inflation.
Cascadian
thenorthwest plan does all that without the contortions: raise the payroll tax one tenth of one percent when and if the ten year projection of theTrust Fund Ratio falls below 100. simple. the people getting the benefit pay for it. no danger of benefit cuts or retirement age raises or all the other nonsense the idiots keep coming out with.
If social security raises my payroll tax or imposes a increase in regular income taxes then the system is in trouple. It’s about raising taxes, stupid.
Cascadian
i think you are working too hard. what breaks my heart is that the northwest plan has been seen by the experts and no light went on. they are all defending their own favorite scheme, which involves sticking it to workers on the one hand, or sticking it to “the rich” on the other.
btw the 2% combined balances the books if imposed now. and only through 2085. to balance the books going forward takes 2% each, but it can be phased in one tenth of a percent at a time. while wages are going up 1.1% per year every year. the “2% now” fix works by increasing the Trust Fund, and interest, over the next 30 years and then spending it down over the remaining 45 years of the actuarial period. it’s a good number to keep in mind if you can use it to understand the scale of the “problem”… that is, nearly nothing. but it isn’t the best way to go.
Bruce – Your well informed and even have a skeptic like me thinking your honest. I hope your right about Social Security. I still think that the government will renege, but as you and I both know I only got a rubber knife so I’ll keep it sheathed.
Incidently you will be please to know that I nowfall into the rube catagory. I declared 12k in precious metals sales on my taxes, and I don’t think I would have been found out had I not – So when this finacial house of cards falls, it aint because I was shirking.
Anyone unwilling to boost his contibution to a retirement plan because it requires an increase in gross dollars or as a percentage of income even where the net return outpaces that additional investment is not thinking straight.
You are bitching because a Snickers Bar costs more than it did 20 years ago even as it represents a smaller proportion of your Real Wage.
Discussions about the status and future of the Social Security programs should be considered in the context of what is driving broader Federal budgetary concerns.
The SSA combined trust funds are only projected to have two positive cash flow fiscal years remaining according to CBO; three positive cash flow years according to the Obama Administration in its FY2011 budget submission.
The Federal budget is facing larger cash flow problems as evidenced in the projected budget deficits.
Federal budget deficits for the period FY2009-2020 are projected at $11.5 trillion under the President’s Budget proposal.
The latest Federal budget submission projects that the deficits will grow by $8.532 trillion during the period FY2011-2020 if the President’s proposal is adopted. If current policy is employed instead of the President’s proposal, the deficits are projected to grow by $10.64 trillion during the period FY2011-2020.
Debt held by the public is projected to increase to $18.573 trillion in FY2020 under the President’s proposal.
The Federal budget issue across the board is the availability of any positive cash flow revenue sources. The reasons are obvious:
Federal Budget Deficit Projections
FY2010 vs FY2011 Federal Budget submissions
(billions)
2009 1,752 1,413 -339
2010 1,171 1,556 +385
2011 912 1,267 +355
2012 581 828 +247
2013 533 727 +194
2014 570 706 +136
2015 583 752 +169
2016 637 778 +141
2017 636 778 +142
2018 634 785 +151
2019 712 908 +196
2020 … 1,003
—-
Deficit projections
FY2011 Budget
(billions)
2009-2020 11,501
2010-2020 10,088
2011-2020 8,532
—-
Debt Held By The Public projections
FY2011 Budget
(billions)
2009 7,545
2010 9,298
2011 10,498
2012 11,472
2013 12,326
2014 13,139
2015 13,988
2016 14,833
2017 15,686
2018 16,535
2019 17,502
2020 18,573
Sources:
FY2010 budget projections
http://www.gpoaccess.gov/usbudget/fy10/pdf/budget/summary.pdf
FY2011 budget projections
http://www.gpoaccess.gov/usbudget/fy11/pdf/summary.pdf
.
Projected deficits in the baseline projection of current policy
vs. President’s budget proposal
FY2011 Budget
(billions)
2010 1,430 1,556 +126
2011 1,145 1,267 -122
2012 934 828 -106
2013 940 727 -213
2014 934 706 -228
2015 983 752 -231
2016 1,013 778 -235
2017 1,042 778 -264
2018 1,077 785 -292
2019 1,227 908 -319
2020 1,346 1,003 -343
2011-2020 10,640 8,532 -2,108
*The President’s budget proposal includes “upper-income tax provisions dedicated to deficit reduction” totaling $678 billion over the period 2011-2020 as well as “other revenue changes and loophole closers” totaling $749 billion over the same period.
Source:
FY2011 budget projections
http://www.gpoaccess.gov/usbudget/fy11/pdf/summary.pdf
.
