Yes Magazine Infographic: “Why Social Security is Not Going Broke”
subtitled: “A Nonhysterical Look at a System That’s Working”
I don’t know who Doug Pibel is but IMHO he just nailed it in this piece. I hope this meets the Fair Use Doctrine. If not be sure to share the link before we are asked to take it down.
Sounds pretty much like the facts as you and Mr. Cobberly have stated them here. Maybe now the truth has its boots on and will start to catch up.
Bruce,
Using his language:
simple fact: [an extremely high percentage of companies that have historically filed for bankruptcy have never] ‘go[ne] broke’. They may not have paid what they were contractually obligated to pay, but they rarely had no money at all.
He goes on to say, “Making Social Security solvent in the long run. . . ” implying that the program is currently “insolvent”, which means “unable to pay debts owed”
Some people use “gone broke” and “bankrupt” interchangeably, but I guess from a denotation perspective there’s a difference (can you have a denotation for an idiom?).
Before you get all defensive, I understand why government as a going concern is significantly different than a corporation as a going concern, but his clever word parsing doesn’t really add much.
M.Jed. I hear you, but—
The government isn’t a business and Social Security is not just another part of government. As such it has its own vocabulary. Including its own meaning for ‘solvency’.
In Social Security lingo ‘insolvent’ is the equivalent of ‘out of actuarial balance’. In contrast ‘sustainable solvency’ means ‘in actuarial balance for the projection period with a stable or rising 100% minimum reserve’.
There is also an intermediate definition of ‘solvency’ that treats the 75 year period as closed rather than open. Which is why the current 75 year actuarial gap can be cited as 2.66% or 2.72% depending.
So I don’t have any particular issues with calling Social Security ‘insolvent’ as narrowly defined.
Now I have big problems with calling it ‘bankrupt’. Because despite the term of art ‘unfunded liability’ under current law is no ‘liability’ at all.
‘Unfunded liability’ as it pertains to Social Security is the PV sum of the amount needed to fund the future gap between Scheduled and Payable Benefits. But no one has a legal right to Scheduled Benefits, at least to CURRENT Scheduled Benefits, Congress can and has changed the Schedule at will and there is a Supreme Court case that at least tangentially backs this up. Instead under current law in the event of Trust Fund exhaustion and so the abiilty to backfill the gap between the Schedule and benefits Payable for tax revenues, the Schedule simply resets to Payable and in a stroke eliminates that so called ‘unfunded liability’. Now you can argue, and the authors of NW implicitly do, that there is a moral obligation to meet the schedule, and most people acknoweldge that there would be strong political pressure to meet the schedule (which is one reason why ‘reformers’ want to act NOW – to bleed off pressure at the end point). But when push comes to shove there is no legal obligation and so no way to force Social Security into ‘bankruptcy’.
So as the article points out Social Security can never be ‘flat broke’, not as long as FICA is being collected at some level, and I argue that it can never in fact enter a state of ‘bankruptcy’. But it can be ‘insolvent’ when measured over a given period. Maybe this is an awkward word choice given other connotations and denotations of ‘solvency’ but it kind of is what it is.
MJed
with all due respect to you and Mr Webb
99% of the people won’t understand the jargon, and it doesn’t matter.
The fact is that we can pay for a retirement benefit that is equal in real value to today’s, or more, on a month to month basis, and will run for at least about an extra two years because you are going to live longer than your grandparents.
We can pay for this with about an extra eighty cents per week each year… out of an income that is expected to rise about eight dollars per week each year… leaving us twice as rich AFTER paying for our longer, richer retirement.
And we can do this without “increasing the deficit” or “the debt.” Or “taxing the rich.”
Concepts such as bankruptcy and insolvency are not appropriate.
It makes as much sense as saying that if the price of bread will go up in twenty years and we don’t have enough money in the bank today to pay for it, we are insolvent, broke, bankrupt. This is nonsense.
Nonsense created with malice by the Petersons, and bought into by people who should know better but think they can somehow persuade the rich to pay for the “actuarial deficit” and save the poor poor eighty cents per week.
Nonsense. Damned nonsense and criminal stupidity.
The author gets some things right, but he is fooling himself with “making the rich pay “their fair share””.
Social Security was designed by Roosevelt to be worker paid..not welfare.
The rich do pay their fair share. They pay 12% of their first 100k or so… enough to more than pay for the benefits they will get plus contribute to the benefits that the poor will get.
Greed and stupidity on the left is no prettier than it is on the right.
Thanks Bruce.
As for But no one has a legal right to Scheduled Benefits, at least to CURRENT Scheduled Benefits, Congress can and has changed the Schedule at will agreed, and therein lies the rub.
This simple fact is overlooked seemingly as often as the idea that SS cannot ever run out of money. Or at least is not presented front and center when defenders of the program argue their case.
I vote for option #4, which is to just let it be. By most scenarios, if the system is simply left alone it will continue to pay a positive rate of return for most recipients -this is so even after the 2030-something wind down of the trust fund. No need for hysteria.
The three options presented are worse than doing nothing, and in fact #2 and #3 are hysterical in multiple senses of that word.
Funny – I wrote a comment at the Yes mag, and sure enough it comes up, my pic and all.
But 30 minutes later it is gone. I guess that is the Fair and Balanced thing…
The now deleted comment:
Pibel should have waited a few days on this article. A new SS TF report to Congress is due out in days. The estimates of the cost to ‘fix’ SS will go up from the numbers here. (CBO has the cost at 3.6% in its April 14 update)
But let’s use the 2013 estimated Income Subject to Payroll Tax number (from SSA=6.2T), and multiply that by the new 2.9% increase. What does that mean in real dollars? It comes to a $180B tax increase in the first year – and then rising every year – forever! This would be a very big tax increase, and it is regressive – the worst kind of tax if the goal is fair(er) income distribution. Ask any economist, of any stripe, what a tax increase of this size on lower middle class workers would do. It would knock more than 1+% off of GDP – a very bad idea that will not happen.
Raising the cap to 197,000 from 117,000 does not work. In 2012 SSA established that 5 million workers fell into this income group. Use the article’s $5360 per person, and you get $26B. A far cry from the 180B cost in the first option. And do you really want to hit the upper middle class with this cost? The top 10% is at $250,000. so this tax idea means little to them. A flaw in my opinion. link to the SSA data on who made what in 2012:
http://www.socialsecurity.gov/cgi-bin/netcomp.cgi?year=2012
Eliminating the cap would make a big difference. That would mean that a Pro ball player making 10 mil a year would kick in 1.2M into SS (Versus with the current cap of only $14,500). BUT the problem is there is a formula that determines benefits that is driven by contributions. In the same way that the Cap limits income, it also limits expense. Eliminating the cap mean that the Baseball pitcher will be getting checks from SS of $50,000 a month at age 65. This is a dumb fix for SS.
To really fix SS you have to eliminate the Cap AND change the benefit formula. In other words socialize SS. Make it a vehicle to redistribute income.
Roosevelt would roll over in his grave if this were the case. I don’t think it would get any support on either side of the aisle. So the idea that there are a few ‘solutions’ at hand is not clear to me.
Krasting a projection of an “”I&P increase of 2.9%” as one revenue based fix doesn’t preclude others. Say a phased in version. Like NW. So your $180 bn figure is in the context of this discussion meaningless because nobody is seriously proposing that as an actual policy response. Instead it is an effort by CBO to fairly literally frame the discussion. Obviously they acknowledge other responses, indeed reformers have a whole variety from Chained-CPI to means testing to price indexing to offset that 2.9%. On the other hand NW has its own approach which is to phase those increases in over time at a rate that is right around 7% of the projected increase in Real Wage. So your analysis of the immediate impact of a 2.9% increase in FICA is an exercise in futile scaremongering. Because exactly nobody I’d proposing it. Except people like you who are putting it up as a Strawman.
