Sixteen Men on a Dead Man’s Chest…Social Security and the Facts of Life
Guest post by Dale Coberly
Sixteen Men on a Dead Man’s Chest Yo Ho Ho
Social Security and the Facts of Life
Sen. Mark Warner (D-Va.) said on Sunday the “Gang of Six” senators is “very close” to a deal on deficit reduction, suggesting the plan would impact Social Security that most Democrats have said is off limits.
Asked by host Bob Schieffer to clarify that the group will take on Social Security, Warner said, “Part of this is just math: 16 workers for every one retiree 50 years ago, three workers for every retiree now.”
What we have learned in ten years of watching the Social Security “debate” is that when someone says “it’s just math,” he is lying. Unless, of course, a United States Senator simply doesn’t know what he is talking about.
The “16 workers for every one retiree” is one of those true facts that doesn’t mean anything… and is therefore used by liars to mean what they want it to mean.
The Senator does not read Angry Bear, but in the hope that one of his friends will try to explain it to him, I offer the following simplified model.
Update: The Atlanta Fed Macroblog from 2006 includes Dean Baker, pgl, Ken Houghton on this issue.
Imagine that the voters of America look around themselves and see a crisis where millions of people approaching retirement age have lost their savings by no fault of their own. Perhaps a Great Depression or something like that. There is no time for all these older workers to again save enough to retire on. Workers who have already reached retirement age are receiving “welfare.” But the voters don’t like the idea of a permanent “welfare establishment” as the “normal” way for workers to get through their retirement years.
So they decide to try a simple plan.. a retirement insurance system based on the idea of pay as you go. And here is how it works.. worked. Remember I said this is simplified.
Imagine that in the first year of the plan there are 40 million workers, one million in each age cohort… that is, one million aged 25, one million aged 26, … etc. up to one million aged 64. So far there are NO retirees in the system. If each worker pays a “tax” of one percent of his income, there will be enough money so that..
In the next year one million people become 65 and retire. And one million who were 24 last year become 25 and get jobs and start paying the tax. And of course each cohort moves up to the next year.
Now there are forty million workers and one million retirees, a ratio of forty workers for every one retiree . And if each worker is paying 1% of his income into the system, there will be enough money to pay-as-you-go each retiree 40% of the average income of all the workers. The 40% is called “the replacement rate.” it will be roughly enough to replace 40% of the average lifetime monthly income of each of the retirees.. adjusted for the average increase in wages over 40 years. )
The next year, another million will retire, bringing the ratio of workers to retirees to 40 to 2, or 20 to 1 (remember that every cohort moves up a year, and one million new workers enter at age 25 replacing those who retire at age 65. Now it will be necessary to raise the “tax” to 2%.
At this point the Senator Warners of the world get hysterical.. “A doubling of the tax. We’re all going to die!” And the “non partisan experts” project that if this keeps up, in only 30 years the tax will be ONE MILLION PERCENT!.
But the workers say, two percent isn’t so bad and it goes for a good cause. So they keep paying as they go.
The next year the ratio of workers to retirees becomes 40 to 3 (13 to 1). and the tax goes up to 3%. Note that we have already passed the 16 to1 ratio without even noticing it.
The next year the ratio becomes 40 to 4, or 10 to 1, and the tax goes to 4%
And the next year the ratio becomes 40 to 5, or 8 to 1. Or does it? Well, sadly, no. By this time some of the retired workers have begun to die off… so the number of retirees does not increase by the full million new retirees, but by some number like one million new retirees minus some hundred thousand older retirees who have died And while the ratio of workers to retirees will continue to decline, it won’t continue to decline at the rate it did for the first few years.
In fact, if the life expectancy of retirees is about 12 years… half of them will die by the age of 77… the ratio of workers to retirees will stabilize at around 3 to 1. ( The ratio of workers to retirees depends very much on the ratio of working years to retirement years for each worker. )
This will require a tax rate of about 12% in order to pay that replacement rate of 40% of a workers average lifetime adjusted income… or, which is the same thing, 40% of the current average income. Note that sneaky “adjusted” income. That is the secret of pay as you go. By adjusting the income of retirees to reflect the inflation and rise in real standard of living that shows up in the wages of those paying the tax, the retirees get an automatic effective “interest” on their tax… which now looks exactly like “savings.”
Meanwhile the workers are putting away 12% of their income (or 6% depending on who you think would get the boss’s share if there were no SS tax), and this is exactly what they would have had to save out of their income for a basic “if all else fails” retirement. This seemed like a good idea at the time… the people who were living then had seen what happens to “sure things on the stock market,” and they wanted a little insurance “just in case,” and they were smart enough to know they had to pay for it.
Now, what Senator Warner is so sure is going to cause the sky to fall on our heads is the prediction that we are all going to live a little longer… as much as twenty years in retirement, bringing the ratio of workers to retirees down to 2:1. Other things being equal, this would require that we save about 20% of our working income, if we are going to need about 40% of that income every month to see us through a long retirement.
Since we are making more than twice as much as our grandparents, you’d think we could afford this. But let me make it a little clearer. Suppose grandpa was making a thousand dollars a week real money and paying 120 dollars into his retirement fund, and expecting to live about 12 years after he retired. Now suppose that great great grandson will expect to live about 20 years after he retires. He will need to pay 20% to cover the expense of a longer life. But he is making twice what grandpa made. So out of his 2000 dollars per week, he needs to save 400 dollars in his retirement fund. But that leaves him “only” 1600 dollars to live on.
Compared to the 880 dollars grandpa had to live on. You can see the tragedy of this situation. Great grandchild has to get along on less than twice what his grandpa did, and all so that he can afford to live almost twice as long in retirement.
Oh the unfairness! Oh the financial ruin!
As I said, the above was a simplified explanation. The true fact is that in order to pay for their longer life expectancy, the workers would need to raise their own Social Security contribution by about forty cents per week per year… in today’s money. Eventually, two generations from now, this would amount to a 2% increase on the tax for the worker, and 2% for the employer. Out of an income that will be more than double what it is today. Leaving the worker with twice as much money “after taxes” as he has today. Plus he will get the money back, with interest, over a retirement that lasts almost twice as long as his grandparents’.
It’s simple math. When you switch from a “welfare” system where current workers subsidize current retirees, to an “insurance” system where current workers pay for their own retirement (as a cohort, not as individuals), then the ratio of current workers to current retirees becomes IRRELEVANT. That’s simple math. 🙂
OC, things are not quite so simple, hence the quotation marks, but that’s the idea, that’s the math.
Now, if your insurance company is unable to pay what it owes, that could be a problem. The US cannot go bankrupt, but it could lose a lot of its productive capacity, so that it would be difficult for current workers to provide retirees with their benefits. For instance, we could have a pandemic as virulent as the Plague which, like the 1918 influenza, killed a lot more people in their 20s and 30s than older adults. But even in case of such a catastrophe, the ratio of current workers to retirees is not the relevant statistic.
A LOT has changed since Social Security was concieved.
We are richer, older, live longer, jobs aren’t as physical, medical care is better and more expensive, we have FDIC to prevent people from losing their savings, and the Federal government has taken on more responisiblities for the general welfare. Oh, and we are $14T in debt.
What is so wrong with adapting the program to the times?
And, if we are to go back to the original formation of the program, according to FDR it was to protect “the security of the men, women, and children of the Nation against certain hazards and vicissitudes of life.” In other words, bad luck.
So I don’t see any reason we should cut other government programs, or raise taxes that cost jobs, just so we can send a check to people who already make over $40K a year in retirement.
Sammy
there is no reason to cut other government programs… to pay for Social Security. Social Security pays for itself.
What you are confused about is that the government might (Might) have to cut other programs, or raise taxes, or borrow other money… to PAY BACK THE MONEY IT BORROWED FROM (FROM) SOCIAL SECURITY.
