SOCIAL SECURITY: CBO TELLS IT LIKE IT IS . . . MOSTLY
by Dale Coberly
For some time now the Social Security Trustees have been reporting in the “media” using scare tactics like this: “Social Security Going Broke Sooner Than We Thought! Faces [fill in the blank] Trillion Dollar Deficit!”
And I have tried to explain that what those numbers mean is that we need to raise the amount of money we save for our Social Security pensions by about eighty cents per week each year in order to pay for our longer life expectancy.
Mathematically, the X Trillion Dollar Unfunded Deficit and the eighty cents per week per year raise in the payroll tax are the same thing. The “Going Broke” and the exclamation marks are what I call lies.
Now, the Congressional Budget Office has replied to a request from Senator Orrin Hatch for some numbers that would show the effect of different proposed payroll tax increases, and the effect of different increases in the tax “cap” [the level above which payroll taxes are not assessed, on the theory that Social Security is insurance for which “enough is enough”].
The CBO numbers are the same numbers I have been telling you, except that they do not contemplate the effect of increasing the tax gradually. Raising the tax immediately by 2.8% would pay for all “scheduled” Old Age and Survivors benefits for the next seventy five years. Paying for Disability Insurance over the same time would require another 0.7%, for a total increase of 3.5% But, and this is the part CBO leaves out, it is not necessary to raise the tax the full 3.5% “immediately.” By raising the tax one tenth of one percent per year…. about eighty cents per week per year…. not only would the tax raise be too small to notice each year, but the gradually increasing tax rate would fall more heavily on those taxpayer- beneficiaries many years from now who will be making more money than we are today, and who are expected to live longer than we will. This would be the fairest way to make the needed increase.
While this CBO report is refreshingly straightforward, it does stray into “misleading statistics” by describing the tax increases as “28%.” One needs to remember that this is 28% increase of a 6% tax. Many people will confuse it as an increase of 28% of their wages, and there are “nonpartisan experts” who would want you to make that mistake. It is 3.5% of your wages with most people seeing only a 1.75% increase in the tax with their employer paying the other 1.75%
Raising the “cap” would only reduce the needed payroll tax increase by a few tenths of a percent. [At the cost of destroying the very nature of Social Security, which is retirement insurance paid for by the workers themselves. This would lend tremendous ammunition to the people who want to destroy Social Security altogether, by raising the taxes of people who will not get a commensurate increase in benefits. It would in fact make the lies P.Peterson has been telling “come true”: turning Social Security into welfare paid for by a huge tax increase on “the rich.” And it would encourage the rest of us to expect to have our needs paid for by someone else…. turning us into Mitt Romney’s famous “47 per centers.” Most workers would rather be able to say “I paid for it myself.” Unfortunately many people who think of themselves as “progressives” can only think in terms of making the rich pay for the poor.]
CBO does point out that the 3.5% increase would be about $900 per year for a worker making 50k, or 1800 dollars per year for a self employed person making 50k. This may look like a lot of money to some people. But that large an increase won’t be needed for at least twenty years. By that time, with very modest growth in the economy, that 50k worker will be making more than 62k per year. That is, he will be paying the 900 dollars out of a salary that is 12 thousand dollars more than he makes today. AND he will not be losing that money: He will get it back in the form of a pension that will pay him at least enough to live on for twenty years or more. In fact he will get back more than twice as much as he pays in because “pay as you go financing with wage adjustment” is equivalent to a real interest rate of about 2%. (Actually most workers will get back more than three times what they pay in, because that “equivalent interest” is more like 5% when inflation is taken into account. That would not be “real” interest but ANY personal savings plan would have to earn at least that much just to keep up with inflation… something worth keeping in mind.
And this is the point I wish to make here: We are all going to get old some day and not be able to work. We will need money to live on after we can no longer work. It will take about $20,000 per year (in present dollars) to live very modestly after we can no longer work. So if you are thinking that an extra $900 a year is “too much,” it’s because you are not thinking about the $20,000 a year, for 20 years or more, that you will need to live on when you are too old to work.
Maybe you are thinking you can get the money you will need without paying for it yourself? Some people expect to win on the stock market, some will and most will not. Some people are thinking “the government” should pay for them; but, they are not thinking about where the government will get the money. Others think “the rich” “should” pay for them; but, this is exactly what the rich fear and this fear is why some of the rich want to destroy Social Security.
What I am trying to make you think about… if you haven’t already… is that if you are going to be able to retire when you are too old to work, you need to do what people have always done, tried to do, or wished they could do: Save enough money while you are working in order to have enough to live on when you can no longer work.