SSA Combined Trust Funds (OASIDI) Cash Flow Projections
Combined OASDI Trust Funds
CBO January 2010 Baseline
FY 2010 -$28 billion
FY 2011 -$20 billion
FY 2012 -$11 billion
FY 2013 -$2 billion
FY 2014 +$6 billion
FY 2015 +$6 billion
FY 2016 -$3 billion
FY 2017 -$17 billion
FY 2018 -$34 billion
FY 2019 -$54 billion
FY 2020 -$74 billion
FY 2010-2020 Total -$231 billion
—-
Combined OASDI Trust Funds
Obama Administration FY 2011 Budget
February 2010
FY 2010 -$33.9 billion
FY 2011 -$19.1 billion
FY 2012 -$2.0 billion
FY 2013 +$7.6 billion
FY 2014 +10.7 billion
FY 2015 +$13.8 billion
—-
Sources:
CBO – Budget Supplemental Data
http://www.cbo.gov/budget/factsheets/factsheets2010.shtml
Combined OASDI Trust Funds
January 2010 Baseline
CBO
http://www.cbo.gov/budget/factsheets/2010/oasdi.pdf
Table 27–4. INCOME, OUTGO, AND BALANCES OF MAJOR TRUST FUNDS
Technical Budget Analyses, FY2011 Federal Budget
Page 426 (page 36 of the pdf)
http://www.whitehouse.gov/omb/budget/fy2011/assets/technical_analyses.pdf
.
Bruce,
You and Coberly keep telling us there is no funding issue. If you need to raise taxes to meet funding requirement then there is an issue.
As the Social Security beneficiary population increases as a percentage of total population then equity suggests they consume a proportionally bigger percentage of GDP. If the cost of supplying that larger percentage slice still leaves the rest of the population with a larger gross slice than why are people bitching about the precise numbers attached.
What part of more pie don’t you understand?
Okay dokey.
But cutting Social Security benefits increases total Public Debt and doesn’t decrease it. Or now that I think about it precisely offsets because the theoretical increase in debt service on the now larger Trust Fund should be balanced by the decreased debt service on the now theoretically smaller Debt Held by the Public.
But either way proposals that would reduce the requirement of the General Fund to redeem Special Treasuries mathematically works out as a net transfer from wage workers to holders of capital. It is up to the latter to find reasons why the large majority of Americans who earn wages entirely exposed to the cap should sacrifice future retirement benefits solely to protect ROI for owners of capital.
The argument was successfully waged in the early 1980s, democratic majorities were convinced that rising tides lifted all boats, that tax cuts would lead to greater investment in productivity that in turn would trickle down. In fact those arguments were so successful that people accepted the argument that those reinvestors would gain a bigger share of the resulting pie. But in order to sell Supply Side it was necessary for the minority that controlled capital to actually produce a bigger pie slice for the majority which voted to give them huge tax cuts.
Where is my pie?
Elsewhere I contend that classical liberal economics is simply incompatible with universal suffrage majoritarianism. The intellectual basis of the Chicago School was laid down in a time and a place, which is to say Great Britain from around 1750 to 1860 where democracy and universal suffrage were literally fighting words to the political and economic superstructure. Working people were literally sabered, run down, and shot for demanding either the right to vote or the right to collectively bargain for wages. Meanwhile the economists of the Manchester and related schools that spawned Chicago happily assumed a market where all participants were fully informed and equally empowered economic actors. And in the process totally ignoring that even after the major reform in 1884 that 40% of men and 100% of women did not have the right to vote. And that collective bargaining for wages was still considered sedition and punishable by the penalties for the same.
http://en.wikipedia.org/wiki/Representation_of_the_People_Act_1884
Arguments from Public Debt implicitly assume that all political actors should care when in fact the impact of that Debt and indeed the benefits of it accrue only to a democratic minority.
The economic component of movement conservatism has never been able to reconcile itself with the principal of democratic majoritarianism. Libertarianism asserts that individuals have not only the right but the duty to strive to maximize their own self interest but deny that right to majoritarian groups. And as a result have tied themselves into knots. It is clear as clear can be that unlimited free trade (as an example) doesn’t benefit everyone equally and in fact serves to disadvantage a large percentage of the population, perhaps a majority. Which really mattered little in a political and economic system where control rested firmly in the hands of a minority. In the late nineteenth century the Progressive Movement insisted on various forms of One Man, One Vote and in the twentieth century added One Woman, One Vote. In California this meant a system where every County however sparsely populated and small had two State Senators just like Los Angeles County meaning that 4 railroad barons literally owned the Upper Chamber came to an end. Around the same time the country passed a Constitutional Amendment that Senators were to be elected by popular vote. The combination meant that instead of Georges Hopkins and Leland Stanford […]
Cantab
your limited understanding makes it impossible to talk to you rationally, but i will disagree a bit with what Bruce said at 6:56 in reply to yours of 4:04.
The need for the increase is not fundamentally because of an increase in the benefitiary population. It is needed because the beneficiaries are going to live longer: spending a higher percent of their lifetime receiving benefits. So it makes sense to set aside a higher percent of their wages to pay for their own benefits. The alternative is to keep working longer into old age. That is a really really bad idea. Living longer doesn’t mean you will be healthy longer, or want to work at a soul destroying job… when you can pay for your own retirment for pennies a week.
And it is not “the rest of the population” that is left with a “larger gross slice.” It is the same people who are paying the tax and getting the benefit who will be left with more money after paying the tax even though the tax is a larger percent of their wage.
I realize this is hard for people with percent paresis to understand.
cursed
you will be glad to know that i have been watching what it feels like to pay taxes, and i can understand the republican point of view. they are still wrong, horribly wrong, about the need for taxes. but i know how they feel.
as for being right about Social Security, we are. Sadly it won’t do any good. The people who are wrong about it are going to destroy it and your children won’t be able to retire.