And one that will not be changed much even if the actuarial change is as much as you predict. Your argument only has force in the absence of Northwest which you are ostensibly opposing.
Krasting knows that what he is saying is not true.
People can continue to pay for their own social security forever. Either by “doing nothing” and taking a benefit cut in about 2030 or by raising their own payroll tax… about 2 or 3% (combined.. that’s 1% or 1.5% for the worker) would be enough to pay for the next 30 years, and another 2% would pay for essentially forever after that. Or they can pay an extra one tenth of one percent (each) each year from about 2018 to about 2040 and that would pay for SS forever.
Krasting is famous for getting half facts and completely failing to understand how the facts all work together and then announcing some plan that would destroy Social Security.
” So the idea that there are a few ‘solutions’ at hand is not clear to me.”
Which tells us about you, but doesn’t shed much light on the issue.
I got a suggestion. Let private firms run employee post-retirement benefits on cash basis accounting – let us undo some of the nonsense in ERISA. Any cash they receive in premiums paid by workers that is in excess of the cash paid out to retired beneficiaries can be put in a fund that invests 100% in said corporations bonds.
As Bruce points out
there are a number of ways to “fix” Social Security. I do not know what the next “immediate and permanent” number will be.
I just did a quick spreadsheet that showed an immediate one percent each increase in the tax (in 2015) followed by a similar increase in about 2048, would solve the 75 year “actuarial insolvency.”
I did it as an exercise just to see. I think the one tenth of one percent per year or “whenever the Trustees project “short term actuarial insolvency” is a better solution, maybe the best solution.
The details would make small difference that might or might not be important. But the basic point is that a “fix” is easy and cheap, if you can find a way to keep the liars from confusing you. And that’s hard because the Liars have a LOT of money to spend on spreading their message.
I have not previously thought that Krasting was a PAID liar, but his persistence is making me begin to doubt.
@Bkrasting
“To really fix SS you have to eliminate the Cap AND change the benefit formula. In other words socialize SS. Make it a vehicle to redistribute income.”
You obviously are incapable of having sympathy for victims of rape.
And M.Jed. Nobody Defender or not argues that the Schedule CAN’T be changed. Because ALL ‘reform’ plans would change it. The question is not about “can” but about other modal auxiliaries including “should” “should not” and “must”.
The argument of most ‘reformers’ falls into the ‘must’ category with the justifications in turn mostly falling along the lines of “unsustainable”. As in “We don’t want to cut Granny’s pension but have no choice” (because of ‘crowding out’ ‘inter generational inequity’ ). The NW Plan is among other things a counter to “must” in the form of “why not this instead”. To which most of the responses fall into the category of “Look over there! It’s Halley’s Comet”. Or as with Krasting desperate attempts to conflate it with “I&P”.
My choice of modals would be “We CAN afford Social Security” and “We SHOULD provide at least the Schedule”. To that degree the fact that “We CAN (per the Supreme Court) change the Schedule” is not front and center for good reason. Unless the other side establishes the “Must” or “Should” the “Can” is irrelevant.
i shouldn’t have to say that i think doing nothing and taking the benefit cut is not wise.
not when an extra eighty cents per week per year buys you about 4000 dollars a year extra benefits. and yes the math works out.
but it dismays me that everyone is still out there hawking some half thought “better idea”…. when eighty cents will fix it.
Calling Krasting a ‘paid liar’ might go beyond the evidence. On the other hand he has claimed first hand acquaintance with Biggs. And Kotlikoff. Who in the view of most policy analysts I know (and I know a lot on the pro-SocSec side) are indeed themselves well paid advocates for anti-SocSec policy positions.
Let’s just say that many ‘advocates’ whether practicing law or policy are not adverse to dropping some coin for “expert testimony”. Eve or especially if they know in advance the direction of that testimony.
So maybe BK is NOT a liar. He might just be on the same level as a Tobacco Industry health scientist or a Big Energy climate scientist.
Or a wannabe. But clearly he is trying to bolster the case of those advocates. I only hope they are throwing him some coin. Because that at least would be an explanation.
@Coberly
“4000 dollars a year extra benefits”
That sounds really big. Until you take $4,000 45 years from now (when a 20 year old today hits 65 and present value it using lets say 3.5% rate of inflation. Then the number shrinks to less the $900 in today’s dollars.
“and yes the math works out”
80 cents per week this year over 45 years (growing at 3.5% inflation) and $4,000 a year at no inflation for 10 years thereafter is an IRR of 8%. Any of those Treasury bonds in the SS Trust Fund yielding 8%?
Coberly “half thought better idea” is a little judgmental.
Yes it is true that in the Land of the Blind the One-Eyed Man is King.
But that does not mean that the One Eyed Man is by definition the best Ophthalmologist and judge of everyone else’s lack of eyes. Sometimes there is a Mote in Thine Own (One Good) Eye. Maybe not everyone else is quite as blind as you assume and assert.
To switch turns of phrase, Self Righteousness can be either a Virtue or a Mortal Sin. And Man is not always the best Self Judge.
Bruce
stop fighting with me. i am not the enemy.
Jay
it’s not a good idea to try to reason when you don’t know half the facts.
the 80 cents and the 4000 dollars are constant dollars.
maybe this will help you… the 80 cents is one tenth of one percent of a weeks average wages today.
take one tenth of one percent per year for 20 years… that adds up to 2 whole percent. add in the employers share… that makes it 4 percent.
4 percent of an average years wages (today) is .04 times 40k or 1600 dollars per year.
note that there will be two workers for each retiree… that makes 3200 dollars per year available for each retirees benefits.
but during that 20 years the average wage will rise to about 50k… leading to (the math is left as an exercise for the student) about 4000 per year available for each beneficiary.
Bruce
actually not sure who is setting themselves up to judge who.
this is not about who is king, bruce or dale. i never wanted to be king.
but my math is right, as you well know. now look at the other math, if you want to call it that, being presented here. and maybe you can see my frustration in trying to deal with what they call their “ideas.”
Krasting said
“But let’s use the 2013 estimated Income Subject to Payroll Tax number (from SSA=6.2T), and multiply that by the new 2.9% increase. What does that mean in real dollars? It comes to a $180B tax increase in the first year – and then rising every year – forever!
you see Krasting begins with an “immediate and PERMANENT” fix and in the next line has it “rising every year.”
this is the kind of crap we have to put up with from Krastign.
also the 180Billion doesn’t tell you much unless you are making 6 Trillion dollars a year.
a 2.9% increase on an average paycheck would be 1160 dollars a year. of which the employee would only pay half.. about 580 dollars a year or just over ten dollars a week.
I’d rather get there 80 cents per week at a time. but even the ten dollars per week is going to be hardly noticed by someone making 800 dollars per week.
but Krasting thinks the sky is falling. we’re all going to die if we have to pay an extra ten bucks a week to be able to retire on time.
anyone who agrees with him needs to grow up and think very hard about what it costs to pay for twenty years worth of groceries and rent when you are too old to work.
Webb – I agree when you say that there is no one waving a flag for an I&P solution (I said that no economist of any stripe would support it, and there would be no political support for this either).
But you are proposing an all tax increase solution to SS’s shortfalls, and if your plan is constructed properly it will have the same NPV as the I&P alternative. Your plan for tax increases must be identical to the I&P on an NPV basis (or it is garbage),
You propose to raise taxes significantly above the 2.9% I&P rate over time. So your plan would also get no support from economists or politicians.
