HOW TO PAY FOR SOCIAL SECURITY
HOW TO PAY FOR SOCIAL SECURITY
BALANCE THE BUDGET CUT THE DEFICIT
and REDUCE THE NATIONAL DEBT
Big Numbers and Mental Hygiene
We have been treated recently to a great deal of hysteria about “the deficit” and the huge horrible Burden of Social Security, including the mysterious Trust Fund: is it real? or only Phony Iou’s? has it been Looted? or will it Cripple the Economy to pay it back? and why should I Pay Twice for my Social Security? And how did Social Security run up such a Huge Debt anyway? and when exactly is it Going Broke?
All of this is nonsense: Carefully constructed nonsense by the highly paid non partisan experts who dwell in Big Think Tanks dwelling on these things, thinking of better ways to fool the people into cutting off their heads to save the cost of tomorrow’s dinner. They don’t have to convince you, exactly; they just need to get you to stand quietly or cheer, while they “fix” Social Security. Of course, in their minds “fixing” it means ending it. They don’t like the idea that the hired help can retire just because they saved enough of their own money to be able to afford to.
I have shown elsewhere how Social Security can pay for itself with a tax raise that amounts to 20 cents per week per year. In that paper I assumed that the Trust Fund would be used as it was intended… that is the money saved in the Trust Fund, when payroll taxes were higher than needed for current benefits, would be used to help pay for future benefits when payroll taxes might otherwise not be enough to pay for promised benefits. This money has been lent to the government at interest. The enemies of Social Security claim that the United States of America cannot afford to pay back the money it borrowed… cannot honor its debt to Social Security. In this paper I will show how the country can pay back the money it borrowed from Social Security without imposing an Intolerable Burden on anyone.
A good place to begin would be with a set of numbers a Regular Reader sent us last week showing “the Social Security deficit.” Regular Reader thinks we need to Look Upon the Very Big Numbers and Be Afraid. Here they are:
Year……Deficit in Billions of Dollars
2010…………..41
2011…………….7
2012……………-2 (surplus)
2013……………-5 (surplus)
2014……………-4 (surplus)
2015…………….3
2016…………..11
2017…………..25
2018…………..45
2019…………..71
2020…………..101
2025…………..275
2030…………..457
2035…………..622
2040…………..758
2045…………..892
2050…………..1073
2055…………..1344
2060…………..1726
2065…………..2225
2070…………..2909
2075…………..3822
2080…………..5006
2085…………..6535
Well, these are indeed Very Big Numbers, but we can do better than just stare at them and be afraid. For example, we can compare them to the income of the people paying the Social Security tax: The following tables Table VI.F9 from the Trustees Report will help us.
Table VI.F9.—OASDI and HI Annual Income Excluding Interest, Cost, and
Balance in Current Dollars, Calendar Years 2010-85
[In billions]
Note that the numbers in the fourth column, under OASDI and Balance, are the same as Regular Reader’s. Note also that these are Current Dollars… that is they include inflation. A lot of inflation. Most of the bigness is due to inflation.
[We are only talking about “social security” in this paper. Medicare presents other problems we need to take up separately.]
And note that the Income does NOT include the “interest”… that is the money owed to the Trust Fund. This is “the deficit” only if the government does not pay back the money it borrowed from Social Security.
We can stop scaring ourselves with inflated numbers if we just compare the inflated deficit with the inflated incomes of the people paying the payroll tax.
The second table shows Taxable payroll Table VI.F6., in the fourth column, for the same years, also in current dollars.
Table VI.F6.—Selected Economic Variables,
Calendar Years 2009-85
[GDP and taxable payroll in billions]
[by the way: that is indeed 157 Trillion dollars in “taxable payroll” for 2085. This is not “runaway inflation;” it’s just what you get when you start with a big number and have it grow 5% per year for 75 years… you get a Very Big Number.]
If we divide “the defict” from the first table, by the “taxable payroll” in the second table, we can find the percent the payroll tax rate would have to be increased to cover the deficit without collecting any money from “the budget,” that is, without the government repaying any of the money it borrowed from Social Security.
year……….payroll……….deficit……defict as a percent of payroll
2010……….5459……………41………..0.75 (this is three quarters of one percent)
2011……….5690…………….7………..0.12 (one eighth of one percent)
2012……….6069……………..(these three years there is no deficit
2013……….6454……………..(but a small surplus
2014……….6852……………..(that doesn’t affect our analysis)
2015……….7243…………….3………..0.04
2016……….7656……………11………..0.14
2017……….8052……………25………..0.31 (about three tenths of a percent)
2018……….8446……………45………..0.53
2019……….8834……………71………..0.80
2020……….9226…………..101………..1.09 (about one percent)
2025………11431…………..275………..2.41
2030………14215…………..457………..3.21
2035………17746…………..622………..3.51 (3 and a half percent)
And here we are going to stop for a look at what this means so far. Because at this point the Trust Fund would have been paid back if the Congress was honoring its debt to Social Security. ( “Paid Back” is what you have been hearing called “Gone Broke.” )
First note that the first year, 2010, is this year. This year Congress has found the money to pay the deficit… that is pay the money it owes to the Social Security Trust Fund. That is, it is paying the “phony iou’s.”)
Second, note that… if Congress does not pay back the money it owes for any future year, a payroll tax increase of about one tenth of one percent per year would allow the workers… the people who will eventually need to collect Social Security benefits … would allow the workers to “pay as you go” and pay for all promised benefts until 2020.
One tenth of one percent of payroll is $43 dollars per year for the average worker in 2010 (see table VI.F6 above, third column). This is about 80 cents per week. Note that while incomes are rising, the 80 cents will get bigger, but it will “feel” the same to the person earning the increased income. Note also that even though the “one tenth of one percent increase each year” adds up to 1 percent after ten years, in any given year the raise will “feel” like 80 cents per week would feel to you today.
Go back to Table VI.F6 for the average wage projected for each year, and watch the effect of the tax increases on the “take home” of the average worker.
year wage taxrate tax take home
2010 43084 0.124 5342 37700
2011 44687 0.125 5585 39101
2012 46758 0.126 5891 40866
2013 48978 0.127 6220. 42757
2014 51215 0.128 6555 44659
2015 53397 0.129 6888 46508
2016 55738 0.130 7245 48492
2017 58103 0.131 7611 50491
2018 60522 0.132 7988 52533
2019 63017 0.133 8381 54635
2020 65465 0.134 8772 56692
Notice that even though the tax rate is increasing by a tenth of a percent every year, the “take home” increases** by about 2000 dollars per year. For those who say, “yeah, but I could have had more,” it is necessary to remind them that they haven’t lost anything. The tax will come back to them when they retire and need it most. And notice also that even in 2020 when the tax is one percent higher than it would have been, the difference is only 12 dollars per week, out of an income of 1200dollars per week. And you get it back with interest.
The same analysis would give essentially the same result over the years from 2020 to 2035, but the rate of increase in the tax would be a 0.15% (one and a half tenths of a percent) per year, a little bigger than for the first ten years, but still not a “burden.” I’ll leave the details to you.
