THE CBO AND SOCIAL SECURITY… HYSTERIA and HONEST MATH
by Dale Coberly
THE CBO AND SOCIAL SECURITY
HYSTERIA and HONEST MATH
The Congressional Budget Office (CBO) recently released a new projection for the costs of Social Security [no citation. I looked up the link in the AEI article (below) and did not immediately find a projection for SS].
They say that increases in life expectancy will increase costs, and increases in unemployment will reduce revenues. They say an “immediate and permanent” 3.4% increase in the payroll tax would be needed to pay or the expected shortfall over the next 75 years. Please note that this new projection is a projection of increased costs due to changes in life expectancy and the wages of workers. It is NOT due to any inherent flaw in Social Security, or any failure to “fix” it sooner. SS was designed to help workers during hard times. CBO is projecting hard times. That is exactly NOT the time to cut it.
Andrew Biggs and the American Enterprise Institute say this increase is “almost twice as much” as the last time CBO projected a needed “immediate and permanent” increase (of 1.9%). This means, they say, “we must act now.” By “act now” they mean “cut benefits,” which they have been calling for for the past twenty years. They have no interest in an “immediate and permanent” increase in the payroll tax. But with the help of the Washington Times Washington Times they hope to stampede you into believing a 3.4% increase in the payroll tax would be a staggering burden.
It’s easy for people to be stampeded by numbers they don’t understand. But “almost twice” a small number is still a small number; and when that small number is a guess about what will happen over the next 75 years, it is not a reason to panic.
The average worker (income $40, 000 per year) would see that 3.4% as an increased deduction in his paycheck of about 13 dollars per week (the worker pays half of the 3.4%). Even this can look scary, or at least unpleasant, to a worker who does not realize he will get this money back, plus interest, when he needs it most…when he is too old to work.
Moreover, it would be a $13 reduction from a $769 paycheck. If no one said anything, most people would not notice a difference between 769 dollars a week and 756 dollars a week.
The other fact workers won’t realize, unless it is explained to them patiently, is that this “immediate and permanent” increase will become less and less significant as time goes on and wages increase a projected more than one full percent per year. After 20 years that 40k job will pay about 50k in real dollars per year, about $962 per week. The deduction will then be about 16 dollars per week, leaving the worker with 946 dollars. This is 180 dollars more than he had before the tax was increased. After seventy five years… just so you know, though you won’t be there.. that 40k job would pay about 90,000 (real) dollars per year, about $1750 per week. After the increased tax, the worker would have about $1720 left… 950 dollars
more than he had before the staggering tax increase.
The AEI has no interest in a payroll tax increase. They want to cut SS and eventually kill it entirely. All that an immediate increase in the tax would do before it is actually needed, is provide more money for “the government” to borrow, increasing the national debt. CBO is counting on the interest from that loan to help pay for SS when,eventually, costs do increase. This interest would be paid for out of general taxes… something the rich do pay.
In fact, we, the workers, can pay for any needed increases in SS as the need arises. We showed a few years ago, in something Bruce Webb called the “Northwest Plan,” that by increasing the payroll tax one tenth of one percent for each the employer and employee (this is eighty cents per week for the employee) in any year that Social Security Trustees project having to dip into the Trust Fund (within the next ten years) would keep SS “actuarially solvent” forever. Under the Trustees projections at that time, this increase would happen in
about twenty of the next seventy five years, and much, much less often after that.
Since then the “Great Recession” has changed the projections such that the one tenth of one percent increases would have to start sooner and happen a little more frequently at first. But the ultimate tax increase would still not exceed 2% for the worker and 2% for the employer, and would be reached so gradually, while wages were rising, that no one would even notice the increase.
The new CBO projections, if accurate, could still be met by that one tenth of one percent (each) increase in the tax per year. After 23 years the income from the gradually increasing tax would equal that of CBO’s “immediate and permanent” 3.4% tax increase plus the interest earned by putting that increase “in the bank” until it is actually needed. [Note, this depends somewhat on the timing of the increased costs projected by CBO. If the increases come sooner, for example, the payroll tax could be increased by 0.17% each. This is about a
dollar and thirty cents per week for the worker. This would equal the income form the CBO “immediate and permanent increase” in about twelve years.] The ultimate tax increase under these assumptions would be about four or four and a half percent, a little larger than CBO’s “immediate etc”, but not enough to feel, and not for a long time. Moreover that larger tax would “fund” Social Security essentially forever, while the CBO increase would run out of its nterest money after 75 years, requiring another “immediate and permanent” increase of about… one percent.
