CRFB comments on the one tenth percent/year increase
A response to Dale Coberly’s tax increase proposal summarized here:
i have been saying for some years now that a one tenth of one percent per year increase in the payroll tax for EACH the employer and the employee would entirely pay for the “actuarial deficit” and would fund Social Security out into the infinite horizon. (See more at: http://angrybearblog.strategydemo.com/2014/01/getting-the-facts-right-on-social-security-crfb-tries-again.html#sthash.2bEdj725.dpuf)
As we continue to debate how to best strengthening social security, we’d first like to thank Dale Coberly, Dan Crawford, and others at Angry Bear for agreeing to engage on this important issue.
Coberly’s short response to today’s post makes one assertion we disagree with and one we mostly agree with.
Coberly asserts we rely on other parts of the “Peterson machine” to support our facts. In fact, almost all the sources we cite are official government sources, including the Congressional Budget Office, the Government Accountability Office, the President’s own Office of a Management and Budget, the Social Security Administration, and the Social Security Trustees — whose job it is to provide Congress and the public with information on the financial condition of the Social Security trust fund.
With regards to Coberly’s proposed tax increase, we more or less agree. Since Coberly cited combined payroll tax numbers in the rest of his blogs, we assumed his proposal to raise the payroll tax rate by 0.1 percent per year was on a combined basis. If instead we raised the payroll tax rate by 0.1 percent each for employers and employees — 0.2. total — it would raise a lot more than we assumed in our post.
By our math, raising the payroll tax 0.2 percent per year over 20 years (a total of 4 percent, 2 on the employer and 2 on the employee) would more than achieve solvency over the next 75 years and close 80% of the program’s gap in the 75th year.
Note this tax increase would not be insignificant; it would mean raising payroll tax rates by nearly one third for all workers regardless of income. There are questions to consider about what a broad based tax increase of this magnitude would mean for our ability to raise revenues to meet other needs and fund other priorities and whether relying on the revenues generated by a payroll tax increase to maintain 100% of promised Social Security benefits for all beneficiaries reflects the best use of resources. But we appreciate this important contribution to the debate and certainly believe the payroll tax rate should be on the table for discussion.
well, that’s a place to begin.
based on the 2013 Trustees Report a payroll tax increase of 4.4% combined will close the actuarial gap entirely, with no obvious need to raise the tax going forward into the infinite future.
This tax has no effect on the budget whatsoever. Nor does it subtract anything from the economy or the potential pool of investment capital.
This tax increase can be reached by raising the payroll tax one tenth of one percent per year on each the worker and the employer whenever the Trustees project short term actuarial insolvency. It maintains SS solvency without a large Trust Fund or any “SS is going broke” crises.
Simply people paying for their own future groceries and rent by saving their own money in a protected savings and insurance plan, without any need to “tax the rich”, or means test, or cut benefits. It is in fact exactly the same as paying for your own needs by deferring part of your income until you need it.
i should add that the one tenth of one percent, each, .. also removes the need for Congress to repay the Trust Fund, thus eliminating ANY effect of Social Security on “the deficit.”
CRFB should think about this very carefully and see that it satisfies their desire for a “responsible” fix of “the federal budget.” it doesn’t fix ALL of the budget deficit, but it does remove any effect of Social Security on that deficit.
I have asked Dan to withdraw my submitted “long reply” to CRFB’s reply to my earlier “treatise.”
This is too important to lose sight of in a lot of argument that no longer has any point.
Agreed. Now how can we persuade CFRB to admit the .2% solution solves the so-called “solvency problem” once and for all? Objections to raising payroll taxes such a trivial amount must be based on ideological differences rather than practical objections. If so, CFRB should say so. If not, what in the bloody hell are they balking at? NancyO
Yes, it would raise the tax by one third. But it’s one third of a small number. It is an amount that is a reasonable cost for what they will get… several more years of retirement paid for. And it’s far away… by the time they have to pay that much their income will have risen so much more that they will have nearly twice as much in real dollars after paying the tax as they have today.
And the projections are far from certain. If the tax ever does reach a point where it is no longer a reasonable cost to pay for their retirement, the people at that time can make whatever changes they deem reasonable… hopefully based on an honest understanding of their choices.
