“Social Security is the Most Effective Anti-Poverty Program in the U.S., In One Chart”
EPI’s Elise Gould reports on the impact of Social Security as a safety net keeping another 25 million people out of poverty.
Relevant and even prescient commentary on news, politics and the economy.
I can appreciate the sentiment that goes with describing Social Security as an effective “anti-poverty” program. However such a description plays directly into the hands of those who choose to label SS as an “entitlement” without noting that it is a prepayment mechanism for retirement benefits. The emphasis should be on the prepayment aspect rather than on the anti-poverty result. The result is the intention of the SS program. The result is not a form of government largesse.
Describing Social Security as an anti-poverty program allows for those who are so intentioned to argue that people who do not prepare for their own economic well being are a drag on those who do. It doesn’t matter that the vast majority of workers do not receive sufficient compensation to live and save for retirement. Current pay levels in the US are a guarantee of impoverishment in old age. That is the necessity for the SS program. It is not anti-poverty in structure. It is a system that requires all participants, that’s all workers, and their employers to prepare for their eventual retirement or working old age. Anti-poverty is understood by the vast majority as having a charitable character. That is not what SS is, not charity. It is partly savings annuity and partly deferred compensation. It is not subject to the good will of those in government and industry that have little or no demonstrable good will.
Jack:
There is not sentiment involved in the article (which I hope you read). If is a fact that Social Security has done more to keep seniors out of poverty in the past (under the more austere measurements) and now moreso under the Special Supplemental Measurements. I am not going to get involved in semantics [did I get that right?:)] of what Social Security was meant for and what it has turned out to be in addition to a prepaid retirement program.
“On August 14, 1935, Franklin Roosevelt signed the Social Security Act. During the Great Depression many older people were unemployed. Americans were living longer but retiring earlier; age discrimination made it difficult for elderly Americans to find employment. People who had worked hard all their life to support their families were living in poverty.
Americans all over the country argued that they deserved compensation. Dr. Francis E. Townsend advocated that all Americans over the age of 60 should stop working and receive $200 per month from the federal government, and he gathered over 5 million supporters. As “Townsend Clubs” sprang up across the country, Franklin Roosevelt knew he had to do something to address the plight of unemployed, older Americans.” Our Documents: The Social Security Act August 14, 1935
Social Security kept people from sinking further and it worked by giving them a minimum retirement wage which they kicked in for at 2% in the beginning. This isn’t sentiment, it is the reality of people still being able to pull themselves up by their own bootstraps when they have had hard luck along the way.
Run,
I was taking the perspective of our less than honest political class. The use of the term anti-poverty has negative semantic content to too many people including those most impoverished. Describe the good that a program does without labeling it in what to too many can be a pejorative term. Yes, it is awful that the term anti-poverty has a negative connotation to many people, workers especially. It is often understood as a process to assist those who have fallen on hard times without preparation for such episodes in life. That is not what Social Security is all about.
In politics there is sentiment and semantics behind every word. What you or I do not hear is distinctly different from what the Ted Cruzs and Paul Ryans of the world want their constituents to hear. Their agendas differ from ours and so we must take into account the sentiment and semantics when discussing what is an important socio-political concept.
Jack
sadly, you are probably right about the sentiment and semantics behind “anti poverty.” Still, Social Security had done more to reduce poverty in America than any other program. And that is what it was intended to do.
It does it by not being welfare. You are right about that. It does it by providing workers with a way to save their own money that is safe from inflation or market gyrations. And it also allows workers to insure each other against a lifetime of low wages.
Tragically Social Security has always had enemies who don’t understand it. On the Right are a few people of vast wealth who think it must be “socialism.” These people seem to think that anything the workers can do to enable themselves to retire must sap their will to work. These people are literally insane.
On the other hand we have recently seen the emergence of people on the Left, who think that if Social Security is such a good thing, they can load it up with every welfare scheme they can imagine to help their favorite victim class. They propose to pay for it by “taxing the rich.” This would literally destroy Social Security by taking away “the workers paid for it themselves” which is why it has worked so well for over seventy years, and turn it into just another of those welfare plans that have not worked so well. These people are probably not insane. They are just stupid.
Coberly
I agree totally. Ignorance is the antithesis of a fair and balanced government or economy and we have plenty of ignorance in our nation. Worse yet we have a group of venal political people and their ring masters at the top of the economic scale who will take every opportunity to exploit that ignorance to their personal gain. This is not exclusive to the USofA in the present and was epidemic in the European monarchies in the past.