One nice thing about the “Northwest Plan” is that because the increases are gradual the people who are going to be getting the higher benefits (living longer) are the ones who would be paying the higher tax. Moreover they would have more money to do it with, as we showed above. The CBO “immediate and permanent” would have people now paying more tax than they would see in benefits; the people half a century from now would be paying less tax than they would get in benefits, and the people 75 years from now would have to face a sudden (though not very big) increase in their tax. All in addition, of course, to the general taxes you would have to pay in order to pay the interest that CBO is counting on. And under the CBO plan, you would have to listen to the horrifying reports every year of “The Trust Fund Going Broke in 2088!”
In a comment to Angry Bear Bruce Krasting presented his own results that showed (showed him anyway) that the Northwest Plan couldn’t possibly pay for SS under the new CBO assumptions. His arithmetic was wrong, but he didn’t show his work so I couldn’t help him. I sent him an email showing my work, but I never heard back from him.
The bottom line is still this: You are going to need your Social Security. You can easily afford to pay for it… while living better than your parents did and having plenty of money left over to “invest” and get rich if you think you are smart and lucky.
But keep that old Social Security just in case. Even if you are lucky and smart, it won’t be so easy to get rich in a country where most people face desperate poverty in old age.
Don’t let the bad guys panic you with misleading numbers and bad arithmetic. And do get your Congress to understand that you, the workers, can easily pay for SS yourselves, just like your parents and grandparents did. There is no need to increase the national debt or beg the rich to pay for your groceries when you get old.
“and increases in unemployment will reduce revenues.”
That people are living longer seems a matter of fact. That unemployment will increase is purely speculation and has no place in a projection, especially one going out to the long term. That such a statement appears in a CBO report brings up the question of that agency’s objectivity. If that’s a worst case scenario, on the other hand, then the more obvious effort is to assure that unemployment does not increase.
The CBO report is at
I think I may have forgotten to mention that THIS IS MONEY YOU WILL GET BACK WITH INTEREST.
Jack, I agree that reducing unemployment and increasing the rate of increase in workers wages are the “best” fix for Social Security. But these are hard things to do. Meanwhile, a gradual increase in the amount of money you save via the SS payroll “tax,” will guarantee you can retire at a reasonable age with at least “enough.”
If the economy, and the politics, go better than expected, the increase in the payroll tax could always stop, or even be reversed. Or the money could be used to “strengthen” Social Security the way the people who think they are protecting Social Security want to get the rich to pay for.
I was not addressing best approach scenarios. You’ve done that more than adequately. I was addressing the legitimacy of using prognostications regarding the future rates of unemployment as a factor leading to a prediction of decreasing revenues and then suggesting that that revenue loss can only be made up by reducing benefits. The CBO could, and should, have focused on the benefit of taking steps to assure increasing levels of employment as one of the possible approaches to resolving any revenue issues whether 75 years out or just ten years out. The reducing spending levels is only one side of the coin when trying to balance a budget. And there are many approaches to increasing revenue, not only raising taxes.
Yes all is well.
We are in government shut down mode. The Federal Government is spending (including Social Security) $1.50 for every $1.00 they take in, and is $14T in debt approaching 100% of GNP.
Social Security is 21% of federal expenditures . http://www.bing.com/images/search?q=percentage+of+federal+expenditures+2012&qs=n&form=QBIR&pq=percentage+of+federal+expenditures+2012&sc=0-35&sp=-1&sk=#view=detail&id=37BDA7775601854816453F10303D97D147D9C93A&selectedIndex=6 in.
Nothing to see here. Move on.
Just don’t cut coberly’s social security check.
Year Weekly Earnings (1982-84 dollars)
1972 $341.83 (peak)
1992 $266.46 (lowest point; 22% below peak)
2011 $294.78 (still 14% below peak)
you are not worth responding to, but you provide an example of worthless reasoning, that i will take advantage of to point out.
It does not matter if SS is 21% or a 100% or 1% of “federal expenditure” . what matters is whether you get what you pay for, and you get something you need that you can’t get anywhere else.
in fact SS is NO part of “federal expenditures.” it was created outside the federal expenditure system for a reason. it is still you and the rest of the workers paying for your own retirement in a way that protects your savings from inflation and market losses and the workers insure each other against desperate poverty in old age.
nothing you need to bother your pretty little head about.
And I will point out something here that I also did in e-mail with Dan and Coberly.
