SOCIAL SECURITY AIN’T BROKE
by Dale Coberly
SOCIAL SECURITY AIN’T BROKE
A Reply to Linda Beale
I want to take advantage of Linda Beale’s essay “Social Security: It Ain’t Broke Unless China is too” to make some points of my own. I want to be clear at the outset that I am grateful to Linda for her essay. She is essentially right. My comments are secondary. It’s not a case of my disagreeing with Linda, but of having something to say that I hope will help people understand the Social Security “question” a little better.
I am going to assume the reader has Linda’s essay in front of him.
First, I don’t agree with Krugman: you CANNOT think of Social Security as “part of the budget.” I don’t know how the government talks to itself about this, but they sure went to a lot of effort to segregate Social Security funds from the budget with a payroll tax and a Trust Fund. . You don’t have a “trust fund” if the money is fungible.
We once had a reader at Angry Bear point to a CBO “paper” that said because SS funds come into the Treasury like other taxes, they cannot be regarded as separate from those other taxes. The money is not “marked” so you can tell SS money from other money. This is a lie. The government is quite capable of keeping track of where the money comes from and where it is dedicated by law to go. So be warned, there are experts, even in the heart of CBO who are quite willing to lie to you if they think they can get away with it.
Second, i don’t like the usage “workers pay… to support [past workers, current retirees] who paid into it in the past.” While this is technically true, it is misleading. Those current retirees DID pay into SS in the past. They paid for their own benefits. Pay as you go is merely the very clever way the first cohort’s payments are protected from inflation, and earn interest, without being exposed to the risks of the market, so they can be returned to the taxpayer in time to help pay for his retirement. It is critical that people understand that the workers pay for their own benefits. It is NOT “the young paying for the old.” When they figure your benefits, they look at what YOU paid in, not what your son is paying in.
Like a lot of things in life, both ideas are true here. We are paying for the older generation, just as the next generation will pay for us. But at the same time we are paying directly for ourself. The money we pay is recorded against our name. Just like in a bank account.
Third , you’ll get some disagreement about when the Trust Fund was created and what for. Beale is essentially right about the present Trust Fund being created to allow the boomers to pay in advance for the part of their own retirement benefits that would be needed in excess of normal pay as you go. The trust fund was there at the beginning as a simple way to buffer income against outgo, both for normal monthly ebbs and flows, and for the occasional recession when taxes collected would fall short of benefits “promised.” But the ’83 Social Security Commission knew the boomer retirement was coming, and the tax rate they set at that time “just happened” to result in a Trust Fund large enough to bridge the boomer retirement. This is the point we have reached today. A long expected point, in spite of the liars screaming that SS has gone “cash flow negative.” SS has not gone “negative.” It’s cash flow includes interest, and eventually principle, from the savings it generated exactly for this purpose.
Fourth, I don’t agree with Beale that there is NO “problem.” The Trust Fund is not the problem. The problem is that as people live longer, they will need to devote a higher percent of their earnings to their retirement.. OR not retire as young, OR live on less when they do. I don’t think any sane person would choose options 2 and 3 when option 1 is so cheap. But it IS a “problem,” a very small one once it is understood, which is why the bad guys work so very hard to prevent your understanding it. You, the young, can insure your own future retirement with no increase in retirement age or cut in monthly benefits simply by raising your own tax… really your own savings rate… one half of one tenth of one percent per year, or about forty cents per week in today’s terms. This is an enormously better solution than not letting people retire when they are old, or cutting their benefits below survival levels, or taxing the rich and turning Social Security into welfare as we knew it.
Fifth.. the Trust Fund treasuries will indeed run out some time around 2030 or 40 or 50. It is a fatal argument to tell people don’t worry be happy. Even “the young” can see that they will be taking a benefit cut when they retire if nothing is done. Their problem is they don’t know they can avoid the benefit cut by raising their own “tax” by an amount so small they would not even notice it.
Default or not Default is not the question. Default would just move up the day when the tax needs to be raised, but would make no real difference in justice to anyone. And the lying bastards won’t default in a way you could bring them to court for. They will just cut benefits one way or another so the TF does not have to be paid back in a time inconvenient to themselves. They CAN do that. And that is the extent to which Uncle Sam borrowing from himself IS a problem. But it is not the problem that the liars say it is. Uncle Sam will have no problem finding the money. In fact, i don’t think the liars really care about the money. What they really want to do is destroy Social Security. They hate it because they hate the idea of “the help” being idle. They can’t imagine you might think you have something more important to do with your golden years than work for them.