Your plan creates much more pain for future generations than the I&P alternative. You are penalizing my children (and my children’s children) so that the Boomers get a free ride. What kind of plan is that??
Webb – You say of me:
“he has claimed first hand acquaintance with Biggs. And Kotlikoff.”
Your words are a bold face lie – and you know it. Shame on you!
And yes, I would support Progressive steps to shoring up SS. I want to means test benefits so rich seniors do not get paid and I want to raise SS taxes on high end incomes. I want to change the benefit formula so that people who have high life time incomes do not get a retirement check from SS that would exceed the benefits determine under the current cap.
I do not want to socialize SS, but I think that doing so would be a far better option than raising taxes on the middle class by 2.9% today or 4% in 20 years.
And as for support, well those economists would side with me, and I suspect that most politicians would too. Face it Webb, an all tax increase solution to SS, whether it be done up front with a 2.9% I&P or stretched out over 20 years is D.O.A. Yet you flog this idea on a near daily basis.
@Coberly
“note that there will be two workers for each retiree”
More of your fraudulant cash-basis accounting, as opposed to accrual-basis accounting. You must have been one of those accountants at Arthur Anderson back in the day.
“add in the employers share…”
So what you really meant was a $1.60. See Krugman/Wells for why the employers share of FICA is taxes coming out of the pocket of the employee – these fancy wonkish things called tax incidence and elasticities.
“but during that 20 years the average wage will rise to about 50k”
So your $4,000 figure is from 20 years in the future.
Coberly – a 2.9% I&P would generate $182B in 2014 if it had been implemented on 1/1/14. The same tax rate would generate $194B in 2015, $258B in 2020 and $316B in 2025. So yes, the taxes collected would rise every year.
On the NW plan. If it were implemented in 2015, and the 0.1% increase (worker share) were to occur every year for the next 20, then the first year would cost the average income worker about 94 cents (no so far from your 80 cent number) But by 2025 the annual cost for the average worker would rise to $6 a week, or $313 per year. In 2030 you are still raising tax rates and it now comes to $759 a year ($15 per week). and when you are finally done raising taxes in 2035 your tax increase will cost the average worker $2,245 a year ($43 a week).
I understand why you focus on only the employee cost (and only the first year’s result) when you spin your numbers. It makes it ‘sound” better. But this excludes half of the cost to the real economy. Raising payroll taxes on the self employed or larger companies will also have a negative consequence on the broad economy. The debate (outside of SS) is for tax rates on employers to be lowered to international levels. We live in a global village, Raising the real costs on employers in the US over time will just push more jobs out of the country to lower tax jurisdictions. What you think is a ‘fix’ for SS is actually a very bad remedy for the broad economy. In this case what is good for the broad economy is also good for SS (more workers contributing). Your plan will end up costing workers more, and be a drag on the economy (as would the I&P). That’s bad economics – bad mojo!
Jay – you say of my comments on SS:
“You obviously are incapable of having sympathy for victims of rape.”
I want to be very clear – I think that rape is a heinous crime. A crime that should be treated by society, the police and the courts as a crime that is equal to premeditated murder. In my book if one is a rapist, they go to jail for life. I have zero tolerance for rape.
So please do not, in any context, connect my advocacy for socializing SS to the word rape.
Elizabeth Warren (D-Ma) has big clout in the Senate, and she has nationwide support. She is now, and will in the future, be a leader who will be shaping policy when if comes to ‘fixing’ SS. She is advocating that SS be socialized in a number of important ways. So if you want to throw stones, throw them at her. I just happen to agree with the direction she is taking.
Please note that Krasting directs your attention away from his enormous stupidity about an “immediate andPERMANENT ” fix “going up every year”
to a dishonest distortion of what I have been saying on Angry Bear for the last seven years or so: a one tenth of one percent raise in the tax for each the employee and the employer… which would be seen by the employee as an eighty cent per week cut in his take home pay…
now becomes some fiendish plot by coberly to pull the wool over your eyes and disguise the enormous dollar-sixty per week “cost to the economy.””
and you are supposed to think that “cost to the economy” means something.
even though that dollar sixty is immediately spend by some old person who otherwise would have no money to put into “the economy.”
even though that worker’s eighty cents…. or dollar sixty if you take that view… though the worker never saw or would have seen that other eighty cents… comes back to him as about about three or four dollars when he gets HIS retirement check forty years later.
Thing with Krasting is he has no idea what he is talking about, but he can twist facts and imaginary causal relationships through the ugly mirror of his own mind and hope that some of it sticks in yours..
Jay
see my remarks re Krasting above. they apply to you. except that you are breaking new ground in stupidity.
of course the 4000 applies to the future. when you did your “NPV” calculation what the hell did you think YOU were talking about?
so read it again… raising your own tax eighty cents per week per year will make 4000 dollars difference in your benefits when you retire.
actually it will make more, but first, the math gets too complicated for you and second “the math” is not “the reality.” we just don’t know what the world is going to be like in 40 years.
my whole point is that the Trustees “9.6 Trillion Dollar Unfunded Deficit” amounts to a need to raise the tax one tenth of one percent… about eighty cents per week… for each of about twenty years.
you can flop around and show your ignorance all you want, but that fact is a mathematical fact. all of your own brilliant insights about the economy are just your personal B.S.
come back when you understand what we are talking about.
Krasting
thinks of Social Security as a “tax.” And by a tax he takes the “business view”… a payment of money that does “the business owner” no immediate good.
but he, and Jay, also call “the employer’s share” “really the employees money.” IF it’s really the employees money, it is not a tax on the business. It is effectively the employees wage. A wage which is “invested” by the government in a program that protects that money from inflation, interest rate fluctuations, market losses, and some kinds of personal bad luck. The employee gets his “tax” back with interest… in some case a LOT of interest, but always with enough interest to at least cover inflation… when he will need it most.
This money is not “lost to the economy”… it is spent immediately by the folks who already retired… having paid their “tax” in their turn while they were working.
But as far as Krasting can “think”… the only thing that matters is that American business pays less than Chinese business. See, If we can only get American workers to live like chinese workers we will be as good as the chinese.
And instead of costly retirements, we can use old people as organ donors and pig food.
As for “fraudulent”
I have been as careful as I can to explain ALL of the facts and what they mean.
If someone like Jay, or Krasting, can’t remember all of the facts or understand them, but can come back and accuse me of fraudulently misrepresenting them… and accompany their “case” with some hand wave garbage “economics’ that makes no sense at all
and fool readers who can’t remember first that i explained all the facts , and can’t see that the hand waving “arguments” are not arguments at all… the words don’t mean anything and don’t go anywhere even if they “sound like” they do…
then the readers will be fooled, along with “the media”, and the congress
and the workers will lose the protections that Social Security gives them.
i can’t make you think. i can only try to get you started.
Okay Coberly – you finally got to me. Your latest comment got me laughing so hard it brought tears to my eyes:
“we can use old people as organ donors and pig food”
Are you out of your mind? How can you say hysterical things like that?
Senator Warren would never let the end result be a cost born by the 50+% of the seniors who need SS to subsist. Neither would I. So if it came to cutting benefits I would not do it across the board, I would do it in a way that took the most from those seniors who thrived in their lives, and bend it toward those who did not. That is changing the formula. This is a step toward socializing the system. It’s a better safety net.
IMHO cutting benefits for seniors who still have high incomes, and large assets (think Warren Buffet), is preferable to raising taxes on middle class incomes for the next 75 years. I think the good Senator might agree.