Approximately before 1936 most working people were not able to save enough and they either had to be taken care of by their children, live in the poorhouse, or they lived on the street. Social Security invented a way for workers to save enough of their own money without losing it to inflation or bad days on the stock market. It did NOT simply create a tax and spend welfare program which is why it has worked so well for over seventy years. Workers were glad to be able to say “I paid for it myself,” while the rich were glad not to have to pay for welfare.
There were of course always some… the insane rich… who called Social Security a “socialist plot” to steal the workers money. Or they called it a plan to steal the rich man’s money to give it to “the poor.” Or a plan that would increase deficits and become a staggering burden on the young. And they told many more lies to try to kill Social Security. Over the years billions of dollars have been spent turning those lies into “what everyone knows.”
In other writings I have tried to explain the falsity of the lies being told; but today, I just want to try to convince you to understand the CBO numbers: “They are saying you can pay for it yourself and they tell you how much it will cost. From there it’s up to you to think like a grownup and understand that this is what it will cost you to pay for housing and groceries and a few small luxuries when you are too old to work.
If you think you are going to save yourself some money by “demanding” someone else pay it for you… you are going to end up in the poorhouse. And if you think you are going to make a lot more money on the stock market… you are making the same mistake that more than half the people make and don’t realize they are making until it is too late.
Once you understand that, we can go back to talking about how much better it would be to raise the tax one tenth of one percent at a time… about eighty cents per week each year. In any case, the only hope you have of keeping the “nonpartisan expert” liars from destroying Social Security is to find a way to make sure your congressman knows that all the people are willing to pay the cost of the basic retirement themselves. All they need from the government is a way to protect their savings from inflation and market losses.
And that way is Social Security, as currently designed, with small adjustments from time to time to keep up with “the cost of living.” Including the cost of living longer.
Dale,
Clear and concise. This post should be sent to every citizen in the US…several times!
Run,
thanks. no doubt your editing is an improvement. my own editing has a way of getting itself misunderstood. but i am not so sure your version of the very last paragraph will be understood.
Doesn’t matter. Let it run and see what people say.
Jerry,
thanks. there must be a way.
Nice work. Perhaps one of us can follow up with a brief explanation of the alternatives scored here.
Bruce:
I think that would be a good idea. If you can do it in a few days, It would be great.
I don’t want to turn this into a literary debate, but I would be curious to know if people find Run’s version of what I wrote easier to understand than the way I wrote it, which was like this:
” All they need from the government
is a way to protect their savings from inflation and market losses.
And that way is Social Security, as currently designed, with small adjustments from time to time to keep up with “the cost of living.” Including the cost of living longer.
Bruce,
I think you would do a better job of that than I would. I am not very patient with “alternatives,” which seem to me only to confuse the picture.
Just went through it a bit. I am going to try to extract Table 2 which graphically shows percentage of actuarial balance fix per alternative. Of course while waiting anyone can just click through.
What is clear, and something Dale and I have been trying to point out for years, is that none of the variations of ‘Scrap the Cap’ can backfill the actuarial gap all on their own. See alternatives 2, 4, 6 which backfill 30%, 45% and 65%. Left unscored is a more radical version of 6 which would grant no extra benefits at all for people paying over the current cap. While this would close more of the gap it doesn’t make sense in political terms. Far better would be to simply assess an additional income tax surcharge on those earners and use it to establish a base income for lowest earners. Outside the current Social Insurance scheme.
In effect this would establish a cross the board SSI (Supplementary Security Income) on top of which you would have OAS (Old Age/Survivors) and then on top of THAT some sort of tax sheltered retirement account. Done properly you could even transform existing OAS into a straight SI plan without top to bottom transfers and so eliminate ‘bend points’ and establish a uniform replacement rate for income above that which tops out SSI. This sounds complicated but actually would simplify matters immensely, certainly by eliminating the whole ‘welfare’ vs ‘insurance’ question as it would relate to the new/old program bridging the gap between SSI and top off 401k type accounts.
Bruce
I don’t think it is a very good strategy to “fix” something that isn’t broken just because the people who have always wanted to destroy it are saying that it’s broken.
It might be the case that there are people who need more benefits than they “earn” from Social Security. If so, there is no reason some kind of welfare program can’t be set up to address their needs.
And I was very happy with my State of Oregon pension plan which was a hybrid market based and defined benefit plan. I see no reason a similar plan could not be set up for every worker and run by the states or the feds.
But I think it would be extremely unwise to load either or both of these ideas on the back of Social Security. Social Security is what it is, and it does what it does very well. Trying to make it do everything else someone thinks would be a good thing to do will simply kill it in all but name.