Sixth.. The liars claim that the iou’s are meaningless is based on their idea that the government has to tax the people to find the money to pay the people. This is a confusion … we are not all the same person… but it is one they probably sincerely believe, and it isn’t helpful (to them) for us to miss the point. It needs to be explained. The money is owed to the people who paid their payroll tax on the understanding that it would be used to pay for their retirement. It will be paid by people who did not pay that payroll tax, and who presumably benefitted by borrowing the money. They will not be paying twice for their Social Security. They will be paying for the first time for what their government bought with the money they borrowed FROM Social Security. The rich know that it is THEY who will be taxed to pay back the money they borrowed from Social Security. And they are just short sighted enough to stop thinking right there, especially as they can rationalize that the money was borrowed not by them but by “the government” whoever that is. But since they hate the government, they can pretend they have no obligation to pay it’s bills just by pretending they got no benefit from spending the money.
Again, I want to think Linda for her essay, and I hope this helps.
It’s funny that a sovereign wealth fund with $2.6T+ in assets is considered “broke” by some.
What a mess this decade and next is going to be. We were supposed to have our s- together by now to handle the baby boomers hitting 65 and getting their New Deal & Great Society goodies.
Instead . . .
The only debt obligation that US citizens really have a vested interest in honoring is the one they’ve contributed to and own … via earmarked SS and medicare taxes: the SSTF and MCTF.
The vast majority of citizen bond holders of this fund really want that 75 year old earmarked tax-funded debt obligation to be honored.
As for the rest of the US debt holders, maybe the former congress people who borrowed the money should be held liable. (Likely the vast majority of citizens would agree with that approach.)
Maybe a new money system of Social Security Trust Fund based SSTF dollars verses Congressional C dollars could be developed – the former being backed by the labor, wages, and wealth of US citizens and corporations and the latter one, segregated from citizen SSTF dollars to a lower value, but squarely backed and honored by the full faith and wealth of the former congress people – who borrowed the money.
The new arrangement would immediately extricate the US citizens from the power of the too big to jail GS element which has the all important task of rollover management of the massive C dollar (and now former congress people responsible) debt market.
Oh yes, and when the large predatory Glass Steagallless Banks who own those underwater mortgages go bust and disappear – because they no longer make enormous profits in the GS C-dollar rollover shell game scheme – the enserfed citizen’s debt obligations on those underwater mortgages disappear….
How about them apples for a debt jubilee and a reboot to the system.
“Like a lot of things in life, both ideas are true here. We are paying for the older generation, just as the next generation will pay for us. But at the same time we are paying directly for ourself. The money we pay is recorded against our name. Just like in a bank account.”
This is a point worth repeating repeatedly. Every year since 1999 the Social Security Adminnistration had been sending to all SS participants over 25, but not yet retiredm an accounting of their salary history. At least they did that up to recently. It started in 1999, see here: http://www.ssa.gov/pressoffice/statement.html but this statement(http://www.socialsecurity.gov/budget/2012Testimony508Compliant.htm) issued earlier this year, in the midst of the congressional budget hysteria, Michael Astrue, Commissioner of the Social Security Administration explains why it was too expensive to continue this useful function as well as other ways by which SSA was containing its costs. Regarding the annual statements:
“Each year we send Social Security Statements to non-beneficiaries who are over age 25. These annual Statements cost us approximately $70 million each year to print and mail. In order to conserve funds, we will suspend the current contract and stop sending out these Statements. Individuals contemplating retirement can get real-time information about the amount of their benefits on our highly regarded Retirement Estimator, available on-line at the Social Security website: http://www.socialsecurity.gov. Field offices may also provide Statement data. After we negotiate a new contract, we will send Statements only to people age 60 and over and people under age 60 upon request. We also are working on making the Statements available online.”
In effect the annual statement had the effect of alerting all participants to the reality of the program which is clearly contrary to the lies being perpetrated by the SS Is Solvent deniers. Each worker could see in a concrete way that they were paying into a system that sent them an accounting each year of money paid in and eventual retirement earnings and how the two were linked together. The statement highlighted and emphasized the connection between FICA paid in and eventual benefits received. It de-emphasized the pay-go characterization of the system. So n ow those statements are discontinued because of “budgetary constraints.” The continuing effort to destroy the system is more incideous than is apparent at first glance. The reductions in SSA’s administrative services outlined by Mr. Astrue (an interesting name for an individual in his position) are indicative of an end run attack on the integrity of the system.
How.. TYPICAL that you are focusing on maintaining your own quality of life as the quality of life of everyone else implodes.
Enough being conned.
lets see, 70 million dollars… that’s about fifty cents per taxpayer. yes, surely we can’t afford such waste.
