by Dale Coberly
ABOUT SOCIAL SECURITY
A REPLY TO KRASTING
Bruce Krasting in comments to Bruce’s post on Social Security made a number of claims that deserve a fuller answer than I was able to give in comments. Below in quotes are Krasting’s claims followed by my replies. I hope I am reasonably clear.
“I could list numbers showing how things have deteriorated at SS… every measure of solvency has gone downhill.”
No. “Solvency” is not an issue with Social Security. SS is not a business, much less a business that borrows money or has bills to pay.” I stated this in my reply to your first comment. You show no sign of having read it. This doesn’t mean you disagree with it, but that you are physically incapable of seeing anything that disagrees with your preconception. The “numbers” you are thinking of are “projections,” that is, guesses. And, again, they have nothing to do with SS “solvency.”
“Actuarial solvency” is merely a projection that if taxes remain as they are and the benefit schedule is unchanged the Trust Fund will fall to a reserve below 100% of one year’s benefits. This is a “warning” that taxes may need to be raised or benefits may need to be cut. This is a largely meaningless statement unless someone knows “by how much.”
We have used the same projections as the Social Security Trustees and found that a tax raise of about eighty cents per week per year for each worker, matched by his employer, would avoid any need for benefit cuts, and avoid any future “actuarial insolvency.” The Trustees avoid referring to this number; instead they choose to report their “actuarial insolvency” in misleading, alarming terms: “8.6 Trillion Dollars (present value) over 75 years.” Well, that’s where the eighty cents per week (also present value) comes from. It’s “just arithmetic.” Or they say, “a 25% benefit cut”… which would hurt… or “a 33% increase in the tax,” which they fail to note is a 33% increase in a 6% tax, or about 2%, which would not hurt, especially if phased in over 20 to 70 years depending on just how soon the “shortfall” begins to occur. However fast it is phased in, the ultimate tax increase would be about 2%, and would not be needed at that level until wages have risen about 100%.
This projected shortfall has not been alarming enough to “the deciders,” so CBO has come up with a number that is about 12% higher… based on their guess that unemployment is going to be a lot higher over the rest of the century than it has been, on average, for the last seventy years… even though “huge numbers of boomers” are leaving the work force with fewer young workers entering. But we showed that even this “higher” estimate can still be addressed by that one tenth of one percent raise in the tax each year….or possibly raising the eighty cents per week to as much as a dollar and a half per week per year (for fewer years)… still hardly crippling, and the workers will still get that money back with interest when they retire.
In an earlier thread Krasting reported the CBO numbers as proof that Social Security was doomed. Then in private correspondence he admitted that the numbers (my numbers) worked, but then he decided that the 75 year shortfall was actually going to double in the next two years. He didn’t say how this miracle of mathematics was going to happen, so I have to assume St Peterson came to him in a dream.
“The NPV of the unfunded portion…”
Again Krasting is using words he does not understand, secure in the knowledge that neither does anyone else. “NPV” sounds so serious, so scientific, and so sound-financial-analysis. But all it means is a guess of how much money you’d have to have in the bank today to pay for what you expect to spend in the future, assuming… that’s ASSUMING…a given level of interest and a given level of risk and “equivalent” other benefits. Used honestly it can be a useful help in analyzing competing investments. Used dishonestly, as it is by the SS non partisan expert liars, it is meaningless and misleading.
All “unfunded” means is that we have not yet adjusted the tax rate (by one tenth of a percent) to match the expected higher costs due to longer life expectancy and lower wage growth of workers.
“the shortened time frame for reaching depletion..”
This is a mathematical consequence of raising the “guess” you make about the costs, or reducing the guess you make about tax receipts, and is just another way of “piling on”: repeating the same guess in different terms. It is not “additional evidence.”
“the rapid shift from positive to negative cash flow…”
Not so rapid, and long expected. That’s what the enlarged Trust Fund was created to deal with. Thirty years ago the actuaries looked ahead at the retirement of the baby boomers and said we can either tax the boomers more now, or tax their children more later. They chose to tax the boomers more “now” (that is, “then.”) But this has become another fact the liars can twist to make SS seem like it’s going broke (SS is using the money it saved by spending it on what it saved it for)… and really evil dishonesty pretending that it is “unfair” to the young… when it is exactly the opposite: the boomers paid for their own retirement. That’s what the Trust Fund is: their “savings.” Cashing in their savings now that they need the money is what Krasting calls “negative cash flow.” Damn those boomers, they were supposed to leave their savings to the kids. (And they will; just not their Social Security savings. But the house, the car, and whatever cash they didn’t have to spend because they had their Social Security savings.)
