by Dale Coberly
CRFB Analysis of the 2014 Trustees Report
A reply by me
a reply to me
The Committee for a Responsible Budget (CRFB) published what they called an analysis of the 2014 Trustees Report. I read it and was at first disappointed that it seemed to be the same old attack on Social Security by misdirection and what a younger me would have called lies. But on reading more carefully I began to suspect that CRFB in its own way might be being as reasonable as the people on the other side who can’t think of anything but “tax the rich.” So I wrote CRFB:
My letter to CRFB:
I read the CRFB analysis. I think it comes up a little short. I hesitate to write another column accusing CRFB of “having it’s own facts.” But I’d like a chance to try to convince you that the facts are nowhere near as dire as you paint them…. IF the very reasonable step is taken of simply raising the payroll tax about eighty cents per week per year for both the worker and the employer.
I hate to have to keep saying this, but eighty cents per week is NOTHING. And while the amount grows with time, it does not grow without limit, and real wages are expected to grow over ten times as much each year, every year; so at the end of the day the workers will have more than twice as much in real money AFTER paying for THEIR OWN Social Security as they have today, plus they will get their money back more than twice over when they retire.
Your “SS calculator” is wrong, by the way; this “fix” does NOT leave the income at the end of the 75 year window… or at any other time… short of the needed outgo.
I can send you an excel spread sheet that will demonstrate this.
The point for you is that this solves the Social Security part of the “budget” that CRFB says is what it cares about. When you turn away from a fair and cheap fix for Social Security you are saying that your interest is NOT for a “responsible Federal Budget,” but that your real purpose is to “change” Social Security.
Re-reading your analysis makes me hope we are not far from agreeing with each other. Apart from the use of alarming language and the failure to show how really modest the needed solutions can be, your report… hardly an analysis… is reasonably factual… you just don’t actually analyze the facts.
Since i’m going to write something about this, I’d rather write about where we agree than complain about the “sky is falling” rhetoric. Is that going to be possible?
You note the 2.88% immediate and permanent tax increase that “would solve” the 75 year actuarial shortfall. You could note that it is not “needed,” but is only an actuarial summary. A gradual phase-in… reaching that 4.9% increase needed after 2088 would solve the problem quite painlessly (the workers then are going to be a lot richer than they are today) and more fairly (the workers then are going to be living longer than the workers today).
You fail to note that about 0.5% of that 4.9% will come from interest on the Trust Fund and not from the payroll tax.
Nor do you recognize that the Trust Fund would never have to be paid back if the payroll tax was raised gradually. The money in the Fund would remain sitting there, with no cash changing hands, just keeping the required SS reserve at the increasing level called for by inflation and the increasing population and probable increase in real wages.
The gradual increase of about 4.4% would eliminate the “after the 75 year window shortfall.”
This is about six hundredths of a percent per year on average, or about fifty cents per week per year, combined. That is 25 cents per week for the average worker. (and yes i know the other 25 cents is “really” “the worker’s money… but it’s money he would never see without Social Security.)
And note we are talking about a 1.7% of GDP increase. That is less than 2 percent of our national product going to feed and house the fifty million people too old to work?
This is not a large burden, and what is “the economy” for anyway? … if not to put food on the table for our families… including gramma and grandpa, and “us” when we get too old to work?
There was a time when working people understood that one reason for working and saving was so they could retire one day. Most of them didn’t make it, until Social Security was invented. I know that ultimately SS will “cost” 6% of GDP, but so will ANY plan to feed the elderly. I also know the retired workers will have paid for it themselves. There is no better or safer way for them to save for their basic retirement needs than Social Security, so I’m not sure who is complaining and why. Are you saying that the working people of America should not be allowed to save their own money for their own old age in a way that is safe from inflation and market losses?
SS has nothing whatsoever to do with the budget. Those who say or think it does, need to think more clearly.
This is the reply I received… paraphrased by request:
[The writer of the reply made a common error in reading my letter and estimated the cost of my plan to be about ten times what it would be. He corrected the error on his own while my correction crossed his in the mail.]