It is a little hard for me to see how you arrived at your brilliant assesment. Here I thought I had disguised my selfish interest by pretending to defend the right of a hundred million people (per generation) to save their own money for their own retirement.
I did not expect you to see through my disguise and realize that I was selfishly preserving my own quality of life by keeping those people from spending their life savings at Wal Mart or the corner liquor store.
You might be interested to know that Social Security was made “involuntary” just to prevent really intelligent people like yourself from giving their money to the man in the suit with the sure thing on Wall Street… that is if they could walk past the liquor store without taking home an extra six pack for the game.
Dale as always I agree on the overall points.
But I think you did Krugman a disservice here. He was simply pointing out a logical contradiction in critics’ arguments and not advancing his own theory that funds are fungible as such. It is instead a matter of how the Biggs’s of this world, I.e. professionals who actually know better choose to frame the argument.
Actually, I think maintaining social security is critically important to maintaing any vestige of the way life has been in this country and I would argue that the pundits and politicians including the President who “pick” on social security have knocked a point or two off the GDP by scaring the elderly and soon to be elderly into deferring consumption.
I thought Krugman was laying out a “logical” argument, and I understand the point. I just wished to make sure that people understood that “even if it’s part of the budget” is contrafactual.
And now I need to emphasize that Biggs et all “know better” means “ought to know better but are lying about it.”
I think you are right. One point I have tried to make … to no great acclaim … is that all those people who are sure they don’t need Social Security because they are going to be rich… don’t understand how hard it is going to be to get rich in an economy where the old are starving and the young are desperately afraid of starving when they are old.
If by “defending my right to save” you mean putting a loaded gun at my head,and saying “Maintain my standard of living or else!” then yeah, you are a real hero.
But keep lying. If the old people lied less, then young people would REALLY hate you.
The Robber Barons did it in that kind of economy. And that’s where were heading.
help me reconcile, “we are not all the same person”, with which I wholeheartedly agree, with, “The rich know that it is THEY who will be taxed to pay back the money they borrowed from Social Security. And they are just short sighted enough to stop thinking right there, especially as they can rationalize that the money was borrowed not by them but by “the government””
The rich of 1987 are different people than the rich of 2017. And the rich of 1987 who invested in municipal bonds and live off of that interest income, or in Roth IRAs and live off of that income or borrow from their whole life insurance policies – all of which is untaxed are very different from the high income earners in 2017 who are earning W2 income and on whom most of the left is talking about raising income taxes. The rich of 2017 may have benefitted from the government investment that was made from 1983-2017, but [aside from SS and MC, which I generally agree with your views] it’s not evident their benefit from transfer payments.
You left out significant sources of the truly wealthy individual’s income. Capital gains and, better yet, dividend income from “qualified” corporations. Virtually any publicly owned corporation is of the qualified variety and that income is topped out at 15% for taxpayers with other ordinary income. Of course if you have suficient dividend income as to preclude the need to work for ‘earned” income you may end up at the zero % rate on the dividend income. That has been the case for the past three and the next one year. That’s a huge loss in tax revenues and available mostly to the wealthiest people. I don’t say the wealthiest tax payers as they are likely not to have paid any taxes. The qualified dividend advantage is scheduled to expire for the 2013 tax year, but so too was it due to expire before. Don’t count on such an expiration. It’s worth too much to the very wealthy.
it’s a little like if your dad spent “his” money on fast cars and easy women instead of building a house he could leave to you. you might be mad at your dad, but you’d still have to pay “his” bills before you could inherit his estate.
even if “we” were the same people who lent the money and borrowed the money and now have to pay it back to ourselves (this is not true, but “even if”) since we would be getting “our own” money back, it is hard for me to see what you (we) have to complain about.
but here is the real explanation… back in 1983 and for the next 30 years plus or minus it was apparent that the boomer retirement would have an “unfair” effect on the post boomers while giving the boomers a windfall: because of their larger numbers the boomers would pay a smaller per capita payroll tax to “pay as you go” for their parents generation, and then require a larger per capita payroll tax from their childrens generation to pay for their own larger numbers. the simple honest solution was to raise their own payroll tax and set the “extra” aside to help pay for their own retirement… the amount they would need above the pay as your go rate for a normal size generation.
so what to do with the extra while waiting. simple, lend it at interest in the safest investment known to man… US Bonds. The government borrowed the money to pay for things it would otherwise have had to raise taxes to pay for. Since “only rich people pay taxes” the tax cuts went mostly to the rich. it is assumed these rich invested their tax savings and now have lots and lots of money to pay back what they effectively borrowed.
or their kids do.
in any case the money was used to pay for things that made the country richer and stronger… the reagan arms buildup, the bush war in iraq, stuff like that. so “all of” us are richer because the extra money was availble… that’s what people borrow money for.
now that it’s time to pay back the boomers, the mostly rich general taxpayers have the money to pay back the money they borrowed… but they don’t want to give up their tax cuts. they’d rather welch on the debt as long as they can fool themselves with dumb lies about how its really Social Security that is “the problem.”
i hope that’s clear. by the way there are no transfer payments involved. here. remember the boomers paid for their own retirement benefits. the “rich” who need to pay back the Trust Fund will NOT be paying “for” Social Security… they will be paying for the Reagan arms buildup and the iraq war and all that stuff they bought with the money they borrowed FROM Social Security.