It may be that after these other ideas have been tried for a long enough time to see how well they are working, they could allow some of the payroll tax to be reduced, because the need for it would become less. But now, while Social Security is under attack, and everyone is offering some brilliant plan to replace it…in all but name… is NOT the time to be jumping in with more ideas to “fix” what ain’t broke.
Thank-you Dale. Could we maybe encourage people to use this post to write letters to the editors of their local papers. Small town rural newspapers in locations where people usually rely solely on SS when they retire will print more lengthy letters I have found. GREAT post and thank-you!
Coberly/Webb – Could you please re-do your NW Plan spread sheet using the CBO’s Immediate and Permanent 3.54% tax increase?
Krasting
my spreadsheet is based on the Trustees Report. The CBO as far as I know has not produced a detailed report upon which I could build a meaningful spreadsheet. However, you may remember we calculated on the basis of what information we had that the CBO 3.5% estimate for “immediate and permanent” tax increase to pay for the 75 year actuarial shortfall could be equaled by raising the payroll tax one tenth of one percent per year for each the worker and the employer over a period of 22 years. This would raise the ultimate tax level to about 4.4% matching the CBO 3.5% plus the about 1% of general funds that would be needed to pay the interest on the larger Trust Fund created by raising the tax before it was needed. Moreover the 4.4% would pay for SS into “the infinite horizon”… that is there would be no need to raise the tax again at the end of the 75 year actuarial window. And, by raising the tax gradually, not only would the increases go unfelt, but the workers would have their average tax increase over the next 20 years be only 2%, of which they would only pay half.
And, if the economy actually performs as it should… which would be far better than CBO projects… the “needed” tax increases might never appear. There is great virtue in “pay as you go.” There is none in trying to project current fears about the distant future and calling for unneeded “immediate and permanent” tax raises.
Nor is there any virtue in multiplying scenarios or proposed fixes which only serve to confuse people.
What this article overlooks is that the whole idea that we “need” taxes in order for the U.S. government to pay for anything is a myth. The reason there are social security taxes is political. It gives those who receive benefits a stake in the political debate about levels of support and the future of the system. Social security would work just as well with 0% taxes and double the benefits being paid to those who should no longer be expected to work, whether for reasons of age or disability. For those who are interested, check out MODERN MONEY THEORY: THE BASICS
Krasting I am still in the early stages of putting together an integrated package explaining the 2012 and partial 2013 versions of Northwest which would also allow an update to 2014 if and when the Social Security Report is ever released. And part of that package will be downloadable spreadsheets that people can modify as they wish. Including inserting CBO assumptions for SSA ones. So you will be able to knock yourself out. But I don’t expect that the authors of NW will be open for a la carte orders for us to do other folks homework for them.
A word to the wise. To my knowledge CBO in its switch on relying on SSA’s demographic projections to using a model of their own never released a comparable set of projections for each of the relevant variables. Instead they simply made the claim that everything was so uncertain that they would only use an extended straighline trend for mortality improvements and not speculate about any leveling off. This seems crazy to me, there being every reason to think that we can improve average mortality but little reason to think we can markedly extend the range. Which from the fragmentary evidence that CBO supplies seems to be what they are assuming for working purposes. All of which makes me leery of using their numbers for the actuarial gap as the basis of discussion.
Of course this doesn’t mean that others shouldn’t do so. Just be prepared to acknowledge, and for working purposes, accept the assumptions as you deploy the projections.
(BTW the strength of Northwest. We explicitly don’t need to explicitly DEFEND the Reports projections, instead we use them in the sense of EVEN IF. As Dale did here in reference to CBO numbers.)
Webb- Who knows what mortality will actually be in 50 years? Any estimates are a crap shoot. It’s no different than projecting interest rates, GDP, or work force participation. But estimates are required if there is a requirement to measure SS over a 75 year time span.
CBO has provided an explanation of why it it changed its assumptions on mortality:
Why CBO Changed Its Approach to Projecting Mortality
Posted by Joyce Manchester on September 24, 2013
http://www.cbo.gov/publication/44598
There is also this (wonkish) discussion from January, 2014:
Implications of Growing Differences in Life
Expectancy Across Socioeconomic Groups for CBO’s
Analyses of Social Security Policy Options
http://www.cbo.gov/sites/default/files/cbofiles/attachments/45058-socialsecurity_presentation.pdf
Wandering Mind,
MMT presents a paradigm that is so disruptive of existing fiscal models, that it is politely ignored, like the crazy aunt, when it comes to the table.