[There is a small error in the above table that actually makes the tax bite look worse than it should. The “wage” given is the “nominal wage.” The employee’s tax rate on this wage is only half the given tax rate. If you wish to insist that the “employer’s share” is “really the employee’s money” then you would need to add half the “tax” to the “wage” to get the employee’s “true wage” before you subtracted the full tax. Then you would get a take home equal to the “take home” as given PLUS half the “tax” as given.]
So let us look at where we have come. We have shown that even if the government does not pay back the money it borrowed from Social Security, the workers can continue to pay all promised benefits themselves, on a pay as you go basis, with a tax increase that would be barely felt. It is important to understand this. Because while Congress not repaying the Trust Fund would be a theft.. a breach of the “Full faith and credit of the United States,” it would be better for the workers to just write it off as a bad debt and pay the extra costs themselves.
It would be better for them to lose a little money than to lose the Social Security program to those who want to “fix” it by raising the retirement age, or cutting benefits so the workers can’t afford to retire, or “means testing” it, or even raising the “cap”, so that Social Security becomes just another welfare program and can be killed off later. Moreover, the workers don’t WANT welfare. They want a way to insure their savings against inflation and market losses and personal losses of various kinds. That way is Social Security and it has worked for over 70 years. Social Security benefits are more than half the income of more than half of all retired people. A great deal more than half for more than 40% of them, and not an insignificant part of the income of even those who are doing better than most.
However, let us not write off the bad debt just yet. Because there is another table you need to see:
Inspection of this table shows that the Adjusted Gross Income of those taxpayers with AGI greater than 100k/yr (in 2006) is nearly the same as the total AGI of those taxpayers with AGI less than 100k/yr. Since the payroll tax is paid on wage income less than 100k, and wage income over 100k and all non wage income, pays NO payroll tax, the money owed to Social Security, that we have just shown could be made up by a tax increase of about one tenth percent per year, up to 3 and a half percent over 25 years, could be paid instead by the same tax rate on those making more than 100k/yr.
Since the approx 3% tax cut in 2001 went mostly to those making over 100k, it would not seem obviously unfair to ask those making over 100k to pay the 3% tax increase necessary to make good on the loan they got from SS. It might be more fair to apply the tax increase to income over 100k (people who make over 100k also make under 100k). This would change the top marginal rates, but that should be done in a way that increases the tax on incomes over 100k the same 3% “on average.
Whether or not it is “fair” (it is), it is plain that the “Social Security deficit” could be paid for with a tax increase on those making over 100k of one tenth of one percent per year, reaching 1% by 2020 and ultimately reaching 3.5% in 2035 and THEN STOPPING. After 2036 the Trust Fund would be fully repaid. So “the rich” would face a “surtax averaging less than 3% per year for ten years to pay down that part of the national debt owed to the people who already paid for their Social Security. This is not a crushing burden.
In no case would anyone be “paying for Social Security twice.” SS was paid for once. Paying back the Trust Fund would be paying, the first time, once, for whatever the Congress bought with the money it borrowed FROM Social Security. Even if the workers decided to write off the bad debt and pay for Social Security going forward, pay as you go, with a payroll tax raise greater, or sooner, than they expected, they would still be paying for their Social Security only once. They would expect to get back even their increased payment in the form of an adequate retirement benefit for their own longer life expectancy. As the ad says, this is “priceless.” There might be some minor “inequity” in the “rate of return” from one generation to the other, but no more than the inequity that comes from a change in the price of bread, or bonds, or going to war, or living through a recession. The point is that it is the workers ONLY way to INSURE that they will have “enough” when they need, or want, to retire.
As to whether or not a 3% increase in the effective tax rate of the top 10% of earners would be unduly oppressive, let us look at another table:
Note that a 3% tax increase would bring the tax rate up to less than it was in 2000, and would range from 16% to 27%. No fun for them perhaps, but not a crushing burden, and it would be for less than ten years.
Before leaving I would like to point out two other things, which I will not “prove.” First is that if a 3% increase in the tax on the wealthiest 10% for ten years can pay back the Trust Fund, and reduce the National Debt by about 6 Trillion dollars from what it would have been, it ought to be apparent that a 3% increase for more than ten years ought to be able to reduce that part of the National Debt that was borrowed from “the public.” How long that takes to bring the Debt down to a “sustainable level” depends on other spending.
The other thing is that it is dishonest to count “projected deficits” that include future increased costs of Social Security or even Medicare. I have shown how with a tiny increase in the payroll tax, Social Security can and should pay for itself. A similar increase would cover Medicare… though there the real savings needs to come from controlling health care costs. In any case people will need health care and cutting Medicare will not help them pay for it.
Let’s look at one more table:
This is a continuation of the table above comparing the Social Security “deficit” to the taxable payroll. But this time we are going to look at what happens after 2035:
year……….payroll,,,,,,,deficit……….percent
2035……….17746………622……………3.51
2040……….22198………758…………….3.41
2045……….27713………892…………….3.22
2050……….34504………1073……………3.11
2055……….42876………1344……………3.13
2060……….53269………1726……………3.24
2065……….66177………2225……………3.36
2070……….82183………2909……………3.54
2075………102035………3822……………3.75
2080………126624………5006……………3.95
2085………157169………6535……………4.16
Remember that after 2036 the Trust Fund is paid back. Social Security is on its own, pay as you go. Remember also that we left the tax rate at 3.5% in 2035 higher than it is in 2010. These are the further increases (total increases) that would be needed to pay for the projected “Social Security Deficit” after that time… the biggest of the Big Numbers.
What I want you to notice here is that in fifty years, the needed increase in the payroll tax would be 0.65%, or 0.65/50 = 0.013%, about one eight of one tenth of one percent per year. Remember that in today’s terms one tenth of one percent is 80 cents per week. One eighth of one tenth of one percent is ten cents per week per year. And the worker only pays half of that. That is your huge horrible hairy “social security deficit.”
**[note: this is not quite correct. Since we are dealing with “inflated” wages, you have no easy way to know how much of that 2000 dollars is “real.” Easiest way for me to give you a better idea is to say that the Trustees predict that real wages will grow by about one full percent per year. So for any year, for every thousand dollars per week you earn, your wages next year will grow by ten dollars in real value, and the one tenth of one percent payroll tax increase will take back one dollar to save for your longer retirement. So you will only be nine dollars better off than you were the year before in terms of money to spend immediately. You will be enormously better off when you retire and find you have enough to live on after all.]]
Coberly has presented us with lots of numbers. He has taken the SSTF numbers and made calculations on increased taxes and concludes we really have no problem at all.
What he fails to report is that the SSTF has assumed: (1) 75 years of GDP growth at 5% p.a. (2) 75 years of interest rates at 6% (currently 2%) and unemployment in America returning to 5.5% in two years and staying there for the next 73 years.
The Coberly plan seems to be well thought out, but it is based on a foundation of sand. Those (like me) who see trouble ahead for SS are looking at a set of assumptions that are much more realistic. Ones that have a chance of being realized. Not the blue sky ones that this proposal is based on.
I would agree with Coberly that IF our future is as bright as SS is projecting the problems at SS will not be big problems to overcome. But unfortunately that is the least likely outcome as we look at the future in the fall of 2010.
If a more realistic set of assumptions were used Coberly would find that his plan will fall well short of achieving stability. It is not the fault of this plan. It is the fact that the US is not going to grow as projected. Should that be the case the “fixes” necessary are much larger than those suggested in this piece. They are large enough to be a drag on the economy. Something that should not (and will not) be allowed to happen.