Movie Guy
you keep saying this. and i have no doubt it is the way Congress looks at the problem.
but they, and you, are still trying to solve their own budget excesses by stealing the money from the retirement the people paid for.
as i tried, and failed, to show… they COULD steal this money by simply raising the payroll tax without seriously hurting the people. instead they will try to hide their theft by murdering Social Security… to the great harm of the people.
for the benefit of anyone who came in late:
raising the payroll tax today 80 cents per week, and next year another 80 cents per week and so on for ten years while incomes are going up ten dollars per week each year would erase the Trustees projected “actuarial insolvency” for Social Security. It would also provide more money for Congress to “borrow” solving a problem pressing on their little minds.
The worker would pay more than he would otherwise have to but not enough to notice. On the other hand he will get back more than he pays simply from living longer, as projected, and collecting unreduced benefits in retirement.
At the end of the day, the workers would still have the retirement they paid for, and Cpngress would have had more money than it has to pay back, making it happy.
But there is a limit to Congress’ theft: after the Social Security “tax” reaches 2% more than it is today, Social Security can pay all benefits forever without ever cashing it it’s bonds… the Trust Fund that Congress has borrowed from the workers. At this pont the Trust Fund simply grows by writing a number in the books that corresponsds to the interest owed on the money it has borrowed but can’t pay back.
It would be a psychological problem, but not a real problem. Not a fiscal problem. Maybe they could announce a fire in the Treasury that burned up the “worthless iou’s.” Or they could claim a flying saucer stole them. The point is that it wouldn’t matter. Of course with Social Security back to pay as you go, Congress could no longer borrow from the workers. Maybe it could cash it’s own iou’s.
Coberly, cursed,
We should only begrudge the disproportionate tax paid by the working class relative to the vey wealthy. That is expecially true of FICA, but also true of the general income taxes. The very wealthy benefit to a hugely greater extent from our govenment’s structuring of the economic system. The financial machinations of the past decade are only one example of how our elected representatives set up the game so that the cream can be skimmed off the top by that less than one percent group. Their share of the tax responsibility has shrunk with every successive President from Eisenhower to the present.
The tax that needs be raised is that which is necessary to balance the general budget. The Trust Fund is not in danger, other than from scammers in the world of high finance in conjunction with their ilk in high government office.
Answers to these questions:
‘We can’t afford to wait” — Yes we can…
“Sooner is better than later” –No it isn’t
“Looming boomer retirement” –So what. Not a problem
“Two retirees for every three workers” –Ditto
“People are living longer” — And that has no effect either
All of these assume. as their going in position, that the General Fund will not repay the SS IOUs. And that is where you need to attack each of these, by basically telling them that their argument is that IOUs of the US Government are not worth anything. And if they believe that we have a LOT more trouble than SS.
The problem is very clear (IMHO) the US Congress really doesn’t want to have to cover the SS IOUs. They have become addicted to SS surplus coving up the deficit. Well the curtain is coming back and the emperor has no clothes.
I am still amazed that it looks likes like Obama and the Dems plan to gut SS. If it actually happens it will definitly get Obama into the history books…right their with Hoover.
Islam will change
I am going to rattle my agenda some more.
A few observations: What the US G spends or invests make total outlays into the economy of roughly 35% of GDP. In round figures.
About two thirds of the US G outlays go to entitlements where people spend the money on things like health care, food, rents, living costs etc. Which properly run through the economy should cause no issues to growth or productivty. The providers of all these services paid by “entitlements” use the money to build their businesses which are providing goods and servcies to the common citizen of the US.
I do not think entitlements jigger investments in the society.
Now the other third of US G spending makes no sense and likely messes up the investment pattern into rpoductivity in the society. This is called “discretionary” spending by folks plundering the economy in the militarist economy and the other ways that the USG is misguided on economic development.
The third of USG oputlays which was mostly borrowed was invested badly.
US problems with deficit, debt and caring for SS results from the corporate welfare of the third of US G outlay which impede and harm the natural gorwth of productivity.
Deficits do not matter if you don’t care about stopping US productivity growth.
ilsm will not change
coberly – “raising the payroll tax today 80 cents per week, and next year another 80 cents per week and so on for ten years while incomes are going up ten dollars per week each year would erase the Trustees projected “actuarial insolvency” for Social Security. It would also provide more money for Congress to “borrow” solving a problem pressing on their little minds.”
Where is the proof of your statement in bold print? I have reviewed your spreadsheet and I find no evidence that the SSA combined trust funds ever again go positive cash flow under your proposal.
While your proposal addresses the long term solvency issue of the SSA combined trust funds quite well, it does not result in positive cash flow for any fiscal year or calendar year going forward. There will no excess funding provided to the General Fund.
Unless you can prove otherwise, you need to withdraw this claim.
Bruce,
I simply provided the context of the broader Federal budget problems. Where the Administrations and Congresses go from there is open to speculation.
It may be the case that the Congress would be willing to accept that SSA combined trust funds reimbursements will comprise 10 percent or more of the deficits going forward after FY2020. That still leaves the funding needs for the SSI program which are sourced from the General Fund. Technically, the SSA combined trust funds reimbursement wouldn’t be provided by deficit spending as mandatory obligations are supported prior to discretionary spending obligations. For purposes of this discussion, I am treating the SSA cash flow shortfalls as Federal deficit spending because if the SSA cash flow shortfalls didn’t exist, additional deficit spending wouldn’t be required. Clearly, the specific outlay difference in this case involves funding reimbursement to the SSA combined trust funds whenever cash flow shortfalls occur. So, the cash flow shortfalls drive additional deficit spending, though this point may be lost on general audiences some years down the road.