The idea that the a monetarily sovereign government that has a floating exchange rate, and only incurs debts denominated in its own currency cannot go broke or be forced to default, does not have to tax or borrow to be able to spend, and therefore does not have to “balance its budget” seems to be beyond practical comprehension and is therefore useless in trying to frame discussions of fiscal issues.
I have been actively looking for any demonstration that the principle tenets of MMT are false. No luck so far. And yet MMT seems as believable to most people as the notion that Shrodinger’s cat has to be simultaneously dead and alive if Quantum Mechanics is to be believed.
This article makes me feel like I am at a car dealer. Solvent and savings aren’t the same thing. They are in fact trillions of dollars apart. Solvent is the cost to kick the can, not save Social Security. The idea that the employee would only pay $900 is deliberately misleading. Employers would be unwilling to pay the full wage as the tax rises. Wages would adjust downward. It is $1,800 no matter how you split it between pockets.
Today younger workers, even if there longer life expectancies, do not expect to get back their contribution in benefits. If they will just lose a little more, then all will be well? So the point here is if we throw more money at the system, it will work.
Dan here: Joe is from FixSSNow
Linus Bell
the fallacy of Shrodingers cat that is always overlooked is that the CAT is the “detector.”
Similarly, I think you will find that if you look at mmt that first, that’s pretty much what government’s already do, and second, after you are done creating money from nothing you still have the problem of who gets the money. and the answer to the problem is exactly the function that money serves.
Krasting,
you seem to have missed the point. of course it is impossible to predict what mortality will be in fifty years. and since there are an infinite number of “scenarios,” the only sane thing to do is pick one that is credible and stick to it. The SS Trustees are still the “official” credible predictors. I have shown that their Trillions of Dollars of (actuarial) deficits can be met by a one tenth of one percent increase in the tax each year for about twenty years. I have further shown that the CBO’s 3.5% “immediate and permanent” increase in the tax can be equalled, with better results and more fairness, by increasing the tax about one tenth of one percent each year for about twenty years.
So I don’t have much of a sense of humor about being asked to answer the “what if” questions in more detail than they deserve.
The problem… and the answer… remains… that in the event of increasing costs of retirement, the workers can still pay for their own basic retirement needs most safely through the social security system by raising their own tax a tiny amount when it is actually needed.
However, as you point out, that seems to be the grown up solution that no one is willing to face.
Joe
your economics is somewhat lacking in continuous thought.
even if you regard the full 1800 dollars as “the employees money” it is still what it is going to cost to pay for a retirement that will be longer that what most people get today. and the workers who will have to pay it will be making twice as much money as the workers of today.
the employers will pay what they need to pay to get the work they need to make the profit they want. if that turns out to be LESS than it is today, the workers will STILL need to set aside enough money for their retirement. Up to a point, and after feeding their kids, that is their most important expense.
All the double talk by people like you does is encourage a kind of mindless magical thinking that somehow they can stop paying for social security and still be able to retire. i don’t see any realistic way they can do that. And i don’t think anything you are likely to suggest will meet the “realistic” test. Though there are plenty of folks who make a good living selling sure things on the stock market.
that will all take care of itself. double talking “economists” that work for Peterson… however removed…
Dan,
The facts are from the Trustees and Urban Institute. Where I am from isn’t really part of the discussion.
It is my understanding that all economist, including those at CBO and SSA for that matter, attribute all payroll taxes to the employee. Is that really in doubt?
Joe:
Yes, who you blog for is a matter of importance as it gives us an idea or what your philosophy is and what you are proposing. From a quick review of your site, I do not see much of an alternative proposal to Social Security. Perhaps the proposal is to cut people free to flounder in the free market enterprise?
This “The high cost of Social Security now makes outside savings much more difficult” is not true. What makes it difficult to save is the skewing of income away from Labor to Capital while food costs, fuel costs, the cost of education (which has surpassed the cost of healthcare (percentage wise), the cost of healthcare which is slowing, and other costs keep rising. I am sure you have heard Elizabeth Warren talk about The Coming Collapse of The Middle Class? It now takes two incomes today when it took one income previously. Demos does a nice discussion of student loan laden citizens who lose future assets and buy homes much later in life than those unburdened by student debt.
Who cares if economists and accountants burden Labor with Social Security, Medicare, Unemployment Compensation, Workmans Comp, 401Ks, OSHA regs, OT regs, Child Labor regs, healthcare, etc. When I go into a company to consult on manufacturing throughput; those issues become Overhead which can not be impacted by changes in throughput, manufacturing, or even services. These are the laws of the land or customary practices. Is it your proposal to turn the US into a Tier 2/3 country through the elimination of those laws expecting companies to anti-up in some manner which they will not?