The CBO’s Long Term Budget Outlook which presents this 1.9% to 3.4% year over year increase in SS actuarial deficit is astonishing vague on the specifics that motivated the shift. They vaguely reference ‘increasing disability’ and ‘unemployment’ and ‘increasing lifespans’ as if any of those factors were particularly NEW or CHANGED from the same report last year. God didn’t make any more Boomers during the last 12 months and most of those unemployment and disablilty numbers have been openly discussed and taken into account over the last few years of budget reporting/projections. So what exactly explains the 1.5% deterioration in 75 year outlook over a SINGLE year? Maybe people can follow the link and find it. And maybe CBO has perfectly good numbers backing up that change. But I don’t see that they actually supplied them in either the Summary or the Social Security chapter of this new LTBO. I found of particular amusement their evocation of unspecified ‘other factors’ in the summary. Well yeah, like WHAT?
I’d call GIGO (Garbage In, Garbage Out) except that CBO has not here even fully outlined the GI part. Do their numbers run? Better question: what numbers? But be my guest.
Gosh after following the link to Biggs and buddies I see that CBO actually DID release numbers explaining the shift. But most of the change came from them just abandoning their previous policy of accepting the SSA’s demographic assumptions while feeling free to make their own economic projections. But apparently these budget guys have miraculously taken on whole new staffing that allows them to perform demographic analsys they never did before.
So no they didn’t actually change their OWN year over year numbers, they just inserted a whole new set in place of the ones they have used for years.
Which is not to say that their new projections are not MORE to be relied on than SSA OACT’s. But it would be handy to see the basis for this major change in methodology. Because it is all too reminiscent of CBO’s move to adopt a wholy novel ‘Alternative Fiscal Alternative’ two years back that abandoned their traditional metric of ‘Current Law’ for ‘Our best evaluation of the political choices Congress will make over the next few years’. Which ain’t their damn job.
ACA chopped 75% of Medicare’s long term unfunded liability away when scored under ‘Current Law’ standards. Maybe it was just a coink-ee-dence that CBO rang in a set of assumption changes that added a bunch of that liability back in. And mind you I have not particularly quarrel with the REASONING for the adoption of Alternative Fiscal. It is just that they should have been clearer about the reasons for abandoning years of practice in ways that were not immediately visible to casual readers.
As here where 1.9% turned to 3.4% because of a change in methodology. Which if explained might even have been justifiable. But you have to be pretty careful reader as well as a past consumer of these same Reports to see the swap out. All most people see is that ‘near doubling’ of 75 year actuarial gap.
Student Loans used to be projected utilized Department of Education data and then without warning, the CBO switched to Fair Market Valuation utilizing commercial and less readily avalable data. The swing was from a potential positive return to a negative return. I suspect Elmendorf is doing the same with Social Security resulting in a less positive return.
I am not sure of your point. At the beginning of today’s essay I tried to show that even in today’s dollars and today’s wages and “all at once” increase in the tax was not big enough to make a significant difference.
Whether wages go up or go down, I can’t imagine any scenario where SS will not still be the best way ordinary workers have to provide a secure basis for their retirement. Except perhaps nuclear winter or catastrophic global warming in which individual survival from day to day is the best we will manage if we are lucky.
Bruce, Run 75441
thanks. I wondered if this was all due to Elmendorf, but I try not to express my opinions about the projections themselves because I don’t know anything, and I think they are pretty much science fiction one way or the other.
Mostly I just try to point out that the projections are not as dire as they appear.
but I’m glad to have you point out when changes in projections seem unfounded. I had some difficulty with SS Trustees claiming the future wage picture looked worse than it had because they expected workers to “decide to enjoy their gains by taking more time off from work.”
Another famous non partisan expert… whom i shall leave nameless at this point out of courtesy… has written a paper on SS which makes pretty clear that there is nothing objectively wrong with SS… except that the economists we have all come to love and trust are still working on the idea that SS discourages savings, and reduces the incentive to work, because, god knows, we all need every man to work every hour of every day if we are going to grow the economy.
enough to for Mr Peterson to make a profit on his billion dollar investment in destroying Social Security.
Run, absolutely right.
CBO and GAO have not in recent decades been quite as ‘non-partisan’ as the media and their ostensible charters would have them be, each after all reports to Congress and is subject to a certain lean from the Majority.
But Elmendorf seems to have accepted this lean and then subtly added his own thumb to the scale. Somehow the CBO has slowly morphed from score-keeper to Budget Scold mirroring a move the Government Accountability Office (formerly the more neutral Government Accounting Office) took some years back. Something I am reminded of every time the Press refers to David Walker, a guy that spent the whole last decade as a paid employee of Peter G Peterson, most blatantly in his last job but one as ‘President and CEO of the Peter G Peterson Foundation’ instead as ‘Former Comptroller General of the United States David Walker’. A title that sounds a lot more important than its reality as Congress’s accountant.
