“Generational Accounting” Is Complex, Confusing, and Uninformative
Well yes it is, and something of a constant theme of mine here at Angry Bear. But here is a chance to read the argument in the hands of real experts at CBPP, including Paul Van de Water who formerly held top positions at both SSA and CBO and is kind of a mentor of mine.
“Generational Accounting” Is Complex, Confusing, and Uninformative
CBPP is the Center for Budget and Policy Priorities and is along with EPI the Economics Policy Institute and CEPR Dean Baker and Mark Weisbrot’s Center for Economic Policy and Research the three go to places for progressive policy numbers presented in rigorous form. While they shouldn’t be blamed for some of my policy formulations over the last few years, these are the places I mostly get the ideas for what I call my “number pointing” (as opposed to “number crunching” which I leave up to Paul, Kathy, Monique and Dean).
Okay. SS payroll taxes are an inter-generational transfer. Today’s workers are contributing a portion of their income to pay current SS beneficiaries. The assumption is that future retirees will similarly benefit when they retire.
What does that do to the argument that workers are contributing to their own future savings plan? I read this position often at AB. Coberly wrote this the other day:
“Social Security is not a “tax.” It’s a way for workers to save their own money protected and insured for their own retirement.”
D. Baker etal would not agree with that……..
The wonderful feature of this form of statistical manipulation is that it comes with NUMBERS. OoooogaBooooga! Don’t look at the man behind the curtain! Look at the numbers, numbers and more numbers with a few words thrown in that have nothing to do with the numbers.
These amazingly complicated formulae and computations will absolutely convince you that nothing times something is something. Plus, the guys that are selling this snake oil will happily sell anything else you are willing to buy including gold, silver and “replica” double eagle coins. Imagine! They will generously allow you to exchange your money for gold plated pot metal!
I don’t know why people find it so difficult to accept the idea that there is something in the world more important than money. Meanwhile, remember that if you can’t predict what’s going to happen tomorrow with one hundred percent accuracy down to the last detail you can’t predict what the effect of raising FICA contributions .03% over the infinite horizon will be. Ever seen one of those infinite horizons? I haven’t either, but, hey that’s just me. 😉 NancyO
Krasting all investments have a temporal component, particularly insurance based ones. What does any of that have to do with CBPP’s analysis of the defects of a particular type of intergenerational accounting that is in practice ONLY applied to social insurance or if you will social welfare programs? Ever see intergenerational accounting applied to the F-35?
Did you read the piece?
For what it is worth I don’t see eye to eye with Dale on his framing of Social Security as “worker’s saving for their own retirement”. But that has bubkis to do with either of our assessment of the fatal weakness of this (mostly) AEI, Cato and Concord line of argumentation. Particularly when the pushers try to reduce the whole concept of “unfunded liability” as if it is the exact equivalent of “public debt”. In my view in a thoroughly dishonest attempt to be able to deploy big scary PV numbers.
But it is difficult to explain WHY this is bullshit. Which is why I outsourced this post to my friends at CBPP.
Unfunded liability is the practical equivalent of bullshit multiplied by the degree to which AEI, Cato, and Concord think that people will believe them. One thing I think is important to understand is that ordinary people have, in fact, paid their FICA in.
And, when they retire, they get it back. This is a pay as you go system. That’s how it works. So the money is out there and circulates as many as seven times in local economies before it comes back into the SS FICA system.
So, money that goes into the system goes back out into the domestic economy. Where I live, at least 25% of the total income of the community comes from SS benefits. Professionals who live here depend on that income to pay for their services. And taxes get paid from the same source.
Every month that people work their FICA comes back into their communites in their Mama and Daddy’s SSA checks. This is the only income many people have. Which makes it possible for the old people to live on their own.
Which in turn makes it possible for the younger family members to have their own households. And live independently of the old people. In my experience, that is a good thing because the young people can rely on SS to take care of their parents. Their income keeps the kids in school and even pays for the kids’ college educations.