Readers should know that Bruce Krasting, not content witht the same projections everybody else uses to base their claim that SS is going broke and we are all going to die, regularly makes up his own projections. He gets them out of his own brain, so we know they are true.
Unfortunately I cannot defend SS from every crackpot who has built his fantasy life around the end of the world as we know it because people are paying for their own Social Security.
What Krasting cannot understand, among many things, is that whatever the economy does… Social Security benefits are tied to wages… so the workers will do exactly as well as the retirees. We may all be poor or we may all be rich, but we will be in it together, and we will pay for it ourselves.
There may be a connection to benefits and wages. But I don’t see it. We have a major bulge in benefits in front of us. Nothing can change that (unless congress cuts the benefits to be paid). Wages/employment are not going up at the pace projected by SS.
To suggest that i am a crackpot because I do not believe we will see 5% perpetual GDP growth and a near term return to 5.5% unemployment is just silly. I am by no means alone in thinking this. The Federal Reserve does not think this. No serious private economist see this. My views are not crackpot. They are mainstream.
Coberly and the SSTF are off in a corner thinking all is well. Watch. The assumptions the 09 SSTF report were based on will be cut. As they do the problem will get bigger, and the fixes required will be a conflict with the real economy.
We shall see.
Krasting
does not appear to understand the difference between “real” growth, and inflation plus real growth.
the Trustees project a real growth rate of about 2%, with inflation at about 3%. If you want more phoney precision, you can look the numbers up yourself. nor do the Trustees project “near term” unemployment rates to return to the levels they have been at for most of the last fifty years, but they do expect rates to return to “normal” levels over the next ten to seventy five years. Unfortunately they forgot to consult Krasting, who is sure he knows more about the next 75 years than the designated experts… even if he can’t keep straight the difference between “real” and “inflated.”
and you would think that if he is going to comment on Social Security he would bother to learn the difference between SSTF and SSA.
As for the connection between benefits and wages… that is basic. IF you don’t know that, you don’t know a damn thing about Social Security.
oh, and it would make me, at least, feel better if Krasting could even read the damn paper in front of him that i just wrote. I don’t claim that wages will keep pace with costs… i claim that the difference can be made up with a tax increase so small that no sane person would even notice it. and I supply the arithmetic.
Krasting is big on arm waving.
What Krasting fails to show
that he even understands the question
is how are people going to pay for their own retirement under the nighmare scenario he descriibes as our future. Depression levels of unemployment, interest rates far below historical levels, so thiese people are going to get their retirement money for the stock market? or by trading bonds?
or by means testing Social Security and instead of the workers paying for it themselves, the rich can pay for the poor, who will only have to go to the government proctolgist every quarter to have their assets examined for any hidden wealth.
meanwhile Social Security works in a way that guarantees a basic retiremetn for workers under any conceivable economic circumstances. here is the basic equation
work years time payroll tax rate equals retirement years times benefit replacement rate.
or 40 years times 12% equals 12 years times 40%.
there are details that change that equation at the edges, but it is the fundamental equation for a pay as you go retirement system. and there really is no way around it. however you pay for retirement you are going on any given day to ahve to pay the retired a percent of the total earanings in the economy equal to how many of them are times the amount of money they spend. this money can only come from the workers not yet retired. the number of retirees is almost strictly a function of how long people are living on average. you can make people work a little longer, but there is no need to as long as wages are high enough to pay for a workers needs and sinsible wants and still leave him enough to “save” for his retirement.
the magic of the stock market depends on “growth.” the same growth Krasting says we are not going to have. the virtue of Social Security is that in insures the workers against he failure of that growth…. which does happen from time to time.
What Krasting fails to show
that he even understands the question
is how are people going to pay for their own retirement under the nighmare scenario he describes as our future: Depression levels of unemployment, interest rates far below historical levels; so these people are going to get their retirement money for/from the stock market? or by trading bonds?
or by means testing Social Security, and instead of the workers paying for it themselves, the rich can pay for the poor, who will only have to go to the government proctologist every quarter to have their assets examined for any hidden wealth.
meanwhile Social Security works in a way that guarantees a basic retirement for workers under any conceivable economic circumstances. here is the basic equation:
work years time payroll tax rate equals retirement years times benefit replacement rate.
or 40 years times 12% equals 12 years times 40%.
there are details that change that equation at the edges, but it is the fundamental equation for a pay as you go retirement system. and there really is no way around it. however you pay for retirement you are going on any given day to have to pay the retired a percent of the total earanings in the economy equal to how many of them are times the amount of money they spend. this money can only come from the workers not yet retired. the number of retirees is almost strictly a function of how long people are living on average. you can make people work a little longer, but there is no need to as long as wages are high enough to pay for a workers needs and sensible wants and still leave him enough to “save” for his retirement.
the magic of the stock market depends on “growth.” the same growth Krasting says we are not going to have. the virtue of Social Security is that in insures the workers against the failure of that growth…. which does happen from time to time.
when times are good, the workers will have plenty of money after paying for their Social Security that they can invest in anything that looks good to them. some of them will do quite well, but even they should understand its a lot easier working with a safety net.
and easier to make money if your customers aren’t desperately afraid of ending up poor in old age.
Very well said. And now the likes of “don’t tell” will be crying that you hurt his/her “fee fees” and go into full vicitm mode. Trying to have a rational, fact based discussion with people that subscribe to the “new reality” universe created by hucksters and self interested, meanspirited and slefish bastards is an exercise in futility. Nonetheless; thank you, for pointing out the obvious. If you need a bigger hammer, or 2×6 instead of a 2c4, let me know. I ‘ll send it overnight.
The other problem with pinning the doomsday economic scenario on SS is like mixing up the cart and the horse, letting the tail wag the dog, and throwing out the baby because the bathwater is good.
The same “rosey” projections of growth, inflation and interest rates are used for the rest of the pie chart that we have come to know as government spending. SS is still the only part that for now is fully funded by FICA and payroll tax deductions. The SSTF is a debt obligation of the USG which was also fully funded and accounted for in the official debt of the United States Government.
Healthcare costs are rising far faster than either CPI inflation or wage inflation. So that makes Medicare and any other healthcare a much larger problem. And everyone knows that.
Then there is defense, and you can go thru the rest of the budget from there.
Then there are all non budgetary problems that makes most sentient beings in this country think that our economic future may not be so bright.
So pick your problem to focus on.
What he fails to report is that the SSTF has assumed: (1) 75 years of GDP growth at 5% p.a. (2) 75 years of interest rates at 6% (currently 2%) and unemployment in America returning to 5.5% in two years and staying there for the next 73 years.
Krasting care to explain why any of that matters? Plus you are misrepresenting the numbers. Per the 2010 Report unemployment will not be back down to 5.5% until 2018, the Trustees project 8.6% for 2012 and 7.7% for 2013. Yours is close to a straight out lie. On interest rates they project 5.7% nominal and 3.0% real. And I am not sure where you get your GDP number, the only two I see are GDP Price Index at 2.4% and Real GDP at 2.1%. Take the latter and add CPI of 2.8% and I supposed you get close to a nominal 5.0% GDP but I don’t see anyone suggesting the real economy is going to grow a real rate anything close to that. Real GDP of 2.1% is not at all out of line with historical experience.
http://www.ssa.gov/OACT/TR/2010/V_economic.html#205214
Frankly Krasting I don’t particularly mind you using your own numbers. But misrepresenting those of the Trustees on route to darkly hinting that Coberly is out on a deliberate disinformation campaign is pushing some limits on the comment policy. You can disagree with Bears and Guest Bears without calling them liars.