All the rest of your comment is pretty much irrelevant. People still want to retire in time to enjoy a little of their lives before they die. They pay for it themselves. They can keep on paying for it themselves if they don’t let the liars and criminals in Congress bamboozle them out of it.
About 3T of that 14T “we are in debt” is money owed TO Social SEcurity. Wrap your brain around that fact. It will help clear your mind.
The bad luck that SS protects you from includes dying with dependents, getting disabled, and working a whole life time without being able to save enough to retire… this includes losing a lot of money on your 401k, or losing your savings account to inflation… it’s not insured for that. Oddly enough even in these modern times about fifty percent of the people reach retirement age having had exactly that kind of bad luck.
Min
I think you mean well,but the ratio of workers to retirees IS the relevant statistic in a pay as you go system. The point of my essay is that that ratio may eventually reach something like 2:1, but that will not be a catastrophe. Because the ratio of workers to retirees is the same as the ratio of each person’s working years to his retirement years.
It turns out that even with a fully “financed” retirement system, the ratio of workers to retirees will still be the important variable. The way the money is distributed will be different… some will get more than they need, and some will get less than they need. But if you ahve a population of 100 million workers and 50 million retirees, the workers are still going to have to bake the bread that the retirees eat. Each worker will have to bake a loaf and a half.
What Peterson wants to do is make sure that loaf and a half goes through him first. The worker will get back just enough to be able to come to work tomorrow, and the retiree… well, there won’t be any retirees.
The United States could lose a lot of its productive capacity, but as long as we remain human, we will see that the elderly get enough to eat. However we end up financing it. The beauty of SS is that it is a very simple way for people to “earmark” a part of what they produce so they can claim an equivalent amount of production after they have stopped working. Since that “earmark” consisted of contributing an equivalent amount of their own production to those who had retired before them… it all balances out. The simplest and fairest way to solve the problem of “retirement” since the beginning of the industrial age. Before that, people didn’t worry about money so much. They just fed the old folks and counted their blessings.
coberly: “But if you ahve a population of 100 million workers and 50 million retirees, the workers are still going to have to bake the bread that the retirees eat. Each worker will have to bake a loaf and a half.”
That’s why I also talked about productive capacity. Productivity has been increasing all along, hasn’t it? 🙂 Perhaps it boils down to how much of the nation’s productive capacity does Social Security pay for?
BTW, I don’t mean to mean well. 😉
Ratios!
The ratio of US workers to super aircraft carriers is way down and the rest of the world’s super carriers are ZERO. The Brit’s one is being “reserved”.
The ratio of US workers to the 3400 first line fighter aircraft is also way down, and the Russians next generation is 200 for them and 400 for sale in about 10 years.
The ratio of US workers to Brigade Combat Teams is way down too.
Warner’s Virginia state is on the discretionary spending trough big time.
He will look at SS for keeping DC and the Hampton Roades doing high paying socialized government work.
US work force and declining productivity is an issue for discretionary spending more than for entitlements.
Why should SS for 80M be subordinated to the military industry trough.
Social Security pays for itself.
It does this by sucking up all the tax capacity of the lower wage earners. 50% of filers pay virtually no income tax. However they pay the 12% of FICA tax. If you cut the outflow from social security via a means test, you can lower their social security tax rate and replace it with some income tax to preserve other programs or preserve others’ tax rates.
Min
the workers who paid into their social security contributed to the productive capacity of the united states… for better or worse. they deserve to share in that productivity. by paying a percent of that productivity toward their eventual retirement… they do share in that productivity. that’s what makes the system work so well.
back in 1930 the worker might bake a loaf and a half a day. and “save” half a loaf for his retirement. by 2030 we can expect the worker to bake a loaf and a half AND build an indoor bathroom and a half, so when he retires he can eat bread AND have an indoor bathroom, just like real folks.
the “meme” “how much of the nations productive capacity does Social Security pay for” doesn’t scan. it doesn’t mean anything. Social Security doesn’t “pay for” anything. It is the tool whereby workers “pay for” their own retirement.
Sammy
that “sucking up” you fear is the sound of workers paying for their own retirement. That 12% FICA tax becomes their 40% replacement rate. Means testing would change that to “the rich” paying for “the poor”, exactly what you say you are against. So am I.
ilsm
no reason. in fact they have nothing to do with one another. despite what the Congress critters are trying to tell you. Social Security money pays for Social Security. Income tax money pays for aircraft carriers.
When they tell you they have to cut social security so they don’t have to cut defense, they are lying.
I think I finally understand this $.40/wk deal..
Simple math tells us that .40 X 52 X 150,000,000(workers) = $3.12B .. double that for the employer’s share and we go $6.24B
That’s obviously ridiculous, as this year alone we got a $40B unfunded-liability bill for SS.
Knocking down this year, and the ensuing years’ unfunded-liability by $6B/year won’t make any, real difference… so I pondered (and Googled “40 cents social security”), and it started making sense.
40 cents per week would indeed go a long way toward funding SS for a long time… IF you’re talking about keeping the trust-fund from running dry, 30 or 40 years from now; as if we can access it today without having to re-pay every penny we take out (the “wash” that even the SS Adm and CBO acknowledge)… as if that money hadn’t been borrowed/spent already.
It would do nothing about the problem we face immediatley, in that the current trust-fund itself, needs to be re-funded .. and THAT’S the hundreds of billions that we don’t have. That’s the deficit spending problem we face.
Or.. am I still mis-understang how $6B/year in the face of unfunded liabilities some SEVEN that, will fix things ?
coberly,
that “sucking up” you fear is the sound of workers paying for their own retirement.
This is not true. They are paying someone elses’ retirement.
Do you not even understand this?
Sammy
I understand this very well. You do not.
When you pay your Social Security tax you are paying for your own retirement. It’s just like when you put money in the bank. The bank does not keep it in a box waiting for you. It puts the money to work by giving it to other people. Either so they can use it to make new things, or just to pay them back the money they put in the bank last year. That’s the way money works.
When you go to collect your Social Security benefits, they look at your record… just like the bank. and they say something like.. see, you contributed XX dollars over the years and that entitles you to a benefit of XX dollars plus interest spread out over your life expectancy.
But just like a business pays you a dividend out of the money its current customers are paying in to the business, a bank pays you back the money you “saved” out of the money its current customers are paying in. And Social Security pays you “back” the money you put in. Using the money the next generation pays in so that they (the next generation) are paying for their own future retirement.
Even if there was no such thing as money, when you got old your children… or neighbors children.. would give you bread you never baked yourself. And in return their children or neighbors children would give them bread when they retired that they never baked themselves.
But if they thought it was worth it to keep records, they could look up where you gave their grandparents bread their grandparents never baked themselves, and say… “see, here is where he paid for his bread.”
Rwe
yes, you are still completely misunderstanding everything. 40 cents per week is one half of one tenth of one percent of an average workers wages today. CBO says that a payroll tax of one half of one tenth of one percent per year will pay for the expected shortfall in Social Security funding over the next sixty years. they neglect to say that extending that increase another ten years will “fund” Social Security forever.