“SS will never be cash flow positive again…”
This is alarming to Krasting who doesn’t understand SS at all. SS was designed NOT to be cash flow positive but to be “pay as you go.” Cash flow positive just means that SS lends more money to the government, increasing the “debt.” But when you are completely ignorant you can say “cash flow negative” like it was a bad thing in the same breath that you say “increasing the debt” like it was the fault of SS.
“One thing that NO policy maker would suggest is more taxes. Especially not more regressive payroll taxes. I continue to tell you that increasing taxes to stabilize SS is simply not in the cards”
Here Krasting shows his complete ignorance of even what his own side is “worried about.” The tax increase they fear is the tax increase that would be needed to pay back the money THEY borrowed FROM Social Security. That would be income or corporate taxes or possibly a financial transaction tax. It would NOT be the payroll tax, which they do not pay. Krasting calls SS a “regressive tax.” This is a remark usually made by ignorant leftist college professors. SS is not even a “tax”, it is an insurance contribution or a (forced) savings plan… to save the workers from starving in the streets when they get too old to work, or find work. In any case Krasting and friends don’t give a damn about the payroll tax being “regressive.” But they think if they repeat “regressive tax, regressive tax, awk awk,” often enough they can make even the liberals hate Social Security…. and want to replace it with welfare, which the Big Liars will know how to “fix” to their liking. Krasting has no clue that lowering taxes has been what has caused “the deficit” and the hard economic times that are going to make it harder for workers to save enough for their own retirement. Because the Big Liars don’t give a damn if you do starve in the street when you get old. That will provide better “incentive to work” to the younger people. And without SS they will have no choice but to trust their savings… if they have any… to the man in the suit with the sure thing on Wall Street.
“but you are smart enough to know these things. I guess you choose to ignore them.”
Yes, we are smart, but we do not “choose to ignore them.” We choose to understand them. It is Krasting who chooses to ignore the explanation.
“look into Summers/Krugman…”
Actually Krasting, I do my own work. I don’t need to find a Big Person to tell me what to think based on his one minute analysis of a problem I have studied myself quite carefully, and checked my work. [I did read the article in question. I cannot see how it helps Krasting’s case. Except that Krugman refers to the possibility of a long period of slow growth… caused by the very policies Krasting favors. This is typical Krasting: Completely fail to understand something he reads… understand it to mean what he understands everything to mean: Social Security is doomed. Doomed.)
“US is facing a long period of sub par economic growth..”
Quite likely, possibly caused by Summers and company, but in any case that is a reason why you are MORE likely to need your Social Security, not less.
“The cost of fixing SS is about 1% of GDP every year forever..”
This is ignorant nonsense. The cost of “fixing” SS… that is raising the tax enough to pay the retirement needs of those paying the tax… is about 1% of GDP in TOTAL (forever?)… most of it in the next twenty or thirty years… at a rate the workers won’t even notice.
The worst possible scenario for SS “finances” would be that costs would continue to go up as projected, adding about an eventual fifteen or twenty dollars a week to the required “tax” (it’s really “savings”), and that wages would not go up at all.
This would mean the average worker instead of taking home about 800 dollars per week as he does today, would take home about 785 dollars per week . I am reasonably sure even that steep price would be taken in stride by workers without their really noticing it. And they would get their money back in the form of being able to retire when they were too old to work… or find work in the “sub par economy”… and have it last even though they are going to be living longer.
The workers WOULD notice that their wages were not going up… wages are currently expected to double over the same time the cost of SS rises about two percent. But complete wage stagnation would not be caused by SS… but by the policies of people like Larry Summers.
In short, Krasting doesn’t know what he is talking about. But he scares himself with numbers he does not understand. Just the way the Big Liars intend to scare him… and you.
You are going to need your Social Security. The cost may go up, but not by much. You are still going to need it.