CRFB Analysis of the 2014 Trustees Report A reply by me a reply to me and agreement?
by Dale Coberly
CRFB Analysis of the 2014 Trustees Report
A reply by me
a reply to me
and agreement?
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.
Coberly
> your
> 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.
Coberly:
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.
You understand the 75 year math of this much better than I do. But I don’t think that the detractors of Social Security have that in mind.
I believe that what bothers them is that the federal government is currently running deficits. And Social Security is going to begin to pay out more than it takes in. And the federal government will have to make up the shortfall by repaying out of the Social Security Trust Fund. Therefore the federal government will have to reduce spending in other parts of the budget OR it will have to raise taxes. I believe that it is the possibility of raising taxes that angers them!
Of course it is also probable that at least some of those detractors really want to privatize Social Security, so they can collect large fees.
I certainly agree with you that the worst thing we could do would be to venture down the road to making Social Security a welfare program whether directly or indirectly.
Second to that would be allowing it to be privatized. The options available have all proven to be riddled with problems of insecurity.
JimH
yes. but why is it they prevent themselves from seeing that raising the payroll tax… the amount of our own money that we save for our own retirement…a tiny amount will eliminate the need to repay the money in the trust fund?
the tax increase by itself will pay for the increases in funding needed by SS… helped out a bit, but not a lot, by cashing some of the checks for INTEREST on the trust fund.
my whole “case” is that the talking about Social Security that you hear about is based on a complete failure to understand what SS is, or does, and what it would take to fund it forever… simply letting the people pay for what they would have to pay for anyway… which turns out to be a not even noticeable increase in what they are paying already… for what they will need.
I found this from reader bakho on a different issue, austerity, on a technical post from mainly macro that seems relevant:
http://mainlymacro.blogspot.com/2014/08/how-to-muddy-waters-on-impact-of.html
Not a failure to understand but a willful ignorance.
There is a faction that never accepted the premise and the promise of the New Deal. For most of the last 60 years we’ve seen and heard from the recalcitrant and reactionary few but the pendulum has swung enough that others have permission to question the value of not only the New Deal but all Progressive gains.
I think however that the vast majority of Americans do accept the view of society embodied in the New Deal. At this moment in history though the story has to be retold and reinforced; we have to overcome the mis and disinformation that those who would return to the Guilded Age hand out so glibly.
Your work on this subject may help to reverse the momentum of the pendulum and send it back in a more Progressive, and certainly thoughtful direction. The reactionary mind cannot and will not accept change, they must always re litigate the past.
Mark
Thank you
I am afraid “my work” on this will remain a secret among a very few readers of Angry Bear unless I get an awful lot smarter about getting people to hear it.
JimH, “And the federal government will have to make up the shortfall by repaying out of the Social Security Trust Fund. Therefore the federal government will have to reduce spending in other parts of the budget OR it will have to raise taxes. I believe that it is the possibility of raising taxes that angers them!”
Jim, what you’re leaving out of that analysis is that the Trust Fund assets have been used as a kind of slush fund over many years and many budgets in order to keep federal taxes at an artificially low level. It’s the myth of the “unified budget” come back to bite our elected representatives in their butts. The Trust Fund was established as a kind of safe haven for the undistributed funds that accumulated in, shall we call them, better years. The Funds are represented by Special Treasury notes, which is like saying they were lent to the U.S. general budget allowing for those lower than necessary taxes in years gone by.
That then brings me to a phrase in Dale’s opening paragraph. “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.”” That is yet another example of the common phenomenon of the false equivalence in so many political and social discussions. Just who is it that is only thinking about taxing the rich? That’s a phrase that seems to have died due to long term disuse. And even if it were an idea in popular usage and in the national media, I think it incredible that anyone, especially one so well informed on the issue of Social Security, would suggest that it is an idea that is disseminated in a manner equal to the arguments of organizations like CRFB.
Should the government tax the rich? If the government can tax the working man certainly it should also tax the rich. No one has ever suggested that only the rich should pay taxes or that the rich should support the poor. The point that occasionally finds itself out in the open is that the rich should pay its fair share when it come time to support the government through taxation. Be patriotic. Support your government’s efforts by paying your taxes, rich man and poor man alike, but rich man and poor man as can afford it. Please, stop suggesting that everyone wants to tax only the rich. Pete Peterson and Charles Koch have that concept copyrighted. The rest of us have no good sense in using it.
Jack
i guess i depend too heavily on people reading all the words and understanding them the same way that I do.
I have nothing against taxing the rich. I do have something against those people who can ONLY think in terms of taxing the rich. Those are the people calling for “scrap the cap” which would raise taxes on “the rich” beyond what “the rich” get back from Social Security. That is “welfare” and it is exactly what FDR designed Social Security NOT to be. It would deliver Social SEcurity into the hands of “the rich”, because if they are paying for it they own it. Social Security has succeeded for 80 years because the workers have been able to say “I paid for it myself.”