As to this:
There may be a connection to benefits and wages. But I don’t see it. We have a major bulge in benefits in front of us. Nothing can change that (unless congress cuts the benefits to be paid).
You don’t see it because you never understood it to begin with. Initial benefits grow with wages, meaning that slow growth in wage costs going forwards automatically means benefit savings compared to the baseline. Continuing benefits grow with inflation, to the extent that slow growth is accompanied by low inflation or deflation then you get benefit savings compared to the baseline. Whereas your wording assumes that “Nothing can change that” “major bulge”. Yeah well nothing except the precise low growth conditions your model requires. Although I don’t know that you will ever get it Social Security is largely self-adjusting, with future retirees sharing both the up and downsides of the economy over their working lifetimes.
Coberly, I fear that it is impossible to make an argument, no matter how based in law and fact, which will satisfy BK and DL’s views of SS and how it is financed. Since that is the case, I suggest we no longer attempt to address their statements and assertions. If the future is as they say it will be, then stocks, bonds, cash, gold and other similar assets will be equally useless to insure anyone financial security. They will, however, have the good and glorious experience of living to see their predictions come true.
Unfortunately, QE2 is just around the corner. The hyperinflation and Treasury collapse many now predict will be forthcoming much too quickly to enable them to prepare for the end of the fiancial world as we know it. Which just goes to show you–the world has much worse things to worry about than a pay-as-you-go social insurance system. Nancy Ortiz
To quote the Robot in Lost in Space: MMT Alert! Warning! Warning!
Dr. Smith cries out “We are saved! The government has a printing press!”
Mitchell
your view of money is inadequate. you mistake the symbol for the reality. money is just a convenient way of keeping track of the exchanges of goods and services in a complex economy. the government can’t “just print money” without regard for the accepted money value of the goods and services created and exchanged in the economy… and the rate at which they are exchanged. For a short time, in anticipation of an increase in the output of goods and services the government CAN “print” money… but not more than the economy can take up with increased output. not even more than the public can accept without fears of inflation becoming self-realizing.
Ya! I wanna know where I can go and pick up my free money. Seems I missed the helicopter drop….
Morality comes into play when your deciding which country to invade, which family to kick out on the street, which asylum inmate should be made a homeless begger. These are the most important moral issues when it comes to spending.
Someone’s asymentric access to information, jobs, power, etc… does not give them a moral superiority.
Regardless, MMT accurately describes taxation as wealth destruction. The government calls back in its IOUs (dollars) and destroys them. What the government should be looking at is how it has allowed wealth to be distributed and try to ensure that no one acquires so much as to be immune from the law (pick any billionaire here).
What do you wish from society? Disparity in access to health care, protection of the law, education? Because that is what we have now. This has nothing to do with someone working ‘hard’ or ‘smart’. These aren’t the attributes that make one wealthy. If anything, I think a deranged focus on money and power is what makes many people ‘succeed’ in life where others are happy at making a decent living and providing for their family.
cedric
well, Jason says the government can print money “as long as it targets its spending so it doesn’t drive inflation.” he does explain exactly how to do that after you have severed the connection between what you pays and what you gets.
this doesn’t mean we need to force everyone to work for every dime they get, but it does mean that if we as a society decide, as we should, that we are going to help some people out and give them (via money) stuff they did not “earn,” we can’t do it just by printing money. we have to decide how to apportion what us generous people are going to “do without” in order for those needy people to “have” what we think they need.
the only way i know of to do that in a complex society is with money linked to “exchange for value.”
and… at the risk of being too complicated for our simple theorists… this does not mean that the government can never “print” money,or that a bank can’t issue a line of credit (create money)… only that there has to be a reasonable expectation of the money being used to create value.
or i susppose we could agree to just print an extra 10% every year and hand the money out as welfare… welfare to the rich, poor, left handed people to make up for the disadvantages they suffer in a right handed society… it doesn’t matter. but it would matter who we decided to give the “money” to,and what they did with it. beause the result would be “inflation” and not only would we have to decide who bore the brunt of the inflation, we’d have to explain to the guy who had been saving up to buy that particular piece of property only to watch the guy with the freshly printed governmetn money walk into the store and offer the owner a higher price for it.
sorry to run on about this. but i keep hoping the “free money” people will catch on.
and you will note how nicely they have turned the conversation away from the actual cheap cost of paying for social security to a bunch of mindless blather from one end of the spectrum to the other.
Yes, work until you drop sounds like fun. Should catch on, maybe.
Domestic inflation of goods and services is the least of our problems when we have global over capacity, which is of why they use persistent disinflationary pressures to justify their nonsense.
We can only hope the Arabs, Chinese, Multi-national corporations, pension funds, 401K plans and savers, Bond traders, Fx currency traders, the stock market and the part of Wall Street that hasn’t mastered free money yet all warm up to the idea. So far, the gold and silver market are believers. PBR (oil company) in Brazil just pulled off the biggest fund raiser in world history…$70 Billion. That was mainly capital flight from developed countries with printing presses. I find that humorous because Brazil would wipe out their currency about once every 10 years, but lately they have seen the light and are doing better with some fiscal and monetary restraint. GM is hoping to get $20B for their IPO. The gov gave them $50B.
jason
even if i agreed with your values, you have no clear idea how you’d accomplish your aims. keeping track of transactions by means of exchanging money is one of the more important ways society have evolved of maintaing some kind of order. there need to be tweaks when the “free trade” leads to the injustices and imbalances you cite. but those tweaks can work just as well through the money system.. in fact they probably work better than any arbitrary “print it and distribute it to the deserving” plan that you can come up with.
far as i have ever heard the government calls back in its iou’s and does not destroy them but spends them… gives them to people in exchange for work, or sometimes just gives them to people in the interest of human decency or something like “preventive maintenance.”
Well said, as usual. Let me seize on your words:
Social Security is largely self-adjusting, with future retirees sharing both the up and downsides of the economy over their working lifetimes.
You are talking about ups and downs over a 30-40 year period. You are probably right if you looked at it on a long wave cycle.
I can’t comprehend thing that look so far into the future. I am mired in a much shorter time frame. You have seen the impact to the fund as a result of the 08/09 recesession. From the #’s presented here the expectation is that the fund will have a few years of cash surplus in 011 and a few more years. But the numbers are peanuts. I maintain that the years of any cash surplus (ex interest) are over. I say that because I compare the SSA asumptions with “others”. The comparison to those mysterious “others” says they will miss those last few years of cash surplus.