What you are missing is that the forty cents per week increases another forty cents per week each year. this adds up. but it does not add up without limit. The limit is that when the tax has increased 2% for each the worker and the employer… about eighty years from now… the tax will be high enough to pay for the longer life expectancy of the people living eighty years from now… and that … that longer life expectancy eighty years from now.. is where the projected shortfall you keep hearing about comes from.
there are some complications… that 2% would actually be needed about thirty years from now, but by beginning to collect it a half a tenth of a percent per year starting now, you’d have about thirty years of interest to help postpone the need for the full 2%.
this is a pretty sorry explanation, but the full explanation takes more time and energy than i have right now. you should be able to work it out yourself once you reallize it ADDS UP.
but while the tax is going up half a tenth of a percent per year, real wages are going up more than a full percent each year… so the worker is getting richer, not poorer.
btw
it doesn’t matter if the trust fund runs dry. it is supposed to run dry. it was created to pay for the recession and the baby boom retirement. it has nothing to do with the future shortfall… assuming it is paid back the money it lent to the government.
the driver of the future shortfall is longer life expectancies. that just happens to be taking place at the same time the trust fund is doing its job of helping the post boomers pay for the boomer retirement… using the money the boomers put in the trust fund and lent at interest to the United States of America.
coberly:
By law, don’t you have to maintain 1 year of funds?
Coberly I appreciate the logic and math but have a quibble. Not everyone lives longer and has the kind of job and health that enables working to age 67, so it would make sense to me to increase SS taxes more on those who are most likely to draw more SS benefits, and not so much on those who are least likely to do so. For this reason, I think raising the wage cap (by about 50%) is a reasonable suggestion. This would reduce the needed increase in FICA that you propose. Both raises could be gradual as you recommend–a feature that I like because it not only eases the pain but also provides some flexibility when/when 75-year projections change.
Politically Obama probably wants a prolonged debate on SS. Since at least last fall, he has been begging the GOP to test the third rail of SS (on top of the Medicare issue) for him, which is smarter than testing it himself. To my knowledge, he has commented favorably on only one positive proposal so far: raising the wage cap. Depending on what happens in the polls, he might decide that he wants to raise FICA rates slightly but he certainly would not explicitely say this before the election, unless perhaps the raises would begin in the distant future.
By law the SS administrators must warn Congress if they think that the TF will not be maintained at 1 year of funds for all of the next ten years. It is up to Congress to do something about it. It ran less than 1 year from 1971 to 1991.
When you pay your Social Security tax you are paying for your own retirement.
No you are not.
And young people today are obviously living far inferior lives
“CBO says that a payroll tax of one half of one tenth of one percent per year will pay for the expected shortfall in Social Security funding over the next sixty years. they neglect to say that extending that increase another ten years will “fund” Social Security forever. “
Yes, I explained that now, I see what the 40 cent deal is all about.
Depending on when it was calculated, the trust-fund has a date down the road where it runs out.. ala the discussions stating that SS is fully-funded out to the year XXXX. But that completey ignores the reality that the trust-fund itself need to be replenished as it’s drawn upon. THAT is the problem we have to deal with today.
“What you are missing is that the forty cents per week increases another forty cents per week each year. this adds up. but it does not add up without limit. The limit is that when the tax has increased 2% for each the worker and the employer… about eighty years from now… the tax will be high enough to pay for the longer life expectancy of the people living eighty years from now… and that … that longer life expectancy eighty years from now.. is where the projected shortfall you keep hearing about comes from.”
I’m not missing that part at all.. I did the math. Small increases today (compounding over the years) put toward extending the day when the shortfall (trust-fund exhaustion) occurs will indeed solve THAT accounting problem.. but it ignores that the trus-fund today, is effectively empty.
coberly,
Sorry for being obtuse,
I had four points:
One, the US military, if it were reliable and not broke all the time, is unequalled by orders of magnitude, hugley over matched against an expensive war that is not on the radar screen.
Two, there are ways to look at funding the oversized military similar to the burden implied by number of workers supporting SS beneficiaries.
Three, resources consumed by the pentagon retarded productivity growth, implying US should need 16 workers for each SS beneficiary.
Four, the US military is a socialized trough consuming 20% of US outlays for nothing, buying congress with unwarranted influence, fear tactics, lies and denying rational decisions on how to provide for the common defence.
While assuring the general welfare and domestic tranquility can be ignored.
“When you pay your Social Security tax you are paying for your own retirement. It’s just like when you put money in the bank. The bank does not keep it in a box waiting for you. It puts the money to work by giving it to other people. Either so they can use it to make new things, or just to pay them back the money they put in the bank last year. That’s the way money works. “
No.. that’s not how money works.. A bank maintains a specific account, that you have absolute access to, based on what you put into it.
The banks don’t “give”, that money to anyone.. they LEND it to them, via equally absolute standards. Your money is either in that bank as a hard, liquid asset, or it’s backed up by legally defined investments. It is in no way, in a nebulous trust-fund subject to demographics or inflationary influences.
“When you go to collect your Social Security benefits, they look at your record… just like the bank. and they say something like.. see, you contributed XX dollars over the years and that entitles you to a benefit of XX dollars plus interest spread out over your life expectancy.”
No.. a bank doesn’t reference your average depostis to determine how much you can withdraw from your account.. that accound is an EXACT total of the depoists (plus interest).
“But just like a business pays you a dividend out of the money its current customers are paying in to the business, a bank pays you back the money you “saved” out of the money its current customers are paying in. And Social Security pays you “back” the money you put in. Using the money the next generation pays in so that they (the next generation) are paying for their own future retirement. “
No.. a certain percentage of a company’s revenue is NOT destined for dividends.. Dividends are calculated AFTER the fact IF there is net profit.
It’s like you’re trying to equate SS to something like an IRA, when it’s more like a life-insurance policy.
If you die one year into retiremnet, that’s it. Your estate won’t be credited for a lump-sum representing your life-time of contributions into SS. And conversely, if you live to be 100, you’ll likely draw a total from SS, above and beyond your contributions.
An account-based IRA is yours.. If you die one year into retirement, your estate will include the balance of that account, and of course if you live to be 100 and the IRA runs out, you get nothing more out of it.
They’re literally apples/oranges ..
The one that holds US $3T in Treasury securities? As required by law? The one signed by St. Ronnie the TV pitchman? That’s an interesting use of the word empty.
Do we have to go through this again ? Effectively empty means, that those securites are money that the government owes itself…
Again, the CBO: http://www.cbo.gov/doc.cfm?index=5771&type=0&sequence=1
“The term “unfunded liability” is most often used in relation to trust funds and trust fund balances. That linkage may create the impression that, because those funds report positive balances, future federal commitments are already “paid for,” or funded. And certain taxes–especially payroll taxes for Social Security and Medicare, which are credited to those trust funds–may lead taxpayers to believe that they have paid for future benefits. Trust funds can be useful mechanisms for monitoring the balance between earmarked receipts and a program’s spending, but they are basically an accounting device, and their balances, even if “invested” in Treasury securities, provide no resources to the government for meeting future funding commitments.(7) When those payments come due, the government must finance them in the same way that it finances other commitments–through taxes or borrowing from the public. Thus, assessing the state of the federal government’s future finances requires measuring such commitments independently of their trust fund status or the balance recorded in the funds.”
Even the CBO, puts the word “invest” in quotes.
And young people today are obviously living far inferior lives.
Inferior to whom or to what? “Inferior” is a comparative.
Assuming, arugendo, the statement is correct, could it conceivably be that it’s a.) mostly because they’re young. And b.) starting their working lives in the depths of a Depression. The first fixes itself, the second could be fixed without much more difficulty given any political will.
“When they tell you they have to cut social security so they don’t have to cut defense, they are lying.”
Lying ? The reason we HAVE to make cuts, is because were running a $1.6T deficit.
SS unfunded-liabilites are as real a contributor to that deficit, as any other spending.
Concentrate on this sentence:
“Trust funds can be useful mechanisms for monitoring the balance between earmarked receipts and a program’s spending, but they are basically an accounting device, and their balances, even if “invested” in Treasury securities, provide no resources to the government for meeting future funding commitments”
That’s what effectively empty means…
Rwe
I was trying to explain what was wrong with saying that your Social Security money pays for someone else’s retirement. You are right that Social Security is not “exactly” like a bank. It is more like an insurance policy.