I eliminate Labor in the manufacturing process, you eliminate societal norms which protect Labor if I read your site correctly.
the AB system printed that last line to Joe after i thought i had deleted it. please ignore it.
Linus the problem with MMT is that it confuses cause and effect.
It argues that because Sovereigns can pay Debt in their own Currency that their Credit is Infinite.
On the other hand history (or if you will ‘History’) shows is that ‘Sovereigns’ can only pay Debt in their own Currency as long as their Credit is Good. And ‘Good’ Credit has always been dependent on the borrower/issuer of paper not getting over-extended.
You don’t have to be some Randite Goldbug to see the logic gap here. At some point ‘Full Faith and Credit of the United States’ relies on the belief that those dollars will still buy stuff equivalent to the goods you exchange. Which historically has only worked for Empires on the Rise.
MMT seems akin to Steampunk in that it assumes the equivalent of “Suppose the Sun Still Never Set on the British Empire/the Bank of England”. Why the Guinea would still be 5% better than the Pound! Because whether 21 shillings or 20 still accepted everywhere!
Well that Alternate Reality didn’t hold. And outside the fever dreams of the PNAC Vulcans the belief that the U.S. as this Reality’s successor to the Empire will somehow guarantee its Credit Infinitely need some better explanation than the one I see most often. Which reduces to:
“Sovereign! You Dummy!!” Yeah that is what Xerxes though.
Joe you are building certain assumptions of the Chicago and Minnesota Schools into your “all economists” model. Unfortunately the belief that all labor consumption is magically set to marginal productivity and that the distribution of that between cash wages, health insurance, and social security contributions, and that absent the latter two that cash wages would simply increase can only be reached by folk entirely ignorant of the entire history of labor relations. Which as Brad DeLong and others have pointed out endlessly is characteristic of just about every PhD level Econ program in the country and in most of the World besides.
The equations work fine on the whiteboard. They just don’t match reality as represented in the historical record. Which fact has been literally dismissed by the micro foundations folk who tend to start from the assumption “Assume we are in a goat and sheep market fair in the Austrian Alps and very trader has perfect knowledge”.
Classical Economists are in the same space as Logical Positivists. They simply assume, perhaps unconsciously that everything important was settled by member of the Vienna Circle and its outliers at Cambridge in the 20s. After all everything can be reduced to equations! Just ask the early Russell and Whithead and Moritz Schlick and von’s Hayek and Mises!
The difference is that Logical Positivists mostly grew out of this by the 50s while the Austrians and the micro-foundations people doubled down. Because Economics was a Science. Just like 1898 Physics! (Einstein and Heisenberg and the later Wittgenstein? Never heard of them)
Joe
the “fact” that all economists attribute all the payroll tax to the employee is most certainly in doubt.
in the first place there is the modest question of the actual law. then there is the actual history… on the first day of Social Security, employers did not cut wages1% in order to pay the employer share (then 1%) to Social Security.
Then there is the well known fact that employers in general do NOT pay any more than they have to. And low wage workers without unions are generally not in a position to demand the employer share of the SS tax if the government was not forcing the employer to pay it.
Then there is the less observed fact that after it stopped being convenient to call the employer share “really” the employee’s money, the same people began calling SS (both shares) a “jobs killing tax.” It can’t be both. But it seems that most of the nine new york economists can call it either depending on the needs of the people who pay their salaries.
Now, just to ease your troubled heart, I…. I… consider the “employers share” to be the employees money… right after the employer pays it into the SS system. But most lower wage employees would never see that money if it wasn’t for SS.
In any case, it does not matter what you call it. It is a moronic child’s game to argue over ‘oo’s money it “really” is. The fact is it is the amount of money that the employee is going to need to pay for his 20 years or more of retirement at 20 thousand dollars a year, plus or minus, in today’s money.
And that is the point of my post, and the point you completely missed in your mission to bring up a bunch of half-witted half-facts to confuse those who are easily confused.
Joe the Trustees and the Urban Institute don’t publish ‘Facts’. The publish ‘Informed Opinion’ and that ‘Informed’ is perforce shaped by infusions of Theory. If the Theory is faulty all the superstructure is undermined. No matter how fancy the credentialling..
You might consult the reception of Copernicus and Galileo by the ‘Experts’ of their day on this. It’s called ‘History’. And no you won’t find much of it in your Econ curriculum if typical.
As far as I am concerned your Nym might as well be ‘Joe the Alchemist’ for all the automatic respect it draws.