You’d understand this better if you ever ran a business and borrowed money and then had to pay it back.
The United States is just like a business. Your choice about how much to pay and what to spend it on is made when you vote for you “leaders.” And if your leaders are stupid… well, it’s like choosing a stupid father.. you live with it. Or you could move to Somalia.
But, let me try to be clear… I am not saying that the choices our leaders made were bad… only the lies about Social Security are bad… just as a matter of arguably necessary spending and financing I don’t see any problem at all with Social Security and the Trust Fund.
just the stupid lies the “right” is telling itself and us to confuse us while they destroy the last chance that working people have of retiring while they have enough life in them to enjoy it.
you’d understand it better if you ever ran a business…
or if you inherited the business from your dad and had to pay back the money he borrowed…
question is did you inherit the business or did you inherit the debt?
if you answered “both”. congratulations you are smarter than every member of congress and all of the Presidents advisers.
let me add, because i worry i didn’t make it clear enough before: arguably if you live in the united states of america you profit from what your government does to make “commerce”, well, more profitable. if the government does a bad job, then you profit less, or perhaps see your money “wasted.” all that is just part of the business of living.
“the rich” don’t mind so much when the government profits them, but if they see the government profiting someone else… even if only by paying what they owe… they work themselves into a fit of self pity.
i can’t convince “the rich” that they profited from the money their government borrowed FROM Social Security, but maybe I can convince them of the FROM part. more than half these people think that SS borrowed the money and is now digging the country into debt.
meanwhile i wish “the rich” would stop and think how rich they’d be if “the poor” had no money to spend… or no way to save it, safe from inflation, for their own old age. or if people had no faith in the government paying it’s bills.
these morons run around flailing because moody’s might down greade the United States of America, but then turn around and say “let’s prevent the downgrade by welching on our debts.”
or lets “solve the deficit” by cutting Social Security which has contributed not a damn thing to the defict and never will.
i can’t cure these people of stupid greed (greed by definition is wanting money to the point where you get stupid about it), but i’d like to cure them of being so stupid they lie to themselves about the verifiable facts.
Only the first $34,000 is taxed at the 0% rate the rest is taxed at the 15% rate. Please take the time to look at the tax code before repeating this nonsense.
“Fourth, I don’t agree with Beale that there is NO “problem.” The Trust Fund is not the problem. The problem is that as people live longer, they will need to devote a higher percent of their earnings to their retirement.. OR not retire as young, OR live on less when they do. I don’t think any sane person would choose options 2 and 3 when option 1 is so cheap. But it IS a “problem,” a very small one once it is understood, which is why the bad guys work so very hard to prevent your understanding it. You, the young, can insure your own future retirement with no increase in retirement age or cut in monthly benefits simply by raising your own tax… really your own savings rate… one half of one tenth of one percent per year, or about forty cents per week in today’s terms. This is an enormously better solution than not letting people retire when they are old, or cutting their benefits below survival levels, or taxing the rich and turning Social Security into welfare as we knew it.”
Sorry to get all numerate and all, but really, 0.05% is less than a rounding error. These projections are not all that accurate. If your problem is 0.05%, you don’t really have a problem.
The gap is 2% of payroll per SSA about 33% less per CBO. A phased in solution over 20 years buffers that plenty and gets you down to that 0.05% per year employee borne split, but it is not an error rounding thing in aggregate.
