GETTING THE FACTS RIGHT ON SOCIAL SECURITY? CRFB TRIES AGAIN
by Dale Coberly
GETTING THE FACTS RIGHT ON SOCIAL SECURITY?
CRFB TRIES AGAIN
CRFB appears to have simply misread some of what I said. But they also appear to believe they can argue by “assertion” or by citing other “non partisan experts” who are members of the Peterson machine.
i will come back to that, but there is one fact it looks like CRFB may agree with me about. If that is true it could change everything.
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. CRFB has some excuse for misunderstanding me to have said that a one tenth of one percent COMBINED increase would do the same job. i am not sure that it makes a material difference if the tax increase needed is 80 cents per week or a dollar sixty per week, but if CRFB is willing to agree with me, as they seem to do here, that a one tenth percent per year increase “each” (that is two tenths “combined”), over about twenty of the next eighty years, will do the job… we can begin to talk like honest people.
One more bit of business we can perhaps get past: i do not claim to be able to read minds, so when I say CRFB “wants you to believe” i really have no certain way to know what they want you to believe. But i think i can safely conclude what they APPEAR to want you to believe from the way they distort facts and direct your attention away from other facts that completely change the meaning of such facts as they do present.
I get into this in much more detail in the longer reply I will send you. But i think it would be a good place to start if they will state clearly that they agree a one tenth of one percent increase in the payroll tax for each the worker and employer… either per year for the next twenty years (or so), or “whenever the Trustees project short term actuarial insolvency”… will entirely solve the Social Security funding problem. It would even solve that part of the Budget Deficit problem they are irresponsibly blaming on Social Security. If they are honest they will look very hard at this, as it entirely resolves that part of the Federal Budget Deficit problem they claim is due to Social Security. And it does it “responsibly,” not by stealing the retirements of the millions of people who have paid into Social Security and rely upon first getting their money back, and, more importantly, depend upon being allowed to continue to save their money with the help of Social Security’s protections so they can retire when they need to.
Yes Coberly, CRFB did misunderstand you when you say, “One-tenth per year solves the problem”. Of course you really mean two-tenths per year because you like to leave out the employer cost of the NW plan.
I hope that CRFB does respond to this with its own analysis of the NW plan. I think they will come close to my own. I stated in a recent comment at AB:
“A note on NW plan calculations. I did send Coberly spread sheets. The preliminary conclusion was that the NWP = CBO (immediate and permanent) 3.4% on an NPV basis when the NWP tax increase was 0.2% PA for 25 consecutive years. The NWP would end up at 5% higher then currently to be equal.”
The NW plan condemns workers and their employers with 25 years of tax increases. In the end, SS taxes would be 17.4% (40% higher than today).
This is not a viable option – Take it off the table.
I, of course, have followed the discussions about social security for years and know that the CRFB response is political, not fact based simply by looking at the language used. Plainly, this right wing group wants to appeal to lefties by pretending to be concerned about other programs for the 99% and modestly increasing the taxes on the poorest workers, never mind that the recipients of social security are mostly not working, not well to do and have nothing else to fall back on with the elimination of employer pensions and the inability, particularly of the poorest workers to save. If the cuts are going to come only at the upper end of payments, it is not only means testing but setting the system up as welfare. The fact is plain from reading the entire response from CRFB that it is carrying water for the 1%. While it may not solve all the long run issues–I am not a mathematician–certainly raising the minimum wage to $15 per hour (and all the other low end wages which would increase as a result) would add a lot to social security contributions at existing rates, implementing some real infrastructure programs which would serve to put a couple more million American back to work both directly and through an increase in “effective demand” would not only boost social security revenues but enhance the ability of the economy to grow in the future and doing something sensible on immigration would bring a piece of America’s “underground economy” above ground and provide a short term boost to social security revenue–in the long run I suppose it could make matters worse with more future recipients but it would help the economy and general funds so on balance I think it is a plus. Of course, I am confident the CRFB would oppose each of these enhancements. Instead they want to argue that the sky is falling and the most “humane” approach is to cut benefits for seniors who should have the decency to just die already because they are no longer working for the benefit of the 1%. There is only one solution to any perceived issue with social security and that is to enhance its revenue stream so that all promised benefits are received by every American. If not Coberly’s NW plan than lets talk about the alternatives.
Terry
I agree with you right up to the end. But Coberly’s plan is pretty good WHILE we are talking about the others.
It is now fatal to wait on some magic solution, or even the ultimate solution of fair wages.
BK:
What discount rate are you assigning to NPV?
krasting
a good deal more analysis has gone into the NW plan than you seem capable of reading, understanding, remembering, or reporting honestly about.
if you come here hoping to snow people with misleading sound bites, i think you have come to the wrong place.
get off the table.
Run, I used 4.5%. And I did ask if that was a reasonable rate. I did not get any feedback.
This is an NPV of a 75 year period. The comparison was NWP to CBO. The objective was to calculate when they were “equal”.