So the use of terms is very important on any public forum. Yes, Social Security has helped to keep many people out of an impoverished old age, but that’s not an anti-poverty program as the media and the political scum in Congress know it. It is a successful retirement program based upon worker funding on the past and through the future. It has worked so well for that very reason. It does not have the taint of welfare that so often attaches to an anti-poverty program, Social Security has the legitimacy of an annuity structured retirement program. We pay in throughout our working lives and receive retirement income in our older phase of life. Leave the description at that. Emphasize the paid for and earned character of the program and how that results in freedom from poverty.
Run
I did read the note Gould wrote to go along with the chart. She lumps Social Security with several genuine anti-poverty programs, programs set up to give unearned additional income to those at the very lowest level of the income pyramid. “Refundable tax credits, such as the Earned Income Tax Credit, kept 2.5 percent, or nearly 8 million Americans above the SPM poverty threshold. Other programs such as SNAP (food stamps), unemployment insurance, Supplemental Security Income, and housing subsidies also have a significant impact on the ability of families to stay afloat.”
That is not the premise of Social Security. One had to have worked throughout much of their adult life and contributed through the FICA withholding tax process in order to qualify for the retirement benefit. That’s not an anti-poverty program. It is an obligatory retirement contribution program. And that’s not at all a semantic distinction. It is not word play. People like Ryan, Cruz and Peterson play the semantic game. Let’s not play by their rules. Let’s stay within the words of the legislation.
I agree with Jack as to messaging. Yes, we created an obligatory contribution plan but it was because people were in poverty at the end of their working lives. However, we really do need to stress in our messaging that this is the peoples money and the government is holding it in trust. It is not an entitlement based on selfishness.
There is nothing wrong with “entitlements”, “liberal”, or “anitpoverty”, but people who don’t like them pretend they are slurs and we let them get away with it.
I don’t live in a Republican box where I learn to believe that Obamacare is bad because it is Obamacare. I learn to find out the truth and I won’t back down on telling the truth even if people in the box don’t understand its implications.
The truth is that not only is SS an anti-poverty program, but it is NOT prepaid. We are entitled to SS benefits because we participate in the compact among workers. That compact insures that we do not need the business owners particiapation to make sure that workers do not run out of savings and end up in poverty in thier old age, but it does require that each new generation agrees to honor that compact because the funds are not saved anywhere.
You can do the analyses to show that is nearly equivalent to saving for yourself, and that is probably good enough for most workers who will benefit. But on an economics blog, it should be possible to analyze how it really works without getting tangled up in whether people who are stuck in a box will get the message.
And analysis shows that since we are living longer the cost of this insurance is going to increase, but that you can set aside this small increase (which will keep your parents generation out of poverty) and you will still have an increasing standard of living. The analysis shows that this can go on generation after generation, forever, as long as we have an economy.
Arne,
“but it is NOT prepaid”
Actually, for the boomers it is prepaid. It was the 80’s fix and the increase in the rate withheld.
Almost any plan which does not exhaust the Trust Fund will be getting 90 percent of funding from current year taxes. I do not think that would be fair to characterize as “prepaid”.
Arne,
The trust fund is supposed to be drained. It was the fund set up for boomers to prefund their SS needs. Prefunding.
If you or anyone is not for draining the trust fund, then you or anyone are for letting the wealthy steal the money via their low to no taxation.
Dan unfortunately Arne is dead right here.
There is a belief that the ‘Trust Fund’ was ‘set up’ at a particular time (1983) for a particular purpose (pre-funding Boomer retirement). As I have been arguing at AB since the PGL days this is factually, chronologically, and numerically wrong whether one starts from time or purpose.
I won’t repeat all those arguments which combined made up a couple dozen posts but instead put it a different way. There has been no Report ever issued that showed Boomer Retirement being pre-funded. While the Reports from 1984 to 1993 did show Social Security funded ON AVERAGE through the 75 YEAR actuarial window, the first Social Security Reports which broke that out into sub-periods had the Trust Funds going to depletion mid-way. For example in the 1996 Report had Trust Fund Depletion set for 2029 (or 2026, I’ll have to check) which in either case would mark the MAXIMAL IMPACT OF BOOMERS on Social Security. Which as I pointed out to PGL oh these many years ago represented a funny type of ‘prefunding’.
I know where the pre-funding myth arouse and I am totally sympathetic with the point most proponents are trying to make with the “it was supposed to run out” and “prefunding” arguments (hi Dale!!) it is still a myth. One perhaps promulgated in part in 1983 by people who really knew better inclduding Greenspan Commission Executive Director (and formerly SSA Chief Actuary for decades) Bob Myers and Member (and longtime SSA Commissioner) Bob Ball, but by their own subsequent admissions it was known that there would be crisis points in 2012 and 2040 if nothing else was done.
Social Security is in fact the least effective poverty program possible.