Couch change yes, but still significant if you look t dollar differences from the baseline in year 20. I am more willing than Dale to entertain more optimistic outcomes and embrace the probability bands but it makes perfect sense to adopt the Trustees’ numbers and plug in fixes commensurately. That is the fixes can always be ratcheted down easier than ratcheted up.
i am not sure who you are being sorry to. half a tenth of a percent is nothing any sane person would notice each year. but it does add up. over a lifetime of paying the tax increase the average worker would see… actually he wouldn’t see it, he would pay… about one half of one percent more than if the tax had not gone up.
and being as sorry as you to get all numerate and all.. the way that works is that after forty years the tax would have gone up two percent, the worker would pay half of that, or one percent, but that’s the last year: on AVERAGE he would have paid half of that per year… or one half of one percent.
on the other hand the projections are the best we have, and if we are going to want to pay the extra… in order to get the extra benefits we will need to live a longer, better retirement… we probably ought to start paying that “rounding error” increase right away, just to make it completely painless.
and if it looks like we won’t need it after all, we could decide to pay it anyway and just have higher benefits, or stop paying the increase, or actually cut the tax if we decide that after all we need the extra forty cents per week for something really important RIGHT NOW.
but don’t wait for the President to explain this option to you. He went to Harvard.
and i should emphasize there are a number of ways to “solve” this small problem. i try to stick to the Trustees intermediate numbers just to keep it halfway simple. the other options all come to the same thing in the end.
none of them requiring cutting benefits, raising the retirement age, means testing, or even taxing the rich.
Bruce Webb: “The gap is 2% of payroll per SSA about 33% less per CBO. A phased in solution over 20 years buffers that plenty and gets you down to that 0.05% per year employee borne split, but it is not an error rounding thing in aggregate.”
So what you are saying is that the tax rate increases by 0.05% of income per year every year for 20 years, not that there is a single tax rate increase?
as Bruce points out.. “low cost” is still out there. and given the Trustees and others willingness to fudge a little i wouldn’t count it out. but even high cost is payable, and not paying it would be worse. far worse.
the point is that it’s what it costs the worker to pay for a retirement should he need or want one at a reasonable age. without social security he’d have to rely entirely on the stock market or the charity of the rich. me, i don’t like to play russian roulette.
You may be correct, but it is not clear from the IRS instructions or code that the $34,000 is the earned income amount after which dividends are 15% taxable. Please provide greater clarification. Even if taxed at 15% that is a good deal below what the aveage tax payer is paying. And what about capital gains?
I did not expect you to see through my disguise and realize that I was selfishly preserving my own quality of life by keeping those people from spending their life savings at Wal Mart or the corner liquor store.
You are a swell guy.
It doesn’t matter what I say. It doesn’t matter what you say.
That glorious band of brothers and the Boomers have wrecked things so spectacularly that you are merely attempting to rearrange deck chairs on the Titanic.
In a completely selfish way, of course, but then again, if you didn’t that this wouldn’t be PERFECT.
The tax on capital gains & qualified dividends are treated the
From the Qualified Dividends and Capital Gain Tax Worksheet in the
1040 instructions, line 11: Income taxed at 0%, the largest number this can be for a single taxpayer is $34,000. It is further redused by the amount of ordinary income you receive. Or boiled down line 11 is given by the following simplified formula:
0% bracket = min(Taxable Income,($34,000 – Ordinary Income))
For example a single person earning $200,000 from dividends only
From the Qualified Dividends and Captial Gain Tax Wooksheet
1. Taxable Income 190,500
2. Qualified dividends 200,000
3. Capital Gains 0
4. Gains & Dividends(2+3) 200,000
5. Investment Expense 0
6. Net Gains & Dividends 200,000
7. Ordinary Income (1-6) 0
8. $34,000 if single 34,000
9. Smaller of 1 or 8 34,000
10. Smaller of 7 or 9 0
11. income taxed at 0% (9-10) 34,000
12. Taxable Gains & Div min(1,6) 190,500
13. line 11 34,000
14. income taxed at 15% (12-13) 156,500
15. Tax (15% * 14) 23,475
16. tax on ordinary income 0
17. Total tax 23,475
18. Tax on line 1. 48,031
19. Total tax on taxable income 23,475
yes, the robber barons know how to take care of themselves. i am talking about the little “businessmen” and “financial advisers”… and all the others who just know they are going to be rich some day.
The worker need not rely on the stock market. He could invest instead in Government bonds. These would be guaranteed by the full faith of the US government. A quick calcuation of what a worker would need to save to replace what social security provides can be done and you will find that it is approximatly :
Using IBonds at a real rate of return of 0%.
33% for the first $9000
12.0% for between $9000 and $54000
5% for between $54000 and the cap ($106,800)
the current rate for the old age portion of OADSI is 10.6%
So it would be a severe hardship for low income workers, and it would probably be a net gain for workers making over $75k.
The disadadvantatge is that IBonds are only inflation protected and not wage growth protected. The advantage would be that congress could not take it away without a general default.
Yes CBO scored a 2% over 20 year boost as backfilling 100% of the gap or a combined 0.1% or 0.05% per employee and employer per year. They also scored a 3% over 60 year version which would cut those yearly boosts in half while solving 5/6th of the gap (and just continuing at that rate for the rest of the projection period gets you home).