If Congress is unwilling to support a 10 percent or higher deficit share per fiscal year devoted to or set aside for reimbursements of the SSA combined trust funds, the question becomes one of what level of deficit spending, if any, will be devoted to supporting the two SSA trust funds.
What is clear, though, is the potential problem that a large run up in interest rates will have on the interest payment obligations of publicly held Federal debt. Should interest rates ramp up, say in 2015 or 2016, the overall Federal budget problem will become more serious. Crowding out of discretionary spending will become the prime issue whenever that happens. I have no idea what Congress will do.
This blog has yet to undertake an active discussion of the FY2011 budget or a comparison of that budget proposal to the FY2010 budget proposal. Discussions of any government programs without reference to the existing or proposed Federal budget serves little purpose in my opinion.
Well adoption of the NW Plan would greatly reduce the cost of debt service by stretching it out over 75 years and not requiring actual redemption of principal. Whether the result would actually amount to 10% of the deficit is an open question. The numbers are available, I don’t see them as being significant enough to justify benefit cuts on their own.
Coberly – “you keep saying this. and i have no doubt it is the way Congress looks at the problem. but they, and you, are still trying to solve their own budget excesses by stealing the money from the retirement the people paid for. as i tried, and failed, to show… they COULD steal this money by simply raising the payroll tax without seriously hurting the people. instead they will try to hide their theft by murdering Social Security… to the great harm of the people.”
I have only provided U.S. government facts and projections for the SSA combined trust funds cash flow and an overview of the FY2011 Federal budget submission related to deficit spending.
You’re making claims about stealing money from Social Security beneficiaries or “murdering Social Security”. I haven’t seen the Congress undertake any action thus far, and I have made no recent recommendations for supporting the three primary programs managed by the Social Security Administration.
The numbers I have posted for the SSA combined trust funds cash flow shortfalls and the Federal budget projected deficits are U.S. Government numbers. None of this information has been provided in any main posts at Angry Bear. The SSA combined trust funds shortfalls have been identified in CBO data since the end of August 2009, and the identified shortfalls have grown since that time. None of that government data has been provided in any main posts. The SSA combined trust funds shortfalls have been further identified in the President’s budget proposal.
Who are you trying to fool when you make statements like this: “but they, and you, are still trying to solve their own budget excesses by stealing the money from the retirement the people paid for.” I have made no recent recommendations for supporting the three primary SSA programs. The presentation of budgetary information appears to throw you for a loop. It sounds as though you don’t want to see the larger Federal budgetary picture. Regardless, it is still there.
I have no idea what the Administrations and Congresses will do about the Federal budget deficits or trust fund obligations for a number of trust funds operated by the U.S. Government.
I believe that there should be active discussions about the broader Federal budget proposal put forth by the President, and the SSA programs should be discussed within that context as well.
Jack
while that is true, and while it is also true that the rich have rigged the game, raising the payroll tax would save social security… from them. i have often seen in my life some aggrieved party insisting upon “justice” and dragging himself and his family through hell in a vain attempt to achieve it.
movie guy
in what moral universe does paying your debt count as “deficit spending”?
movie guy
if you reviewed my spreadsheet you must have reviewed the one with the tenth percent increase starting in 2026 (except for a one time hit for DI) and occuring once every four years on average over the next 75 years. the “raising the payroll tax today…” does provide more money for Congress to borrow. you need to make sure what spreadsheet you are reading before you ask me to withdraw the mistakes you make.
movie guy
nevertheless you are wrong. you begin with a moral mistake: stealing from social security to fund the general budget deficit. there is no other way to understand what you are saying.
you got me here Bruce
the northwest plan as I wrote it pays for social security by raising the payroll tax AS NEEDED to maintain short term actuarial solvency. it ASSUMES the Trust Fund will be used as designed to pay for cash flow shortfalls as they occur. most of this paydown would occur in the early years.. on account of it is necessary to reduce the Trust Fund from levels above 300 (TFR) down to 100 before the payroll tax hiike kicks in.
what this has to do with the rest of the debt/deficit is beyond me and of no concern to me.
movie guy
the moral confusion in your comment is truly frightening. you try to get away with Congress has made no actioin yet. Of course not. after they act it is too late. then you hope to confuse SSA with SSI and deliberately ignore the fact that I have said not a damn thing about SSI. I frankly don’t care what they do with SSI. I wrote a plan to save Social Security. One by doing it honestly. Another by letting congress steal the Trust Fund… which is what the effect of raising the tax now and in subsequent years to maintain positive cash flow… something you keep saying that Congress will insist on because “paying back the money the borrowed from Social Security amounts to deficit spending because they would have no choice but to borrw the money from someone else.”
I have seen this kind of reasoning before. But it usually gets you put in jail, or elected to Congress.
coberly – “if you reviewed my spreadsheet you must have reviewed the one with the tenth percent increase starting in 2026 (except for a one time hit for DI) and occuring once every four years on average over the next 75 years. the “raising the payroll tax today…” does provide more money for Congress to borrow. you need to make sure what spreadsheet you are reading before you ask me to withdraw the mistakes you make.”
I will acknowledge that I’m wrong if you can prove it.