Okay, Her is a link to some of those “others”. They are Fed Governors. They are not bloggers. They actually have their fingers on the pulse of things. Please read what these people are saying:
http://blogs.wsj.com/economics/2010/09/29/fed-chatter-gloomy-on-economy-mixed-on-next-steps/
Greenspan fixed SS in 83. Why then? Because SS was running a cash deficit. Same as now. I think history will repeat, again…
Your last paragraph is unclear to me. Are you arguing that once we increase the payroll tax to 13.5%, by 2085 all we’ll need is a .65% increase in the payroll tax? Because from where I’m sitting that gets you to 14.15%, but your cost rate is 16.56. You’re still 2.41% short. Or, are you saying that you need to increase the payroll tax by .65% per year? If its the latter then you’re looking at a 34% hike in payroll taxes from their current level. You may be ok with it, but if people disagree with you, its not because they’re terrible. If its the former you don’t solve the problem.
“the money spent hasn’t been spent wisely because our leaders don’t understand what they are doing.”
Man…I wish I was still so naive! I wish our leaders didn’t know what they were doing, it might have put a positive spin on this entire mess.
Our leaders know exactly what they doing, and you can’t shift away from a Capitalist Free-Market System by spending “Stimulus” money wisely. But you could use the “Stimulus” money to prepare the governmental, political and legislative infrastructure to be the catch net for your devestated economy and demoralized public.
And of course, that is not what is happending, they are just not very bright people who the not very bright Democratic supporting public demanded take power….Right?
I think it’s putting too much faith into 75 year projections that’s the problem. At this point either we have thorium reactors or fusion power by 2050, and if they finally get anti-gravity working properly, then we will be living like they did in the Jetson cartoons. It will be just like the 80s where everyone (at least Yuppies) scoffed at the thought of needing SS because we were all going to get rich anyway.
If we don’t get the technical advances, then it will be like a Mad Max movie.
Krasting
SS has a 2 and a half Trillion dollar surplus right now. it will tak a few years of 10 percent unemployment to run that amount of money down. the CBO publishes its own estimates and without going into the details it is remarkable that their option number three for paying for the social security deficit is the same as mine for the first 60 years.
they don’t say why they stop at 60 years, when another ten years would solve the problem forever. maybe they were asked not to let the cat out of the bag.
you are still arm waving. i don’t get to make up my own numbers.
Ted
you just got lost in all the numbers.
the current payroll tax rate for OASDI is 12.4%.
a one tenth of a percent increase eachyear for ten years raises the tax 1% to 13.4% in 2020.
over the next 15 years a further 2 and a half percent increase raises the tax to 15.9% in 2035
over the next 50 years a further 0.65% increase raise the tax to 16.55% in 2085.
I’ll spot you the extra hundredth of one percent.
I don’t mind it when people disagree with me if they know what they are talking about. But if they can’t do arithmetic and disagree with me, I get a little testy.
as far as a “34% hike in payroll taxes..” that is a dishonest way of saying your 6% tax is going to go up by a third to 8%. you can always make a small number look large by comparing it to another small number and neglecting to mention the denominator.
can’t do arithmetic or can’t read.
Cedric
i don’t think it’s quite that. the 75 year projection is science fiction, but it’s not bad in itself, it’s a problem because normal people can’t think very well about moving numbers. I could tell you…as I just told ted, that your tax is going to go up 33% and you would think the world was coming to an end, until, and unless, you sat down and thought through exactly what that meant in terms of the actual percent of your wages you would be paying (an extra 2%) and why (to pay for a longer retirement) and the fact that meanwhile your absolute income was rising so much faster than your absolute tax that by the time you are paying the higher tax you will have more than twice as much money AFTER the tax as you have today.
hell, even when you explain it to them, they can’t get it. and run around scaring themselves silly with ghost stories. because they believe in ghosts more than they believe in numbers.
Interesting discussion, but all the talk about Social Security being or not being solvent in 20 or 50 or 75 or 80 years — in a vacuum — is kind of silly. The federal govenment has used the SS Trust Fund like a personal credit card, and it is now maxed out. We spend more than we bring in, except for Social Security income, but we have used up the “savings” in Social Security Trust Fund by borrowing from it to pay for other things.
Social Security is NOT the problem. No, it has actually helped to mask the problem, which lies in our country’s thinking that we can dominate and police the world without somehow paying for it. We can use credit cards to fuel our ambitions and needs. At least until it is obvious to everyone that we have maxed out our borrowing powers.
“Fixing” Social Security will not get us out of our problem. We need to fix our habits with spending for the military industrial complex and, increasingly, homeland and national security. Until this spending is checked, the problems get bigger, not smaller.
Discussions on Social Security in a vacuum are fruitless and distracting. Reduce the spending on the wars, the military and other areas that do not increase our productivity and we will be moving in the right direction.
Don’t mess with Social Security. That is actually something that has gone well. Maybe that is why many want it changed.
The FED presidents talked about 2.5% growth, which is in the range of the numbers here. And unemployment continuing for awhile, which is accounted for. How do we fall off a cliff in less than 5 years?? You aren’t making sense based on your link.
Rdan, Way to go with Fair and Balalnced stuff.
Drive bys not welcome and will be deleted with notice.
Krasting
it’s one thing to offer an honest disagreement. it’s quite another to just come in and throw meaningless crap around to break up any possibility of anyone learning anything.
fulmore
in your heart you are right.
but we are talking about Soc Sec because the President has appointed a Deficit Commission which is telling us the deficit is BECAUSE OF SOCIAL SECURITY. That is a lie. the other lie that has been toldfor the last twenty years is SOCIAL SECURITY IS GOING BROKE! It isn’t. We do need to answer the lies.
And the fact that the Trust Fund has been borrowed from is not it itself a problem. That’s what trust funds do: they put the money out at interest (that is they lend it to someone who borrows it). the problem we are having is that the people who borrowed the money don’t want to pay it back. if they succeed in not paying it back, or twisting the fact that they owe US money into a reason to “fix” SocialSecurity, then what you say will become true.
coberly – main post – “Note that the numbers in the fourth column, under OASDI and Balance, are the same as Regular Reader’s. Note also that these are Current Dollars… that is they include inflation. A lot of inflation. Most of the bigness is due to inflation.”
The last three sentences above are incorrect statements.
coberly does not appear to understand the SSA definition for Current Dollars as presented in Table VI.F9. — OASDI and HI Annual Income Excluding Interest, Cost, and Balance in Current Dollars, Calendar Years 2010-85.
Presentations using Current Dollars do not reflect adjustments for projected inflation.
All of the mathematical results indicated elsewhere in the main post that coberly used to compare wage increases presented in Constant Dollars compared to net cashflow Balance positions presented in Current Dollars (Table VI.F9, as an example) are inaccurate.
SSA definition: “Current dollars – Amounts expressed in nominal dollars with no adjustment for inflationary changes in the value of the dollar over time.”
Source:
H. Glossary
2010 OASDI Trustees Report
http://www.ssa.gov/OACT/TR/2010/VI_glossary.html
coberly – main post – “And note that the Income does NOT include the “interest”… that is the money owed to the Trust Fund. This is “the deficit” only if the government does not pay back the money it borrowed from Social Security.”
The OASDI Balance figures in Table VI.F9 are the net cashflow positions stated for each calendar year listed. If the cashflow is negative for any given calendar year, that represents the amount of funding that the U.S. Treasury must provide to satisfy program needs during that calendar year (or fiscal year if using a fiscal year table) in order to support legal funding requirements for the combined SSA OASDI programs.