NW tax increase is lower than CBO in the first 25 years, and thereafter higher. When a higher discount rate is used the NW plan is less effective as the future years higher taxes are discounted at a higher rate, When a lower discount rate is used it is more effective.
I don’t know why krasting used npv.. it’s not necessary for the calculation and quite meaningless.
Coberly–I took a look at CFRB’s website just now. Turns out that they think the recent cut in military retirement pay is a good idea. They also approve of stopping unemployment benefits for 1.3 million people. And support paying for any extension of unemployment benefits by an offsetting spending cut. From which I conclude that CFRB’s non-partisan views of these public benefit issues sounds are identical to those expressed by partisan Congressional GOP leadership. Hmm. Just sayin.’ NancyO /s/
Correction–next to last line from “sounds are identical” to “are identical.” NMO
Coberly says:
“I don’t know why krasting used npv.. it’s not necessary for the calculation and quite meaningless. ”
This is from the 2013 TF report to congress:
“Through the end of 2087, the combined funds have a present-value unfunded obligation of $9.6 trillion.”
The NPV calculation is a yard stick to measure things. But it is THE tool used by SSTF to look at various alternatives (and to measure its health). As a tool, the NPV calculation is widely used. There is no other way to make apples-to-apples comparisons of long term financial flows.
And C thinks it’s ‘meaningless’?
krasting
NPV is only meaningful if you are comparing otherwise similar investments. there are NO investments similar to Social Security.
The 9.6 Trillion Dollar Present Value of the Social Security actuarial deficit might be useful… in a misleading way… to give some people an idea of the scale of the projected shortfall… if they had anything meaningful to compare it to, or if a shortfall projected 75 years in advance was a meaningful exercise.
But the comparison of the “immediate and permanent” tax increase of CBO and the “gradual increase” advocated under the name “Northwest Plan” does not require any NPV calculation. Please note that you, we, are here comparing percents to percents, and while an assumed interest rate… used for both plans… is required to keep track of the contribution from “interest” on taxes paid but not spent right away, that is not the same as an NPV calculation.
I calculated NPV for the yearly deficits assuming the Trustees numbers for income and expenses with no tax increase to be sure I got the same results they did. Then I calculated the NPV for the yearly deficits assuming the Northwest Plan. You will be glad to know that the Northwest Plan reduced the total NPV over 75 years from 9.6 Trillion to Zero… actually a little surplus.
And that was with a final tax increase of 4.4% over today’s tax.
IF you want to compare apples to oranges, you better decide first if you’d rather have an apple or an orange.
I don’t care for NPV as a measure for SS because a PAYGO program should have an NPV of zero. If they provided a current law NPV it would be zero because SS is not allowed to spend more than it recieves. The fact that someone says it is not zero simply tells you that the assumptions (such as paying scheduled benefits without raising taxes) are not valid.
To say:
” In the end, SS taxes would be 17.4%…”
is very misleading.
First of all, each worker would pay only half of that, 8.7% and the business they work for pays the other half.
Combining these two together is like saying if I pay 20% income tax and my wife pays 30%, then together we pay 50% tax on our income.
jerry
i think some of them think that way.
but the way i think of it is
if it costs 17% of your income to pay for 20 years worth of groceries and rent, that’s what it costs.
you don’t look at your grocery bill and say… gee that’s 25% of my take-home pay, that’s too much, i’ll have to give up eating.
the problem here is that people are used to a very good deal… lower costs for SS… and they react with alarm and anger when they learn the costs are going up… and look around for some way to get out of paying them.
because they take “living” for granted… something their parents, or the government, or the stock market, or the rich… should pay for, while “their” money is for newer cars, expensive restaurants, Las Vegas, world tours… you know, all the things they work for.
If you start working when you are 20, and work until 65, then live another 20 years, that means you are saving 8.5% of your income (plus 8.5% of your employers income) to live about 30% of your combined working and retirement life.
I would consider the employer contribution part of my income only if businesses were proposing to increase my income by 8.5% instead of paying it directly to SS. So far, I have not heard that idea proposed.
critter
even if it’s “your money”, 17% (and i think it’s going to be less than that) of your own money to live about, say, 34% (no one earns much before they are 25), of your adult life at “half pay” looks like an “equation” to me. Especially if you realize that that “half pay” is adjusted for inflation and boosted by an effective interest equal to the growth in the economy.
you simply cannot get a better deal than this in “the market.” you could, of course, win the lottery… the stock market lottery.. but that is a more rare event than most people realize, and quite out of the cards for at least half the population: Those who don’t make enough to risk the investment, and those who make the investment and lose at the worst possible time.
AND while you are groaning under the SS tax… while having more money after tax than our grandparents had in their wildest dreams,… you are quite free to “invest” any or all of the rest of your money on whatever investments look like they will make you rich. good luck with that.
one thing for sure … there are NO investments that will make ALL of us rich.
Except of course for the “growth in the economy” which is only partly due to real investments and none at all due to stock market speculation.