PS I do hope the bit about pig food goes viral. I’ll tweet it around to give it a start.
Krasting said
“I would do it in a way that took the most from those seniors who thrived in their lives, and bend it toward those who did not”
This is what Social Security does. It does it the same insurance “takes the most” from those who don’t have the fire and gives it to those that did.
But it does it as insurance and not as welfare.
Krasting doesn’t even understand this much.
But the purpose of his last post was to pull you further and further away from his claim that an “immediate and permanent” fix would “go up every year.”
Which showed that he doesn’t know what he is talking about. Or hopes you don’t.
Someone needs to ask Jay
exactly what “cash based accounting vs accrual based accounting” has to do with anything.
Jay throws around words he must have read somewhere and which he understands no more than he understands “NPV” but, hey, the words sound so professional, he must be an expert, and his argument must be right, right? whatever it means.
as for Krasting
one of the techniques of the Big Lie is to keep talking, ignore any mistakes you make, keep talking. the people will forget the mistake in the next slurry of words. and if any of those words can establish an EMOTIONAL link in the minds of the hearers between something they want to believe and what they think you are saying… you don’t have to make sense. in the long run you have “as everyone knows…”
Cutting benefits for the wealthy isn’t going to help much – they have a high proportion of the wealth, but they don’t receive a significant amount of Social Security (because the cap on taxes also caps benefits). If you want the wealthy to contribute to improving Social Security’s finances, then raising the cap will help a lot more than cutting their benefits.
Bruce:
http://crooksandliars.com/2014/06/mikes-blog-round-0 You were picked up at Crooks and Liars Mike’s Blog Roundup
Mike B
raising the cap does much the same as cutting their benefits. it means they are paying for something they don’t get. that is welfare.
Social Security was designed to be “worker paid.” You get what you ay for. Because part, at least, of what you are paying for is insurance in case you don’t do as well as you expect, at the end of the day those who do “better than average”, while they get a higher benefit… because they paid for it… don’t get as high a PER CENT “return on their investment”… part of that return goes to pay the “insurance benefit” to those who did not do as well as average… that is, those who had the fire.
Social Security works very well exactly because it is NOT welfare.
And if you can pay for it yourself … get more money because you are going to live longer… with an extra eighty cents a week, why do you want to go begging for welfare from the rich?
or turning their Lie into a “truth” by forcing them to pay for your retirement.
when they pay for it they will decide when you can retire and with how much. when you pay for it, you… and your fellow workers… can decide when you retire and with how much because “I paid for it myself.”
What is it that people don’t understand about “eighty cents per week” that they want to, desperately, find some way to make someone else pay for it, or “win” it on the stock market?
Even if you take the view that the employers share is “really” your money, then what is it about a dollar sixty a week that you don’t understand. A dollar sixty out of eight hundred dollars a week is not an amount of money you would even notice, let alone feel.
And even if you, oh smart fellow that you are, recognize that the dollar sixty goes up every year and eventually become 4% of your wages… can’t you multiply 4% times 40,000 dollars (we are talking constant dollars… trust me, inflation and growth in wages.. don’t change anything but the names of the numbers) is 1600 dollars a year.
And before you quite faint and fail, multiply that 1600 dollars times 40 years of working and you get the staggering sum of 64,000 dollars.
oh, my heart! oh my head! how can i pay that staggering burden.
well, if you are ever going to retire, that’s what it’s going to cost.
that 64000 will cover about three or four years of very basic costs in retirement. you are going to have to pay that much however you get the money… from the rich, from the stock market, from the lottery… and it alll “comes from the economy.” and goes back into the economy.
Krasting and Jay are talking nonsense because they know you won’t bother to think this through.
by the way, while you are paying that 64 000 dollars, your 40 thousand dollars time 40 years is one million six hundred thousand dollars. Maybe you can afford to set 64 thousand of that aside so you can live an extra three or four years in retirement.
That is if you have the least idea of what the numbers mean, and what reality is.
and, note, this was “constant dollars at constant wages.” In reality you’d have to find a lot more than 64 thousand just to meet inflation. And in reality the rising wages of each generation…. pay as you go… not only meets that inflation, but pays an effective interest on the order of 2% “real” interest. Much more if you end up poor. As most people do.
More help for Jay
if you think that eighty cents per week is “fraudulent” and the boss’s contribution is “really” your money and so your contibution is “really” a dollar sixty
you have to remember that your wages going up by eight DOLLARS per week … as predicted… are “really” going up by eight dollars and eighty cents per week … so at the end of the day your wages are going up… after you pay the payroll tax… by seven dollars and twenty cents per week, whatever you want to call “the boss’s share.”
but hey, you can always spend your life thinking your sister got the biggest piece of the burfday cake.
pardon me for the extended rant
“the problem” is that you are going to live longer than your grandparents.
you won’t want to work longer, because even if you live longer your knees and back and brain are not going to be in such great shape, and you might actually get sick of your job, even if you can find one when you are over fifty, let alone sixty.
so the problem is how are you going to pay for all those years?
you CAN pay for them by raising your payroll tax about eighty cents (in today’s money) each year.
or you can win the lottery.
or you can win the revolution and make the rich pay.
or you can get rich on the stock market (how is that 401k coming?)
maybe you are old enough to start trying to think straight about this.
or you can go along with those who believe “low cost is out there.”
that is some combination of a better economy and a government that keeps “the rich” from robbing you will enable you to pay for your longer life expectancy without raising the payroll tax.
but note that you will pay the same money at the same tax rate with the higher wage, as you would pay with the higher tax rate with the lower wage.
the way the “northwest plan” is designed, if your wages go up, the tax rate doesn’t. I think some people who should know that have forgotten it.
Coberly,
I simply made the claim that, in terms of improving the finances of Social Security, raising the cap would be a lot more effective than cutting the benefits of wealthy recipients. I am not necessarily in favor of raising the cap, but I am not necessarily opposed to it either. I don’t agree that raising the cap means “they are paying for something they don’t get.” They’ll still be getting Social Security (and if the cap is raised, then they’ll get more, since benefits are based on average wages on which Social Security taxes are paid). I also don’t agree that that would make Social Security “welfare.” It would make the program’s benefits, which are progressive now (low-income people get higher benefits) somewhat more progressive. I don’t think there’s anything wrong with that.
Obviously, above I meant low-income people get higher benefits relative to what they paid in taxes.
Mike B
it depends on the details
if you can sell it… and i think you can… raising the cap while raising the benefits at the high end would make SS a “little” more solvent… what part of 80 cents is it that you are worried about?…. but it might be a good deal for those “near rich” who could lock in a bigger “sure thing” for their retirement… in case, you know, their stocks go bust again.
but trying to sell it in the climate where the Peterson gang is screaming “huge tax burden” is going to backfire and guarantee you get a cut in benefits for the “middle” and “means testing” for the poor.
I think your understanding of the payout schedule could stand a little refresher. As I said, it all depends on what that schedule is AFTER you raise the cap, IF you can raise the cap, and it won’t amount to a dimes worth of difference to that 80 cents your are going to have to come up with.
Coberly – The 80 cents doesn’t worry me, and the Northwest plan is fine with me. I’m just willing to consider alternatives. One reason to raise the cap is to correct for the fact that more income has been going to the people over the cap, so a smaller fraction of total income is taxed for Social Security.
The Peterson gang is going to scream “huge tax burden” about your plan also. And as long as they’re screaming for cuts, then I think it makes sense to push for increasing the payroll tax and raising the cap, and maybe a compromise will be something like the Northwest plan. Otherwise, the compromise is going to be between those who want to increase taxes and those who want to cut benefits, and the compromise is to do half of each. But I don’t really know how the politics is going to play out.