Which is not to say that CBO’s hands were ever totally clean, you only have to look to former (and founding?) director Alice Rivlin for that, defense hawkery is in its very bones. But time and again Elmendorf has seemed to take that hawkery into the realm of hackery. And this seems to be another example.
Here is the Fair Market Value argument for SS being touted by Heritage where Jason Delisle, Jason Richwine hail from in the past. Delisle was instrumental in arguing for FMV analysis for student loans. Richwine argues all Government Programs are underestimated.
It appears to be what Elmendorf is following.
The existence of a trust fund does not make Social Security healthy.
Although those assets are guaranteed by the full faith and credit of the United States, the bonds it contains must be repaid using general revenue that would otherwise go to other programs. Similarly, the interest that Social Security receives on existing trust fund balances is not spendable income. It merely inflates the numbers in the trust fund and increases the amount that Social Security will eventually receive from general revenue. The only part that counts today is the cash that Social Security receives from the Treasury to cover its annual operating losses.
Many opponents of reform claim that raising payroll taxes by about 2.7 percent (the average percentage difference between revenues and outlays over the 75-year period) would permanently solve Social Security’s problems. The reality, however, is that the program’s future deficits are projected to be both large and growing, so this tax increase would still leave a huge shortfall. Modest changes will not fix the current system.
The Trust Fund neither makes SS healthy nor unhealthy. It is simply money that SS has received in taxes and not yet paid in benefits. Meanwhile it is earning interest the same way you or anyone else would earn safe interest by buying United States bonds.
The Trust Fund has grown larger than it’s normally targeted “one year’s reserve.” It has long been understood that this larger than normal Trust Fund would be used to help pay for the larger than normal Boomer retirement. It was, after all “excess” Boomer taxes that created the “excess” Trust Fund.
The Trust Fund is an asset of Social Security and a debt of the United States. If you have ever gotten a tax refund, you should have the beginning of an idea that just because the United States Treasury has collected money from citizens, that money is NOT “the government’s.”
The Trust Fund will be paid back, is being paid back exactly as planned… “as needed.” This is not Social Security “covering operating losses.” This is Social Security using its Trust Fund exactly for the purposes for which it was created.
The United States paying back (“repaying the bonds”) money it has borrowed is a normal part of the operation of the United States budget. It borrows money when it thinks that is better than raising taxes, and PAYS THAT MONEY BACK WITH TAXES “that would otherwise be used for other purposes,” just as you pay your debts with money that would otherwise be used for other purposes.
You seem to think the United States can just borrow money and not repay it.
The interest SS receives on its Bonds is in fact “spendable” and is in fact “spent” to pay current benefits. “inflating the money that it will eventually receive from general revenue” is exactly what ALL interest does. It’s what people lend money for, it’s what people who borrow money expect to pay. Get one of your right wing friends to explain the “time value of money” to you.
Raising the payroll tax enough to solve the “75 year “actuarial deficit” would solve SS’s actuarial deficit enough for any purposes you are likely to see. Raising a little bit more, gradually, would solve any remaining deficit going forward into “the infinite horizon.”
We have explained this to you many times, but you can’t understand it. You prefer instead to repeat the lies you are told by those who are trying to get you to give up your Social Security. They aren’t doing this out of charity.
I have been trying to find a way to not be unkind to you. I don’t think I am being unkind if I tell you you are completely ignorant of how Social Security works, and of how money works in general. Moreover you appear to be completely unable to think about these things. Your “comment” appears to have been copied, without thought, directly from one of Peterson’s propaganda organs. Though I do recognize one phrases that appears to be taken from the Trustees Report.. a phrase so misleading that I called it a lie at the time… even though I know the Trustees are careful never to tell the kind of lie that can get them sent to jail.
Run the key quote from that seems to be the following:
“Net present value is the amount of money that would have to be invested today in order to have enough money on hand to pay deficits in the future. In other words, Congress would have to invest $11.3 trillion today in order to have enough money to pay all of Social Security’s promised benefits through 2086. This money would be in addition to what Social Security receives during those years from its payroll taxes.”
But there are all kinds of buried assumptions here. First of all no one would dream of putting a NPV on all future defense obligations above and beyond permanently dedicated revenues (which BTW are zero), it is just obvious to almost everyone that SOME level of national defense is absolutely necessary and that providing it will come as SOME share of future output. Now this raises all kinds of further issues about the interaction between projecting military power and actual defense of the territory of the U.S. and on and on but few would attack the basic premise. Implied in John’s argument is that Social Security does not fall into that basic category and is at best something that has to be rationed at a set share of future output not to exceed current levels. Well that is an argument that one could have, but the absolute worst place to start is from NPV. Because few people and certainly few people fund any major future expenditures that way, not totally at least. And even John’s fall back position of pointing out that he is only talking about NPV in excess of projected revenue simply assumes away the possibility of enhancing that revenue, that is implicitly is endorsing a type of crowding out argument based on current shares of GDP.