But, YMMV. If you are rich, SS has nothing to offer you. Well, bugger off. It has plenty to offer ordinary people. That is why FICA pays for the majority of it. Hey, go ahead and invest in all that high yield stuff.
Feel free. You are free to do that, take your chances, and profit accordingly. The rest of us are not. And that is the real deal. NancyO
Bruce Webb
you don’t need to see eye to eye with me about Social Security being workers saving for their own retirement.
But I hope you can see what Social Security DOES:
Workers put their money into a “something” (called Social Security). Years later they take money out of that “something”. This money is based on what they put in plus something (another something) that is “extra money” based on how well the economy has done over that time, but usually calculated as the rise in wages which includes inflation and “growth”. AND that money is somewhat redistributed so that those who earned less over a life time get back “more” (as a percent of what they put in) as compared to those who earned more over a life time (who still get back more than they paid in, and more in absolute dollars ((not a “percent”)) that those who earned and “saved” less.
Now, you [Bruce Webb] don’t like the words i use to describe this, but Bruce Krasting doesn’t even know what happens, much less understand the concept.
Fact is, most people don’t understand what I am saying because their heads are too full of other words they have heard, or repeated to themselves. All I am trying to do is get them to “understand” the idea that it is they themselves who pay for Social Security, NOT “the government.” and what they are paying for is the “right” to retire when they get too old to work. It’s the best deal they ever had.
I try not to confuse them with words. they do that for themselves.
But to be perfectly honest with you [Bruce Webb] you of all people here ought to understand how elusive words are. You have the education and intelligence.
Krasting
I rather hope that Baker would agree with what I said. He is smart enough to see that both of those things can be true.
Perhaps you don’t understand that when you buy a bond you are giving your money to someone who will do something with it, and when you sell your bond you are getting money from someone else, who in turn is hoping he can sell the bond at some future time for the money he will need then.
I know it’s hard, but until you can see the similarity in these “transfers” you won’t understand anything at all about Social Security. Or anything else about money.
And yes, it is possible to “make money on bonds” without understand a damn thing about money.
I respect Van der Water’s scholarship. I have been trying to say the same thing in simpler terms since I first realized how misleading the “present value” of Social Security’s “actuarial deficit” is to everyone… including the experts.
Moreover, treating Social Security as a “tax” is fatally misleading.
Suppose we lived in a world where the only source of food was from a single process that had to be controlled by the government to prevent the price gouging that inevitably results from “free enterprise.”
Now suppose that people paid for their food. That is they work for money, and they give part of that money to the government in return for food. This a bit different from just earning money and paying a tax and being given food as a “right.” Though it would not be unreasonable for “the government” to provide food directly to those few who could not pay for reasons very similar to the causes of poverty in an industrial nation today. Nor would it be unreasonable for the government to “account for” it’s “free” food by charging those who could pay a little more. This is just a matter of “balancing the books” and keeping the resource balanced with the need.
It might even be that the government could forsee a time when the resources needed to run their “food machine” would become more expensive, or forsee that the present population will eventually become too old to work and need that “free food” that the government provides and must budget for. It could simply raise the price charged for food as the “demand/supply” changed, or it could charge the current “young” generation a little more than current “costs” and credit that extra payment to the accounts of the “young” so that when they get “old” they will find that they have “already paid for” the food they recieve when they are retired.
I haven’t the time or patience to polish this little fairy tale into a perfect fit to the current Social Security “is it a tax” or “is it workers saving for their own needs”
but i hope at least the point about the difference between taxing and welfare vs “paying for” can be thought about by anyone seriously trying to understand why in the first place there is “no difference” and in the second place there is “an important difference.”
Roosevelt understood this. I can’t see that anyone else does.