Since the people are paying their own money for their own retirement the question of “what a broad based tax of this magnitude would mean for our ability to raise revenues to meet other needs” does not arise. Unless you are suggesting that “retirement” is something that can be sacrificed in order to build new submarines. Of course in some strange new world, such a choice might have to be made. But it is not “responsible” for us to attempt to make that choice for them, in advance of the remotest inkling of such a possible need. This applies equally to “the best use of resources.” It’s the workers money. They use it to pay for a guarantee of at least a basic retirement. It is not responsible for us to propose taking away their ability to use their own money for that purpose in favor of some other purpose of our own. If we have other needs, we can pay for them with the money we, they, don’t need for their retirement. There is plenty of other money around.
To paraphrase Scottie in Star Trek IV:
“Admiral! There be math here!”
So what just happened here. Is it over?
I suspect CRFB would like some kind of retraction. After all, their first two claims were that coberly misrepresented them.
The thing is, when they say “the costs of benefits are well in excess of revenue from payroll taxes”, something we have heard from other clearly partisan sources, they are repeating something that really is deceptive. In their response (which they have at claim 5) they say the “Ask Social Securities own Trustees”, but if you actually follow to the annual report, you find that comparing cost of benefits to revenue from payroll taxes is a tool used to look at the long range and one in which they look at patterns of change, not absolute numbers. To claim that it is a measure of current health is badly wrong.
coberly is partisan, and is prone to tar anyone who disagrees with him with the same brush, but he is not deceptive.
CRFB wants to be non-partisan, but they still fell into the trap of repeating deceptive “facts”.
I am NOT “partisan.” I have given up on the Democrats and those who call themselves Progressives. The Republicans and the Right long ago left the path of sanity.
If that is “tarring with the brush”… make the most of it.
I don’t think I generally say mean things to people just because they disagree with me. I do think CRFB is lying. I was hoping their “understanding” of the one tenth of one percent fix would give us a chance to talk honestly. I am losing that hope.
As to my poor friend Arne who was the victim of my “harsh rhetoric” in the matter of extending the retirement age, I’ll stand by the strength of my feelings on that subject: my feelings about those who have plenty of money but would “compromise” by raising the ultimate tax only one percent (each) instead of two, and adding “only” one year to the retirement age. It strikes me as… and you remember what i called it… that a person with a hundred thousand dollars a year income would grasp at keeping an extra 40 cents per week per year (per 20 out of the next 80 years) even if that means a million old ladies with bad knees and hateful jobs have to have an extra year added to their sentence…. because “projections say” they are going to live three years longer hooked up to a respirator, so what’s an extra year of work to them?
You should not take this personally. I KNOW you are still a good guy. But now you know what I think about that kind of compromise. You don’t have to care what I think. But you should think about what your choices actually mean.
i don’t think it’s over. i have been giving CRFB time to think about what they just said.
if a one tenth percent increase in the tax, each, per year (some years) will pay for SS entirely for the foreseeable future…
that ends any honest concern about SS’s effect on “the budget.” CRFB needs to decide whether they are the “Committee for a Responsible Federal Budget” or the “Committee for Irresponsibly Cutting Social Security.”
I was hoping they WOULD think it through. Current signs are not hopeful.
CRFB may be having some trouble disentangling their thinking from the lies they have believed and repeated for so many years.
They may think that the SS “tax” “competes” with other taxes. It does not.
They may think that SS “competes” with other “savings” (poorly defined). It does not.
They may think that SS “competes” with “other priorities” for resources. It does not.
SS “taxes” pay for exactly the amount of food and rent and other necessities that old people are going to consume IN ANY CASE whether the money comes from SS, welfare, stocks and bonds, their children, working until they can no longer produce for the boss. The difference is that with SS the people who are going to be “consuming” those resources pay for them themselves by deferring some consumption while they are young.
The payroll tax does not compete for Federal dollars. The income tax and other taxes would NOT be lowered, nor could Federal spending be increased if there was no SS… unless the SS tax is replaced by a higher income tax… which would mean that people are being deprived of their own money which would have gone to pay for their needs in retirement… in order to fund MORE Federal spending on things like submarines.
So whenever CRFB says that SS taxes “compete for resources” or compete for Federal funds… be clear they are saying they want to take away your retirement so they can buy more things for themselves. That is NOT a RESPONSIBLE Federal Budget.