Joe,
today’s younger workers do not expect to get back their SS contribution because that is the LIe that Peterson and company are telling them, and spending big money to make sure they hear it again and again. The fact is that they will get back their SS contribution and enough effective “interest” to more than double their contribution.
And even if the did not get back all of their contribution, they would still need a safe place to put their saving to assure that they get back at least enough to live on when they retire. ONLY Social Security can make this guarantee.
But you don’t know a damn thing about Social Security but the lies that Peterson and company tell you, and the brain damaged word association you make on your own.
Joe
is “throw money at the system” your way of saying “save enough to have enough when we need it”?
and what the hell does “solvent and savings don’t mean the same thing” mean?
who said they did? SS is solvent. Actuarial solvency is a different concept. It means “will not have enough income to meet scheduled benefits.” But it does not mean “will go broke.” Income can be increased.. the sane solution. Or scheduled benefits can be cut… insane but not even a cut in “real” benefits as compared to today.
And savings is a concept that even economists can’t seem to understand. SS is savings by the simple fact that you give your money to someone who promises to give it back to you with interest at a later date. That someone is the United States of America which will have absolutely no problem keeping its promise.
even if that means raising the taxes, gradually, of future workers…. by promising them to repay those “taxes” plus interest when those future workers in turn need to retire. This is not a ponzi scheme because there is no reason for it to end. And the money would always come from people who are making more money than the last generation and who would themselves need more money to pay for their retirements… so there is no reason for SS to ever stop working… except the lies and stupidity of the Petersons and their followers.
SS is solvent.
All I am going to say is read this paper to learn how taxes don’t pay for anything, taxes are needed to drive the money system so folks will be forced to use U. S. dollars to pay their debt to the government-if they have one. Many of us would not if the the tax system were equitable.
http://www.levyinstitute.org/pubs/wp_778.pdf
Coberly,
To your statement that employees do not pay the employer’s share, we can disagree. I believe that labor costs feed into wages, and you don’t. It is much more difficult to argue that no cost feeds into wages, as in the case where you suggest that the employee’s cost is $900. Again, I think both CBO and SSA’s economists believe that the payroll tax is borne by the employee.
Fair enough, Urban Institute is an informed opinion. If you have a reason to doubt their work, ,then I would welcome hearing it because I tend to quote them as fact. The economic returns of Social Security are a theoretical figure not a precise number.
Social Security is not savings. It is insurance. These are very different concepts.
I happen to be one of the co-horts where the United States had absolutely no problem breaking its promise. I worked prior to 1983, and the United States Government re-defined its promise. It will keeps its promise, but it doesn’t mind changing the terms.
If you ever had read any of my blogs you would be well aware that the last person on earth who would hire me is Pete Peterson. This is the problem with lumping groups of people together.
Joe
good to know you differ with Peterson. unfortunately i have a way of writing that is confusing to most people. ask Run.
you may not be paid by Peterson. you do repeat his lies, which you may get only second or third hand. you do not seem to have made any effort to understand any of what you say. indeed, it is not even clear you know which of the people who have replied to you that you are answering.
i assume you meant my statement that “employers do not pay the employees share.” except that i made no such statement. i did say as clearly as i could that the argument is stupid. the point is that the employees share and the employers share are what are going to pay for the employees retirement. in fact the employee only “sees” the employees share. if you are going to say that the employers share is “really” the employes money, then you have to count that money as part of the employees pay… which means the employee is making, not 50k per year, but 50,900 dollars per year. so that after the SS tax is paid that employee still has 49,100 just like he had after you “taxed” 900 dollars from his 50k salary. i’m sorry i won’t take the time to make this more clear. you can either figure it out or not. it doesn’t matter . what matters is that SS is the ONLY way the employee has to save his money safe from inflation and market losses so that he has “at least enough” to be able to retire when he is too old to work.
the whole point of my post was to get people to realize that they can stop crying like babies about the cost of Social Security and recognize that it is the cost of staying alive when they are no longer able to work. it’s a lot of money. there is no other way they are going to get it that to save it themselves through the protections of Social Security.
the cost of Social Security is not so high that it “destroys jobs” or prevents workers from making other investments to fatten their retirements… all it does is insure that they will have enough if all else fails. at it does in more than 50% of cases.
SS is insurance. hell, even joe the economist says so.
Joe, do you have ANY idea what you are talking about?
Bruce,
So the problem with MMT, with respect to the US, is that it is tenable only as long as the US dollar remains the worlds reserve currency, or more probably, that oil remains priced in dollars?