By insulating old people from the suffering of young people, and encouraging them to think of young people as “social security paying cash machines”, Social Security creates a class of voters, already predisposed to care nothing about the future, which is completely insulated from the economy being violently rammed into the ground. 20% unemployment for men between 25 and 55 years of age?
How does this effect there monthy check? Not at all?
Doesn’t really seem like their problem, does it?
And back to the anti-poverty point.
Social Security was never set up to be an all purpose retirement plan. Instead it always had a income cap beyond which workers were expected to fund their own retirement in their own way.
Social Security in my view had two overlapping aims:
One: provide SOME sort of income security for low income workers who realistically could not save enough individually for retirement.
Two: provide a fallback (I.e. insurance) for ALL workers in case their well made plans fell apart and delivered them to near poverty despite that.
Basically it represents a “anti-indigency” insurance for the poor and a “anti-poverty” insurance for the not so poor. Which is why it has transfer elements along side self-insurance elements and income caps which serve to limit the transfer and self-insurance elements for the better off. Which mix makes it very complicated to explain, like the proverbial elephant it’s description depends on where your blind folded explorer starts-sometimes it feels like welfare, sometimes like a pension plan and some times like a supplemental insurance plan.
But clearly it was intended to prevent poverty in retirement and not as some universal defined benefit or defined contribution pension plan.
Well, I hate to see us all shouting at each other over what is a “semantics” issue. Where I went to school “semantics” was a code for… don’t get hung up on the words.. look at the “thing itself.”
Daniel and Arne are both right.
Bruce, my best Social Security friend, is maybe more of a true believer in being “right” than I am. Whether or not the participants of the 83 fix “intended” to prefund the boomers, that’s exactly what they ended up doing, and enough of them talked as thought that’s what they had done to fix it in most people’s minds that that’s what they … retrospectively… intended to do.
Frankly, I don’t give a damn what some of them say they intended or did not intend. People say all sorts of things for all sorts of reasons, and since it was “done by committee” it is at least fairly likely that most of them had no idea what they were doing.
The Boomers partially prefunded their retirement. Given the political hay made out of the certain “death of the Trust Fund” since then, it may not have been politically the wisest course to set the tax rate high enough to allow the Trust Fund to grow to three or eventually 4 times it’s normal “one year reserve.” But since it did, and since the fact on the ground is that the Boomers thereby prepaid (part of) their own retirement, I see no value in saying it was all an accident. The actuaries have been close to dead on in their predictions for the last twenty years that i have been following it, so I rather suspect they had a good idea what they were accomplishing.
In fact there is no “economic” difference between pre-pay, pay as you go, or “printing the money.” The resources consumed by the retired come out of the production of the non retired: it’s all “pay as you go.” Always has been. Always will be. The difference is the legal chain of ownership of the claim. And as we have seen, we will always be fighting about that.
At the risk of being tiresome.
The Social Security Trust Fund was established on Jan 1, 1940 pursuant to the SS Amendments of 1939 with two functions, that of an operational fund through which to route dedicated revenues and costs and as a reserve fund to stay one step ahead of an otherwise Pay-Go system. The very first Report of the Trustees in 1941 made it perfectly clear that this would require increasing levels of payroll tax over time to keep up with the demographics. (BTW this may not have been as clear to the CES in 1934 who designed the Act of 1935).
The Trust Funds built up huge reserves from 1940 to 1950 (when measured by Trust Fund ratio) BY DESIGN. Those reserves leveled out in relative and even nominal terms through to 1971 when for a variety of reasons things tried going south ultimately leading to the 1981-1983 crisis. It’s a complicated historical series but at no time SS the Trust Fund INTENDED to go to depletion, instead ‘solvency’ has always been defined as a particular level of acceptable reserves.
Bruce
I think you have changed your argument slightly since the last time I argued with you about it.
It now appears that Myers and Ball “knew” and “said” what I always thought they knew and said, but “admitted” there would be future crisis points. That is NOT the same as saying “they didn’t intend.”
Perhaps they knew and did not intend that the 83 fix would pay for ALL the boomers (excess) costs, but I don’t think that I ever said or implied that there was never any expectation that there would need to be further fixes… only that the “excess” Trust Fund was a way for the Boomers to pay in advance the amount that would otherwise constitute a generational unfairness.
But again, just so you know I know, I don’t believe in “absolute truth.” I don’t have it, and I don’t know anyone else who does. LIfe is short and if I tried to get “the facts” ALL correct in all their eternal nuance, even if I knew what all the facts are, it would take a thousand pages of unreadable if’s and an’s and wouldn’t help anyone’s understanding… but would no doubt give other scholars something to refute in their own thousand pages of nuanced “fact.”