The Social Security Administration does not use the term, deficit, in describing the Balance position. Moreover, the term, deficit, is not included in the SSA glossary for the 2010 SSA Annual Report.
SSA definition: “Cash flow – The cash flow for the OASI and DI Trust Funds is defined generally as actual or projected revenue and costs reflecting the levels of tax rates and benefits scheduled in the law. Net cash flow is the difference between tax revenue and cost on this basis.”
Source:
H. Glossary
2010 OASDI Trustees Report
http://www.ssa.gov/OACT/TR/2010/VI_glossary.html
coberly – main post – “If we divide “the defict” from the first table, by the “taxable payroll” in the second table, we can find the percent the payroll tax rate would have to be increased to cover the deficit without collecting any money from “the budget,” that is, without the government repaying any of the money it borrowed from Social Security.”
The results from such an effort will be inaccurate.
coberly is mixing two sets of table data, one presented in Constant Dollars and one presented in Current Dollars. One can’t do this and achieve meaningful results.
Table VI.F9 is expressed in Current Dollars, not Constant Dollars.
Table VI.F6 is presented in Constant Dollars, not Current Dollars.
SSA definition: “Current dollars – Amounts expressed in nominal dollars with no adjustment for inflationary changes in the value of the dollar over time.”
SSA definition: “Constant dollars – Amounts adjusted by the CPI to the value of the dollar in a particular year.”
Sources:
H. Glossary
2010 OASDI Trustees Report
http://www.ssa.gov/OACT/TR/2010/VI_glossary.html
Table VI.F6. — Selected Economic Variables, Calendar Years 2009-85
http://www.ssa.gov/OACT/TR/2010/VI_OASDHI_dollars.html#182913
Table VI.F9. — OASDI and HI Annual Income Excluding Interest, Cost, and Balance in Current Dollars, Calendar Years 2010-85
http://www.ssa.gov/OACT/TR/2010/VI_OASDHI_dollars.html#176345
Gfulmore in the bigger picture you have it exactly right. (Smaller details not so much).
But it is not Dale and I that brought this up, that would have to be laid at the feet of the ‘Reformers’ that have whipped up the hysteria and insist that whatever the cause the answer is to slash Social Security benefits. Back in 2006 and again in 2009 I thought this had all gone away for a generation. But NO!!!!
http://www.angrybearblog.com/2009/01/social-security-reform-undead-return.html
Social Security ‘Reform’: the Undead Return
What does it take? A stake through the heart? A bullet through the brain? Baker and Krugman do some pushback.
Dean Baker in his post The Post’s Jihad against Social Security points to this article Obama Predicts Years of Deficits over $1 trillion and notes that they don’t hesitate to single out the usual suspect. Is it the cost of the war? The cost of the bailout? The cost of the stimulus package? Nope apparently those are just short term problems. Instead as always the first stop for deficit reform is Social Security.
WaPo: The mounting debt has raised an alarm on Capitol Hill, where some Republicans and moderate Democrats are pressing Obama to tackle the looming challenge of skyrocketing Medicare and Social Security spending, and to adopt tough new budget rules to prevent future deficits from ballooning.
Which leads Dean to reply with some exasperation:
The article includes a comment about “the looming challenge of skyrocketing Medicare and Social Security spending. ” Of course Social Security spending is not projected to skyrocket. It is projected to increase gradually, and its costs are fully covered by its own tax stream until 2048, according to the Congressional Budget Office’s latest projections.
While CBO dialed that back a bit the central point remains. Just like any data point you like induces Republicans to push tax cuts on capital it equally convinces them to argue that it requires benefit cuts to Social Security. Flip sides of the same coin. Or greyhounds chasing an electric rabbit: “Tax cuts! Social Security cuts! Go get ’em boy!!”
coberly “maybe they were asked not to let the cat out of the bag”
That reminds me. I wish these people would stop terrorizing our pets.
By now, every smarter than average poodle that pays attention when the TV is on, understands that “The deficit is a huge problem!”. Even Fluffy the cat is getting concerned that humans may eat her food. African Grey parrots are supposed to be pretty smart, and anyone who keeps the birdcage in the TV room certainly has a pet that squawks, “Polly wants a cracker. Entitlements are the big problem!” and can even pronounce entitlement with the proper sneering sound.
So even the animal world understands round 1 of the argument. Why are people still stuck there?
This is a post with numbers and about numbers…that is the purpose. A note to that effect would have helped at the beginning, yes.
I think that this is OT for the thread itself whoever you are Mr. Mitchell, assuming you have used your real name (sorry, we have a sneaky troll with several years experience). I think Rebecca Wilder and Marshall Auerback or Yves Smith would be happy to talk through MMT, but the discussion about SS in an election year especially with an upcoming catfood commission recommendation to fix SS is the topic….any MMT discussion is bound to be a distraction unless it is a sidenote.
Robot in “Lost in Space” : “MMT Alert! Warning! Warning! The government DESTROYS MONEY! Warning! Warning!”
Dr. Smith : “Oh, the PAIN the PAIN. What shall we do?”
Will: “Don’t worry Dr. Smith. The government has an electronic balance sheet on a computer! Everything will be ok!”
Dr. Smith : “You mean we don’t send in paper dollars when we pay our taxes, Will?”
Will : “You got it Doc.”
Cedric
all poodles are smarter than average.
they just get by on their looks because
because, well, because it’s smarter. that’s why.
MG
names were changed to protect the innocent. dates… well, time flies.
the present article shows how the “net cashflow position” of SS can easily be supported by a small increase in taxes, born either by SS participants themselves, or , more honestly, by the taxpayers who got the tax cuts that are now making the “deficit” a political hammer.
MG
i think you make a serious error here. “nominal dollars with no adjustment for inflationary changes”
means the numbers are “inflated dollars.”
the wage increases i use are presented in the same current dollars. you need to read more carefully.
had i used constant dollars for wages to compare to current dollars for deficit, it would have made my case much much worse… and also wrong.
it’s not that i can’t make a blunder like that. but i think that here it is you making the blunder.
MG
i believe it was you who used the term “deficit.” If you have trouble with the ordinary uses of language, you need to hire an editor, because you are making a fool of yourself here. Not a problem worth mentioning, but it is so easy to make a fool of some of our readers, that I get quite rude about it.
MG
table VI.F6 is in “current dollars”
a good way to check that is to take the income shown in table VI.F9… which states that it is in current dollars, and note that it is very close to 12.4% of the “taxable payroll” in table VI.F6.
it would make no sense for me to use current dollars for “balance” (deficit) and constant dollars for payroll. not only would it be wrong it would make my argument look worse not better.
MG, i am not being rude. you simply are incapable of analyzing numbers, or even using words to keep track of what is being talked about. You are a fine resource for pointing us to raw data or even helping us understand how congressmen “think”… i imagine they are quite a bit like you. not the most numerically competent kids in their class… but you are quite out of your element when it comes to making sense of what is being talked about. if you were only talking to me, i would smile and ask if you wanted a refill for your coffee. but you are talking in public and helping to confuse people who are no better than you are with numbers. so, i wish you would stop embarassaning yourself and providing aid and comfort to the enemy.
MG
you are still wrong. see answer to similar statement above. both tables that i used are in current dollars. quoting definitions that you don’t understand does not help your case.
