North West Plan for Social Security Dan Crawford | January 14, 2013 1:51 am Note that in this table from 2010 a full fix is 0.6. And that the North West Plan is close to Options 2 and 3. Tags: Bruce Webb (Social Security), Dale Coberly Comments (11) | Digg Facebook Twitter |
The one with some “bang” is eliminating the cap, AND changing the formula (.9). This a “popular” option.
Say a guy makes $500k. Today, he and his employer pay 12.2% on 113k (Cap)net withholding = 13.8k. No cap, and FICA jumps to 61K, a four fold increase.
But even this massive tax increase does not really move the needle all that much.
None of the tax increase ideas will happen, neither will there be major changes in the the cap.
Changing the benefit formula? Maybe. But that would be a big blow to SS, as the term Entitlement would then be justified. So that option off the table too. The COLA thing does not seem to be very effective, and changing the ages is just a bad idea.
I don’t see the fix.
Krasting you highlight an option that closes 0.9 out of a 0.6 gap, which is to say a 150% ‘solution’ and then make the claim that “even this massive tax increase does not move the needle all that much”
Quite apart from the merits of that particular option (which for a variety of reasons I don’t support) how are we to take this ‘needle’ comment seriously? What percentage of solution would move that needle? Does it have to bend three or four times around the peg?
In fairness to BK the graphic lacks context or rather the explicit baseline.
Most technical discussions of SS solvency score the problem and so the fix in terms of percentage of payroll, which in 2012 SSA scoring is something above 2.2% . Whereas CBO is here using percentage of 75 year GDP, and at that using slightly more optimistic numbers than SS Intermediate Cost which instead would score that GDP gap at 0.7 rather than CBOs 0.6.
That said it is helpful to know what you are opining on before offering an opinion. Or risk having people firmly affix the Dunce Cap on your head.
First you have to remember that “the fix” on the chart is “0.6”. That is, anything that closes the actuarial deficit by six tenths of one percent of GDP “fixes” Social Security over the 75 year actuarial window.
Then note that Option 2, raise the payroll tax one tenth of one percent per year for twenty years “fixes” Social Security for the 75 year window.
Our proposal would raise the payroll tax one tenth of one percent, for EACH the worker and the employer, whenever the Trustees Reported “short term actuarial insolvency”… that is predicted that within ten years the Trust Fund would fall below one full year’s worth of benefits… that does not mean it would run out in one year, unless tax receipts stopped entirely. a more likely result would be a recession that cut tax income by 10% that lasted for ten years would deplete the trust fund…
There are two advantages to our proposal. First, it would solve the “problem” forever by setting up a mechanism that would guarantee solvency “automatically” and take all the drama out of the yearly “we are all going to die” forecasts. Second, it would solve the “problem” forever by raising the payroll tax a tiny amount at a time to eventually (after 70 years) reach a level (2% higher than today, for each) that would fund Social Security as far as the eye can see… over that famous infinite horizon.
So, Mr Krasting, I am sorry you can’t see the fix. But it’s as plain as a pikestaff for those as want to see it.
I do not like either “cutting benefits” OR “taxing the rich” for Social Security,but a small increase in the cap together with an increase in benefits might be seen by those who would be affected as a reasonable way to guarantee themselves a somewhat higher standard of living in retirement should something terrible happen to their other plans.
And a small cut in benefits might, if we were honest, give us time to see how horrible and stupid that would be… by “saving” us a few cents per week at the cost of thousands of dollars per year in what we would have to live on in retirement… and let us increase benefits before we actually kill anyone.
That is IF we were honest. The fact is that we are not honest, or smart. Cutting benefits would just lead the Big Liars to run around next year yelling about what a bad deal Social Security is, so we should privatize it. And of course, raising the cap, would just lead the Big Liars to around next year crying about the “massive tax increase.”
So I like the idea of a tiny increase in the retirement insurance premium, also known as the payroll tax, paid for by the people who will get the benefits.
Seems fair and reasonable to me.
in fairness to Krasting
he is somewhat like the drunk who wakes up and can’t remember where he left his car
so he goes back to the bar he last remembers
and looks around inside, under the tables, behind the bar, in the mens room… and the bartender asks him what he’s looking for.
“in here? wouldn’t it be more likely to be outside?”
“maybe, but this is the last place i can remember being.”
now, don’t tell Krasting, but his car is parked outside, with the keys in the ignition where he left them. trouble is, if he finds it, he is likely to hurt someone.
so let him keep looking in the dark.
As for “most technical scoring…”
there is no practical difference between CBO scoring and the Trustees scoring.
There is no meaningful “accuracy” to numbers based on 75 year projections, much less “infinite horizon.”
The beauty of the Northwest Plan is that it does not rely on 75 year projections. It simply adjusts the tax rate to match the spending rate in very tiny adjustments based on reasonable short term predictions.
The difference between driving to Chicago, and tying yourself to a ballistic missile and hoping your aim was good.
Of course at some time in the future the people, if honestly informed, could decide that the preferred a benefit cut to a tax increase and decide to forego the tenth of a percent increase that would otherwise be called for.
But that is a reasonable decision they might make according to the circumstances of their time. It is not an insane “we have got to fix it now forever even if that means killing it based on predictions about what people will be doing a thousand years from now” which is what the Congres and Our President are trying to do to us.
With the help of such non partisan experts as Krasting… you remember, the guy who can’t find his car in the bar because it’s too dark to see in there.
We look at things so differently. You with a 75, (or even an infinite) horizon.
I look at the next ten or fifteen years. You see a “fix” in your time span. I say it does not move the needle in my time span.
We will never agree on things as a result. We will, at some point, find out who is right or wrong.
From the look of things, any “fixes” will be driven to long term changes in COLAs and ages. (the 75 year view)
That will “cement” the outcome of the next 15 years.
I don’t see how all of TFs can get run down in such a short period of time. We shall see.
actually i look at the long and the short view. you apparently did not read what i wrote in reply to your last comment.
a raise in the payroll tax of eighty cents per week per year starting now, or starting in about 2018 and repeated each year the Trustees Report “short term actuarial insolvency” will solve the Social Security “problem” forever. Note “now and forever.” Both short term and long term.
No need for coked COLA’s or killing retirement ages.
It’s not so much that you “look at the short view”: it’s that you don’t know what you are talking about.
“In Fairness to Krasting”
neither does Our President.
If Mr. Krasting is looking at the short term (10 to 15 years) there is no problem with SS as the trust fund will be fully funded until then.
In that case, there is no reason to propose a long term (>15 years) SS funding solution.
Please help me, I am confused.
Krasting thinks that the government paying back the money it borrowed from Social Security is a crisis.
The government will have to find the money somewhere, you see, or borrow it from someone else.
Oh, god, how can the United States of America ever hope to find that kind of money?