So, bless me, I have talked too long about this. I am grateful that you keep us straight as to the facts. But I take it amiss that you seem to imply that I am trying to put something over on people.
Dale neither 2026 or 2042 can reasonably be defined as ‘prefunding’ and certainly not 2033. In 2033 surviving Boomers will be 69 to 87 and most of their cohort still projected to be on Earth.
So I find it difficult to get from there to “that’s exactly what they ended up doing” in reference to “prefunding”. As referenced above and as expressed to PGL in the dawn of AB time “a funny kind of pre-funding” (though he has never conceded the point, Dale is he a cousin?)
Dale it would be more fair to say that Myers and Ball allowed others to “say” and perhaps believe they “knew” that. You would be hard-pressed to find either Bob making any such statement in real time.
And I have never said you were trying to “put something over” on anyone. Maybe accused you of being too stubborn to agree to the clear implications of dates and numbers you know full well. But at worst that is a call to “Physician Heal Thyself” and not some accusation of fraud.
Gentlemen:
“I am not going to get involved in semantics [did I get that right?:)] of what Social Security was meant for and what it has turned out to be in addition to a prepaid retirement program.”
There are only two reasons why someone might collect a surplus. Either you are going to collect to pay for an increasing debt or you are going to collect in relief of taxes elsewhere. If it is the former, than the commission made one terrible error which was never corrected in the last 30 years. Why collect if it was never intended to be used?
If it was the latter, than we have been suckered into one of the greatest deceptions ever dreamed of by both Greenspan and Moynihan. This plays into what Don Levitt and Andrew Biggs have always preached to us. The TF has been used up in other funding.
The concept is one or the other.
As to the way station of “partially prefunding”. Well that is somewhat like “a little bit pregnant”.
I would refer you to Bob Myers Oral History interview on ssa.gov/history. Per him it was clear to people in the know (perhaps just him, Ball and Moynihan) that a more honest approach would have been to have less front loading from 1983 to 1993 and is instead implement a solution that would have stretched out the phasing with a smaller initial series and then another starting in 2012. In fact this would have been very close to something some guys call the Northwest Plan for a Real Social Security Fix (you could Google it). Instead political pressures in 1983 much as similar pressures in 2013 (and 2009) insisted and insist on a once and for all ‘fix’ RIGHT NOW even if the numbers suggest some or most of that fix should be deferred to future years.
Which snark aside gets us back to our NW Plan. Over time you me and Arne hammered out a plan that would be both immediate and permanent while being flexible in actual timing and magnitude. Because the Fix is in the Method and the Method kicks in immediately even as the actual increments are phased in on an if and when basis determined by then current projections. Myers and Ball were faced with a crisis that was much more immediate and a political mix just as complicated as today. They made the best of it and all things considered did a great job. After all 1983 to 2033 equates to a half-century solution.
Damn good work in any public policy calculus.
Bruce
I have to agree with that. And I don’t think it’s such a good idea to argue with you.
But it exasperates me that you equate partial prefunding with a little bit pregnant. We know where being even a little bit pregnant leads. We also know that we can pay for something partially. What I don’t know is what you think one has in common with the other.
As for “perfectly clear,” Bruce, what is “perfectly clear to you,” is not perfectly clear to me, in fact it is perfectly clear to me that it is not.
Wasn’t that the point of The Euthyphro?
Run you are deploying Occams Sledgehammer here, it is not one or the other.
I have argued in the past (using numbers and concepts drawn from the Reports) that the 1983 reform did not result in surpluses, not at least for the first 10 years to 1993. And this for two reasons.
One, which I have addressed in various posts about the ‘Great Reagan Raid’, the actual dollars raised in excess of current year SS cost were tiny when compared to either the tax cuts or the defense increases they ostensibly were raided for. It would have been like trying to hide an elephant with a fig leaf. If you look at the raw numbers.
And two, and maybe a little too inside baseball. By the measures the Trustees are mandated to use Social Security is actuarially insolvent any year in which Trust Fund assets at years end do not equal the next years cost. That is from an ACTUARIAL PERSPECTIVE the Trust Funds are in deficit and not surplus even though cash flow is positive. In Accounting terms (and I just went back to College in as a freshman(again) Accounting student) it is the difference between a Balance Sheet and a Statement of Cash Flows.
Social Security was in actuarial imbalance EVERY YEAR from 1984 to 1992, that is Trust Fund Assets at years end were less than LEGAL target making SS UNDERFUNDED. From that perspective FICA taxes were TOO LOW. Which is a kind of funny ‘raid’ on a ‘surplus’.