Currently Social Security pays some level of benefits to 17% of the population, a number that includes survivors and the disabled. By the 2030s sheer demographics are going to push that percentage to 25%. If we are going to allocate future output in roughtly the same proportions per capita in the future as we do now, that is give every American roughly the same proportional pie slice (as opposed to focusing on the absolute size of the pie or slice) then the overall percentage of that pie going to the then 25% compared to the now 17% will have to increase. And amazingly that needed increase tracks pretty well will projections. Because we devote a little under 5% of GDP to Social Security now (about 4.9%) and we are projected to level out just over 6% (about 6.2%) or right in line with that 17% to 25% increase, in fact if anything lagging it a bit.
Which would leave the moral and economic question of what we owe to fully 25% of the population. The same slice of the pie that we devote to 17% of the population now? Is that okay if the rate of growth of the pie is such that devoting just 4.9% of it three decades from now still provides an absolute larger slice of pie than retirees get today? (BTW the fundamental basis on which Rosser’s Equation rests, though Barkley and I don’t endorse the conclusion that the result is therefore ok).
Those are legitimate questions. But starting from wholy artificial calculations based on NPV is just to muddy the moral AND economic waters. If there is an economic or equity argument truly to be had that care and feeding of the elderly will actually crowd out more vital societal needs (the basis of the Intergenerational Warfare argument pushed by Peterson et al) then lets put that right out on the table for discussion. Especially if proponents of that position have shown exactly zero interest in funding those societal needs in the here and now if that means touching their marginal income tax rates.
Which as always seems to be the underlying issue for all the Bloomberg/Forbes/WSJ/Heritage folks and despite their pious objections mostly to the CRFB budget hawks and the Cato libertarians. That is YOUR freedom ENDS where MY economic liberty STOPS. Which is NOWHERE. Well fine, lets put that position up to a democratic vote. Or advocate for changing the Constitution back to its pre 1913 or pre 1895 form. Just don’t pretend any of this is being driven by simple NPV arithmetic.
It has been a while since I have done the Capital Allocation routing for a company to dtermine exactly whih investment had the best return. The larger the negative, the bigger the return. It would well for many things such as equipment and money streams. I do not diagree with you as there are other things to take into consideration which appear to be missed in the overall analysis. For example the what ifs we do not have a comprehensive healthcare insurance program? What is the cost of not having one to society. This falls outside of the NPV calculations, dicounting, and costs of money. You will not find them placing that numeric into the equation as it is never given a thought. Ok, what if we were to discontinue SS? What is the cost of the elderly living in poverty to society? Conservatives might tell you churches, faith based orgs would step in, or children would be responsible. I do not see that calculation anywhere either. Having a healthcare program and Social Security negates a hidden cost which is not so readily apparent to most people and will not be spoken to by the Jasons of the world or conservative think tanks. Paul Kennedy in his book, “The Rise and the Fall of the Great Powers” directly points out that any nation since the Qin Dynasty which has spend more on Defense or War exceedig the growth of the economy at the expense of Domestic Productivity has been relegated to Tier 2 and 3 countries and economies. You are right, no one talks about Defense and what it costs the overall economy. We still have to be the block bully.
The assumptions are buried and some other assumtions are never taken into consideration. You are given what they wish for you to know. Actually this is another article written by Jason Richwine discussing public pensions and in a similar vein as John. The mistake here is he blames public workers for the failure of public pension planners to forecast returns properly and adjust for economic down times. One could only imagine how many times state pension funds were looted to fill gaps in state and city budgets. http://www.heritage.org/research/reports/2012/05/the-real-cost-of-public-pensions
We are on the same page. I am trying to give you a heads up as to where the argument is going to come and what basis it will follow. Thanks.
And Sammy’s objection is in that same form. Boiled down he is claiming that we simply cannot afford to support the elderly, the disabled and survivors at projected shares of national output without crowding out other societal needs.
Well okay, exactly what needs will actually be crowded out and for whom? Are we really talking about a battle of old vs young and retirement security vs education? Or are we talking about having to ration the share of output going to the military? Or is the bottom line fear that democratic majorities will decide that feeding and caring for 25% of the population is a moral claim sufficient enough that we should go beyond a worker wage funded model to fulfill it? I.e. tax returns on capital? And if so what is the absolute danger in that? A different type of crowding out? This time of reinvestment?