At that point in time CBO had the 75 year gap at 0.6% of GDP where SSA had it at 0.7%. Since Dale and I conservatively use the harsher SSA numbers and spread things out more the yearly amounts prorate out a little higher overall even as you need a smaller front end boost of around 0.3% for the first 25 years.
But to cut to the chase 0.1% combined per year for 20 years puts you in the game.
Well no Congress can always “take it away” by adjusting the payout formula or embarking on an inflationary policy course. Of course the latter course would effect any 401(k) based plan as well.
In the end Full Faith and Credit as it relates to either the Special Issues currently held by the Trust Funds or some theoretical TIPS ‘personal’ account system is backed up by the will of the people to exercise their democratic rights at the ballot box, in practical terms you have no other ultimate legal recourse against the government should they choose to change the rules of the game.
As indeed they have in recent decades. Hence the 99% Movement.
IBonds and TIPS are protected against inflation.
I think the supreme court would way in if congress would attempt to selectively default on TIPS or IBonds. Therefore it takes more than just an act of Congress. However it has been shown in the past that Congress alone has the power alone to adjust the payout of SS. So in theory the Congress alone can adjust the payout so that no Special Issues need be redeemed. There is a big difference here. Anything is possible, but you must agree that it is much more likely that Congress will adjust the payout of SS than the Supreme Court would allow a selective default.
you forget that SS is insurance. what happens if your “sure to be rich” person who has happily been paying 5% for twenty years gets a stroke, or has his job shipped to china?
and those “inflation adjusted” bonds rely on some politicians idea of what inflation is. wage indexing is a good deal more honest.
and of course with your plan you would have “the rich” paying a five percent tax, and the poor paying a 33% tax…
i really wish instead of trying so hard to engineer a system that benefits yourself marginally you’d just try to understand how SS as it is benefits you … you get a decent return on your money, you get insurance “just in case,” and you get to live in a country where the elderly are not starving.. and even if that doesn’t appeal to you ethically, you should take some thought to what would happen to the economy that makes you rich when the people can’t afford to buy anything or are desperately afraid of poverty when they get old.
it seems to me that in order to avoid the risk of a congressional default on the Trust Fund… a risk which I have argued elsewhere really doesn’t amount to any real loss to any payroll taxpayer who would… if they left the pay as you go part alone… get all the benefits he paid for..
but in order to avoid that risk you are envsioning a system where all workers below about 75k would pay MORE than they do for SS, catastrophically more for the very low income workers, and even the high income workers would have to religiously pay into a low earning I Bond 5% of their income just to break even?
and would they break even? Trustees Report that a person earning at the cap his whole life will get a replacement rate of 26%… that’s wage adjusted. if he paid in 12% (or 10% if we allow for Disability Insurance) and lives about twice as long as he paid in… say about 20 years after retirement.. he would get his money back adjusted both for inflation AND for wage growth over the forty years he was paying the tax. that looks like about a 2% real return or 5% nominal… and last time i looked at I bonds they weren’t even close to that.
and here’s the thing: it is easy enough to find one aspect of SS that if you look at with one eye looks marginally less good than some theoretical alternative. not only are we not in a position to examine that one aspect carefully here, we need to remind you that it is the whole “problem” that needs to be solved, that SS solves..
unless of course we let the Big Liars fool us into giving up the only way that working people have to save enough of their own money for their own retirement safe from inflation and market losses and personal failure to thrive and even an all too human failure to “save enough.”
you have a system that “taxes” you an amount you never notice…. not just the expected raise i am talking about, but the whole tax… when you are working in order to provide you enough to live on in modest comfort when you can no longer work.
or you can play the market game and take a lot of Tums.
i don’t want to sound too hard on the market game. i ended up playing it myself and got lucky. but since i got out, other people don’t seem to have been so lucky.
and meanwhile if the congress changes to chained-CPI for SS, what happens to the “inflation rate” for I bonds. seems that congress could reduce that with the same argument and the Supreme Court would have no reason to notice.
it seems to me that in the process of correcting jack’s technical error you make his main point for him.
Bruce Webb: “At that point in time CBO had the 75 year gap at 0.6% of GDP where SSA had it at 0.7%.”
75 year gap? (!)
You know, I see the graphs of such projections from time to time. Typically, things are fairly well behaved, and then all hell breaks loose. Closer inspection reveals that the hellish part of the graph is some time in the future. You can only tell that from the year numbers at the bottom of the graph. Otherwise, there is nothing in the graph to distinguish actual data from projections. These graphs never, I repeat, never, have error bands, nothing to indicate how good (or bad) the projections are.