The difference may be “only” political or psychological… but when it comes time to collect your retirement check it will make an enormous difference whether it is “your” money you paid yourself, or money taxed from “the rich”, or if you choose to confuse yourself with some imaginary distinction between paying now for those already old and hoping those younger than you will pay for you in turn… or will they simply honor the fact that you already paid.
again, there is in one sense “no difference” between these except in the way you think about them. and that makes a hell of a difference.
sorry i can’t explain it to you.
but just to be clear
Social Security is legally structured as worker paid insurance.
Dale all (or mostly all) that you say is true. But there are folks out there (bad folks) who insist that the ‘proper’ rate of return on FICA contributions is or should be the same as the equivalent investment in bond funds.
This I think is itself based on the core, yet historically nonsensical belief, that lifetime wages capture 100% of actual marginal labor productivity and so any return above and beyond the mechanical application of rates and yields to actual FICA contributions is some sort of “redistribution” and so “welfare” or “looters mooching”.
Now in my framing I would suggest that the benefit formula with its two bend points and higher replacement rates for lower lifetime earners than higher earners is an attempt to capture the fact that the overall economy grows in large part on the back of extracted labor productivity, i.e. that wages and especially wages for lower lifetime earners DON’T magically capture marginal labor productivity via the Invisible Hand. As such the payout of Social Security is adjusted to compensate for this additional productivity inserted into the economy by labor and so growing the future economy above and beyond that piece of it that was awarded in wages in real time.
Now this framing is a lot more complicated than the one you prefer. On the other hand it provides an explanation in equity for the existence of the bend points/variable replacement rates that your admittedly simpler “workers saving for their own retirement” simply doesn’t account for. Which in turn opens your model to attack from people like Biggs who know how to operate their fancy Financial Calculators.
Now as a matter of strategy and tactics there is lot to be said for a policy of K.I.S.S. when it comes to explaining Social Security to ‘the masses’. On the other hand that comes with a tinge of “well it is all too complicated for the peasants, lets keep the details between us educated Philosopher King types”. Me I prefer not to treat my audience like dunces that simply need to be led by the nose to the right policy conclusion. If that was what I wanted I would have gone into politics. Instead i invite them to get right down into the weeds/data tables. Which you seem to regard as something between risky and a huge waste of time. ForThem. Well excuse me for considering the readership of AB more in the terms of Us.
It appears you are discussing a flow of revenue, outlays, calculated interest , and discounted according to risk. Each varies according to year. We do this for Capital Equipment which is fixed.
Bruce (Webb)
you were doing okay until you got run away with your theory of everything.
first, just simply, the “bend points” amount to “insurance.” which is the way Social Security differs from simple savings. the fact that it is government mandated insurance is what irks those people who think they don’t need no steenking insurance.
i am sorry i sound like i disparage the intelligence of AB readers. the fact is that i know something about human intelligence in general and none of us are as smart as we think we are. beyond that i used to get paid to try to teach people something they needed to know. i tried very hard. i thought the reason they couldn’t learn was because they expected me to put the knowledge into their heads without their doing anything (i would have called it “thinking”. then i realized they didn’t “work” at thinking because they really didn’t care about the “subject.” They just wanted the “credit” so they could get a good job…. where they would plague the people who worked under them because they would continue to refuse to think. lately i have come to believe they simply lacked the neural equipment to do what i called thinking. not a crime… i lack the neural equipment to do some things i’d like to be able to do… the crime comes in refusing to recognize that you don’t know what you are talking about, or insisting that “your” way of framing the problem is the “right” way…
i could accept your framing because of your need to justify what you think of as a tax as some kind of restitution for stolen wages. if you want to think of it that way, fine. but try to understand that that kind of justification won’t wash with the great majority of Americans who prefer to think in terms of paying for what they are getting,
i lost my sense of humor about it when people who knew better pretended they never heard of just paying for Social Security the way we always have and that the cost would be infinitesimal, and then covered themselves by calling me rude while they were being rude themselves..
no reason to go on with this.
btw
don’t get too holy on me. i disparage the intelligence of Krasting, not AB readers in general. so do you.
Dale how many times have you e-mailed me:
“Let’s not quarrel in front of the children”
??
