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Open thread July 15. 2014

Dan Crawford | July 15, 2014 7:25 am

Tags: open thread Comments (3) | Digg Facebook Twitter |
3 Comments
  • Denis Drew says:
    July 15, 2014 at 4:41 pm

    If we don’t want to raise the FICA cap — currently at about 90 percentile income — we should shy away from cashing Trust Fund bonds with income tax (the only way to cash them). Income tax is not much applied to bottom 47 percentile incomes (as noted by a recent Republican nominee), meaning Trust Fund payout could fall mostly on the top 10 percentile!

    If we honestly wish to minimize the impact of Social Security payout on top 10 percentile incomes, then, the logical resort may be to gradually raise the FICA cap as the shortfall comes along — best we can do.

    If this generation of retirees needs a Trust Fund that will last as long as they do, why wont every succeeding generation require the same size, multi-decade Trust Fund?

    Practical reality: a Trust Fund that can cover FICA short fall for five years — until Congress gets around to closing the collections gap — is the only practical need (happened a couple of times).

    The only practical advantage of today’s multi-decade monster may have been reaped by politicians: spared the need to raise the FICA rate for 60 years — 35 diverting FICA surplus to non-Social Security expenses to pay for bonds — projected 25 years cashing bonds to cover growing FICA shortfall.

    Third way? Since we may cash bonds with printed money for decades, when the bonds run out maybe we will print more of them too — out of force of habit (the Fed actually writes checks to make money). 🙂

  • Bruce Webb says:
    July 15, 2014 at 5:42 pm

    Denis a lot right here. Certainly in spirit. So that is good.

    For some errors of fact and then I would argue in interpretation. For example the current incidence of Soc Sec is not at 90% but instead 83%.

    The suggestion of raising the Cap as needed (as opposed to all in one go) is reasonable enough, and would work in concert with a plan like NW that gradually raises rates under the Cap. On the other hand your implied proposal could use a suggested formula and mechanism.

    As to the rest of it, it is just a fact that any fix to Social Security whether revenue or benefit cuts based has the effect of restoring SocSec reserves AND eliminating the need for the top 10% to fund redemptions. Because those are just two sides of the same coin. A Trust Fund that is ‘solvent’ by definition is one which has no net redemptions of Special Issue Treasuries. This was in no sense the intent of Northwest, it is just an arithmetic side effect.

    But to repeat a lot right in spirit.

  • Denis Drew says:
    July 15, 2014 at 6:22 pm

    Thanks for the 83%.

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