I reviewed the spreadsheet that Bruce identified in his main post. If you’re working from a different spreadsheet, post the link.
I didn’t have to review it to conclude that your one tenth of one percent approach doesn’t cover the projected cash flow shortfalls, but I reviewed it anyway. It’s my conclusion that your approach does not provide net positive cash flow from the SSA combined trust funds which would be transferred to the General Fund during this decade or any decade hereafter.
You have stated that your approach is to “raise the payroll tax one tenth of one percent” per year until 2 percent is reached.
Ok, coberly. Prove it. Show your math for the next ten years. Show how an increase of ten percent of one percent (.001 per year), increasing at .001 per year up to 2 percent, will eliminate the cash flow shortfalls identified by the CBO and Administration.
These are the Government numbers:
SSA Combined Trust Funds (OASIDI) Cash Flow Projections
Combined OASDI Trust Funds
CBO January 2010 Baseline
FY 2010 -$28 billion
FY 2011 -$20 billion
FY 2012 -$11 billion
FY 2013 -$2 billion
FY 2014 +$6 billion
FY 2015 +$6 billion
FY 2016 -$3 billion
FY 2017 -$17 billion
FY 2018 -$34 billion
FY 2019 -$54 billion
FY 2020 -$74 billion
FY 2010-2020 Total -$231 billion
—-
Combined OASDI Trust Funds
Obama Administration FY 2011 Budget
February 2010
FY 2010 -$33.9 billion
FY 2011 -$19.1 billion
FY 2012 -$2.0 billion
FY 2013 +$7.6 billion
FY 2014 +10.7 billion
FY 2015 +$13.8 billion
—-
Sources:
CBO – Budget Supplemental Data
http://www.cbo.gov/budget/factsheets/factsheets2010.shtml
Combined OASDI Trust Funds
January 2010 Baseline
CBO
http://www.cbo.gov/budget/factsheets/2010/oasdi.pdf
Table 27–4. INCOME, OUTGO, AND BALANCES OF MAJOR TRUST FUNDS
Technical Budget Analyses, FY2011 Federal Budget
Page 426 (page 36 of the pdf)
http://www.whitehouse.gov/omb/budget/fy2011/assets/technical_analyses.pdf
.
coberly – “nevertheless you are wrong. you begin with a moral mistake: stealing from social security to fund the general budget deficit. there is no other way to understand what you are saying.”
Cite the statements that I made in the above comment post at 5:11:16 PM that you claim are wrong.
You’re making assumptions that I didn’t state. Your claim is phony.
movie guy
while you are waiting… remember that is one tenth percent for each the employer and the employee, so it is two tenths percent of payroll. i think that payroll is currently about 5 Trillion dollars. So that would be 10 Billion this year, 20 billion next year, 30 billion in 2013, 40 Billion in 2014, 50 Billion in 2015, 60 Billion in 2016… etc. and note I am not allowing for growth in the economy, so you’d probably have to add about 2% to each of these numbers each year… say the 2020 number would be 100 billion plus20% (2% per year) or about 120 Billion/
Looking at your numbers here for CBO total deficit for 2010 to 2020 at 231 Billion, I think my plan brings in more than twice that.
I have done this in my head sitting here, so there is a good chance I am in error, Your Big Chance.
it is perposterous for you to keep arguing that “the congress” is not “willing to accept negative cash flow as a condition for operating” Social Security. What the hell do think the Trust Fund was for? Even in its most modest incarnation it contemplates negative cash flow. That’s what a “Trust Fund” does.
YOu are arguing that Congress intends to steal the Trust Fund but yuo don’t seem to be aware that is what you are saying. Is it because embezzlement comes so naturally to you?
And you see to utterly fail to get the point that we are not arguing here about what Congress will do… we are saying that we think Congress should NOT do it. Because it is theft.
and let us go further. it is possible that under conditions that have changed since the last time i seriously ran the numbers, my one tenth of one percent will not close the cash flow gap entirely. i think it will, but say itdoesn’t. So then Congress cries real tears because instead of being on the hook for paying back a 100Billion a year of what it owes, it only has to pay back 10 billion?
your basis for argument is that you think Congress should NEVER have to pay back the money it borrowed. and any plan that falls short of that is NO GOOD. So when I offer you a plan that arguably erases MOST (or twice as much, depending on whose arithmetic turns out right) of the debt service, you are not satisfied.
No in your world and congress’ “if you gonna love me you gonna love me ALL THE WAY.”
Criminal minds think alike.
So, if you did the arithmetic, and the 80 cents a week won’t do the job, how about a dollar a week?
two dollars?
OR is it that theft is not enough for you, you want the murder of Social Security entirely so it is not around to trouble the minds of the rich any longer. Worrying about the morals of all those serfs not working just because they are old and saved enough to retire on.
coberly,
I agree that a 4 percent increase should generally keep SSA combined trust funds in positive cash flow.
I had to go back and read the closer on your last main post to make sure that is what you’re saying. It was confusing because somewhere in previous comments an individual questioned whether it was 2 percent or 4 percent, or words to that effect.
Yeah, 4 percent appears to work. I ran both sets of numbers the other night and concluded that 2 percent wouldn’t do it.
AND I REPLIED TO THAT QUESTION AS TO WHY IT WAS “EACH” AND NOT “COMBINED”. THAT THE TRUSTEES GIVE 2% “COMBINED” “RIGHT NOW” TO BALANCE THE TRUST FUND FOR 75 YEARS.