It is, in fact, what it is. A way for you to save part of your own income so that you will have at least “enough” to live on when you retire, or become disabled, or die leaving dependents… though in that case, of course, it is not “you” who will get enough to live on.
ilsm
you were not being obtuse. and in general i agree with your point about the military excess spending.
but i also think it is necessary to make the point that Social Security is not part of “the budget.”
Rwe
no. SS “unfunded liabilities” make no contribution to the deficit whatsoever. the money owed TO Social Security is “funded.”
If you owe your brother in law money, HE is not contributing to your deficit. He lent you money, Remember? You Owe it to him. That is YOUR deficit, but he did not “contribute” to it. YOU did.
Yes… agreed.. except again for the reference to savings. You aren’t saving your income for yourself.. you’re buying into a long-term plan to insure a base-income. Like I said.. if you die on day-one of eligibility the money you paid in just stays in the “insurance” pool. (for what it’s worth.. I believe SS is a tremedous program, had it not been co-opted as a vehicle to fund government in general.. i’m in no way, anti-SS).
run
yes. but it’s too complicated to say that every time. when I say it is supposed to “run dry” I am talking about the “excess” trust fund that was created to pay for the baby boom retirement.
And arne is right… but by law SS is “allowed” to dip into that one year reserve… that’s what it’s for.
Why is the argument always about the Government can’t afford to pay? Or should I say repay what it has borrowed? Come on people, we have just witnessed the looting of the treasury of this U.S.A., the continuance of which is ongoing.
The Congress even the P.O.T.U.S. from all appearences has been bought & paid for by the business community, hence they’re free from paying their fair share of keeping this country’s infrastructure working smoothly. Yes, goes the cry from the sycophants in Congress, even the P.O.T.U.S., to keep the maching going, (looting of the treasury), by all means, “put the load on the backs of those poor people who can least afford it.
It’s time that all you who drink the currant brew of koolaid open your eyes and see just whaz these fools are doing to the country that has provided you with the comforts of sitting on your backsides complaining about giving back. This sniviling & whining, whether or not real or imagined, has come about on the backs of those who came before you.
This Country was created by the hard work & sacrifice of others, but today, the Business & their bought & pain for Congress don’t want to continue doing so. When these so called American businesses get away with not paying their fair share of taxes, which go to pay for the infrastructure that gets used in their daily use of, the Military fighting senseless wars that serve no purpose other than to make the complex rich, I might add on the backs of the rest of us poor slobs, then were surposed to clap our hands and sing hallelujah’s for the plutocracy?
This is a long rant, but it’s time that everyone who has benifited from what this Country gave them, the oppertunity to be where you are today, to insure that the kids coming up now and in the future have that same chance, not to be servants to some ultra rich sort who could care less about your comfort.
Rwe
no, it does not ignore that the Trust Fund, with 3 Trillion dollars in it “is empty.” In fact the number depends on the Trust Fund being paid on time as required by law.
The bad guys have got you completely confused about that. NO Trust Fund has “cash” lying around. IT has “assets”.. like US Bonds… which can be cashed at need. The bad guys are using that fact to pretend that the TRust fund is not real. They are lying because they want to confuse you.
Agreed.. SS by accounting standards is not a problem. But your lending example involves two parties.. I’m not going to keep re-posting the CBO link (you can see it in my response to islm) about how one entity lending money to itself, applies.
Imagine there never was a Trust Fund. Assume further that spending levels went unchanged over the period 1983-present and that tax policy was as observed (Clinton raised them. Bush II lowered them). What would you see? Why you would see huge fiscal deficits. Instead of $3Trillion in the Trust Fund and an $11Trillion debt, you would see a $14Trillion debt. Now for those of you supposedly “serious” about reducing the US debt, would you not argue that taxes would need to be raised or spending cut? Such a heroic stance! Such virtue!
Yet under current reality, the privatizers trot this out as a great fear and insist on default. Where has the heroism gone?
Rwe
we have to go through this again, because you didn’t get it the first hundred times. The Trust Fund is NOT a source of money for the government. IT is a debt OF the government. It IS a source of money for Social Secuity. You see, when the government pays it’s debt TO the trust fund, that makes money available to Social Security. The government of course has to “get” the money to repay its debts.
You seem unable to understand this. Ask someone who understands money whether “accounts receivable” is an asset to the company. And then ask them if a “debt” is an asset to the party who owes the money that you are calling “accounts receivable.
Here’s a repost of the key sentence:
Concentrate on this sentence:
“Trust funds can be useful mechanisms for monitoring the balance between earmarked receipts and a program’s spending, but they are basically an accounting device, and their balances, even if “invested” in Treasury securities, provide no resources to the government for meeting future funding commitments”
That’s what effectively empty means…
So there’s no spinning around it.. unfunded-liabilities are real spending, today.
No. This is what “the trust fund is a record of money lent To the government, and owed To Social Security” means. The trust fund provides “NO resources TO the government.” IT is a DEBT owed BY the government. IT is a “Resource” that Social Security can call on to meet it’s funding commitments.
YOU are thinking that Social Security and “the government” are the same thing. They are not.
PJR
it is the nature of insurance that not everyone has a fire, and those who don’t “pay for” those who do. Social Security will not work if we start making individual estimates of how long each person will live.
an extra forty cents per week is not much of a pain that needs to be eased.
and yes, i keep hoping Obana is like the Martial artist who comes into the Western Movie and gets kicked around by the bad guys and insulted by the townsfolk until he has maneuvered all the bad guys into all trying to kick him at once, when he makes a subtle shift of his weight and they all kick each other and disappear into a puff of smoke.
PT
well, there is one born every minute. i hope you are being funny. if the young people are living far inferior lives it is not because they have less money, but maybe because they have too much.
as for paying for your own retirement.. you need.. or someone needs… to think about that. once you understand it, you will wonder how anyone could NOT understand it.
Agreed.. SS is seperate from the government at large.. BUT, its trust-fund assets are made up of government issued securites, that the government has to make good on.
Like I stated many threads ago.. what difference does it make, if the general-fund makes good on the unfunded liabilites directly… or makes good on them by first running that money through a paying-back of the securities. EITHER way, it’s REAL(deficit) spending today.. and that’s exactly what the CBO acknowledges.
Then I’ll ask for your interpretation of what the CBO means when saying:
“Trust funds can be useful mechanisms for monitoring the balance between earmarked receipts and a program’s spending, but they are basically an accounting device, and their balances, even if “invested” in Treasury securities, provide no resources to the government for meeting future funding commitments”
” The Trust Fund is NOT a source of money for the government. “
Agreed.. any money borrowed from it, has to be paid back.
“It IS a source of money for Social Secuity“
Now you’re arguing with the CBO.. They state SPECICALLY:
“their balances, even if “invested” in Treasury securities, provide no resources to the government for meeting future funding commitments”
“In fact the number depends on the Trust Fund being paid on time as required by law.”
EXACTLY.. and that re-payment is real spending TODAY.
“NO Trust Fund has “cash” lying around. IT has “assets”.. like US Bonds… which can be cashed at need. The bad guys are using that fact to pretend that the TRust fund is not real. They are lying because they want to confuse you.”
Wrong again.. A trust fund can be made up of cash, or anything of value. But when those “investments” are made into the same entity that will be honoring the program’s obligations, they’re of no net value..
Well, PT, SS isn’t to blame for the rotten shape the job market is in. The beneficiaries didn’t get together in Palm Springs to decided how much capital and how many jobs to export to low wage countries. And, the old geezers on Medicare didn’t devise “innovative” financial products that blew up the markets when it turned out that S&P kinda sorta over-rated ’em.