This is the MG approach.
quote something irrelevant. say something wrong to the point of absurdity, but keep on saying it. take over the thread with thousands of words that don’t mean a damn thing, but confuse the other people who don’t know much.
MG you are a tragedy turning into a bad joke.
Thanks Cedric
it was pretty naive of me to think that an arithmetic lesson would cure insanity.
jason
i think i said “a kind of morality.” i would not argue that money IS morality as some do. just that among the ways of preventing chaos… let alone seeking justice… that human beings have come up with is the idea of the willing seller and of course the willing buyer. as long as the money you have has at least arguably been obtained by giving somebody else something he wanted for it… and he had it for the same reason… a case can be made that we “have a right to the money we have.” you know and i know that is not always the case. and that’s what governments and law courts are for. but you can’t just say that because the outcomes of the chain of ownership theory of money are not always “moral” or “just” we can just do away with the money system and print “money” and give it to good causes.” it simply won’t work.
please try to notice that i am not a Randian… but the complete opposite of Randism, as i think you are offering here, is what gives them the credibility they have.
“he does explain” should have been “he doesn’t explain.” sorry about that.
Table VI.F6 is presented in Constant Dollars, not Current Dollars.
Go to the top of SSA page linked below and read the information regarding Table VI.F6.
3. Estimates in Dollars
http://www.ssa.gov/OACT/TR/2010/VI_OASDHI_dollars.html
I didn’t send it to anyone last week. I posted information and data under a comment thread
MG take the stick out. Is there really a difference between ‘sent us’ and ‘sent info and data to a server hosting our blog’? You are simply hiding behind a semantic nothing here.
coberly – “MG i believe it was you who used the term “deficit.” If you have trouble with the ordinary uses of language, you need to hire an editor, because you are making a fool of yourself here. Not a problem worth mentioning, but it is so easy to make a fool of some of our readers, that I get quite rude about it.”
The SSA does not use the term, deficit, in discussing the status or projections related to operation of its three primary programs. That is a fact. I have never referred to the SSA programs internally as running deficits. I have cited the projected status of net cashflow for calendar years and fiscal years which is consistent with the SSA presentations on such matters.
The SSA beneficiary programs are mandatory spending programs which will be supported by law unless laws are changed.
U.S. Government accounting applies the terms, deficit, to the overall operation of the General Fund when conditions are such that the Government uses deficit funding to support budget needs in any fiscal year.
I have discussed deficits, deficit financing, and deficit funding with respect to operation of the General Fund as does the Government, and I have cited various programs that ultimately increase the need for deficit financing of the General Fund or displace discretionary spending. The term, deficit, applies only to fiscal year operations of the General Fund according to the Government’s definition to the best of my knowledge.
I stated in my original comment under the thread for the above main post:
“Net Cashflow
Those concerned about current and projected growth of the U.S. national debt as well as fiscal year deficits including net interest payment obligations on publicly held debt are focused on net cashflow”
SS may not use the word ‘deficit’ but you certainly did. Point to Coberly.
Once again ‘adjustment for projected inflation’ is what turns Current Dollars INTO Constant Dollars. Which should be clear by the language of the definition MG cites (bolding mine):
“Constant dollars – Amounts adjusted by the CPI to the value of the dollar in a particular year.”
“History repeats itself first as tragedy second as farce”?
I am not sure what you call the third and fourth iteration, perhaps ‘pathos’ followed by ‘bathos’.
Webb,
I have never applied the term, fiscal year deficits, to the SSA programs.
The fiscal year deficits apply only to the operation of the General Fund and Federal Budget as a whole.
Look the definition up for yourself.
MG
the problem here is that your brain does not recognize that the word “deficit” means exactly what i used it to mean. neither you nor the Federal Budget own the word. This kind of perseveration would get an ordinary chicken killed in the real world. It is a brain problem. related to Obsessive Compulsive disorder. I don’t know it its treatable. YOu should ask a professional.
So how exactly does one spend an IOU? It’s a number in a bank account, not cash.
Who said they wanted to do away with the money system? What I said is how the money system works. It’s what you and I have grown up with. What I’m saying is that most people don’t understand how the system works and because of this cannot implement sound policies.
Regardless, I think you take me as an extremist; as someone who wants to give handouts to everyone for nothing. I have never said this. What I’ve said is that the government is a) the source of money and b)they are most likely the only source of creating demand. I haven’t proposed handouts; I haven’t proposed anything, in fact. But if your curious, I wouldn’t mind seeing real investment in our infrastructure (to the tune of trillions as the experts estimate it would cost), tax holidays (via income tax breaks, targeted coroporations, groceries and gas, etc…), mortgage rate “cramdowns”, job of last resort (also aimed at reducing state (and local) costs, etc… Get the demand up so suppliers can increase production and start hiring, then start lowering public spending and let private spending take the lead.
Some might suggest that these are idealistic, but they would then have to argue that abolition is naive, democracy a pipe dream, compulsory public education would never work.
coberly, I’m not sure what you mean about the “symbol for the reality,” but I think you are saying that federal deficit spending causes inflation. It is a common concern. I agree there is some level of deficit spending which would cause inflation, but we are nowhere near it.
Look around you at the reality. Today, despite massive spending, we are worried about deflation, not inflation. In the past 30 years, federal debt has increased an enormous 1,600%, without inflation beyond what the Fed has wanted it to be.
Since we went off the gold standard in 1971, there has been no relationship between federal deficits and inflation. See: http://rodgermmitchell.wordpress.com/2010/04/06/more-thoughts-on-inflation/ For the past 40 years, inflation has been caused by energy prices.
Rodger Malcolm Mitchell
Robot in “Lost in Space”: “MMT Alert! Warning! Warning! You Are In Danger Will Robinson! Extrapolation of 1600% Debt Growth Over Will’s Remaining Childhood Exceeds Memory Registers. Does Not Compute. Does Not Compute.”
Dr. Smith: “You BUBBLE HEADED NINNY! That’s why the government has a electronic balance sheet on a real computer! “
Will: “Golly Gee, Roboman. Do ya think these Jokers know what they are talking about?”
Director note to writer: Whoopps, wrong TV series.
Why be so rude and cliche’d. How about something substantive?
Jason
ALL money is “iou’s”. numbers in bank accounts are money. cash is just an easy way to make small transactions. instead of making entry’s in a bank account, you just exchange pieces of paper that have been tricked up to be hard to separate from their connection to exchange for value.
jason
i think you are exactly half right.
Mitchell
I agree that today deficit spending will not lead to inflation. reason is idle resources. the deficit should call those resources to work, creating value, and exchange, that justifies the increased quantity of money. a little to complicated to explain here. where i differ with you is that you seem to think that you can just ignore the relationship between money and work and arguably free exchange. you can, but not for long.
jason
i lost track of who this remark is addressed to. I think Cedric is right on and i like his way of saying it. I tend to get real boring trying to explain this stuff to people who can never learn.
Answer was can’t read. Didn’t realize you had continued the .1 increase.
How is it dishonest to talk about the percentage increase in your payroll tax? It is what it is. And its not its not 6.2 to 8.2, its 12.4 to 16.55. Most folks agree that the incidence of the payroll tax falls on the employee, not the employer. I don’t find that to be a small amount, especially if you consider lower income individuals. Almost no Social Security plan except yours hoses them — and you hose them pretty badly, taking another 4% of their pay.