I think I understand the current payout schedule just fine. For the first $816 in average indexed monthly earnings (AIME), you earn 90% in monthly benefits. For amounts over that up to $4917, you earn 32%, and above that up to the cap, you earn 15%. If the cap is raised, simply extending the 15% region to the new cap would be fine with me. So people above the current cap would get the same increase in benefits for each extra dollar taxed as they do now for every dollar from $4917 to the current cap (about $10,000 per month).
Mike B
i don’t have much quarrel with what you are saying, so this is largely academic.
I don’t think lifting the cap would do that much for Social Security’s finances.
I do think that for most people with over the cap income, the extended benefits would not be worth the price. They can get a “higher return on investment” eleswhere, and they do not believe they need the extra insurance.
I am rather stupid this way: I can’t see what anybody gains by “compromising” some part of eighty cents per week: you want to save yourself forty cents per week in order to lose 2000 dollars a year in benefits? What the hell kind of a “compromise” is that?
Is it a “compromise” because I already put the 80 cents on the table, and the idiots can’t understand that 80 cents is nothing, so they want to save you half of nothing in return for gutting benefits that are already set at survival level?
If that’s the way people think, then maybe calling for a “scrap the cap” sets the stage for a compromise where we don’t scrap the cap but do raise the tax under the cap enough to pay for the benefits of those paying the tax (?)
as for “correcting for” the fact that more income goes to those over the cap than previously, that misses the point of SS being insurance. You don’t raise the insurance rates because more people are making more money, you raise the insurance rates because the cost/risk of the payout increases.
If 100% of the people had income over the cap, you would not increase the tax if all the insurance people needed was paid for by the 12% “tax” on the part of their income under the cap.
Even if I make a million dollars a year, I may only want enough insurance to pay me a benefit of about 30k per year in case all my other income dried up and i lost everything the day before I needed to retire.
And I would base that decision on the cost of the insurance vs what I thought i had a reasonable chance of doing with the money I would otherwise use to buy “more” insurance.
It seems to me that you… no offense… and a lot of other people are trying to see this as “really” welfare and “the rich should pay.” A kind of a blow for universal justice. But SS was NOT designed to be that way, and it wouldn’t have worked as well as it has for seventy years if it was.
Coberly – I don’t have much of a quarrel with you, either, and this is also largely academic to me. I am over 55, so most plans to cut Social Security wouldn’t affect me, and I might be retired by 2018 (when the Northwest plan’s tax increases start). But I think Social Security is a good program, so I want to see it continue in as strong a form as possible for younger people than me, and I am for whatever plan achieves that and can be implemented.
As for “the rich should pay” and “universal justice,” well, I don’t think that I think that current wealth distribution represents “justice.” I don’t think Social Security is the place to address this problem, but if it does in a small way, that’s fine with me.
Mike B
It already does. It is the most successful anti-poverty program in American history. And the rich do pay their “fair share.” It wouldn’t work if they didn’t.
What’s wrong with trying to make them pay more is that it will help the crazies to kill the program.
TAXING THE RICH more for everything else would mean the Government would not look so hard at SS to take up the slack and a less chance of benefits cut.
Mike Meyer
as long as the rich are taxed they will make the government look at ways to cut the things that don’t benefit them directly.
currently cutting SS benefits will NOT do a damn thing to help “the budget” because people pay for their own SS.
The Big Liars pretend that “the government” pays for SS because they want to kill SS for other reasons.
I don’t know if the Congressmen are too stupid to understand this or if they are just paid by Peterson to sound stupid. But I don’t see what good it would do US to take what Peterson says now as a lie and turn it into a true.
Mike
I read this today on another web site. It made me think that there might be something about the brains of “successful businessmen” that is similar to the “psychopathic brain” this guy is talking about.
http://act.alternet.org/go/47481?t=17&akid=11872.110491.RWzWYm
@Coberly
“exactly what “cash based accounting vs accrual based accounting” has to do with anything.”
Firms that offer pensions – which on principle are no different than social security – have to expense deferred benefits in the periods they are accrued (earned). In the case of social security the deferred benefit accrues in the period the tax is collected. You talk about reducing the unfunded liability by increasing tax rates but you ignore the fact that raising the tax rate will increase future benefits for people paying the higher taxes, i.e. adding to the liability.
“so the problem is how are you going to pay for all those years?
you CAN pay for them by raising your payroll tax about eighty cents (in today’s money) each year.
or you can win the lottery.
or you can win the revolution and make the rich pay.
or you can get rich on the stock market (how is that 401k coming?)
maybe you are old enough to start trying to think straight about this.”
You missed an option. Invest $1.60 a week on your own in a US Treasury mutual fund. But an idiot couldn’t figure that one out.
Jay
no an idiot wouldn’t know that Social Security is insurance and your mutual fund will not pay insurance…
firms that offer pensions are in principle entirely different from Social Security. but you’d have to know something about Social Security to figure that out.
and you don’t seem to understand how increasing the tax rate reduces the “unfunded” liability forever…
i think you have a lot to learn.
Jay
you are somewhat like the jungle savage who has never seen anything move except on legs.
a car comes into the village and he looks under it to see where the slaves that move it are hidden. the driver tries to explain to him about the motor and the driveshaft and wheels. and he nods and smiles and winks and says, “but where you hidem slaves?”
Coberly: Social Security IS NOT an insurance policy. It is a TAX.
An insurance policy GUARANTEES a return. It IS a contract.
YOUR very mention of a decrease in benefits shows a lack of a CONTRACTURAL GUARANTEE.
Mike Meyer
keep up the good work. if you say it loud enough it must be true.
@Mike Meyer
Remember Proggers don’t believe that accrued Social Security benefits due are assets – see Proggers use of the SCF data and that the metadata clearly states that accrued benefits are not included in the wealth data.
@Coberly
“no an idiot wouldn’t know that Social Security is insurance and your mutual fund will not pay insurance”
You can mimic the cash flows of social security private sector financial products. Invest FICA taxes in a Treasury mutual fund. Pay for disability insurance. Buy an annuity when you hit an age eligible to receive social security.
The thing you are too retarded to understand is that in finance you can transform one cash flow into pretty much any other cash flow.
Jay
get back to us when you find a mutual fund that will pay you more when your “investment” comes up short after a lifetime of investing, but not having had enough money to invest enough to get enough back to pay for basic living expenses when you retire.
as for retarded: you have a choice,… you can actually learn how social security works or you can remain loud and ignorant the rest of your life.
Life insurance contracts “guarantee returns”? Please explain.
Little John,
Sure! The only catch is that you have to die first.
Yeah, unfortunately the insured doesn’t know if the IRR on the death benefit is going to be 10,000% or 7%.
jerry and john
maybe the two of you would like to come up with a “rate of return” on social security.
first thing to note is that the “average” rate of return is pretty meaningless. the whole point of SS is insurance. and there are several variables that need to be looked at that make a huge difference but get washed out in the “average.”
i came up with some numbers that seemed “close” to the official estimates at the high and middle end. but much, much, higher at the lower end where it counts.
I am not particular concerned with the rate of return. The main advantage of SS is that it is essentially a forced savings plan that sets a base for retirement. Many people particularly at the lower end of the wage scale cannot or do not create that base on their own.