From an actuarial perspective the 1983 deal did not create ‘surplus’, instead it slowly backfilled an existing actuarial deficit on a ten year schedule to reestablish ‘solvency’ as defined by current law. And it worked, by Dec 1992 the Trust Fund had reserves equal to 97% of 1993 cost and certainly hit target by the 10 year anniversary of the 1983 compromise. But the fact is that Social Security faced an actuarial shortfall of 53% on the last Dec 31 of Reagan’s Presidency (1988).
Now you can call a 53% shortfall a ‘surplus’ using your Statement of Cash Flows. Your outside Auditor might not exactly sign off on your combined Financial Statements based on that.
Dale, following Popper I am a thorough anti-Platonist. So not inclined to give much weight to that point.
Now obviously you can partially pre-pay a debt. But that doesn’t mean your existing monthly payment schedule can be necessarily called a ‘payoff’. Not if you are faced with a balloon payment at the end.
Using the fancy terms I am just learning in my freshman Financial Accounting course maybe I should modify that to “just a little bit amortized”. Well that is not really amortized at all. Your books are still out of balance.
Back to Run.
It is reasonably clear from reading Bob Ball’s “The Greenspan Commission: What Really Happened” is that the actual goal of the major players diverged somewhat from the messag they needed to deliver to the public.
The actual goal was to implement a solution that would push any further discussion out past the 1988 election. That is to Fix the Crisis as faced by Reagan and O’Neill. The deal they arrived at did that and more, it actually ended up restoring Social Security to its official test of ‘Short Term Actuarial Balance’ by 1993. Mission accomplished. In fact since Depletion even now is set for 2033 you could even give them 40 Years worth of Extra Credit (actually 28). Now it was also important for them to be able to claim they had fixed the problem for the long term, then defined as 75 years. And they did that too. At least on average.
So I suggest that the purpose for collecting that ‘surplus’ was to actually fix a 10 year problem and on paper fix a 75 year problem and not necessarily to “pay for an increasing debt or to collect in relief of taxes elsewhere”. That is the latter may have been a bonus while the former is to misframe the question.
Plus the whole “in relief of taxes” argument is muddied by the fact that a big component of the 1983 fix was a tax on benefits that fell on mostly the same population who benefited from Reagan’s marginal tax cuts. Now the billionaires made out (they always do) but the only real well off had Reagan collecting from their Social Security check a good part of what he gave them back in lowering marginal rates. (Obviously a lot of income and age variables figuring into the net incidence)
I suppose it would be disingenuous to say I did not mean to start something, but as I said, I think we can discuss the actual mechanisms of SS and fixes to SS without worrying about how those stuck in a box will see it. Whatever is going to happen.
The 1983 reforms attempted to put in a (close to) 75 year solution. A bulge in the demographics was going to result in a bulge in the TF just as getting over a hill causes an increase in elevation without needing the intent. You can call that extra two years of reserves refunding if you like, but it is analytically not what most people think by prefunding.
My local school district established a significant “Rainy Day Fund” in 2006 and we were soon glad we did. A pretty good third reason to collect more than you spend. I suppose that you could call it a class of increasing debt, but that is an awful stretch.
As I see it, the reality is that SS needs the next gerneration to decide SS is a good idea and for many of them that means coming to understand how it really works. Prefunding, anti-poverty, solvency, etc are all complicated enough to be used by people who don’t like SS, so someone needs to really get it at the numerical level.
What Arne said.
Bruce, “…but by their own subsequent admissions it was known that there would be crisis points in 2012 and 2040 if nothing else was done.”
So in order to avoid those crisis points changes were made to the funding of Social Security which resulted in increased revenues to the Trust Fund and a concomitant increase in the size of that Fund enabling the fund to meet its future obligations to an increasing beneficiary group. So the baby boomer group wasn’t paying higher contributions as a prefunding mechanism. Let’s just say the increases inl FICA revenues were were intended to enhance the ability of the Trust Fund to supplement future FICA revenues in order to pay the increased benefits demand brought about by an increase in the numbers of age eligible recipients starting on or around the second decade of the 21st Century. If it walks like a duck and goes quack………
Furthermore, it is obviously true that the initial intent of the Social Security benefit was to provide retirement income for workers who for what ever reasons were not receiving a sufficient pension based upon their employment history. The only thing that has changed is that more and more workers have become dependent upon Social Security due to the destruction of private pensions with defined benefits. The myth of the IRA and 401k retirement approach has come to light a bit late in the game for most baby boomers. Social Security benefits are fast becoming the bulk of many worker’s retirement income. That’s not the fault of workers.
Jack I wasn’t clear.
Those judgements as to those future crises were POST 1983 deal not PRIOR. So much of the line of your initial argument loses force.