That is my point. For the government, money is just an IOU; which is what MMT points out. Our tax “dollars” are just numbers in an account. A debit; a credit; whichever.
That IOU is issued by the government directly through spending or through banks (partial reserve). Well, they both go through banks, but partial reserve greatly expands the supply.
Spending isn’t reliant on taxes. We could pay off all US bonds tomorrow if we wanted, but then there are issues of where that money would go? Drive inflation, push down the currency? Who knows.
So again, how does the government spend an IOU? It doesn’t; it calls back some IOUs via taxes; it issues new IOUs when it needs to spend.
Yeah? Which half? Would you mind expounding on your viewpoints? Anything tangible other than “exchange for value”?
Nope, it’s petulant; and after the third time it becomes cliche’d.
Jason
i am not entirely sure i understand your point. but the government can’t just print money, or enter numbers in bank accounts unless those numbers are tied to the economy of goods and services.
jason
i thought i had expounded on my viewpoint. don’t know how to get there from here.
Ted
that 4% of their pay will feed and house them for an extra six years of life after retirement. You can’t get something for nothing. When I was as poor as most people ever get, I would not have noticed a 4% difference in my pay. Especially if it was only a 2% difference in my paycheck.
I don’t want to argue “whose” money it really is. It’s the boss’s until he pays it to you. The most folks agree that you talk about are house economists who agree with the boss one day when he says “it’s really the employees money and so their roi is lousy” and the next day when he says “it’s a jobs killing tax.” it really can’t be both.
what’s dishonest about “33% tax increase” is that the tax is only 6% to start with, so the increase is only 2%. calling it 33% makes it sound bigger than it is. and is in fact used for exactly that reason to confuse and dismay the innumerate 90% of the population.
get beyond all the political misdirection… what it amounts to is that you are going to be living longer, you will need to save a little more money to pay your bills after you can no longer work. the safest way to save that money is through the Social Security payroll tax.
and people who think they are being “hosed” by that are still in diapers.
Jason
I shouldn’t answer this, but just in case you can learn. I have been patient with you. I have tried to explain why your argument doesn’t work for me. When you resort to calling me names it doesn’t hurt my feelings. It does tell me that i have been wasting my time and makes it more likely I will be rude to the next person I think is wasting my time.
So I get rude for sure. But I think you probably don’t even understand the words petulant and cliched. Probably something someone said to you once that sounde particularly “smart” to you.
My point is that you don’t spend your own IOU. If I have an IOU because of a gambling debt, I get that IOU back after I pay off my debt. I don’t use that IOU for another debt. The government does the same.
You mentioned “unless those numbers are tied to the economy of goods and services” well that is how the government spends money, i.e. on goods and services. No one is giving something away for nothing with no intention of a return (via fiscal policy, perhaps monetary policy though). Even “handouts” like unemployment benefits go back into the economy (and are reduced in effect by taxes).
Also, what you say matches exactly with what MMT’ers propose, i.e. the government should spend solely based on what it needs and what is needed in the economy. Conversely, it should have a similar tax policy, i.e. how much money to take out of the economy and from which sources (corporations, households below $250k per year, etc…).
Firstly, my comments were about Cedric, not you. I haven’t been rude or demeaning to anyone.
Lastly, your putdowns are unfounded.
Robot in “Lost in Space”: “MMT Alert! Warning! Warning! You Are In Danger Will Robinson! There Is A Great Big Incinerator In Washington DC Where The Government Burns Money! Danger! Danger!”
Will: “Calm down Robo – whatever your name is. We know that already and that’s why we are moving to Alpha Centauri for a fresh start.”
Dr. Smith: “Will we still be capitalists, Will? (repetition unintended)”
Will: “I guess so Dr. Smith. Nothing else seems to work.”
Dr. Smith: “Will we still have Keynesian and Monetarist economists, Will? (see clarification note above)”
Will: “That goes without saying, Dr. Smith.”
Dr. Smith: ” Can we at least have them explain everything inside out, upside down and backwards so things sound new and different, and we won’t have cliches anymore?”
Will (using petulant voice): “Sure, Dr Smith. That sounds like fun!”
Dr. Smith: ” You are a smart lad, Will, and I don’t mean to be rude when I say that.”
jason
just to let you know i read the above. perhaps if i read the fully developed theory i would understand it better. parts of it i agree wtih, but based on what you have said so far, it is hard to see how it would work. hard for me to see how it would work. in any case i was hoping this thread would be about the cost of paying for social security. maybe you could write a post of your own on your favorite topic.
poor dear old MG
that page does NOT say that Table VI.F6 is constant dollars, but that table VI.F.6 contains some adjustment factors used to convert current dollars to constant dollars.
The “cheap” fix proposed for SS rests on those already burdened with many “cheap” fixes.
Why must those pulling the cart always fix the mistakes of those riding in it?
Perhaps we can look to our bloated and overweening federal government for some fiscal responsibility before we further tax those who already pay the majority of taxes.
3% here and 3% there, pretty soon you are talking about real money.
I find you willingness to have others pay for your desires . . . coercive.
I have studied SS-OASI since 1973 and created a working model in 1975. In 1984 after the big fix I updated my program using the statute that requires automatic cuts to COLA and to benefits when the trust fund to expense ratio hits 30% and falls to 20%.
Social Security has many dependent variables; wages determine benefits, US wage growth determines bend points and replacement factors for each cohort.
COLA determines the amount of any increase.
US Treasury Rate determine interest earned on the trust fund.
US population provides a look at potential workers and potential beneficiaries. For the most part we know the potential workers entering the work force over the next 18 years (no more babies will be born to cohorts prior to 2012). Similarly we know the potential beneficiaries since there will be no more potential beneficiaries born to cohorts prior to 2012.
Based on teh 1977 benefit formula, it is easy to calculate the initial average OASI benefit of every cohort simply by knowing the US Average Wage in each year (SEE SSA US Average Wage table). Based on wage growth, one can calculate precisely the theoretical bend points and replacement factors for every cohort.
If wages exceed the US Treasury Rate, then the ability to pay future benefits become increasingly difficult. The effective rate of return is (1+ wage growth) divided by (1+rate of return) – 1.
The problem with using the SSA table information and changing some of the assumptions is that the person who does this does not have the algorithum that was used. For example, assuming a higher wage growth each year does produce more revenue, but it also increases future liabilities (Benefits) at the same exact rate. In addition, changing retirement age does affect future benefits and cash flows, but it is not linear since each cohort have different totals.
Based on what I read of the original writer, they have made several errors and their results are totally without basis.
A simple way to verify the analysis is to perform a simple calculation. Currently there are 3.9 workers for every SS-OASI beneficiary. The payroll tax is 10.5% and OASI is running a negative cash flow (spending more on benefits than it collects in taxes). The births per worm has dropped from 5.7 to 2.1 (zero population growth). Not all people work. About 82% of potential workers under age 65 work. When the ratio hits 2.4 what type of benefit can be maintained by at 10.6% payroll tax? If the current ratio is insufficient what will 2.4 workers paying 10.6% be able to pay? Could it be 2.4 divided by 3.9 times 1?