All excellent questions. But ones that go nowhere if we start from the arithmetic deployed by Johns and Sammy. Because their major premises and concerns are concealed by that starting point, they just got the cart before the horse here. And couched in what I see as a totally hypocritical framing of the old stealing from the young, or retirees from current workers, and all based on vague crowding out arguments rarely specified. Rather than any kind of straightforward analysis of what shares of future output should go to which percentages of the population. Settle that argument and the rest is just financing and/or straight out rationing.
Coberly – Thanks for lumping me in with Biggs and AEI. I think that Biggs has a better handle on SS than most who opine on SS (including you and me).
You provide a link to the CBO, may I suggest that you look at the CBO report that directly addresses the issue of changing mortality assumptions for SS:
The 3.4% tax increase that CBO said was required to bring SS into long-term balance is just a measuring stick for how big the hole is. You say that the same economics can be achieved with a 0.2% increase every year versus the flat 3.4% increase. Yes, but how high must those annual increases go, and for how long the increases continue is the question.
The comparison of the two alternatives is dependent on what is the average growth rate of GDP, what interest rates are assumed for investment and what discount rate is used to do an NPV analysis.
I never said I had the answers, I specifically asked for help with these complex calculations. I did make an effort, and I concluded that the NW plan (0.2%) annual increase had to continue for 23 years for a net increase of 4.6% and be retained at that level for the remaining 52 years for NW to equal the CBO 3.4% increase on an NPV basis.
The NW plan is a “kick the can solution”. Rather than address the imbalances today, The cost is stretched out, and in future years the NW tax increase HAS TO exceed the 3.4%.
Let’s get real – There is ZERO chance of a 3.4% immediate and permanent increase. There is also ZERO chance for a .2% increase every year for the next 23 years. There are no economists or politicians who would seriously advocate either of these alternatives.
My thoughts on the CBO report, and what it might mean:
BTW that ‘1895’ was meant to be ‘1865’ and really should have been ‘1869’.
Taken as a whole the combination of the 14th Amendment (due process and universal male privilege), 15th Amendment (non discrimination in voting by race), 16th (income tax), 17th (popular election of Senators), and 19th (female suffrage) all combined to place the U.S. Constitution on a firm basis of universal suffrage disconnected from rights limited officiall or in practice to landowners (the effect of having Senators chosen by State Senates themselves then not allocated by population but instead typically by County and so privileging rural property owners).
Which explains the otherwise odd inclusion of repeal of the 17th Amendment in Tea Bagger demands. It has nothing to do with returning control to the States (by taking that away from the people?) and everything to do with disenfranchising those not covered by the ‘Real’ Constitution of the ‘Founders’. When push comes to shove the Right whether wearing Originalist robes or Tea Party tri-corner hats have always believed tinkering with the Constitution should have stopped with the first Ten Amendments. Or maybe just the Second one. But certainly they have quarrels with one or more aspects of every one from the 13th on. Because each was a move away from property rights to individual rights. Or if you will from representative to universal democracy. All in all bad for what we now call the 1%, or in other cases ‘honest taxpayers’, or in Romney’s case the 47% who will never vote for people like him.
It is an argument that I have advanced many times in many forms: Conservatism is hostile to Democracy where that latter is defined universally. Conservatism has always been rooted in the power of the householder (almost always the ‘man of the house’) to rule over his personal domain (in Latin ‘familia’ which extends beyond biological family) in cooperation or subordination to other householders in an accepted hierarchy. That is Conservatism is inherently both patriarchal and hierarchical and based on accepted authority. And you can trace pretty much everything in the Right agenda from Purity Balls to Income Tax Resistance to Second Amendment Fundamentalism back to the right of the householder to defend his house, its grounds, its products, its contents, and all its occupants from any outside authority. That is there is nothing incoherent about the position when regarded from the inside out.
It is only from the outside in that it begins to resemble sociopathy.
read the damn post. i tell you exactly how high it has to go… and how long it takes to get there.
Andrew Biggs knows as much about SS as I do. Maybe more. But he is not a trustworthy witness. I invariably distorts the truth to present an alarming or disparaging picture of SS.
You, in spite of my trying to be “nice,” don’t know a damn thing about Social Security. And apparently can’t even read what you are commenting on.
your comments are exactly on target. but you obscure one issue. It is not how much are “we” willing to pay for “them.” It is how much are “they” willing to pay for “themselves.”