Then, there’s that little thing about student loans. Used to be in the good old days you could go to school and not come out owing $40 or $50K. That was because they were government loans with low interest and tuitions were much less. NOW, however, the loans are private, the tuitions are sky high and going higher, and the days of affordable public universisties are over. The banks who make those loans got paid to make them by good old Uncle Sam over and above any interest earned.
Rwe
there is no point in us arguing about that. if you can see how SS works, and that it is the best way… the only way… that workers have to INSURE they can retire at a reasoable age with “enough” then that is the basic point.
i am not sure at this point that lending money to the government was such a good idea, but at the time The United States of America was considered a good risk.
Rwe
there ARE two parties: the lender is the Social Security Trust Fund
the borrower is the United States of America
these are not the same person.
Then there’s the direct (that’s right, direct) subsidy to every family in the country that results from Mom and Pop being able to live independiently and pay their own medical bills. No SS, no Medicare, no Mom and Pop over at Retirement City. They’d either be in the poor house (ooops, don’t have those any more, do we?) or under the bridge at the freeway overpass. No joke. Look the next time you’re on your way to the beach in Santa Barbara. It’s waterfront property alright–everyone moves out when the tide comes in.
The TF and FICA pay a debt we owe ourselves. We’d have to be nutz not to pay us first, and worry about the MIC last. ilsm is right. One way or another, money we don’t have is fighting wars in countries we don’t care about. So, with mind-blowing brilliance, we blame the old folks, present and future, the teachers, the union members–anyone and anything at all except the crooks and liars who got us here. NancyO
Rwe
the Trust Fund is NOT “unfunded liabilities”. the Trust Fund is “funded.”
the ‘unfunded liabilities’ you hear about are the future benefits that are expect to exceed the current tax rate that “funds” benefits. the unfunded liabilities… all 5 Trillion dollars of them.. can be funded with a tax increase of one half of one tenth of one percent per year… about 40 cents per week.
Rwe
no. note carefully the difference between “it is a source of money for Social Security” and “it is not a source of money for the government.”
Yes.. the economics of SS were brilliant.. a well-funded insurance pool to ensure a basic level of income in retirement. And it would indeed need only the slight (40 cent) adjustment you cite, to remain healthy indefinately.
Lending it to the government is where it gets ruined. It wasn’t a simple transfer of the money, it was a way for that money to be SPENT.
The curious thing about these arguments, as the your-side is under the belief that that lend/spend could happen, without serious pay-back consequences.
It’s not a matter of the governments credit-worthiness.. that’s never in question (well, wasn’t until yesterday).. we knew the treasuries would be honoered.. but that doesn’t UN-spend the money.
Rwe
“my interpretation” and the interpretation of the Treasury and everyone who has to carry out the law:
The Trust Fund is NOT a source of money FOR the government. IT is a source of money for SS. it is a DEBT owed BY the government TO Social Security.
The liars have fooled you. By saying so loudly “there is no money in the trust fund” they have led you to believe their OUGHT to be money in the trust fund. That is not true. NO trust fund has money in it. They have “assets,” such as Bonds… iou’s. No one leaves money in a box. not big money over a long time.
The assets of the government… to pay its bills… are, always and only, the taxes paid by the people. In general the people who pay the income taxes are not the same as the people who pay the payroll tax. There is some overlap, but even there, the people who paid the “excess” Social Security tax that was lent to the government are mostly NOT the people who will pay the income taxes to repay the money the government borrowed. Arguably those people got their money’s worth when the borrowed money was used to buy something they needed “right now” without then raising their income tax to pay for it.
You won’t find many Trust Funds holding much cash over a long time. IF you do, fire the Trustee.
The SSTF is not the same entity as the United States government.
The “net value” is the 3Trillion dollars owed TO Social Security. The same value, arguably, that the government got out of borrowing the money.
Rwe.. i am losing patience. go think about this somewhere. Get someone honest to explain it to you.
Agreed.. but (again) the securities are issued by the same entity that would be covering the unfunded-liabilites..
It’s not like the brother/brother-inlaw example. The lender in that example , has his own, future expenses to meet. The borrower, in no way, is obligated to pay those expenses.
In the SS/Gov realtionship, the government IS on the hook for those unfunded liabilities, whether it pays them directly, or pays the lender back first..
Nan,, you’re hard to keep up with..
“the Trust Fund is NOT “unfunded liabilities”. the Trust Fund is “funded.”
the ‘unfunded liabilities’ you hear about are the future benefits that are expect to exceed the current tax rate that “funds” benefits. the unfunded liabilities… all 5 Trillion dollars of them.. can be funded with a tax increase of one half of one tenth of one percent per year… about 40 cents per week.”
Nobody ever said that the trust-fund is an unfunded-liability… that doesn’t even make sense.
The trust fund is NOT funded, until the government REFUNDS it, via real spending TODAY.
We already went over the 40-cent plan.. I agreed that it could keep things going, IF accessing the trust fund today, didn’t require real spending today.
The unfunded-liabilities are the differenc between SS revenue, and SS obligations… and they start THIS YEAR at a number that is SEVEN times greater than what that 40-cent plan will generate.
“Nan “= “Man”
coberly: “the workers who paid into their social security contributed to the productive capacity of the united states… for better or worse. they deserve to share in that productivity.”
Indeed they do deserve their share. 🙂 But talking about retirees per worker does not address that.
There are two (at least) competing narratives about Social Security, “welfare” vs. “insurance”. The retirees per worker statistic is part of the welfare narrative, not the insurance narrative, which is the one that you advocate. Under the insurance narrative, that statistic is irrelevant to the question of whether to pay retirees the benefits they deserve.
coberly: “the ratio of workers to retirees IS the relevant statistic in a pay as you go system. The point of my essay is that that ratio may eventually reach something like 2:1, but that will not be a catastrophe.”
By making that argument you cede the field to the welfare narrative.
Min
I don’t understand your point.
even as insurance, as long as it is “pay as you go” the ratio of workers to retirees is the critical factor.
you can try to explain what you mean. i mean well.
Rwe
unfunded liabilities are NOT the difference between spending today and taxes today. that difference is funded by the trust fund. that’s what the trust fund is for.
you are confusing cash flow with funding. the negative cash flow was anticipated. that’s why the trust fund was created.
the “funding” problem you are having trouble with is the problem the government is having “funding” all of its debts and expenses. the answer to that is to cut expenses or raise taxes, or keep borrowing and hope it all works out. but the answer is NOT to renege on your debt.
nor is it to blame your debt on the people you borrowed the money from.
you are looking at a rich country where the corporations don’t pay taxes, and the rich cut their taxes and then say we don’t have any money to pay our bills.
i don’t care about how much taxes the rich pay as long as they pay their bills. Social Security does not cost the rich ANYTHING in taxes. Except to repay the money they borrowed FROM Social Security.
the forty cents per week is NOT to make up the cash shortfall. that is what the trust fund is for…. all those baby boomers paying abut 2% more than pay as you go would have needed in order to save money for their own retirement.
nor is the forty cents to provide the government the money to repay the money it borrowed from the trust fund. they have to get that money from taxes… as normal for government spending. try to understand those taxes are not to “pay for social security” they are to pay back money borrowed from social security to pay for the other things the government wanted but didn’t want to raise taxes to pay for.
I wouldn’t want to make individual estimates either, Coberly, but we know that high-earners have increased their life expectancies much more than low-earners and strongly tend to have less physical jobs. The wage cap on them can be higher.
I don’t think Obama is that martial artist but I like the Western imagery. He wants to be the sheriff who enters the bar to break up the fight when everyone’s exhausted and decides who won how much. He biases the outcome in the direction that he favors but makes most participants dissatisfied. He won’t do that until he sees more broken chairs and bottles and he’s even taunting some of the drunks. (Most recently, he invited Ryan to a town hall where demanded that SS be put on the table, alongside Medicare. Not an accident.)