I include this to show the kind of trouble that often makes it hard for people to understand each other. The writer is at least as good a mathematician as I am, but his intuition let him down for a moment and let him make an order of magnitude mistake about what I was saying. It is to his credit that he caught his own mistake. In ordinary discourse, much less political argument, most people would not recognize their mistake or admit it even to themselves.
> arithmetic seems confused. perhaps my fault. a person making 40,000
> dollars a year is making about 800 dollars per week. one tenth of one
> percent of that is eighty cents. this would be about forty dollars per
> year. and yes it would increase by about forty dollars per year after
> that for about ten years. this can sound scary to people who are not
> thinking that they will be getting one percent per year raises… about
> four hundred dollars per year. or are not thinking that they really will
> have to pay for their retirement one way or another. they will need about
> 20,000 dollars per year for an expected 20 years or more. it’s great if
> they can win the money on the stock market, but history shows that much more than half of them will not.
> > your “SS calculator” seemed to understand that raising the payroll tax four
> percent, or 4.4% would solve the SS problem, though it was pretty grudging
> about admitting it, and did not recognize that the 4.9% gap in the last
> year would be partly paid for by interest on the trust fund.
Reply, paraphrased by request:
if you punch “4.8” into our calculator it shows that it would close 182% of the 75 year gap and 100% of the 75th year shortfall. if you did raise the rate by 0.1 per year on employer and employee — 0.2 total — you could be cash flow neutral in the last year by allowing this increase to happen each year for 24 years.
You could even do so for about ~18 years, take a break, and then do the final ~6 years later. And depending
on how much interest you accumulated (which would depend on the timing), you might not need to go quite the entire 4.8 to achieve solvency.
In general, so long as you are talking about increasing a total of 0.2 percent per year for a net total in the 20-25 year range, I think we are in agreement that this would be one way to close the SS funding gap. I suppose we disagree on a) how significant or insignificant of a tax increase that would be, particularly on lower income folks; b) whether the increase is politically viable; and c) whether if we were able to increase taxes by that amount, that it would be either the most efficient way to do it or the most effective way to spend the money.
I think those are all places where reasonable people can fairly disagree.
i quite agree. all i want to see is the facts put on the table and let reasonable people talk about them.
thank you so much for your reply.
Back to the AB post:
This is where the argument stands at the moment. I think I began to answer his “how significant” the tax increase would be: too tiny to notice. Workers would be getting richer, not poorer, after paying for their own Social Security benefit, and their Social Security contribution represents an “asset” worth about $400,000 in today’s terms. As for the “political viability,” I think it is up to us to CREATE that viability. I think CRFB could do this. They would see that the workers are willing to pay that “tax increase” and that it has nothing to do with “the budget.” In fact it would remove SS as a factor in the budget discussion entirely.
I wait to see a “more efficient or effective way to spend the money.”
But I also would like people here to notice that even CRFB understands that a one tenth of one percent per year increase in the payroll tax (each) for a few years would “fix” Social Security.
It should be obvious that this will not increase the deficit. The workers will be paying for their own benefits themselves.. as we go. It will in fact remove the phony “affects the deficit” claim: If the tax is increased gradually, painlessly, the 3 Trillion Dollar Trust Fund… a debt not caused by Social Security but owed TO Social Security… will never have to be paid down; the money will merely remain a paper debt to represent the required one year’s reserve for Social Security.
Whether “reasonable people can agree” depends upon whether reasonable people will be given the chance to examine the arguments… including the detailed counter arguments.
There has been a remarkable unwillingness by all sides to consider all the arguments, especially the one that “fixes” the problem simply by letting the workers pay for the small increase in the costs themselves, just as their parents and grandparents did. Just as Roosevelt designed it to work. Only if the people are told the truth can they make a reasonable decision about how to spend and save their own money. And guarantee to themselves and their children a “right to retire” at a reasonable age.