And all this to save the workers eighty cents?!!
So please… tax the rich all you want. all you can. But NOT to pay for Social Security which works because the workers pay for it themselves.
It is very important that you… and the workers… understand the difference between “welfare” and a program that protects your own savings from inflation and market losses while insuring you against disability, death, and poverty in old age.
you are a good guy. don’t fight me on this. help me to find a way to say it so the other good guys can understand it.
Dan
Bakho is mostly right. But without the “technical argument” all we have is shouting. And the bad guys are better at shouting than we are. They own the microphone.
Even the rich… some of them… can understand that “higher taxes” more than paid for themselves with higher profits. The enemy is not “the rich” it is the criminals… who happen to be rich… who can’t stop themselves from trying to “get it all, now” even if that kills the goose that lays the golden eggs. I’d like to have the honest rich and the sane rich on our side. I am fairly sure that if they ever heard the “technical argument” they could be won over. That’s why the insane rich are so careful they never hear it.
What has been disappointing to me is that the left, which I had supposed to be sane, similarly works to keep the people from hearing the technical argument… preferring “make the rich pay” which would destroy Social Security. I know from my old days as one who was relatively close to “the left”, that some of them at least believe that the worse things get, the better it is for them. They keep thinking “the revolution” is just around the corner. It ain’t.
The more or less “ordinary left” are, I am afraid, just like the “poor right”… they can’t understand a technical argument so they are left to shouting slogans: “Pffreedom!” on the right. “Make the rich pay!” on the left.
Meanwhile all SS needs is a few more cents per week from the people who will collect the benefits, and those people when carefully asked have already said they’d rather pay an extra one percent than take a cut in benefits.
That extra one percent, whether reached gradually over ten years, or reached all at once some time in the next ten years, would pay for…. about ten years of SS. Another one percent after ten years, whether all at once, or gradually over another ten to forty years, would pay for Social Security as far as the eye can see.. taking “kick the can” off the table.
Waiting for the economy to save SS is unlikely to succeed in time, and dangerous and foolish to wait for. Taxing the rich will instantly deliver the argument to the Petersons… that’s what they have been saying was going to happen, and that’s why everyone listens to them.
Paying for it ourselves ought to even shut up the Mitt Romneys… the 47% proving that they are willing to “take responsibility for themselves” and stop acting like victims.
Eighty cents per week.
“Those are the people calling for “scrap the cap” which would raise taxes on “the rich” beyond what “the rich” get back from Social Security. That is “welfare” and it is exactly what FDR designed Social Security NOT to be.” Agreed, but:
First and foremost stop making the other side’s argument. Let the Peterson/Koch “scholars” argue the value of taxation in general and particularly as it applies to the rich. I’m not saying drop the cap or any other scheme that takes from any one group more than that groups participants are likely to get back from the plan. However keep in mind that the current SS program gives an advantage to the poor (a good idea) at the expense of the rest of the program and a big disadvantage to certain groups with much lower life expectancies than the average (not so good) as they end up collecting a disproportionately lesser total benefit amount than is the average.
“help me to find a way to say it so the other good guys can understand it.”
Simply say it in the greater number of words that it takes to explain. Raising the cap is only defensible, as applied to Social Security FICA deductions, if benefits are raised as well. No one should be expected to fund the system beyond their expected benefit from that system. Never address the issue as a “tax the rich” scheme. Equability should always be the focus of the argument. Leave tax the rich to the federal income tax and those of the individual states. As it is the working class pays a much higher percentage of their income as taxes when stare, local and sales or property taxes are included. FICA deductions have nothing to do with taxing the rich more than the rest. When others on either side of the argument talk of plans that throw the balance between contributions and benefits out of whack they should be criticized for the details of their arguments. It is critical to keep the semantics clear and to focus on the difference in the arguments when talking of contributory retirement plans,ie Social Security and government financing plans like the income tax. Tax the rich. Tax all that draw an income from our economy regardless of how that income is obtained. Don’t defend the wealthy or their sycophants. They don’t need your help. They’re busy knocking your arguments down the road and to Kingdom Come. Let them defend their own defenseless positions.
Jack
you assume that i am smart enough… but i’ll try. I did NOT think I was defending the rich. I was just exasperated with those who ought to know better who really seem to get some emotional satisfaction out of t__t__r___. I woldn’t even mind so much if they put the “FDR plan (worker paid insurance)” on the table and let the people choose between that and t__t__r___. I am actually afraid that I’d lose the battle because a lot of people seem to believe that the tooth fairy is going to pay for their retirement.
As for the poor getting a worse benefit. I’m not so sure, and anyway it’s not (perhaps) the point. The poorest get about a 70% “replacement rate” while the richest get about a 25% replacement rate. The median is something like 40%. But the thing about insurance is that it’s there to help in the case of bad times, it’s not there to make sure you get the biggest piece of the burfday cake.