Sounds and sounded a little disparaging to me.
And frankly the person who insists and has insisted (and not just here at AB) that “my way is the right way of framing” the issue is not me but you.
Still and again. Mote. Beam. Eye.
Bruce Webb
I am very sorry I got into this. You called me by name, and Krasting offered an idiot “can’t be both” when of course it IS both. I could sit here and try to explain the things you have misunderstood…. because what people hear is what is in their own heads… but then I end up sounding like you.
Really, leave me out of it.
Well, Senator Sanders has chimed on on this. Today he proposes that the cap be eliminated. This would be a big revenue increase for SS. Sanders does not discuss what would happen with the formula for benefits for those who will pay billions more in taxes.
This is a ‘Populist’ position. Something Liz Warren would support. If this was enacted it would stabilize SS. It would socialize the program.
As a practical matter this will not happen. Sanders is blowing smoke trying to get his name in the paper. Yesterday he stated that the Fed should bail out Greece. Tomorrow he will not attend Netenyahu’s senate speech.
CEPR (of course) loves the Sanders plan.
Sanders statement:
http://www.budget.senate.gov/democratic/public/_cache/files/31a06a1f-ef58-4368-89d8-6f2b17c8d9c6/republican-efforts-to-cut-social-security-benefits-pit-disabled-americans-against-senior-citizens.pdf
The CEPR “we love it!”
http://thehill.com/blogs/pundits-blog/finance/232193-social-security-payroll-tax-freedom-day-for-the-1-percent
I don’t see a clear benefit to an increase in the cap given that there is a maximum on the benefits. Possibly Sanders and his web economist supporters have chosen the Republican tactic of advancing an untenable approach to an issue in order to gain a bargaining position from which one can retreat slightly in the effort to reach a better solution. Of course this assumes that there is even a need for a solution to a problem that his two decades in the future, if there is a problem at all.
The more direct, and likely even less acceptable, alternative to resolving any future funding issues for SS (or any social spending for that matter) is to simply collect more tax revenues through the standard income taxing process. More pay for more workers results in the best fix for any SS economic health issue. Don’t hold your breath until we see the One Percent give up their exalted positions at the pinnacle of the income mountain. The trouble is that that mountain is too steep. It would be fine for the upper echelon to keep their positions if the income mountain were much broader at the base and not so steep up to the top.
Ms Woo of CEPR says
“As the House and Senate continue to debate the merits of changes to Social Security, raising or eliminating the payroll tax cap should be a leading contender. After all, what other option wipes out over two-thirds of the program’s projected shortfall, avoids both benefit cuts and middle-class tax increases and is supported by a wide majority of Americans?”
The answer is “raise the payroll tax.” When polled by the same NASI a majority of Americans say they would rather pay an extra 1% payroll tax than have their benefits cut. These Americans were not asked about paying an extra one tenth of one percent each year over the twenty years it would take to reach “sustainable solvency”. They were not asked because the friends of “Social Security Works” don’t want them to consider that option, let alone understand it.
What is wrong with the Sanders plan is that it plays into the hands of the Petersons who have been yelling for years that Social Security was going to cause a huge tax burden on “the young.” He means, with his fingers crossed behind his back, “the rich young.”
This would change the very nature of Social Security which was designed to be NOT a tax on the rich, but a way for workers to save their own money safe from inflation and market losses and insure each other against death, disability, and a lifetime of such low wages they could not save enough to retire.
What Sanders proposes is “welfare as we knew it.” It is remarkable that we have come to the point in America where a tax is okay if it “only” affects one person in fifteen. Let’s try that with our grocery bills: Hey lets all get together and find one person in fifteen to pay for our groceries.
The tragedy here and the stupidity is that the cost to workers of paying for their own Social Security, given their longer life expectancy and the “rising inequality” would amount to eighty cents per week each year while their wages are rising eight dollars per week each year.
But no, our friends who call themselves “liberal” would rather risk Social Security entirely in a grand effort to “make the rich pay for it” by calling that “fair.”