Also what is “obviously true” about “initial intent” to you seems ahistorical to me. How many industrial workers had ANY kind of pension prior to 1935 and the various right to unionize Acts that came in with the same New Deal that gave us Social Security? After all the Wagner of the Wagner Act is prominently standing behind FDR in those famous photos of the signing of the 1935 Social Security Act.
I am by no means a pension expert but I have a hard time believing many
workers initially covered by Social Security even had employer funded/subsidized pensions such that “more and more workers became dependent” on Social Security. It seems that you have maybe placed the post World War II gains by the AFL/CIO in relation to pensions etc with the situation prior to FDRs election in 1932.
Instead the reversal you reference seems to be something that started in the 80s. But as noted I am not an expert in pre-war labor relations/contracts/pensions. It is just hard to believe that industrial worker pensions somehow preceded the rights to unionize that were another product of the New Deal. Edicate me.
Jack and even that wasn’t clear.
A read of the First Report of the Trustees of Social Security in 1941 combined with a history of actual FICA increases shows an understanding that rates as a percentage of wage would continually increase even as that increase would be swamped by real basket of goods increases in current worker incomes AND their retirement income.
Now this might well have been impossible to explain, certainly Dean Baker, a certain Dale Coberly, Barkley Rosser and me struggle to do so now. Which is why Dale reduces it to “80 cents per week”. Because Dean’s “6% of Real Wage increases” to deliver Barkley’s “40-60% better benefits in real terms” somehow doesn’t offset “OMG they will be taxing us at 15.8% of payroll and increasing EVERY year!!!!”
To bring that back to your comment. The 1983 deal can profitably be seen as a bastardized version of the mechanism implicitly laid out by the Trusteesin the 1941 Reportand made explicit by the Northwest Plan in 2009. Given a normal rate of growth in productivity and a fair share-out of gains from that productivity workers can enjoy a steadily increasing standard of living during their work life while ensuring (and insuring) a reasonable and proportionate standard of living in retirement. And in the bigger scheme paying for it themselves at a cost of a 1/16th of their increase in real take home.
Put that way it is a no-brainer. But after you mix in “Intergenerational accounting” and “ROI” everything gets confused.
“Put that way it is a no-brainer. But after you mix in “Intergenerational accounting” and “ROI” everything gets confused.”
All the more reason to keep it simple. I’m not focused on what the original intent of the program had been regarding workers having inadequate pensions or none at all. We are fast headed back to the none at all variety of employment. Recall that even McDonalds suggests to its employees that a second job goes a long way to improving their lives and maybe leaving a few cents a month for savings. So Social Security has taken on an increasingly important role in the maintenance of life in old age. So too Medicare for that matter. Better the day should come when no worker has so little that they have to rely on Medicaid.
Back to the prefunding issue. If you read through almost any socialsecurity,gov/history information about either the 1977 or 1983 changes to the funding mechanism you find a focus on both corrections to the assessment of eligibility and a need to enhance the financial strength of the program. That 75 year window keeps popping up. What does it mean to enhance the ability of the Trust Fund to go out that far if it doesn’t mean to prefund the program in preparation of an increase in beneficiaries. It’s those same increasing beneficiaries who were then to pay for the preparations for retirement funding.
On message and one message is the best defense against the anti-worker pension crowd. We paid for it. Keep your damned hands in your own pockets. Cut Congressional pensions if you want to save a bit of cash flow. You’ve stolen, oops! You’ve taken enough indirect bribes to feather your nest. In the short of it, if the working class does not choose their representation more carefully they won’t have the representation they need to protect their own economic self interests.
Bruce offers an important statement to put Social Security in perspective: “The only thing that has changed is that more and more workers have become dependent upon Social Security due to the destruction of private pensions with defined benefits. The myth of the IRA and 401k retirement approach has come to light a bit late in the game for most baby boomers. Social Security benefits are fast becoming the bulk of many worker’s retirement income.” Consequently, Social Security benefits are more important today than in decades. to prevent poverty in old age.
Even the arguments haven’t much changed. The Greenspan Commission agreement provided “for fully meeting the Commission’s short-term financing goal and also for meeting about two-thirds of the Commission’s long-term goal–1.22% of payroll out of the 1.8% projected need.” The Dem members argued that “We recommend that the remaining 0.58% of payroll deficit be met by providing additional revenues starting in the year 2010, in advance of the period when the bulk of the deficit is projected to occur. Sufficient additional revenues would be provided by an increase of less than one-half of 1% (0.46%) in deductions from workers’ earnings beginning in 2010 and a like amount in employer payroll taxes (with an equal combined rate for the self-employed)” whereas GOP members argued to further increase the retirement age–i.e. cut benefits. ( see http://www.ssa.gov/history/reports/gspan7.html#c2 )
Reports that Social Security is preventing poverty for millions are important–“semantics” aside–because these reports update the evidence bearing on old arguments. To grasp that, imagine that the evidence today showed that Social Security wasn’t important to preventing old age poverty because the 401-k system, combined with other reforms (like the EITC), had been a huge success. After all, that’s what some people (including voters) hoped would happen.