Nor does SS compete for “savings.” SS IS savings. You put your money “away” in a protected, insured, and “interest paying” place so that you will have your own money … plus the “interest” it earns” when you need it when you are old. That is savings. The “SS reduces savings canard means that SS savings are not available to be borrowed by those who hope to make money lending it to others. This does NOT reduce the amount of money available for investment. SS benefits which equal the SS tax has exactly the same effect on “investment” which withdrawing your savings from the bank, cashing your dividend check, or selling your stock.. has on investment. If we were at that stage of the growth of the economy where “capital” was scarce and there was a need for real investments to raise productivity, there might be a reason to cut back on spending for consumption in old age so that there would be more potential consumption a few years down the road. But the American economy has long passed that point. We now have more money available for capital investment than we know how to invest… hence the stock market and housing bubbles.
Whether CRFB is lying about this or just doesn’t understand it, I don’t know. But their pattern of argumentation suggests to me that their real focus is on cutting, or killing, Social Security and they really don’t care about a Responsible Federal Budget at all.
In the case of reader A
he is not trying to distract attention from the facts. i genuinely hurt his feeling when i said what i thought about raising the retirement age so a few people with lots of money could keep a little more… at the cost of forcing people who are in paid to work another year…
i didn’t mean to hurt his feelings. i did mean what i thought about raising the retirement age.
thing is, we don’t have to do it. not now. we can wait until 2080 or so and if people really are living longer, and able to work longer, and want to, and can find jobs… we can gradually reduce the “incentives to work longer” by not raising benefits if you wait to retire.
this can sound backwards to people. but the fact is that if people like their work, and are making more money than they would get from SS, they don’t NEED any “incentive to work longer.”
That incentive is based on the perverse idea that if someone is making fifty thousand a year, say, he would quit his job in order to not “lose” the twenty thousand he would get from Social Security.
I know there are people who think that way. They are sick in the head.
oops, there i go again.
as for my language
if i say “dishonest” or “lies” or even “cruel and stupid”…
i am saying what i think. if i am wrong you can ignore me and the words will leave no scars.
but if i am right… and i am … it would be far, far better for you to think honestly about what YOU are saying and doing.
CRFB could announce to the world tomorrow, “Hey we have just solved a huge part of “the Budget Problem.”
“All we need to do is to continue to let the workers pay for their own Social Security, as they always have, with modest (tiny) raises in the payroll tax from time to time to cover slowly increasing costs. Their “tax” will never be more than what they would have to pay in any case for their own expenses in retirement…
“This reduces the “debt” by an immediate 3 Trillion dollars owed TO Social Security, and the “potential debt”… the so called “actuarial deficit” by 10 Trillion dollars (Present Value)…
“Now we can go on to the real business of reducing the costs to the budget of the bloated defense spending, bank bailouts, and the need for “stimulus” following an economic collapse caused by bad behavior by the banks.”
Or you can try to distract attention from this by pointing at my bad manners for calling you liars. Then we can all sit around and have another cup of tea and another crumpet while we discuss, oh so politely, taking away any possibility of retirement from hundreds of millions of people.
“I am NOT “partisan.” ”
I did not mean to say you support either the Democratic or the Republican view. I meant it per “prejudiced in favor of a particular cause”.
“i didn’t mean to hurt his feelings”
It is sad that you can look at the responses to you in this light. I have a more than thick enough skin to write you off as a crotchity old fart if I want, but I am a partisan for the same cause, so I really don’t want you to alienate people.
I think the NW Plan is the optimum solution, and that current law is a horrible solution. If it takes compromise to prevent the horrible solution, then I will make nice with people who don’t get it.
Just as SS needs a plan with phased in adjustements, working the compromise closer to the NW Plan will benefit from allowing people to adjust their thinking. Alienating them is a bad plan.
I hope you stay on my side, because you are right.
But I am not “prejudiced.” I have examined the evidence, and now i am (post) judiced.
As for my temper and my language:
You have to think of yourself as, say, a man who has seen a bit of the world coming home to find your parents entertaining two well dressed gentlemen who are offering their sixteen year old daughter a well paid job in New York as a … ah … nanny… in the home of some very rich people.
Your parents are considering this…
You say “These guys are going to rape her and sell her to slavers… ” and you tell them to get the hell out of your house before you break their f’ing necks.
Your mom says… now, Arne, if you can’t talk nice to my guests please leave the room.
What do you do?
I would really like you to be a good advocate for your plan.
i thought we had made a breakthrough with crfb. looks like they are still stuck in “failure to think” mode, and i dont knowhow to be nice about that.
Your solution does not fit their agenda.