THAT IS NOT THE SAME PROBLEM. THE 2% “EACH” SHOULD KEEP SOCIAL SECURITY IN THE BLACK FOREVER GIVE OR TAKE ANOTHER TENTH PERCENT AT LONG INTERVALS.
NOW, I JUST CHECKED MY ORIGINAL SPREAD SHEET AND I FOUND SOMETHING THAT SURPRISED ME. EVEN CONTINUING THE ANE TENTH PERCENT “EACH” UNTIL THE TAX RATE IS 9% “EACH” ALLOWS A NEGATIVE CASH FLOW IN THE YEAR 2063 AND FOLLOWING.
THE REASON THIS IS DIFFERENT AND APPEARS “WORSE” THAN THE RESULTS OF THE NORTHWEST PLAN IS THAT AS LONG AS YOU ARE NOT ALLOWING FOR THE NEGATIVE CASH FLOW THAT COMES FROM EVEN A TRUST FUND RATIO OF 100, A TAX RATE OF 9% EACH (HIHGER THAN NEEDED UNDER THE NORTHWEST PLAN) IS SHORT OF MEETING “PROMISED BENEFITS” BY THE AMOUNT THAT A TRUST FUND OF 100% OF A YEARS BENEFITS WOULD PROVIDE.
OF COURSE UNDER THIS (IMMODEST PROPOSAL) PLAN THE TRUST FUND RATIO RISES TO 800 TO 900… AND OF COURSE CONGRESS HAS NOT PAID BACK A DIME OF THE MONEY IT HAS BORROWED OF THAT…AND WILL PROBABLY NOT BE ABLE TO MANAGE TO COME UP WITH THE CASH EVEN BY 2063.
MAYBE A VISIT FROM LUIGI AND GUGLIELMO IS IN ORDER.
coberly – “it is perposterous for you to keep arguing that “the congress” is not “willing to accept negative cash flow as a condition for operating” Social Security. What the hell do think the Trust Fund was for? Even in its most modest incarnation it contemplates negative cash flow. That’s what a “Trust Fund” does. YOu are arguing that Congress intends to steal the Trust Fund but yuo don’t seem to be aware that is what you are saying. Is it because embezzlement comes so naturally to you? And you see to utterly fail to get the point that we are not arguing here about what Congress will do… we are saying that we think Congress should NOT do it. Because it is theft.”
You have no interest in how the Federal Government operates its Federal budget. You have no interest in what happens to a number of other government programs.
The Administration proposes a fiscal year budget to the Congress. The Congress passes various legislation that authorize and appropriate funds for pieces of the fiscal year budget. The President signs off on such legislation or kicks it back to the Congress, at which point the cycle begins again or the veto is overturned. In the end, the U.S. Government ends up with an operating Federal budget. That is how it works.
The Congress can not steal money out of a trust fund absent legislation that authorizes the Administration to withdraw funds from a trust fund or otherwise obligate such funds for other authorized and legal purposes.
Your standard banter fails to acknowledge what the laws governing the operation of the SSA state, what other laws state, what actions the Congress can legally undertake, and what actions an Administration can and can not undertake. You run around on this blog acting as though the SSA combined trust funds are private trust funds. They are not. The Administration’s latest budget proposal explains the differences, and I posted that information a few days ago.
coberly – “the moral confusion in your comment is truly frightening. you try to get away with Congress has made no actioin yet. Of course not. after they act it is too late.”
I stated a fact. No one knows what the Congress will do. It may not be easy to change the benefit levels or eligibility criteria in this political environment. The U.S. voters may have had enough of Congress attempting to modify the scope and operation of entitlement programs. I am not convinced that Congress can reduce benefits, though that is among the many recommendations put forth to the SSA. The Congress might have more success with pushing the eligibility age out a few more years.
coberly – “then you hope to confuse SSA with SSI and deliberately ignore the fact that I have said not a damn thing about SSI. I frankly don’t care what they do with SSI.”
I wouldn’t confuse SSA with SSI. That confusion appears to rest with you. The SSA operates three social benefit support programs, one of which is SSI. That you don’t care what happens to the SSI program operated by the SSA shows what kind of person you are.
coberly – “I wrote a plan to save Social Security. One by doing it honestly. Another by letting congress steal the Trust Fund… which is what the effect of raising the tax now and in subsequent years to maintain positive cash flow… something you keep saying that Congress will insist on because “paying back the money the borrowed from Social Security amounts to deficit spending because they would have no choice but to borrw the money from someone else.””
There you go, pretending that there is one trust fund supporting two SSA programs.