That would be way over my head Dale. However, in today’s interest rate environment one way life insurance to the super affluent is being pitched is as a “separate, uncorrelated” asset class. A way to diversify your estate. Typically the IRR on death benefits at life expectancy is around 7%. Of course if you have a fatal accident in policy year two the IRR on the death benefit is in the 10,000% range. So, the “guaranteed returns” of a life insurance contract are far from guaranteed. Whole life contracts can guarantee cash values but typically positive rates of return are not realized until years into the policy and even then the IRR on the cash value is around 2-3%. So maybe the question shouldn’t be, “What’s the IRR on SS?” but rather what’s the IRR on a permanent insurance policy, a DI policy and an annuity? I’ll bet the two IRR’s (private contracts and OASDI) are real similar. Of course there’s no underwriting with SS.
Totally agree Jerry. How do you value a forced savings plan? What’s the rate of return?
Re:”It made me think that there might be something about the brains of “successful businessmen” that is similar to the “psychopathic brain” this guy is talking about.”
I’m sure it occurred to others even earlier, but I’ve had that thought ever since Jack Welch became CEO of GE (circa 1981). One of the arguments for the Iraq invasion was that Saddam Hussein was a psychopath who should not be allowed to be in power. My reaction was, why go to Iraq for that – there are plenty of psychopaths in power right here – probably one or more in every block on Wall Street.
Back on topic, there are a lot of possibilities for confusion when discussing Social Security, among them: whether or not the employer’s contribution is being included when giving tax numbers; and whether a “2% increase in SS tax” means that a 12% rate would become 14% or 1.02*12% = 12.24%. I for one would like to see a spreadsheet calculation of future costs and benefits with comments which explained these details. Unfortunately it would require a long post and a lot of work by the poster. If anything like that has been done previously I would be grateful for a link.
Bruce Krasting has made several references to Elizabeth Warren, above, in an attempt to justify or support his opinions on the issue of the Social Security program, its funding mechanisms and benefits structure. He provided no citations in regards to those references to the ideas of Sen. Warren. That’s the first sign that Krasting is fudging the data. For example BK states, “Elizabeth Warren (D-Ma) has big clout in the Senate, and she has nationwide support. She is now, and will in the future, be a leader who will be shaping policy when if comes to ‘fixing’ SS. She is advocating that SS be socialized in a number of important ways. So if you want to throw stones, throw them at her. I just happen to agree with the direction she is taking.”
What a quick review of Sen. Warren’s statements brings to light is that “socialized in a number of ways” is not how she describes what she is proposing. “Expanding,” Social Security is more to her point of view. And how does she propose to raise Trust Fund income in order to maintain and expand the benefits structure of the program? Certainly not by cutting back on benefits, but rather by making the working class more capable of contributing more to the Trust Fund’s income. From a report in Mother Jones, “A less obvious, but effective way of directing more money into the Social Security pot, Warren said, would be to increase the federal minimum wage. “Raising the minimum wage means we have workers paying more in to support the Social Security system,” she said. Warren backs Obama’s call for a minimum wage hike from $7.25 to $9 an hour.” She goes on to note that, “….many in Congress and the media, are framing the debate over Social Security in the wrong way. “We should stop having a conversation about cutting Social Security a little bit or a lot,” she said.”
Krasting again references Sen. Warren, Senator Warren would never let the end result be a cost born by the 50+% of the seniors who need SS to subsist. Neither would I. So if it came to cutting benefits I would not do it across the board, I would do it in a way that took the most from those seniors who thrived in their lives, and bend it toward those who did not. That is changing the formula. This is a step toward socializing the system. It’s a better safety net.” Except we now know from one recent interview with Sen. Warren that that is not at all what she is proposing. So when it comes to ideas regarding how to move forward in regards to the Social Security program, both its funding mechanism and its benefits structure, we know that Krasting is most likely to confabulate and obfuscate the issue with distortions. He should be allowed no place at the discussion table.
Jim as a admin I actually have your posting e-mail so I you like can send our spreadsheets to that. Or you can e-mail me at SocSec dot Defender at gmail.
But the short answer is that the Northwest Plan uses percentage points meaning that a cumulative 2% phased in increase would take the rate from 12.4% to 14.4% This is in line with standard Social Security reporting.
Basically we have already done the work and I am currently in the process of crafting a website that will have it all available in downloadable Excel and PDF files. For those that want to examine the work in progress it is tied to the Google+ page for the above gmail account and the Social Security Defender blogspot website.
Jack the current position of what we can call the editorial board at AB is that Krasting’s value as a foil exceeds the net value of banning him. At least he uses numbers. However distorted.
A distant analogue would be Socrates’ interlocutors in the Dialogues transmitted/fabricated by Plato. A more contemporary reference would be “useful idiot”. But it is not like Siteowner Dan is oblivious to the process.
JimV
i can send you an excel spreadsheet that should answer your questions. at least it helped another reader not Krasting.
write me at peak (dot) org
re Krasting as foil
yes, i used to think that.
but there is also the matter of the Big Lie. by repeating the Lie in all of its forms you create ideas in the brains of folk who will never examine those ideas, but will act on them to the extent they trigger emotional responses that resonate with them.
so giving Krasting a form helps to spread the Lie. the bad memes or the false framing.
and drives me crazy.
FORUM not form.
i don’t approve of “censorship,” but there comes a time when the enemy is wearing you down by taking advantage of your kindnesses. you need to be able to say enough is enough.
Coberly: It is a TAX, sez so in the original SS Act. DI is a form of welfare. There’s absolutely nothing wrong with that, if fact, its the RIGHT thing for OUR nation to do.
Its NOT an insurance policy, so trying to compare it to one doesn’t work.
Its a TAX REFUND in the form of a monthly annuity that one may or may not collect as much as one has paid in or if one lives long enough, more.
Should one get run over by a car before age 62 one would not collect anything and will only have paid The TAX.
Its a socialist product paid for by TAXES. There’s nothing wrong with that and again its not broken to where it needs fixin’. The TF collects INTEREST off the funds it has lent out at a fair and honest rate and enough to live off of which nothing is wrong with that either.
Mike Meyer
I am trying to get people to look past the words to what SS DOES. It acts more like insurance than like a tax. My understanding is that the “only” reason it is ‘tax” is that the then Supreme Court advised the Roosevelt Commission that while it was doubtful the government could mandate a “forced insurance program” or “forced savings program,” it could enact SS under the “power to tax” clause.
In any case, SS is obviously both. But the people who insist it is a tax are usually playing on the emotional reaction to “tax” as “something bad” to turn people against it. And also confuse them as to how it works.
You don’t seem to quite understand how it works. I dont want to get into a fight with you about that because you are essentially on the good guys side. It’s just that rhetoric can hurt you, as can not understanding how SS works, as can trying to turn it into “welfare” which was one thing that Roosevelt was very clear about not letting it be. He was right.
As for getting people to look beyond the words to what SS DOES.. I am no longer sure that is humanly possible.
But SS is insurance. It insures you against deep poverty in old age. It does this by collecting enough money (in the payroll tax) to pay for “adequate” benefits to all the people who paid the tax. Because it is insurance it shifts some of the money from those who have more than enough (in benefits figured as a straight pay back plus interest of what they paid in) to those who would not have enough… because they never made enough money to save enough to pay for a barely adequate retirement.
You get people saying “it’s not insurance” because they think “insurance” has to be “just like” some other insurance policy they think they know about. Sort of like someone who had only seen (or noticed) robins as the “only bird” completely denying that a crow could be a bird because it didn’t have a red breast.
what makes it a “tax” is that you have to pay it to the government.
i suppose this means that having to stop at a red light is a tax, because as we all know from reading our Ayn Rand, time is money. And obeying traffic rules certainly takes away our pfreedom.
The interest that SS collects off the Trust Fund, and even the principle, is NOT a significant part of Social Security finances. The “interest” that you earn on your FICA contribution comes from pay as you go financing through the growth in the economy… specifically growth in average wage s times growth in working population.