In spite of “pay as you go” which those with stone age brains cannot seem to understand, the workers pay for their own Social Security in advance. The “extra” that they get has exactly the same origin and function as “interest” that people earn on other “savings.” Except that it comes from the growth in the economy as a whole, and not from the growth of some company, which might fail entirely.
And that growth is “earned.” The people putting their money into Social Security are also contributing to the growth of the economy in ways harder to assign to each individually than money “invested” in a company, but just as real. Moreover, the next generation paying directly for the benefits of their elders are, at the same time, paying in advance for their own retirement.
This may be too hard for Sammy to understand, but it is exactly the way money works whether it’s Social Security or stocks and bonds. Except that Social Security has a better guarantee.
I did NOT lump you in with Biggs and AEI. They at least know what they are talking about and can think logically if not always honestly.
I mentioned you in the post because you provided a “calculation” which was considerably different from the one you now claim you provided that now comes up on google when you look up CBO Social Security projection.
Your calculation was wrong. You asked for help, but did not reply when I sent you my calculations which were detailed enough to follow. You do some “math” unconnected to any logical understanding of the problem, and then throw out some emotional blurts and claim to have solved the problem. Except for people like Sammy, no one takes you seriously. But there are a lot of Sammys.
In my comment above, it should have been “he [Bggs]” not “I” who “invariably distorts.”
Bruce… “on target” does not, for me, include your essay on “conservatism.” I suspect you are largely right about that as a matter of history.
But Social Security is neither conservative nor liberal. A person who believes he has a right to defend his “house” from excessive government can be very much in favor of Social Security. Which far from being “excessive” just uses the government to manage a safe way for him to save his own money, protected from inflation and bad days on the market. This is no more than using the government to protect his house from foreign enemies or domestic thugs.
The problem is that those domestic thugs have taken to calling themselves “conservatives” in order to cloak themselves in the conservative values that some (most?) people feel are what protect them from something worse than making less money than the rich.
These people, sadly, don’t realize that SOME of those “rich” are in fact organized criminals trying to take away from them exactly what they claim the government is taking away from them.
you are apparently a liar as well as an idiot… either that or suffering from a serious brain illness.
You claim here in comments, “I concluded that the NW plan (0.2%) annual increase had to continue for 23 years for a net increase of 4.6% and be retained at that level for the remaining 52 years for NW to equal the CBO 3.4% increase on an NPV basis.”
What you actually concluded was ” the .2% increase has to happen every year for the next 75. That means that the SS tax increase from the NW plan would be:
Year 1 = .2%
Year 10 = 2.0%
Year 17 = 3.4% (BE with CBO rate)
Year 25 = 5% (1.6% > CBO)
Year 50 = 10% (6.6% > CBO)
Year 75 = 15% (11.6% > CBO)
The NW increases would be ON TOP OF the existing 12.4% rate.
So at the end of 75 years SSA taxes would have to be 27.4% to achieve the same results as the CBO. ” http://angrybearblog.strategydemo.com/2013/09/open-thread-sept-27-2013.html#comments
So you are lying here. And you are an idiot. You don’t even understand the calculation (mine) that you claim to have done yourself.
The 4.6% increase equals the 3.4% CBO tax PLUS the contribution from general taxes that would be needed (under CBO assumptions] to pay the costs. That contribution would appear in the form of interest on the Trust Fund, which Sammy claims doesn’t exist.
As for the 52 years… well, that’s the rest of the actuarial window all right, but the tax does not keep increasing over that time. That appears to be a sufficient tax to pay “into the infinite horizon” for all forseeable SS expenses. And, as I tried to show here, it is not all that much money. Certainly not compared to the over 100% increase in wages expected over that time. And certainly not compared to the cost of reaching retirement age with not enough money to retire on.
And it needs to be emphasized that this calculation is MERELY an exercise to show how the Northwest Plan CAN equal the income from CBO’s “immediate and permanent”… and more, because CBO runs out of money in year 75, and Northwest just keeps on ticking.
In fact the actual increase needed is likely to be less than calculated here… CBO’s projections are not cast in gold. And IF CBO is actually paying any of that “immdiate and permanent” tax OUT to pay for benefits, it WON’T being earning that interest that Northwest has to collect in taxes because it relies on the worker paying for his own retirement instead of the general taxpayer paying for it… as CBO does… without telling you.
Is this an official disavowal of IC mortality, employment and demographic assumptions?
Little John, per Biggs that would seem so-from the link:
“What’s driving this change? Up until now, CBO has accepted the demographic projections made by Social Security’s Trustees, grafting onto them CBO’s own projections for economic variables. But CBO is now making its own demographic projections, including:
Longer life expectancies: CBO projects slightly longer life spans than SSA, assuming life spans in 2060 of around 84.9 years rather than SSA’s 83.6 years. As a result, retirees will collect benefits longer.