Bruce
so how many angels CAN dance on the head of a pin?
i would defer to your superior knowledge of “facts”, but sometimes your understanding of those facts is not the same as mine.
for example, while the increasing Trust Fund after the 1983 “fix” took a while even to reach “actuarial solvency,” the money in the Trust Fund was lent immediately to the government for other uses.
again, it turns out i don’t think there is much to be gained by arguing about which understanding is “right.” they both are.
that doesn’t mean that both sides are always right. but sometimes people get so focussed on being “right” that they completely fail to see what the other guy is trying to get at.
Sorry, that quote was from Jack, not Bruce!
Jack,
There is a difference between “we paid for it” and “my benefits are already paid for”. SS is for workers by workers and we have paid for it.
We look at 10 years and we look at 75 years and it tells us we do not NEED to do anything now, but we will soon. (If unemployment were not still high, now would be a good time to raise payroll taxes by 0.1 percent to put DI back in 10 year balance.)
Arne,
In case it wasn’t clear, yes, we are saying the same thing. Workers have been making FICA contributions and so too their employers in their names. They, and that includes me, have paid our dues so to speak and that is what makes us eligible for Social Security benefits. We are all going to continue to pay dues into the system given that those benefits will be taxed, again.
Our elected representatives will do all that they can to assure that their benefactors, that is their political big money supporters, don’t ever have to pay in too much of their wealth to support their government. They prefer to support their political allies and sychophants than their government.
PJR
thank you. i am not sure how we can turn this into an argument. i am fairly sure we all agree about both the facts and the need.
Arne
i am not sure why the level of unemployment prevents us from raising the tax a tiny amount on those who ARE employed. I don’t think we “need” to do anything right now from a financial perspective, but if we did raise the tax right now we could prevent a lot of political damage that will come when the Trustees Report “short term actuarial insolvency” in about five years. At that point “the sky is falling” will seem all too imminent for anyone to listen to Baker ” oh, but it’s years away and the sun is still shining.” While a 2% tax increase in 2033 or so will not really hurt anyone, a tenth of a percent per year between now and then will be a lot easier for them to swallow.
Dale,
I agree with you on the political damage control, but the economy is demand constrained and since increasing the payroll tax right now will not increase anyones benefits (in the next 5 years), it would have a net decrease in demand that would be better avoided.
I think we could wait until the early 20s, but that we should put in the first increase in about 2017 or 2018. (I am still trying to digest what Edward Lambert says about the limits of recovery.)
“for example, while the increasing Trust Fund after the 1983 “fix” took a while even to reach “actuarial solvency,” the money in the Trust Fund was lent immediately to the government for other uses.”
Yes Dale, but the amounts were in context tiny.
http://www.ssa.gov/oact/tr/2013/VI_A_cyoper_hist.html#215892
In 1984 SS assets did increase by $6.2 billion. But $3.4 billion of that was in credited interest which was not variable for borrowing and $3 billion was the result of the new tax on existing higher income beneficiaries. Which leaves the actual “pre-funding” or amount available “for other uses” resulting from actual worker contributions still a negative $200 million. And the numbers only change slowly from there.
You can call all this ‘semantics’ if you like. Me, I call it using the data tables in straightforward and honest ways. Which if I had to give it a name would be “The Coberly Method”. Whose foremost practitioner seems to be failing in application in favor of making rhetorical points. Which I would have dubbed “The Biggs Method”.
Go to the Table linked and follow these three steps:
1) subtract 1983 year end balance from 1988
2) subtract out interest earnings from 1984 to 1988
3) subtract out contributions from tax on benefits
The resultant gives the amount of money that Boomers and other then current workers contributed over and above then current cost to “prefund” and/or provide money for other purposes. It isn’t a lot of money. And the totals don’t get that more impressive if you add 1989 to 1992 and so get the totality of Reagan-Bush 1. There simply was no ‘raid’, no significant ‘diversion’, indeed from what I see just a restoration of Trust Fund Ratios to 97 at year end 1992, or a fraction below minimum solvency.
Those are the numbers. And I don’t see how they fit your and Jack’s narrative. But then nobody died and made me King, I just call them as I see them.
And on Arne’s point.
The reality is that OAS doesn’t need new funds today. On the other hand DI does my suggestion would be to formally decouple them and address the issues from a different funding basis.