As we have seen, economic projections and predictions, only one or two years into the future can easily have relative errors greater than 10%. It would be interesting if these graphs provided past projections, so that we could compare them to actual data. Realistic error bands would reveal the absurdity of 75 year projections. Yes, there is some value to making projections, even when the future is uncertain. But in such cases they can serve only as a rough guide. Attempting to thread the needle is misguided.
As I have said before, GIGO! GIGO! GIGO!
yes. keep in mind that wages are projected to increase by 1.1.% every year.
attempting to thread the needle:
that’s why there is a very good plan proposed by Bruce and myself to raise the payroll tax by one tenth of one percent (each) if and only when the Trustees Report short term actuarial insolvency (meaning that they think that in ten years the Trust Fund will fall below “one year’s” reserves.. that’s actually more like a ten year reserve assuming taxes came up 10% short of benefits every year).
this would “fix” SS only when and if needed, and would avoid the yearly “we are all going to die, we are running out of worthless iou’s” headlines in the newz.
but you never hear about this plan because the right wants to privatize SS, and the left wants to turn it into welfare as we knew it.
As coberly points out you make it abundently clear that the tax rules regarding dividends and capital gains is heavily weighted in such a way as to give the wealthiest income unearners a huge tax break. Note that we are now acknowledging that 15% is the maximum rate and as much as $68,000 is shielded for a family return. So if we take your $200,000 example as a family’s dividend income the tax is $19,800, or just under 10%. So how is that their fair share? Legal, yes. I’d be curious to know how many members of the Congress benefit from this provision of the law? Or are they only complete lackeys to the One Percenters?
actually, this is what i hate about talking to people about numbers. as soon as they “see” that a half of one tenth of one percent per year adds up to two percent after twenty years they say o y god… a two percent tax raise. because they can’t keep track of the rise in their income, and the rise in their retirement needs over the same time. they unconsciously compare that future tax to their present income, and of course they have NO future needs.
look at it this way, by the time that increase in the payroll tax reaches four dollars per week, your income will have gone up eighty eight dollars per week. and you will get the four dollars back plus interest when you retire and are really gonna need it.
but of course, if you really need that extra six pack RIGHT NOW…
in other words the worker need not rely on the stock market, he can invest the first third of his income in I-bonds.
Exactly. He would have to do that if he wanted the 90% replacement rate of his income. Of course that would be very bad if not impossible for him. He (and his employer) currently only pay 10.6% for this feature. Or in other words his return on his money invested in SS is much higher than his higher earning comrades. This is the progressive feature of SS. This makes sense because it is more likely that he will need the higher replacement rate of his income to survive.
in some other forum we might find we were agreeing with each other.
i am a little raspy because our friends in washington are pulling down a program that saves most people from poverty in old age and hurts no one. and they have nothing sane to put it its place.
emphasis on sane. listen to these guys and you have reason to fear for the future of this country.
The Summaries don’t, the Full Reports do have extensive probability analysis of the alternative projections. I have just never seen a media figure get beyond the 15 page Summary that doubles as a Report Imtroduction (mostly).
Special Issues are effectively inflation protected over the life of the bond. That is the flip side of them being unmarketable, their yields are set at issuance and don’t move with price. Up or down.
The Supreme Court might step to protect the individual issue, Special or not, but it is not likely to balk at changes in tax treatment of subsequent ones.
don’t let that “90%” fool you. it is just an arithmetic trick to get a basic survival benefit. it would be 90% on the first 600 dollars a month (lifetime average adjusted real wage). if the worker only averaged 600 a month over his lifetime, he would have made about 7000 per year or about 3.50 per hour. one third of the minimum wage.
once you start looking at a more realistic “low wage” of about 1600 a month, you get a benefit of 550 (90% of the first 600) plus 300 (30% of the next 1000)… for about 850 per month or about a 50% replacement rate…. note i have deliberately left these numbers “rough” because i hate false precision in these things.
a person can live on 850 a month. not large. not easy. but doable with a degree of dignity if they know how to manage gentle poverty. i think we can aspire to provide that for the folks who do our economy’s dirty work because they don’t happen to have the market leverage that currently in demand skills would give them…. not that their work is not needed, but that it just isn’t paid very well.
but no one wants to work at minimum wage, so there is not much gaming in order to get this windfall 50%.
as it turns out, those folks at the other end of the scale get about a 26% replacement rate… on an investment they never missed unless they are the sort of person who broods excessively on money.
since they paid in at 10% for 40 years and they expect to live about 20 years they will more than get their money back… adjusted for inflation and average growth in wages. so a pretty fair return for a perfectly safe investment that also has the value of giving them a better… and richer… society to live in.
anyone who is sane knows that with an income of 100 k or better… or even a lot worse… it is only a matter of chance that their income… with the same effort and intelligence on their part… is not 10% lower or 10% higher.. a difference they would never notice… so it is strange to hear them complain about tucking away that 10% “in case.”
but everything we hear these days is strange.
the congress is willing to cut Social Security below survival levels in order to get a temporary raise in some taxes. but Social Security has nothing to do with the deficit. so they are only cutting it as a political trade to people who hate social security for reasons having nothing to do with the deficit, or even their own money.
kind of like… if you throw some money over the cliff, we’ll throw our grandmother over the cliff, just to share the pain.