The only reason I can see for having to borrow from another country in their own currency is if we want to buy stuff from them and they require for us to pay for it in their currency. In that case we go to the currency exchanges and buy the foreign currency which we then use to buy the stuff we want. The danger is, and I guess this is your point, that the dollar becomes so devalued that we have to print so much of it to get the foreign currency we need that we get into an inflationary spiral.
As far as I can see there is nothing within the MMT theory that says, with respect to the the amount of money that a sovereign nation creates, the amount of money it borrows, and the amount of money it withdraws from the economy through taxes, that we should do so in an irresponsible manner.
But it does seem silly to me to frame basic policy decisions in terms of “running out of money,” or “the Chinese will spell our doom by refusing to loan us any more money.” We can’t run out of money, the Chinese can only loan us the dollars we have already paid to them.
I am not an economist, so my opinions are probably questionable, but I am willing to listen and to learn.
If you want Social Security, it isn’t about money, saved or created out of thin air QE-style. It is about investing enough in education so you will have competent medical care, investing in infrastructure so you can get from here to there. There can be tons of money in your personal or collective ‘lock box’ but it will do you no good if there is nothing for it to buy – because you played emerging markets and sent the nation’s jobs (you know? those things people have to have to pay taxes.) offshore.
Coberly,
My apologizes. It is the writer who says : “CBO does point out that the 3.5% increase would be about $900 per year for a worker making 50k, or 1800 dollars per year for a self employed person making 50k”. It hides the fact that employers will lower the wage that they are willing to pay. Employers look at the cost of labor beyond wages. Having worked in a role that actually looked at labor cost, I can tell you we don’t know what individuals make. We look at what they cost. You disagree, fine.
Peterson’s idea run towards making the system a welfare program. It is a dumb idea. I have read the SavingTheDream plan, and little else that Peterson has written. Nothing I wrote here comes from that plan. So it isn’t Peterson’s lies that I am picking up, unless he controls CBO, SSA, and the Urban Institute.
Joe,
the 900 or 1800 dollars won’t be needed for at least twenty years, during that time pay is expected to go up by 12 thousand dollars (on the 50k base, in today’s dollars).
i wouldn’t expect current employers to raise pay 1800 dollars a year just to subsidize SS. If the CBO “immediate and permanent” tax increase was imposed in 2015 as they assume, the 900 would come out of employee pay and the “employers share” would undoubtedly come out of reduced wages or foregone raises. I think that if you think about this it calls into question just what “employer’s share” means.
But there is another side of the equation… to the extent that employees have any bargaining power at all, the employers share will come out of profits, and the “employee’s share” will come out of raises, or the pay that employers have to offer new employees in order to compete for labor in the labor market.
but MY POINT in this essay was and continues to be that however complicated the labor market is and the “true” meaning of employer share / employee share may be….IT DOESN’T MATTER.
The workers “pay” will be whatever it will be, determined by “economic” and political forces. The worker STILL NEEDS TO PAY FOR HIS FUTURE RETIREMENT. And that retirement will still cost him roughly the CBO’s 1800 dollars more per year than it does today if the CBO projections turn out to be correct.
IT IS CHILDISH to cry about this… it is simply the “cost” of living after you can no longer work. one way or another you will have to pay this… or not be able to retire… or die on the street when you can no longer work or find a job. And it is STUPID to try to turn the argument into a question of ‘oo “really” pays the “employer’s share.”
Peterson “owns” the Trustees, and with Elmendorf he owns the CBO.
Bruce Webb might not put it this way, but he could do a better job of tracing the “chain of ownership” than I can.
Joe
I know that my writing is difficult to understand… (ALL writing is difficult to understand).. but you are not even trying (also the norm for all readers except those who grade depends on understanding what the professor thinks the writing means).
But please try. Your writing looks to me like a mindless (not being insulting here, just telling you what it looks like to me) repetition of talking points you got third hand from the Peterson lie machine. Try to assume that I MAY know what I am talking about and the words taken together do mean something that you haven’t thought about yet.
It must be convenient to be able to pass off anyone who disagrees with you as an arm of the Peterson lie machine.
Your writing isn’t difficult to understand. When you tell people that the payroll tax will cost them $900 when it will cost them something closer to $1,800 it isn’t difficult to understand. We can argue about how much closer to $1,800. Where I have worked it is very close to $1,800 and many of the people who cost us more would be let go. Profit margins have changed since I managed these costs, but the concepts haven’t.
I have given what you have written consideration. I think you should consider that when you suggest that someone owns the Trustees it casts a shadow on your credibility. I do not buy into conspiracies, and I don’t think many do.