The rich SHOULD pay their fair share of taxes. But Social Security is not and was never meant to be tax supported welfare. It was meant to be a way Americans… who really like to be able to say “I paid for it myself”… could protect their savings from “the market” and “inflation”.
Eighty cents per week.
Perhaps it is not clear:
“the rich” do not collect Social Security beyond what they pay in for it. In fact they collect less as a percent of what they pay in than do the poor.
It is, perhaps worth noting, that if Roosevelt had meant Social Security to be “a way to make up for the inequity in incomes,” as has been suggested on this blog, the “bend points” would not have stopped at the “cap.” The highest earners would have been taxed more on ALL of their income. Roosevelt insisted this not be done. He knew what he was doing… “so that no damn politician can take it (SS) away from them (the workers).
It might also be worth noting that no one collects Social Security benefits who has not paid for them. Because it is insurance, it is true that some people collect more in benefits than they paid in… but they still paid in, just as you collect on your fire insurance even if your premiums do not add up to the cost of your “benefit.”
But the worker has to pay the premiums for this insurance. This is why it is NOT the case that “the young are paying for the old”. The old have paid for their benefits. Those who don’t understand how money and savings work will confuse themselves to death about this, but only because they have an ideological need to make Social Security look “bad.”
Ms Woo is being disingenuous when she says that the Sanders plan avoids a tax increase on the middle class.
what she is saying is that the middle class (her class: those folk in the hundred thousand a year range) can avoid the one tenth of one percent per year (about two to four dollars per week) increase in the payroll “tax” that would be needed to pay for their higher benefits if those making even more than they are were forced to pay for their (Ms Woo’s) benefits.
This is so sleazy it stinks. Ms Woo’s “middle class” will get 30 to 50 thousand a year in benefits under the current SS structure with the tiny tax raise needed to keep up with costs in a time of “inequity” (which does not hurt the “middle class”). This is perhaps twice as much as a low income person will get (benefits are based on the tax paid, remember). But “the poor” have learned how to live on less, and the “middle class” will need the higher benefit to supplement their other retirement income so they can continue to live the life style they have come to expect. But Ms Woo doesn’t want to pay for this benefit, she wants “one person in fifteen” to pay for it. All the while pretending that it is “the poor” she is concerned about.
Coberly – The numbers do not support your position.
In 2014 SS had PR revenue of 756B and expenses of 848B. The shortfall of PR taxes and benefits was 92b. Every year, for as far into the future that you can imagine, SS will have annual deficits based on current law.
Every cent paid in by today’s workers goes out the door to pay current benefits. No worker is “Saving for their retirement” as you say.
SS is an intergenerational transfer. Not a savings plan as you think.
Krasting
it’s always nice to hear from someone who knows nothing about Social Security but thinks that by asserting a few words he can change the facts.
The SS “cash shortfall” was long anticipated and paid for in advance: that’s what the Trust Fund is for. Raising the tax one tenth of one percent per year will eliminate even “short term actuarial insolvency” which is not what you think it is… but only a “prediction” that if nothing changes the SS TRust Fund will reach in ten years an amount less than one full year’s reserve… which would normally mean at least another ten years of “ability to pay” benefits. So your numbers mean nothing.
Every cent you put in the bank goes out the door to pay for someone else’s business, construction project, or withdrawals from prior savings. That is also true about Social Security… so your thinking that “every cent goes out the door” means that no one is “saving” shows that you know absolutely nothing about money and savings.
Thank you for your important contribution.
It might be worth pointing out that Krasting
always assumes away the needed tiny increase in the payroll tax, and then asserts that Social Security is broke.
It is not clear he understand what he is doing.
But yes, if you ignore the solution the problem can look unsolvable.
Dale Coberly, Chairman of the, “Roosevelt Dream” Coalition announced his proposal to ‘fix” Social Security at a news conference today. He summed up his proposal:
We propose to increase payroll tax rate on both worker and their employers by a combined .2% a year every year for the next 30 years. Our plan would increase PR taxes from 12.4% to 18.4% over time.