I see no reason to expect that the Administration or Congress will supposedly “steal” any funds from the SSA combined trust funds. They’re legally obligated for the existing balances and projected growth in the SSA combined trust funds. The best that they can do, if they so chose, is bleed down the SSA combined trust funds, one of which is on the verge of exhaustion around FY2018. That can be accomplished in the manner Bruce described in a previous main post or continue on the existing course. Either effort, though, forces the Administration and Congress to increase the rate of expenditure obligation in the General Fund in support of funding reimbursement to the SSA combined trust funds which in turn drives up publicly held Federal debt financing needs. If the Administration and Congress opt to increase revenues sources for the SSA combined trust funds in order to maintain a net positive cash flow, the combined trust funds continue to grow for a considerable number of years.
coberly – “your basis for argument is that you think Congress should NEVER have to pay back the money it borrowed. and any plan that falls short of that is NO GOOD. So when I offer you a plan that arguably erases MOST (or twice as much, depending on whose arithmetic turns out right) of the debt service, you are not satisfied. No in your world and congress’ “if you gonna love me you gonna love me ALL THE WAY.” Criminal minds think alike. So, if you did the arithmetic, and the 80 cents a week won’t do the job, how about a dollar a week? two dollars? OR is it that theft is not enough for you, you want the murder of Social Security entirely so it is not around to trouble the minds of the rich any longer. Worrying about the morals of all those serfs not working just because they are old and saved enough to retire on.”
I have presented government data and commented on what I believe the Administration and Congress might or might not consider in dealing with projected deficit spending.
Your emotional outbursts and phony accusations add nothing of value to these ongoing discussions.
I see no reason to expect that the Administration or Congress will supposedly “steal” any funds from the SSA combined trust funds. They’re legally obligated for the existing balances and projected growth in the SSA combined trust funds absent the creation, passage, and signing into law legislation that would alter or eliminate the SSA combined trust funds. The best that they can do without such legislation, if they so chose, is bleed down the SSA combined trust funds, one of which is on the verge of exhaustion around FY2018. That can be accomplished in the manner Bruce described in a previous main post or continue on the existing course. Either effort, though, forces the Administration and Congress to increase the rate of expenditure obligation in the General Fund in support of funding reimbursement to the SSA combined trust funds which in turn drives up publicly held Federal debt financing needs. If the Administration and Congress opt to increase revenues sources for the SSA combined trust funds in order to maintain a net positive cash flow, the combined trust funds continue to grow for a considerable number of years.
The Administration and Congress are faced with an interesting financial problem – shorten the solvency period of the SSA combined trust funds in support of two SSA programs or allow the SSA combined trust funds to continue growing. Any attempts to (1) increase revenues from whatever sources, (2) change (reduce) the level of benefits paid, (3) extend the eligibility age or (4) add other eligibility criteria do not eliminate the presence of positive growth in the SSA combined trust funds for many years. Reducing the level of inbound cash flow revenue shortens the projected period of solvency for the SSA combined trust funds but doesn’t eliminate the Government’s legal mandates for two SSA programs. This is a very interesting problem from a Federal budgetary perspective.
coberly,
I didn’t run any numbers out that far, but I am not surprised.
NOTE: This comment was originally posted at 6:16:46 PM, Wednesday. Updated comment follows.
Bruce,
There is no question that any improvements in SSA combined trust funds revenues reduce the cost of publicly held Federal debt. But the NW Plan never returns the two SSA programs to positive cash flow for any year. So, if the NW Plan is adopted as the only solution, some level of General Fund obligations will have to identified to support the projected cash flow shortfalls of the SSA combined trust funds.
If the NW plan isn’t adopted and if no other revenue improvements or benefit reductions and eligibility criteria changes are adopted, then the obligation for reimbursement funding from the General Fund grows quite substantially after FY2020. That’s when the 10 percent of deficit figure that I raised kicks in whereby I am assuming, correctly or not, that the Administration and Congress will not rein in deficit spending much below the projected levels outlined in the FY2011 budget proposal. If they manage to significantly reduce deficit spending elsewhere, then the SSA reimbursement needs could represent more than a 10 percent share of the deficit absent any change in operation of the two SSA programs supported by trust funds.
The one tenth of one percent increase per year approach in the NW PLan that Coberly has recommended leaves a substantial cash flow gap on the table for all years as the increase approaches 2 percent. Yes, it helps improve cash revenues as the approach moves forward but it never closes the cash flow gap.
Interestingly, an immediate increase of 2 percent in withholding tax revenues doesn’t solve the cash flow shortfall issue for any fiscal year.
I have no idea what the Administrations and Congresses will decide to do, but I find it doubtful that the NW Plan will be adopted as the sole solution unless the Federal leadership at whatever point in time is willing to accept negative cash flow as a condition for operating the SSA combined trust funds.
==========
NOTE: This is an UPDATED COMMENT.
Bruce,
There is no question that any improvements in SSA combined trust funds revenues reduce the cost of publicly held Federal debt. An increase in withholding of 4 percent (2 percent employee; 2 percent employer) will push the SSA combined trust funds into positive cash flow territory. Two percent didn’t accomplish that, but coberly has cleared that up. It’s a 4 percent total increase.
If the NW plan isn’t adopted and if no other revenue improvements or benefit reductions and eligibility criteria changes are adopted, then the obligation for reimbursement funding from the General Fund grows quite substantially after FY2020. That’s when the 10 percent of deficit figure that I raised kicks in whereby I am assuming, correctly or not, that the Administration and Congress will not rein in deficit spending much below the projected levels outlined in the FY2011 budget proposal. If they manage to significantly reduce deficit spending elsewhere, then the SSA reimbursement needs could represent more than a 10 percent share of the deficit absent any change in operation of the two SSA programs supported by trust funds.
The one tenth of one percent increase per year approach for employee and employer withholding (4 percent total after 20 years) in the NW PLan that Coberly proposes appears to eliminate the projected cash flow gaps for a number of decades. Coberly can advise others on the specifics after what he learned Wednesday night.