PJR
you are correct that the rich are the ones who will enjoy those longer life expectancies while the poor work until they die before they can collect social security under the raised retirement age.
and if you can make that argument as a justification for raising the cap, i’ll support it. but try to get the math straight, because otherwise it sounds like “soak the rich.” and the rich won’t pay for that. nor is it a healthy way for the poor to plan their lives.
by the way, i wouldn’t put too much emphasis on that “less physical jobs.”
working in a cubicle for forty years can drive a person insane, or at least make them prefer suicide to having their retirement age raised.
bobby,
The heroism, if any, will come from the Republican side. Promising free candy is not heroic. Taxing the rich/top 2% is not taking much of an electoral risk. The jobs lost or not created will be unseen.
On the other hand, saying “No” to a large number of beneficiaries will result in villification and cost careers. Look at Greece. Look at what happened in WI when the governor proposed that public workers contribute 5% towards their pensions. Listen to Obama demagogue pitting autistic children against billionaires.
We’re going in circles..
OK.. first, the trust-fund is not a source for fundung SS. The only money to be gotten out of the trust-fund, has to be put INTO it first..
Would you please read this paragraph and tell me where its wrong ?
“The term “unfunded liability” is most often used in relation to trust funds and trust fund balances. That linkage may create the impression that, because those funds report positive balances, future federal commitments are already “paid for,” or funded. And certain taxes–especially payroll taxes for Social Security and Medicare, which are credited to those trust funds–may lead taxpayers to believe that they have paid for future benefits. Trust funds can be useful mechanisms for monitoring the balance between earmarked receipts and a program’s spending, but they are basically an accounting device, and their balances, even if “invested” in Treasury securities, provide no resources to the government for meeting future funding commitments.(7) When those payments come due, the government must finance them in the same way that it finances other commitments–through taxes or borrowing from the public. Thus, assessing the state of the federal government’s future finances requires measuring such commitments independently of their trust fund status or the balance recorded in the funds.”
Unless you can dispute this.. the difference between FICA revenue, and SS obligations is a liabilty sans funding.. ala unfunded liability.
This ultimately proven, as this year’s $40B of liability without funds to meet it, is occuring right before our eyes.
Cobery: “the “funding” problem you are having trouble with is the problem the government is having “funding” all of its debts and expenses. the answer to that is to cut expenses or raise taxes, or keep borrowing and hope it all works out. but the answer is NOT to renege on your debt. “
You’re simply agreeing with me here. Cutting expenses, or raising taxes are methods for dealing with the LACK of FUNDING..
Do those liars include the CBO ?
“NO trust fund has money in it. They have “assets,” such as Bonds… iou’s. No one leaves money in a box. not big money over a long time. “
A trust-fund can most certainly be made of of cash accounts.. CDs or even pass-book savings. If you were managing a trust-fund today, a CD might be the best place for it.
Now HAD the SS trust-fund been truly invested ..ie someplace where it could be called upon as needed without having to FIRST be repaid by the entity ultimately responsible for honoring the SS obligations in the first place.. we’d be sitting pretty.
But it wasn’t an investment.. even an official statement from the CBO puts “quotes” around the word “invested”… as it explains how the trust fund is effectively empty.
Example.. had the trust fund invested in CDs, or even state and municipal bonds.. the redemption of those bonds would have NO effect on federal spending. Two seperate entities. Puting trust-fund money into federal bonds/securites, was just a method to allow the federal governemnt to SPEND the money.. it’s GONE.
Sammy, when the governor in WI proposed to bust the state employee unions, they had already agreed to increase pension contributions and reduce their pay. The resulting struggle had nothing to do with the budget as the governor later said. It had to do with power. As does the current situation in MI where by fiat, the governor has essentially disenfranchised citizens’ right to establish and maintain local governments. Nothing to do with budgets really. After all, you can’t claim you need to reduce spending when you abolish entire school districts and fire everyone. That ain’t cuts. It’s destruction. NancyO
I’d kinda be happy about a trust-fund manager who used cash accounts when the bottom fell out of other investments.. but that’s beside the point.
“The “net value” is the 3Trillion dollars owed TO Social Security. The same value, arguably, that the government got out of borrowing the money.”
That’s redundant.. What does it have to do with the fact that that loan is coming due, and the feds will have to borrow, to repay it ?
You could conserve your patience by addressing that CBO statement.. specifically.. Prove it to be in error, and I’ll not bother you again..
Or quit pretending that obligations owed to foreign or private entities will be honored while stiffing retirees.
“Or quit pretending that obligations owed to foreign or private entities will be honored while stiffing retirees. “
Nobody suggested any such thing. All of those obligations will be met.
If you’re on about life expectancy affecting SS go look up what the CDC says is coming wrt adult onset diabetes and other health problems caused by decades of saturated fats and corn sweeteners. If you buy their projections a lot of boomers aren’t going to live long enough to collect much SS anyway…
Medicare costs for dialysis and glucose monitoring plus the amputations and associated long term care costs for disabled elderly though… another ugly hit there.
Rwe
The quotation you present simply says that the Trust Fund is NOT a source of money for the government to pay Social Security. The Trust Fund is a “pile of money” (Treasury Bonds are a kind of money) that Social Security (note: NOT “the government”) can call upon to pay benefits.
The government has to collect taxes to repay the money it borrowed. Which is fair because it borrowed the money in order not to collect taxes for the stuff it wanted at an earlier time. NOW is the time it has to pay for the stuff it bought with borrowed money by repaying the money.
You are stuck on the idea that the Trust Fund is “supposed” to hold “resources for the government to pay…”. That’s backwards. The Trust Fund holds resources for Social Security to pay… Those resources are government bonds… promises by the government to repay the money it borrowed from the trust fund,
Your friends have fuddled with your head. By saying “there is no money in the trust fund” they have led you to believe their “ought” to be money in the trust fund. That is a complete misunderstanding of what a Trust Fund is. At least it misunderstands the governments part in the Trust Fund… the government is the DEBTOR. The government has to find the money to repay waht it borrowed from the trust fund.
I am not “simply agreeing” with you. Of course the government has to find the money… by raising taxes or cutting expenses. There was never any reason to expect anything else. The problem you are having is that you think this means something “special” about Social Security. It doesn’t. it’s a plain statement of an ordinary fact about borrowing money. It is not a “lack of funding.” It IS the way SS benefits are funded in part.
My candy will not be free. I have 35 years of pay check stubs and tax returns. I have no idea who is feeding your sweet tooth.
Rwe
are the CBO liars?
not really. they are telling you the exact truth, but it seems sometimes that they are careful to “explain” the truth in such a way as not to expose the lie that the Liars are telling you.
and you don’t seem to understand what they are saying.
Rwe
the CBO statement is not in error. you just don’t understand it.
The loan IS coming due. What else did you expect?
The feds could just raise the taxes to pay for it, or cut expenses to pay for it.
This is what you say, and what I say, and what the CBO says. You just seem to think it means something other than the United States of America has to pay its debts.
amateur
yes, i have beenw waiting for that to hit the fan.
but the “projections” are all based on “current trends.” you see every “current trend” will naturally just keep on trending out to the infinite horizon. and we need, desperately, to change everything NOW! to prepare for what is going to happen for sure a hundred years from now.
Sammy
look closer, those “heros” have their hands in your pocket. and they aren’t feeling around for your wallet.
Coberly says:
“the negative cash flow was anticipated.”
No it wasn’t. Just a few years ago it was expected that the fund would go cash flow negative in 2016. It happened to the tune of $49b of red ink in 2010. I argued with Coberly over this back then and he defended the SS projections.