Mr. Coberly went on say that the RD Coalition was apposed to raising the cap at all. They would not consider any changes to COLA, FRA, the benefit formula or means testing.
Coberly concluded with, “Significantly higher rates of regressive taxes are what is called for”.
Only one person attended the press conference, a scholar on the topic, Bruce Webb. When asked about the low turnout Webb responded, “We think it was because it rained yesterday”.
Krasting
Mr Coberly would not say that. He says, has said repeatedly, that Social Security is NOT regressive and it’s not even a “tax.”
It’s a way for workers to save their own money for their own retirement, safe from inflation and market risks and to insure themselves against the risk of not making enough money over a lifetime to be able to afford to retire. This is the critical fact about Social Security that the Big Liars want to keep you from understanding. It is made doubly tragic by the fact that the “regressive tax” that would be necessary to pay for their future retirement … costs change, just like the cost of bread and interest on bonds… amounts to an extra eighty cents per week each year, which they will get back with enough “interest” to cover inflation and equal approximately the “real” interest they would get growth the growth in the economy.
So I am afraid that as a reporter you quite missed the point.
Meanwhile, Mr Webb no longer agrees with me. You seem to have missed that too.
But, since Krasting brings up several substantive question…
I do NOT favor
means testing… an ugly thing to do to people that favors those able to game the system. SS is straightforward: you paid in this much money, this is your benefit. no questions asked.
COLA “changes”… a dishonest way to cut benefits below survival level for those most in need. the “cost of living” is highly subject to political manipulation.
raising the retirement age…. cruel and stupid. there is no reason to believe that increases in average life expectancy will mean that workers are able to work into older age, or that anyone will give them jobs if they could. life expectancy increases have to do with advanced treatment of diseases that used to kill people a few months or years earlier. it does not mean that those knees or back or brain will hold up any better than they have always done. moreover, even if it did, since the PEOPLE PAY FOR IT THEMSELVES there is no reason they should not be allowed to retire while they are still “young” enough to get some good out of retirement. the “elite” think that workers have no reason retiring. retirement has always been a perk of “the quality.”
the benefit formula… is set at the lowest possible level where it means anything as insurance that you will be able to retire. any lower forces you into the gambling market against players like Krasting. you may want to play that game, but the poor can’t afford to lose. neither, probably, can you. Social Security at least provides a “safety net.”
Cut holes in the safety net and it is no longer a safety net.
I should have learned my lesson and stay out, but:
means testing: not a good compromise, we already have bend points to make SS benefits progressive and what coberly said
COLA: not a good compromise, it is the growth of initial benefits that is the issue, not COLAs and what coberly said (except perhaps about below survival)
raising the retirement age: if you must compromise this is where because it has nothing to do with when people actually retire it is simply an across the board cut. A 1 year increase in Normal Retirement Age is about an 8 percent cut. We have done it twice between 1983 and 2023. Regarding changing the Early Retirement Age see what coberly said.
the benefit formula: SS means something to people who don’t depend on it for 100 percent of retirement, so coberly is using hyperbole. Saving more than SS provides is what was intended not just by what FDR proposed, but by the 1935 ACT (which was not quite what FDR proposed). While investing in stock is gambling, it is a good way to save more than SS provides.
also
raising the cap: a possible compromise, but eliminating it would be bad policy
personal accounts: SS is insurance. There is no reason not to have additional managed risk savings opportunities since people SHOULD save more, but trading it for reduced insurance is bad policy.
Arne
thanks for your comment. you may be unsettled to know i agree with you mostly. but here are some remaining problems with what i understand you to be saying..
means testing is not exactly the same as bend points. i think you know that but others here have confused the two. bend points are simply what makes SS insurance (or “progressive” if you like that way of thinking better). means testing is what you get with welfare as we knew it. visits to the government office to prove you don’t have hidden assets. it’s ugly. and it’s expensive. and see below on “cutting benefits.”