So if for example in your generation there are a hundred people making a hundred dollars in wages and paying a 10% tax… that’s 10 dollars times 100 people or 1000 dollars collected from your generation.
By the time you retire, If population stays the same but wages grow to 200 dollars, that same 10% tax will collect 2000 dollars, and your generation will collect 20 dollars in benefits for every 10 dollars they paid in taxes.
The reason we are going to need to raise the tax is that the growth in the population times the growth in wages looks like it won’t be enough to pay the amount of benefits we have been used to getting.
We could cut benefits, raise the tax rate, raise the wage rate, or force the rich to pay for our benefits. Of all those possibilities the one that makes the most sense to me is simply to raise the tax rate…. it won’t have to be raised much.. about eighty cents per week per year… and you are still going to get more than twice as much back as you paid in.
Even if the “experts” with their NPV calculators can’t bring themselves to understand that.
CAUTION… above was highly simplified and written too fast. but i think that if you read it honestly it will help you understand where the “interest” comes from.
The INTEREST I was referring to is interest accrued from buying and selling T-Bills, which The SS Administration legally and lawfully does which also is fair and honest.
Want more benefits? Canvas Congress. John Boehner, I suggest, would be a good start. Here’s his number — 1-202-225-0600. The funding ALREADY EXISTS, one need only dig it out of Congress.
Mike Meyer
I know that was the interest you were referring to. That’s why I took the trouble to say that it’s not very important. And to try to explain where the important interest comes from.
Coberly: How can said interest not be important? It increases the TF which sustains benefits in hard times.
Mike
I said not VERY important. At the end of the day it makes about a 1% (of payroll) difference in the payroll tax.
The “interest” that comes from the growth in wages over time is much, much more important.
Mike not to raise a tempest in a teapot. But mostly SocSec does not “buy and sell” T Bills, mostly because Special Issues are not marketable. What the Trustees or more specifcally the Managing Trustee (ex officio the Secretary of Treas) and do is redeem issues as needed while accepting others. But none of this as far as I can see rises to the level of ‘buying and selling” in any way that would effect the secondary market in Treasuries.
If I am wrong please give me the details. Because I really want to understand this stuff and in my experience since 1997 none ot it is particulary straightforward. Now I am gaining a new knowledge about the difference betwen ‘Bills’ ‘Notes’ and ‘Bonds” and there does indeed seem to be a certain ‘marketablity’ about the first and maybe the second category that isn’t shared by the third. But trust me I am willing to take instruction from folks equipped to give it. (Sorry BK)
Bruce Webb: REDEEM is a sale. Redeemed for cash to benefit the retiree. Just because Treasury or the Fed are the only customers doesn’t mean they aren’t customers in a sale.
Coberly: YOUR idea of interest is simply inflation. When YOU first paid into SS those dollars bought more goods per dollar than today’s dollar.
NOBODY on today’s SS check is living like a king in THIS country, maybe in Mexico, but not here. They make the rent and maybe the groceries and not too much else. If it wasn’t for Medicare/Medicaid they’d be camped out under the bridge behind Walmart.
Mike
I don’t know where you got the idea i was saying SS recipients are living like kings.
the “interest” that comes from the growth in the economy is not “just” inflation… though just keeping up with inflation is a challenge for most private-market investors… it is also the REAL growth in the economy.
i wish people could hear what I say, and not the extended fantasies in their own minds.
the “average” worker earns something like a REAL 2% on his “investment”… that’s 2% MORE than inflation. Much more important, the “poor” worker earns up to 10% REAL on his “investment”. This is possible because some of what the “rich” worker would earn at the “average” rate is shifted to pay more to the poor worker. But these are “after the fact” shifts in income… just like an insurance policy shifts “return on investment” from the guy who doesn’t have the fire to the guy who does.
well “after the fact” may be a poor choice of words. one could say that “welfare” was “after the fact.” but the difference is that with insurance you pay into the pool before you know whether or not you are going to have the fire. with welfare, all those who play with matches take money from those who don’t whether or not they paid the premiums. and the people who don’t have a fire get their money taken away from them just because they didn’t have the fire, with no regard to what a reasonable premium for fire insurance would be.
i would have no quarrel with some “socialization of risk” version of Social Security (welfare) if that were “natural” to the American political situation. It is not. And attempts to welfare-ize Social Security will destroy Social Security by playing into the hands of the Liars who currently talk about SS as if it IS welfare…which it is not.
In the past the rate of growth of the economy, of real wages for workers, has been closer to 3% than 2%, and that provided enough Real interest (nothing to do with the Trust Fund) that “current” workers could pay benefits to current retirees that were more in real value than the payroll taxes paid by those retirees when they were working.
this is essentially the way ALL savings and investments work.
the official predictors of these things are now predicting that the future growth of real wages will be slightly less than it has been. to make up for the lower “real” growth in wages, the percent of wages “taxed” would need to be increased in order to provide the level of benefits we are used to. the increase in the tax is not very much… eighty cents per week per year… and the cut in benefits that would otherwise be required would do serious damage to a retirees ability to live in reasonable comfort… bare minimum comfort if they have nothing else.
so it seems to me the sane solution is to raise the tax that tiny amount.
now, just to scare people who can’t think, there is a kind of natural limit to how far this can go.
imagine an economy with NO growth in real wages, and imagine that the life expectancy is such that workers will need to be retired (can’t work, or find work) for an average of 20 years. and imagine that an average working career is 40 years.
on that basis if you needed about 40% of your “working wages” to live at a basic level of comfort, you would need to pay into your Social Security fund about 20% of your income. 20% times 40 years equals 40% times 20 years.
the reaction of most people seems to be, oh my god we’re all going to die! how can i live if 20% of my wages goes to “social security.” well the question is how are you going to live if it doesn’t?
or suppose the miracles of medical science mean you will live 40 years in retirement, but to pay for the medical science you will need to have an income in retirement equal to your income while working.
that would mean you’d have to pay 50% of your income into “social security.” oh my god, now we’re really gonna die! unless the miracle of the stock market will save us. or we can make the rich pay for it!
but one way or the other… stock market or the rich YOU are going to have to pay for it. where do you think the rich, or the stock market gets the money?
so here you are in a brave new world where you will live a long long time without having to work. but having to pay for it.
would putting 50% of your wages aside to pay for that be “a crushing burden” or would it be “what we have to do under the circumstances.”
i have no hope that anyone will understand this, much less reach the conclusion that i reach, but here it is: of COURSE you can set aside half your pay now, to pay for your expenses THEN. people do it all the time.
but remember this was just a “what if?” scenario. it isn’t going to happen. what is going to happen is that you would need to pay an extra eighty cents per week out of your 800 dollar per week pay… which is going up 8 dollars per week every year… OR take a chance on having NOTHING to live on when you get too old to work.
waiting to see some non-magical thinking about this.
“we do it all the time”
here is a simple way to think about that:
these days we have a “forty hour week”.
we “save” enough of what we make in those forty hours to live through the other 128 hours.
think that’s a silly example? go back and look at the work week a hundred years ago, and the rhetoric that demanded it.
(yes, it’s a bit silly, but the principle is the same.)
Mike says: “Bruce Webb: REDEEM is a sale. Redeemed for cash to benefit the retiree. Just because Treasury or the Fed are the only customers doesn’t mean they aren’t customers in a sale.”