The arguments for keeping the income cap on OAS (and I agree with Dale on that) simply don’t apply to DI. There is no reason why the responsibility for worker disability should fall on other workers and their employers rather than society at large. This is why the HI Trust Fund (which pays for Medicare Part A) has no income cap on contributions. So why not treat DI as we do HI and raise the cap and the rate on DI in isolation enough to put it in actuarial balance? And leave OAS alone for now, especially because this move has the effect of improving the overall outlook for combined OASDI.
DI is broken and has been. DI can be fixed for literally a fraction of the cost of fixing OASDI (well duh). And in so doing we short circuit the whole argument around “selfish Boomers” and “greedy geezers”. And in so doing we have a limited decrease in demand. In fact since people on DI are likely to spend every extra dime and the effect of lifting the cap on DI alone would be to unlock money currently sidelined by owners of capital the net effect on demand should be positive.
This is a fight we can win. And I might say win-win.
Bruce:
No one ever accused me of being the razor’s edge in making points many times. I concede that early on the funding of SS went to building solvency; but after 2001, it appears the funding was adequate enough to cut taxes in other areas to be supplimented by SS Payroll Wage Tax Revenues. Corporate taxes are at their lowest level. Withing this scenario there has to be an offset at least to 2008 when all hell broke loose.
75 year windows on economic viability seem to me to be excessive as we really do not know what will take place with confidence. 10 year windows would give a higher level of confidence in outcome. Sucessive 10 year increments of adjustments, up or down or neutral, would or could give the program a modicum of confidence and tweaks to meet a changing economy.
The growth of the TF appeared to surge when the economy took off, incomes increased, and more boats of household incomes floated. Unless someone elected to Congress gets off their fannies, it will be a long time before we see the same scenario taking place due to those desirous of austerity.
This c&p post grew legs and went much farther than I thought it would.
Bruce
I am convinced you are arguing with me for the sake of arguing. You appear to assume I mean more than I say. It is possible I have been careless in what I say, but I don’t see it from here.
Whether the amount of money flowing into SS from the tax increases was “tiny” or not, it was still money used to “fund” other government purposes. It seems to me that you are saying the money is not available to fund other government purposes until SS has reached actuarial solvency. I know you know better than that, but I wish you would extend me the courtesy of thinking I might know better than the crimes you accuse me of. Or at least ask me what I mean instead of assuming the worst.
Arne
I think we need to keep the two problems separate. an extra dollar a week from each taxpayer is NOT going to materially affect the “recovery.”
Especially since in the first instance, those dollars are available, by borrowing, to the government which can spend them as “stimulus.” And in the second instance those dollars will be available as benefits to retirees who will almost certainly spend all of them, as opposed to desperately trying to save them outside of Social Security — in danger of loss due to inflation and market gyrations — because they sure as hell will need them when they retire.
In any case the government can, and must, begin to pay for what it needs (and in this case I am including SS in “government”), and stop masturbating itself with fantasies about taxes hurting growth.
Run,
There is a great deal of knowledge and interest at AB, but the details of SS are complicated enough that even people who agree on what should be done can disagree on details/nuance around that action plan. It does not take much to get the discussion going again.
See, while I agree with Dale’s last paragraph at 6:50, I disagree (almost) entirely with his first two paragraphs.
What Arne said. Again.
I’ m done. On this thread anyway.
Arne
I guess that’s safer than making an actual case.
Run
as far as I am concerned your point, your post, was well and truly made, and an important post for people to read and understand.
as far as I am concerned the conversation went to hell after that.
Good morning “three amigos”
There was a time I was posting on Economists View about the Diamond – Orzag solution for Social Security. Bruce approached me there and started to explain what was in error with it. Up to that point, I was pretty much on my own in looking at SS. One person had asked me to look at SS and slice and dice it.
I was directed to Bruce’s SS blog and also Angry Bear where I came to follow many of the missives posted there. It was not long before I started to write (or type) a few of my own. This place is an interesting place. I like reading Edwards words and many of your own also. I have read this thread and wil read it again later.
There was a time when we could trust government and many of its intentions. Perhaps, Vietnam as the marker in which things began to change with giving over that trust so readily. I lost many friends there and I managed to get out alive and in one piece in body and mind. To not acknowledge the change from that point onward or any point in time misses what has occurred in this country. It has changed dramatically and not for the better with the skewing of resource to a few and over the general welfare of the many.
Too few of us exist and are able to fight back with the intellect to refute much of what is being used and said justifying the actions and results taking place in society today. I believe it to be important that what is said comes out so others can recognize another reality besides what is the official mimesis portrayed by our government. With that being said, thank you for adding to this post.