Coberly – 3.5% of $50,000 is $1,750. You write as if the dollar amount is constant, it’s not, the % is the constant.
If you look at 2013 SS Report, page 205 you find the TF estimates on ‘Average Income’. In 2014 the number is $46,832 the number for 2035 is $112,281. So the average wage will grow 240% in this period. But when you apply the 3.5% tax the bite in 2035 will be $4,195. The difference of $2,445 is inflation – everything will cost more.
You say:
“And that retirement will still cost him roughly the CBO’s 1800 dollars more per year than it does today”
That statement is not correct. Yes, workers will make a higher average wage as time passes, but the amount of SS taxes is indexed to the rising wage.
Joe
I am sorry but you still show no evidence that you thought about what i said even enough to understand it at the surface level.
and if you don’t believe in conspiracy “theories,” do you recognize that spending a billion dollars to influence the way people think has an effect on the way people think?
Krasting
you are still an idiot. of course the tax will be indexed to the rising wage. that was a big part of my point. even the larger tax on the larger wage leaves the worker with a whole lot more money than he has today.
it is impossible to talk about money without understanding that the value of the dollar changes over time and you have to talk about dollars by assuming some “constant” benchmark. even the CBO does this.
i wish there was a way to stop you from assuming that everything you don’t or can’t or won’t understand is some error on my part.
Krasting
about four paragraphs above the line you quote is another line in which I say “in today’s dollars.”
did you just skip that, or forget it. or wasn’t useful to the point you wanted to make… that point being that i didn’t understand inflation?
Krasting
in fairness to you… i did not express “today’s dollars” with perfect precision. in order to get the “exact” number… impossible and irrelevant when talking about an estimate with large uncertainty… i would have had to calculate the new tax rate on the new pay, including both inflation and increases in real wage, and compare that to the old tax rate on the new pay including inflation and the increase in real wage…
and entirely too complex undertaking for a short answer in a blog, not worth my time, and more likely to confuse the reader than to further enlighten him
and a point that does not change the answer materially and has not a damn thing to do with the issue.
feel free to do the exact arithmetic yourself, then run around yelling the sky is falling the sky is falling because the tax you will have to pay is a dollar more than coberly said it would be.
JOe the Economist
and to try to be fair to you, i think what you are saying is that IF the CBO increase were to be imposed all at once this year, the employer would not be willing, or able, to pay “his share”… that is a tax increase of about 1.75% on his wage bill.
i have my doubts about that. but it has nothing to do with the point i thought i was making in my post. i thought i was trying to explain to people that the cost of their own retirement, whatever it was, is something they will have to pay for themselves, out of their own wages, whatever those are.
i did mention that it would be smarter to raise the tax rate one tenth of one percent at a time, figuring that most employers could manage their eighty cents per week per worker without having to shut down the plant or lay off half their work force, while the workers would not even notice the eighty cents taken out of their paycheck. since wages are “scheduled” to go up eight dollars per week per year on average over the next seventy five years, i did not think it would even be noticed by the average worker if the employer held out 80 cents of that eight dollars to cover “his” share of the tax, and the poor worker would be stuck with only a seven dollar and twenty cent raise our of which he’d have to pay and pay another eighty cents, leaving him with only a six dollar and forty cent raise. and a fully paid pension. life is so unfair.
now if the CBO “plan” was enacted this year and the employer did refuse to pay his share so the whole two thousand was deducted from the 50k employee salary, i could see why the employee might feel that he was being hurt. and the point of my post was to try to remind him that he will be getting the money back when he retires, with interest, and he has NO OTHER WAY to guarantee that he will be able to retire when he needs to. Even “only” 48 thousand a year is plenty to live on today and even plenty to take part of and make those investments you hope will give you more to live on when you want to retire than SS. But if you can’t make those investments without betting your social security… you can’t afford the risk.
This discussion mostly misses the point. Social security isn’t a money problem. Money is DEBT not wealth. So the social security problem is one of having enough trained workers AND machines around to produce the needed wealth, not one of having enough money.
That can’t happen, of course, if they are shipped to ‘developing nations’. No one seems to be paying attention. The money can be created as needed. Just ask the bankers.
Steven
the discussion misses YOUR point. however most people think there is some relation between enough money and enough workers/machines.
or even between money and wealth. i myself think we have too much of what people call wealth. and i am sure that when you DO have enough machines and workers and wealth, there will still be a debate about “money.” money is just one of the more effective ways to allocate wealth.
in the case of Social Security it’s a question of allocating wealth between what we need “today” and what we will need after we can no longer work.