So, there are facts that are facts in a sense that (setting aside issues of relativity) are not open to dispute. Tides are the result of the gravitational pull of the moon and sun…that sort of thing. Then there are accounting issues. Accounting systems are arbitrary human creations, but within the rules of accounting systems, much can be said to be clearly one thing and not another. Other things are open to different accounting treatments – options exist. Sometimes, more than one accounting system exists, and the arbitrary rules under one system do not fit in another system. Taxonomy works that way, too. The list of arbitrary, human-created systems is probably quite long.
Coberly tells us that some things are “technically true” but misleading. It’s obvious enough that something can be true within one accounting system but not within another. But how can something be both true and misleading? It is either true in the sense that the gravitational pull of the moon and sun cause tides, or it is true within an accounting system, but perhaps not in another. In Coberly’s usage, “misleading” appears to mean “leading away from Coberly’s view of things”. Similarly, Coberly rejects the very possibility of thinking of Social Security within the budget. You “CANNOT” think that way. (Those are Coberly caps, by the way.) But of course, you can. Krugman did. Others have. But don’t do it, because Coberly doesn’t want you to.
And there’s the whole “liars” business. Well, one must be lying if Coberly disagrees.
The thing to keep in mind is that Coberly has been demanding his own view of Social Security – his accounting system, his definitions, his understanding – to the exclusion of any other view for some time. The reality is that we are not dealing with laws of physics here. We are dealing with abstraction, arbitrary definitions, choices among accounting systems. What Coberly is doing is what many partisans do. He’s insisting on his own definitions and his own rules for debate. That’s a pretty good scheme for winning a debate, but the debate that’s won is hollow. It excludes other valid interpretations, refuses others’ views. This essay has some worthwhile points, many of which are made in agreement with points that Linda already made. Most of what is not drawn from Linda’s essay, though, has the same goal that Coberly has been pursuing for some time. Coberly wants us to limit our understanding of Social Security to the Coberly-approved version.
Just to be clear, I agree with Coberly’s politcal goal. I just think his method of argumentation is a joke.
Just a reality check for you folks. The one thing that will not happen is a tax increase for SS. That is not in the cards.
So you can tell us how great things would be if we raised SS taxes every year for the next twenty and it just doesn’t matter.
If the people who have invested into, and are currently investing in, Social Security want to see a return, entitlement reform will have to happen, and it will have to happen now. The federal health law, which will expand coverage to 30 million currently uninsured Americans, will have little effect on the nation’s rising health spending in the next decade. Health spending will grow by an average of 5.8% a year through 2020 (http://eng.am/nE0nnN). Currently Social Security and Medicare use 8.5% of nonentitlement revenues (federal revenues dedicated to all other programs besides the two). By 2020, the deficits will grow to almost 25%. This means that within 9 years, in order to pay projected benefits to retirees and the disabled, the federal government will have to stop doing about one out of every five things it does today (http://eng.am/poetWU). The federal and state governments are projected to spend $466 billion on Medicaid this year, with costs rising about 8% a year (http://eng.am/ppUTp1).
All of the following solutions will substantially eliminate these problems: Reducing benefit payments by 5% AND increase the retirement age to 70 over time; increasing both the employee and employer contribution immediately by 1.1% for income up to $106,800 (its current limit); reducing benefit payments by 5% AND increase both the employee and employer contribution immediately by 0.05% each year for the next 20 years for income up to $106,800 (its current limit); removing the $106,800 limit and count all income towards the SS tax; decreasing the cost of living adjustment by 1% per year AND raise the retirement age to 67; or taxing income over $106,800 at 3%, index the retirement age to longevity AND decrease cost of living adjustment by 0.5% (http://eng.am/oTlck2).
Well said, Mr. Coberly. Btw Mr. PT Barnum, I know the writier’s standard of living. I doubt you live on less, or would be willing to live on less. Your computer no doubt plugs into the bridge under which you live? We all deserve to partake in SS and have our basic needs met in our old age.