Things have changed. We have now turned the corner to perpetual deficits at SS. This will shorten all of the time frames for when SS goes negative in total assets (+interest) and when the Fund is exhausted.
Let’s agree on something. SS MUST maintain a TF balance that is equal to 1 year of benefits. Yes? (You better say yes to this).
If you look at the TF forecasts of Benefits and Assets into the future B=A at about 2030.
But that is wrong. The deterioration we see to day will bring us short of 2030. My guess? About 2027. Another recession in the next three years and the drop dead date falls to 2025.
You guys spend too much time worrying about the infinite future. Focus on the next decade. That is where the problem is.
What do you think any borrower does with the money borrowed? What do you think a corporation does with the bons it sells to the public, and what is it that Treasury does with all the cash represented by those T-Bills it auctions off routinely? Again, you’re issuing worthless canards rather than salient facts which might lend value to the conversation. How many investment funds are into Treasuries for their security? I believe the total public holdings in Treasuries is over $10T. Are those holdings representative of unspent money? That’s rediculus!! Money borrowed is money to be spent. Has the Treasury spent the FICA Trust Fund money to good effect? That same question can be askec about any of the government’s outstanding public debt. Argue about what the money is spent on, if you like, but there is no value in suggesting that the money should not have been spent. That’s what borrowed money is meant for.
Well.. at least you’re gravitating away from the theme that repaying SS trust-fund bonds will not add to the deficit.. that’s progress…
I’ll rewind this debate and simplify it.
SS collects tax money to fund SS payments. As by design, for a period, those taxes were greater than the payouts.. resulting in the trust-fund. Mean-time, the feds sold the trust-fund federal securities, and then spent that money (it’s gone).
The reference to the trust-fund as being effectivley empty (confirmed by the CBO), is an acknowledgement that it cannot be counted as a fund to be drawn upon (by ANY entity). That’s cut-n-dry, black-n-white, beyond dispute.
This is in conflict with your latest assertion: The Trust Fund is a “pile of money” (Treasury Bonds are a kind of money) that Social Security (note: NOT “the government”) can call upon to pay benefits.
Of course the government itself cannot call on funds that are a loan to itself. And SS can’t call upon those funds either, unless/until the government repays the “loan”.
So, I’ll ask again, what differnce would it make, if the feds pay this year’s $40B unfunded-liability by first honoring part of the loan, or if they pay the the liabilty directly. This illustrates the relative worthlessness of the trust-fund.
Nobody is fuddling with any heads.. this is the real consequence of allowing the government to turn SS funding into general funding.
And I’m still waiting on specific analysis of that CBO statement… proving it to be in error.. so we can stop this circular debate..
“i keep hoping Obama is …”
We don’t often get a chuckle from what coberly writes, but I smiled at this.
“it would make sense to me to increase SS taxes more on those who are most likely to draw more SS benefits”
The progressivity of benefit payments already provides this mechanism. If the math says my 26 percent replacement costs more than the median workers 40 percent replacement because I am (probably) going to live twice as long, then (IMnsHO) we should adjust the progressivity rather than increase the cap. I would need to see the data.
Boy thhis argument is getting tiresome. There is a great deal of debt. The Trust Fund is only one of many debt holders of the general budget. There are only two ways to reduce debt. One is to pay the debt down and the other is to pay the debt down. Cutting spending does not cut current debt. It only reduces the possible increase in debt. Cuttiing spending may increase the availability of funds to pay down the debt. Cutting down on the repayment of a part of the debt, like not paying the Trust Fund Special Treasuries, isn’t reducing the debt. It is only whelching on a part of the debt. That’s not the best way to maintain a good credit rating. How would Treasury bills sell if buyers learned that the Treasury has started categorizing certain of its debt as “not needing to be honored.”
This continuing argument concerning the reasons for the deficit and the path to less debt is filled with so much bull shit that it is becoming tedious. To suggest that members of one political party or another has a better position is absurd. The debt can only be reduced by reducing unfunded spending. Entitlements are virtually the only form of funded spending. So cut to the chase and look for the greatest amounts of unfunded spending and you land on defense and war spending. The other side of the debt coin is revenue. If we continue to accept revenue reductions, in the form of tax holidays, there will be no funds available for debt reduction. FICA is earmarked. It has nothing to do with general tax revenues. Medicare has a partial funding stream which supplements the general budget’s funding of that program. Reduce military spending and raise taxes and you resolve the debt issue. The rest is just so much bullshit being dished out by so many bullshitters. Crude, but true.
The back and forth between coberly and RweTHEREyet is kind of silly. They are not really disaggreeing, they are just emphasizing different aspects of the same reality.
The government is going to have to make some changes to pay back the money borrowed from SS. RweTHEREyet is right – it is not easy for the (income) taxpayers. coberly is right – it is not a big deal for SS (payroll tax payers).
There is a huge overlap between payroll and income tax payers, but the difference in the distribution of the tax is also huge.
Arnie I agree that some hard data analysis would be useful. I’ve only seen the report at http://www.ssa.gov/policy/docs/workingpapers/wp108.html which indicates that, over the past 30 years, life expectancies for males at age 65 grew about 4.5 years more for those in the top-half of earners than for the bottom-half of earners. So the difference in the number of years in retirement changed considerably. That’s highly suggestive, but not definitive math.
Allow me to exit this thread, I’m sure you’re all as tired of it, as I am…
My assertion is pretty simple. SS obligations are now outpacing its revenue stream. The difference will be made up, starting this year, by the general fund; today as much is would/will be, if/when the trust-fund is exhausted. It wouldn’t matter a lick, if someone made off withe trust-fund bonds last night… the total paid out over the next several years, by the general-fund, will be exactly the same as if the trust-fund bonds are repaid. The trust fund has been rendered little more than an accounting paper-trail for the surplus collected by SS.
That’s it.. that’s my point in a nutshell.
(This may double post, Echo and my connection having issues it seems)
While I was briefly tempted to wade in here even the first page of comments was too dispiriting. So excuse me if this link has been supplied somewhere in the thread.
http://www.ssa.gov/OACT/TR/2010/V_demographic.html#167717
Table V.A2.—Social Security Area Population as of July 1 and Dependency Ratios,
Calendar Years 1950-2085
The ratio of working age people to retirement age people was never 16:1 and it will never be 2:1. Claims to the contrary are mostly a combination of verbal games that confuse ‘workers’ for ‘contributers’ and ‘retirees’ for ‘beneficiaries’ and then hide important changes between Social Security recipients under Title 1 and Title 2 and changes that added important categories of both contributers and beneficiaries at various times with the key dates being 1939, 1951, and 1956. And there would be interesting fact and data based discussions to be had exploring the ins and outs of the effects of changes in then current law. But from sad experience not here in AB comment threads.
Population aged 65 and older in 1950 to those 20-64: .138 or 7.25 to 1
1960 (Warner’s ‘fifty years ago’): .178 or 5.75 to 1
2010: .215 or 4.675 to 1
2050 (est): .364 or 2.75 to 1
2085 (est): .418 or 2.4 to 1
And these numbers are significantly offset by total dependency ratio including children (who need to be fed, sheltered, educated and given medical care at significant cost) where the corresponding numbers are:
1950: .725
1960: .908
2010: .669
2050: .815
2085: .866
The notion that working age people just can’t afford to pay for children and old people and that the answer is to abolish child labor laws and increase retirement age is a toxic mix of innumeracy and immorality that would make former commenter FA proud as Punch.
But that is the dodge. You can make the same argument about debt service generally, by definition there is no internal revenue stream for that. And even more so for military spending which has no revenue stream at all, you could cut military expenditure projections by 50% and still get an ‘unfunded liability’ into the 100s of trillions of dollars over the same ‘infinite future horizon’ they insist Social Security Defenders use.