Longer work lives: CBO project that for each additional year of life, Americans will choose to work an additional 3 months, partially offsetting the negative budgetary effects of higher life spans
Higher disability rolls: CBO projects that the ultimate disability rate will equal 5.6 individuals per 1000, versus 5.2 in previous reports.
Higher unemployment: CBO projects a long-term average unemployment rate of 5.3%, versus 5.0% in prior reports.
The net result is a long-term Social Security deficit considerably worse than previously thought.”
I would just note that CBO always has used its own unemployment numbers. But this adoption of new demographic assumptions and methodology is per Biggs expressly a change.
AND we have always known that “High Cost” was out there. A possible though not likely scenario.
What I am trying to do here is show that even a high cost assumption does NOT lead to an “intolerable burden.” In fact most sane people would not even notice the tax increase. And if they did, but understood they would get the money back to pay for a longer (and richer) retirement, they would just consider it one of the costs of living… better and longer.
There won’t be enough workers in the future to support all the retirees.
All those retirees are leaving the job market, and fewer young people are entering it.
Therefore the unemployment rate is going to go up.
My point was only that there can be long periods of declining [real] wages [and, given pressure towards lower COLA future//current, SS recipients may not do so well as you seem to assume]. Heck man, you know who’s side I’m on.
Run’s comment re. student loans led me to the attached and new emphasis on [private sector based] fair value accounting, that may well bear on Bruce”s question[s].
” Glad you asked. DC based think tanks including the Heritage Foundation(Jason Richwine), the New America Foundation (Jason Delisle), and others are expending significant efforts currently to legitimize the use of so-called “fair value accounting” for establishing budgetary costs of the federal student loan program. These efforts largely rely upon recent and compelling work by the Congressional Budget Office to compare historical accounting cost estimates for federal student loans with fair value estimates. While there are some questions about the appropriateness of FVA for valuing assets on the government books, for the purposes of this discussion, we’ll ignore them. As such, the method, which discounts the value of a lending instrument based on future risk projections, is a worthwhile approach in principle, and the CBO’s cost estimates change dramatically as a result of employing it-turning a surplus of $45 billion into a loss of $11 billion for federal student loans and guarantees that were issued in 2013.
One has to be impressed with the dramatic increase in cost that this model predicts for federal student loans. Equally impressive is the extent to which Delisle defends this method (See here, here, and here) and the passion Richwine exudes as he condemns big-government for using such an “accounting trick” to hide the true costs of the program.
Upon cursory examination, however, it becomes obvious that the method being championed by these two analysts-even by Fair Value Principles- is blatantly inappropriate, uses grossly and demonstrably incorrect inputs on at least two fronts, and generates unbelievable results that even laymen with no particular accounting expertise would likely reject out of hand. Harsh characterizations, I realize, but certainly not thrown up lightly.”
I thought I had made clear that even if wages don’t go up, SS is both affordable and still necessary.
People seem to expect to get rich from everything they touch. But if we go into hard times, wages may go down, and SS benefits will go down with them. Still, something is better than nothing. With SS, which is only a way to protect your savings, you can guarantee yourself “enough” (not rich) to live on when you get old. Without it you can’t. Meanwhile the projections of the official projectors show that even with the rising costs of SS, workers seventy five years from now will have twice as much money in their pockets AFTER paying for SS as they do now… plus having paid for at least twenty years in retirement with benefits twice in real value what they are today. And this is a projection of real wage growth that is about half what it has been for the past seventy five years.
Look, if I told you that careful research and calculation showed that with the decline in arable land and available water, your food costs are going to go up over the next fifty years from 12% of your income to about 15% of your income, would you come out and demand we all immediately start eating 25% less to save ourselves that future cost (which is, after all, a 25% increase if you measure it the stupid and dishonest way they measure the increase in cost to SS)?
No, I don’t think so. I hate to have to rub this in, but apparently I have to. You would just pay what it took to keep eating “enough.” And learn to live on 3% less otherwise than you do today. I think it’s very likely you could find life worth living even if you had to buy a slightly cheaper car or house or clothes or thingy from Apple.
But when it comes to Social Security people’s brains just go kablooey.
“Oh God! It’s a huge increase in my taxes! and all to pay for some old person I don’t even know. I’m a young person. I don’t get anything out of it. So I will just cut it and pretend I’m not. It’s just a “technical adjustment.”
It’s like standing on your own oxygen hose, to, you know, save money.