Well maybe. Except Treasury doesn’t score redemptions of Special Issues as an ‘outlay’. From its perspective replacing Special Issues with cash is more equivalent to you shifting money from savings to checking than any kind of ‘sale’. Do you ‘sell’ savings and ‘buy’ checkings? And the Fed has nothing to do with this in the first place, these transactions don’t hit their books, it is all internal to Treasury.
Some of this conversation is becoming a semantic device. No Mike, to redeem is not to sell, but to:
1. to recover possession or ownership of by payment of a price or service; regain
2. to convert (bonds, shares, etc) into cash
3. to pay off (a promissory note, loan, etc)
4. to recover (something pledged, mortgaged, or pawned)
5. to convert (paper money) into bullion or specie
6. to fulfil (a promise, pledge, etc)
7. to exchange (trading stamps, coupons, etc) for goods
8. to reinstate in someone’s estimation or good opinion; restore to favour: he redeemed himself by his altruistic action
9. to make amends for
10. to recover from captivity, esp by a money payment
Some bonds, bills or notes may be sold by the holder of such instruments, but that is an form of early redemption wherein a third party of the original issuer buys back the instrument prior to its redemption date.
Granted its a small (semantic) difference, but it’s all the difference in the world. Treasury does not seek to sell the Special Treasuries held by the Trust Fund. Those instruments are more of an accounting and savings mechanism. Interest on the value is set by law not by market forces. I believe that the Special Treasuries currently receive interest at a higher than market rate set by Treasury for all their other bills, notes and bonds.
I agree with Webb this time. The Acquisition/Redeem activity at SSA with Treasury is very different from what is typically defined as a Purchase/Sale.
A Purchase/Sale is between two willing parties and it is done at a “market’ price. SSA Acquires and Redeems securities at their par value, giving no consideration to market prices.
Having said that, there is some confusion in that SSA defines its activities as Acquisitions and Dispositions. This does sound a lot like purchase and sale. Go to this link for a summary of of those “ins” and “outs”. (Choose summary for 2013)
http://www.ssa.gov/oact/progdata/transactions.html
I find this data interesting, You can see that SSA purchased and sold (acquired and redeemed) a whopping 2.1 Trillion of securities during 2013. This means that fully 75% of the average value of the combined TFs ($2.8T) was churned in 2013.
If SSA had to do all of this churning at market rates, and with third parties (as does Fannie Mae, Freddie Mac, Sally Mae, FHA and (of course) Treasury and the Fed) it would cost SSA an absolute bundle. This churning at non market rates is probably one of the better reasons why SS should never be privatized. They would be hit hard with the costs of market related activity.
If you want to go into the details, select the option Detailed Monthly Transactions and choose 2013. This a breakdown of the $2.1T of Ins and Outs.
I challenge anyone who is still reading this to find a single one of these transactions that were done at market rates. (Don’t bother – there are none)
Well I suspect a lot of that churn would disappear once you disaggreted Bills, Notes, and Bonds. Treasury converts current Trust Fund assets into longer term Bonds on a regular schedule, I think quarterly. On the other hand inflows and outflows happen on different schedules and show up on the books as acquistion and redemption of shorter term Bills. So a lot of the churn might better be seen as bookkeeping events between actual investment events. That is literally every penny has to be literally accounted for every day even as payroll and tax on benefit receipts and interest credits pulse on a different schedule than the steady monthly flow of benefit checks.
A far more insidious game of semantics is that posed by the issue of whether the Social Security deductions from pay checks is a tax or an insurance premium payment. Note the title of the legislation that authorizes such deductions, “The Federal Insurance Contributions Act (FICA).” Peculiarly the description of the deductions for the Social Security aspect of that legislation (it also covers Medicare) makes use of the word tax in spite of the title designation of Insurance Contribution. I wonder is Met Life uses the word tax when it collects your insurance premium?
Maybe the fault lies with the fact that IRS does the actual collecting of our Social Security contributions. In Publication 15, which is an instruction manual for employers regarding many aspects of an employer’s withholding responsibilities, section 9 deals with the Social Security and Medicare withholding requirements. Here is where the word “tax” comes into the picture. I haven’t searched it out, but I’d be curious to know how the actual legislation describes the contributions, tax or premium or, for that matter, contributions. But here is the offending section regarding the language used:
“Social Security and Medicare Taxes”
“The Federal Insurance Contributions Act (FICA) provides for a federal system of old-age, survivors, disability, and hospital insurance. The old-age, survivors, and disability insurance part is financed by the social security tax. The hospital insurance part is financed by the Medicare tax. Each of these taxes is reported separately.” And then goes on to re-emphasize the use of the word tax as follows:
“Tax rates and the social security wage base limit. Social security and Medicare taxes have different rates and only the social security tax has a wage base limit. The wage base limit is the maximum wage subject to the tax for the year. Determine the amount of withholding for social security and Medicare taxes by multiplying each payment by the employee tax rate. There are no withholding allowances for social security and Medicare taxes.”
So why do I use the word insidious to describe this semantic variation? Language effects our understanding of intention. Contributions and premium payments are generally of a voluntary nature. Taxes are not. That’s the better side of the variance in use in the case of Social Security. Otherwise, a tax is something that the government can decide on how to spend or account for. Already there is a fiction referred to as the “unified budget” which helps to cloud the legislative intent of the funds collected by the Treasury and accounted for in the Trust Fund. Granted that the legislation in question is specific as to the use of the funds collected through the FICA. But devious actors are often willing to make small changes over long periods of time, as has been happening in our good old USofA for a long while now. If the word tax is used often enough over a long enough period of time it may gain meaning that is not, and was not ever, the intention of the Congress that passed the original Social Security legislation. Our W2 forms used to have a box marked FICA. The box now says Social Security tax. An intention to deceive? Who can say?
“Contributions and premium payments are generally of a voluntary nature. Taxes are not.”
Jack how voluntary are malpractice insurance premiums to a doctor, or bonding to a contractor, or vehicle insurance to an independent trucker?
How about business liability coverage which may be required to secure a license but which rate is dependent in part by claims history?
I think you are stretching the meanings of both ‘generally’ and ‘voluntary’ here. To me the major distinction between ‘tax’ and ‘premium’ is who you write the check to and not the voluntary or not piece.
Bruce,
But nothing is as certain as death and taxes. I tend to agree with Dale. We shouldn’t be arguing with one another. Or looking for the last word in an effort to be more exact. You’ve got plenty of Destroyers to contend with rather than trying to make imprecise corrections to your defenders.
Winning the word battle is not worth losing the war.
Webb – SS aggregates its net short term cash position and receives principal from maturing note/bonds + interest in June of each year (once a year). In December it is paid interest (no scheduled maturities other than June).
You see this in Details, June. Acquisitions of Notes with maturities from 1-15 years. The 2013 roll-over ended with SS acquiring $178B (6% of total) at a very lousy yield of 1.75%. What is the SS forecast for inflation for these years? 2%? Meaning that 6% of the fund is a bond with the longest average duration (maturity), and is at a yield that is equal to, or less than the rate of inflation. A stinko.
SS has big variability in monthly cash flow. Mostly do to tax collections/timing. For example, In April of 2013 SS had a real cash surplus of +17B, in October there was a cash deficit of $14b. In April cash from just Payroll taxes was $75b, in October it was down to $51B. This is workforce seasonality/tax timing and folks going over the cap.
Some months are Cash positive, others negative. SS has (I believe) 3 days each months with large outflows, they are each in excess of $20B. On each of these days SS has to have cash, so it does a redemption. SS is also getting big bucks in the Treasury A/C on a daily basis. From one day to the next it could be short/long cash of $25B. So it does the acquisitions and redemptions.
This is cash management stuff for the most part. Still, 2.1T is a lot of paper pushing.