Your point has been obvious all along, just as it was with your predessessor Brooks, but it implicitly makes an argument for policy changes based on accounting identities that you refuse to apply to other categories of spending/debt service.
Wow! Debt has to be paid out of future revenue! Gosh! Who knew? Sorry that argument doesn’t carry over with the specificity to attack Social Security in isolation..
Rwe
you do okay until you decide the Trust Fund is/was worthless. The Trust Fund was the means by which the people paid “extra” social securty taxes in order to build up a fund to pay their own “extra” benefits. It is legally very different from just waiting around and hoping the congress will raise taxes to pay for Social Security benefits.
You are trying to wish social security away.
And yes Bonds are a kind of money.
what’s going around in circles is you. we already agreed that CBO was not in error. just that you were not understanding it. or the significance of it.
krasting
it’s not me who worries about the infinite future. its Andy Biggs and his ilk.
The trust fund is supposed to be maintained at one year reserve. but it is not “required” to be maintained at one years reserve. otherwise what would be the point of the reserve?
I never defended the Trustees projections. I just show what they mean.
There is no perpetual deficit at SS. SS has 3 Trillion Dollars in the bank. You keep pretending that is not real.
And when that is gone, SS is still not in trouble. the purpose of the TF was to pay for the boomer retirement. when it has done so, SS goes back to pay as you go (with a one year TF reserve.)
don’t get tripped up on the words. the facts are clear enough.
No, actually not. IF it did not owe the money, legally, there is no reason to expect it would pay for the Social SEcurity “shortfall.”
Rwe
you are working too hard. I can’t say everything at once and cover every possibility. So if you find an exception to something I use as an example to make a point, either you are just playing games or you have trouble focusing on the point at issue.
NO doubt the Trust Fund could have been invested somewhere else. Perhaps it should have been. But it wasn’t. It is still a legal debt of the United States. A debt the United States would have incurred if it had borrowed the money someplace else as it would have.
The government borrows money in order to spend it. Of course it’s gone. NOw they need to collect some taxes to pay it back.
Arne
I am like Porky Pine. Inside I am just abubble with mirth.
Arne
I agree with you that there isn’t much disagreement between me an Rwe about the facts… if you can keep him from losing track of what he has said. But there is a huge difference in our understanding of what those facts mean. He keeps saying that the legal distinction between the money owed to the trust fund, and congress just appropriating money to pay SS directly is meaningless. Not so. That’s just a back door way to turn SS into welfare, and then drown it in the bathtub.
“The trust fund has been rendered little more than an accounting paper-trail for the surplus collected by SS.” RWTY
Little more than? And what is any other debt instrument? A way to identify money owed by some entity. In the case of the Trust Fund Special Treasuries it is the general fund that owes the money and it is Social Security that is owed. The surplus was intended to supplement the FICA revenues once the balance between contributions and benefits tipped to the deficit side. “collected by SS” and invested in the US government because T-Bills have the “full faith and vredit of the USofA.”
Your final comment? Is that a threat or a promise? You will not be missed.
Your TF does not and will not have sufficent resources as you think.
bkrasting
i already tried to explain this to Rwe. maybe you could read the comments and see if you understand it any better.
The TF will have the resources it has. probably enough to pay for the boomer retirement on top of the recession. After that it will be up to a small payroll tax increase to “fund” our longer life expectancies.
IT really doesn’t matter when the Trust Fund “runs out.” The Trust Fund is NOT Social Security.
Suppose that I pay you money for an annuity. I am taking out insurance against living so long that I end up destitute at the end of life. You are betting that I die before you take a loss. You are also investing the money. If all is fair, you make a profit commensurate to the risk you are taking. Now suppose that you have millions of customers, of all sorts. By diversity and the law of large numbers, your risk is minimized. To be sure, you are making payments to your longest lived customers from what you get from other customers, but on average, everybody is paying for what they get, plus a small premium for your costs and profit.
Now suppose that suddenly you stopped taking new customers. Your risk would go up somewhat as fewer people are paying in, but on average, everybody still pays for what they get. The ratio of people paying in to people receiving payments is irrelevant.
Now suppose that you are the gov’t, and the payments are taxes. Also, the early recipients got more out of the system than they paid in. These are up front costs, but, since you are the gov’t, you do not have to make a profit. Besides, these up front costs, spread out over all of the eventual customers, approach zero per person in the long run. The ratio of people paying in to recipients at any point is still irrelevant, since everybody, on average, pays for themselves.
I think that you are referring to Social Security to pay as you go because these up front costs, which are being carried forward. That’s my guess, anyway. 🙂
A four page nutshell packed with willful ignorance.
Arne
do you think there is no point in cashing the Savings Bond your granny gave you when you graduated from school because you’ll just have to pay more taxes so the government will have the cash to give you for the bond?
RweTHEREyet: ““Trust funds can be useful mechanisms for monitoring the balance between earmarked receipts and a program’s spending, but they are basically an accounting device, and their balances, even if “invested” in Treasury securities, provide no resources to the government for meeting future funding commitments”
“That’s what effectively empty means… “
No, “effectively empty” means that the gov’t is going to renege on its obligations.
coberly: “because otherwise it sounds like “soak the rich.”
It doesn’t sound like “soak the rich” unless you use that phrase. And if someone else uses it, object. Object strenuously.
Min
re “soak the rich”
the details matter. if you are going to raise the cap you will need to be able to justify the amount of the raise so that Social Security still makes sense as “insurance,” for ALL those paying the tax.
If you raise it too much, or without that clear explanation, it will not only “sound like” soak the rich, it will BE soak the rich. the rich won’t pay for it, and it won’t be good for the workers.
trust me, the Big Liars will use the phrase “soak the rich”, however much you object. so you need to be able to show that it is not soak the rich but merely a fair premium.
currently a worker at the cap all his life will get a benefit that is just about what he paid in adjusted for inflation plus the general rise in wages.. an effective interest of about 5%l nominal or 2% “real.” I think that makes SS a fair “premium” for the insurance value.
Min
i think i sorta see what you are trying to say, but the way i see it is this:
you have a hundred million people paying 12% of their income every month into Social Security
you have fifty million people collecting that money in benefits. that means each gets 24% of the average wage.
if you had a hundred million people collecting that same money in benefits, they could only collect 12% of that average wage.
If you had 25 million people collecting that same money in benefits, they could collect 48% of that average wage.
if you decided 48% was too much, you could pay them 40% and put the extra 8% in a trust fund to earn interest to help pay the fifty million you expect to be collecting benefits 30 years from now.
but that would no longer be “pay as you go.”
coberly: “but that would no longer be “pay as you go.”
Well, as you describe it, pay as you go does not fit the insurance narrative, does it?
Min
of course it does.
you pay a premium so that you will get paid if the insured event occurs. since the insured event is (essentially) reaching retirement age without enough money to pay for an indoor retirement, and over half the population eventually arrives at just that circumstance, the premiums collected have to be high enough to cover that expense at that probability. the easiest way to do it is just to collect a straight percent of income as a “tax” and to pay benefits according to a formula that pays those who do well back as much as they paid in plus enough “intersest” to beat inflation and to match the average rise in wages over time, and pays those who do not do that well a sliding scale of benefits so that the “average” worker gets about an average return on the money he put in, and the poorest workers get enough “insurance” transfer to bring them up out of poverty.
looks like insurance to me.
Another thought to throw in: Workers do not support just retirees, workers support all non-workers. Retirees, yes, but also non-working spouses, children, and so on.
In terms of judging the economic “affordability” of SS, the relevant ratio is not worker-to-retiree, but worker-to-non-worker. And because average family size has been shrinking (and the number of two-earner families has been increasing), that latter ratio is expected to increase over the coming decades.
Sorry for the double post – Echo (which I despire) has been doing that to me sometimes.