The NW Plan would serve as an optimal solution.
no progress here.
you insist upon “combined SSA programs” and because I am talking about Social Security (OASDI) you say that “shows what kind of person” I am while you continue to talk about ways Congress can steal the money from Social Security (OASDI) without it being called stealing.
movie guy
the best that can be said is that you haven’t understood a word i have been saying.
the emotional outbursts are the best i can come up with when faced with persistent letching after the people’s retirement funds.
an interesting problem
with a simple solution: pay our bills and honor our promises.
MGs basic premise is flawed.
Prior to the institution of Social Security it is not true that there was ZERO safety nets for seniors. Various states had meager state pension plans, many Counties operated some version of the County Old Folks Home, or the County Farm, in the cities you might have some sort of public or private Poorhouse, and of course it was a societal norm that children should take in their parents.
All of this came at a cost in taxes or charity or simply subtractions from family income, there has always been SOME subsidy of the elderly from the rest of the population. But this subsidy was terribly uneven, mostly inadequate, and even more so inefficient and all too often combined with delivery that was cruel or indifferent and almost always in a way that reduced dignity.
Social Security was designed to sweep most of that cruelty and loss of dignity away. Social Security Title I (now forgotten) replaced a inefficient and ineffective system on state and county based relief for the elderly poor with a new more uniform (and this is important) General Fund supported welfare program. Title 1 was designed to phase out in favor of Title II, which is the insurance based plan we know as Social Security today. This goal was largely accomplished by 1956 as Title 1 shrank down and ultimately left only SSI behind.
But this means that from 1935 to the mid fifties there was always a steady flow of money from the General Fund to Social Security. And this continued after 1956, Contributions trailed total cost in every year from 1957 to 1965 and then again from 1971 to 1982, for most of the history of Social Security negative cash flow has been a feature and not a bug.
http://www.ssa.gov/OACT/TR/2009/VI_cyoper_history.html#159726
Congress could have stretched out the phased in tax increases that started in 1983, but given budget rules that scored things over ten year intervals, had almost all the changes be front loaded. That combined with a fairly unexpected boom in the late 90s combined to put Social Security in TEMPORARY cash surpluses, something that historically was limited to a very brief period in the early 1960s and now from the mid-nineties to the late aughts.
But this was almost entirely an anomaly, Social Security was always designed to be cash flow negative, the question really is whether that cash flow is more or less efficient than the system it replaced. I would say by any measure yes, the cost of implementing a Title 1 style welfare system to replace Title II would be much more expensive than the cost of debt service of the Title II system as designed. Whining that income support for the elderly actually costs the General Fund something is pretty misguided, properly seen Social Security is a huge assist to what would have been either a State or private Charity obligation.
We have to pay some money to support people whose work history is not such as to qualify them for Title 2 (SSI). In addition we have to pay some money to service debt held by Title II. BFD that income support would have been necessary to some degree anyway, we just took a social obligation and socialized it. So?
Bruce is correct
but it needs to be pointed out that when Congress services the debt it owes TO Social Security it is not doing Social Security a favor. It is paying back money it borrowed. Or paying interest on money it borrowed. Only in the criminal minds of Congress, the President’s advisors, and Movie Guy is paying back money you have borrowed regarded as an optional charity, to be foregone if … gosh… we have better uses for the money.
You also need to remember that the people who get Social Security paid for it themselves. There is some “insurance transfer” but that is structured as insurance and not as welfare and it is a BFD that it remain that way.
I doubt Peterson’s people are unaware that a means tested welfare would be more expensive for the rich than Social Security. But they don’t care much because they are pretty sure they know what will happen to welfare like welfare as we knew it. The Congress and the President and certain experts who think they are “for” Social Security, howevr, don’t seem to have a clue.
I have the spread sheet that Movie Guy asked for. The scale of the theft is breathtaking, but of course we should expect the workers to bear any burden, pay any price, so Congress won’t have to pay back the money it “borrowed,” and the rich never have their taxes raised to a level that pays for the government benefits they demand.
dear reader
keep reading. we will see Movie Guy retract this statement. not in so many words of course.
onthe contrary
they let you know what i think of your preposterous ideas and your moral dodges.
“They’re (the Congress) legally obligated for the existing balances and projected growth in the SSA combined trust funds absent the creation, passage, and signing into law legislation that would alter or eliminate the SSA combined trust funds. The best that they can do without such legislation, if they so chose, is bleed down the SSA combined trust funds, one of which is on the verge of exhaustion around FY2018.” MG on the preceding page.
That is one very strange comment. Congress can only act through a legislative process. So of course they cannot ignore the legal obligation without additional new legislation. As to the second part of your comment, if you mean that that will be the result of the Congress taking no legislative action then you are only repeating the projections that are being debated. So the point you’re trying to make seems pointless. The entire point of the Social Security solvency debate is that there is no great requirement for the Copngress to take any dramatic action because there is no immenent crisis. Your long lists of data and references do not change those simple facts. You seem to be using those lists to support a thesis that is independent of that data. The Treasury has used the Trust Fund to support the general budget. It has an obligation to the Trust Fund to service and pay that debt from general taxation. If meeting that obligation is straining the general budget then the Congress needs to reduce general budget expenses or raise taxes other than FICA taxes. Let’s stop thinking in terms of a “Unified Budget” which is little more than an accounting scheme.