COLA cutting benefits, as per COLA adjustment (or see further below) is not a “compromise” because yo are not compromising with anyone who has anything at stake. you are just cutting benefits for people who paid for them to satisfy the hate of those who hate Social Security, “government,” and working people especially the poor. as for “below survival” that is what will result for some (many) people unless you have means testing, which is a game i saw played when i worked for the food stamp department: ugly and gamed by the rich.
raising the retirement age again, not a compromise because the people you are compromising with have nothing at stake. it’s just a cruel idea to hurt people-you-are-not. and the “across the board cut” will mean that some people who need to retire “early” will not be able to. Social Security is insurance. It makes no sense to hurt the people who need it most. having “done it before” doesn’t make it a better idea now, if it ever was.
the benefit formula needs to be close to what it is now. the better-off retirees are needed in the system in order that there will be “insurance money” to pay the extra needed by the worst off. if the “better off” don’t get a reasonable return for their “investment” then SS becomes a welfare plan and you will lose the support of the “better off.”
i am fairly sure most sane people do not notice their “payroll tax” but they are sure glad to get their SS benefit no matter how rich they are by the time they retire. there is huge difference between “money now” and “money then.” and between money-when-you-have-money and money-when-you-don’t again, most sane people understand this unless they are stampeded by the liars, or “forever young” or in fact the “not sane” who count money to the penny and imagine that “present value” adequately explains the difference between money when you are twenty five and money when you are sixty five.
hyperbole i don’t understand what you mean. i think you don’t understand what i mean. i certainly have nothing against “gambling” with investments. I just point out that “the poor” can’t afford the risk… any risk. and the “rich” can’t afford a risk with no safety net even though they think they are too smart to ever lose their money or good job at the worst possible moment.
raising the cap turns SS into welfare as we knew it. exactly what it was designed to avoid. here you are not compromising as much as stealing from the rich. if you want to tax the rich, do it honestly, don’t pretend you are doing it to “save’ social security. social security can save itself… that is the workers can continue to pay for it at a price they won’t even notice, much less feel. there are some people for whom the word “greed” was invented, who count every penny, even the imaginary ones they only hope to have. and the somewhat illusory ones they are actually getting as though they “earned” them. they may well have worked for money, but the exact amount they get is as much a matter of chance as it is a matter of “just reward.” if you never got that extra 10k in pay, and never thought you “deserved” it (because someone else you know gets that much) you would never notice you didn’t have it. so, i assert, if the evil government insists you set that aside in a protected savings account so the rest of us won’t have to support you in your old age…. however sure you are that that could never happen to you… i suggest the sane thing to do is accept it and forget about it. you’ll be glad you did.
Coberly – When I suggest changing the formula I mean that the amount of extra FICA from raising the cap would not result in an increase in future year’s payout. You assumed I want to bend the formula toward high incomes, actually I want to bend them 180 degrees in the opposite direction. More socializing if you will.
I do understand that the cap and the formula and the FRA etc are all off your table. You have only one solution to offer. Raise taxes.
So you are still shouting to an empty room. A single solution approach that results in a significant increase in taxes will not be taken seriously by anyone.
Krasting
the empty room I am shouting into is you. it may also be that no one else is listening. nevertheless i must still try to tell them the truth. even if they can’t understand it.
80 cents per week every year is not a “significant” increase in taxes. and Social Security is not a “tax.” it is a way for workers to save their own money to insure they can retire when they get too old to work. they will get their money back with interest, just like a savings account. only better.
if you want to talk to me without annoying me, you need to at least understand what i am SAYING even if you don’t agree wtih it.
on the other hand i have no idea what you are talking about with bend points, this or the other direction, or “more socializing.” if you read my comment above about Ms Woo, you should realize i am AGAINST “more socializing.”
I still don’t think you have anything coherent to say.
i offer the “only solution” because it IS the only solution.
There might be something to be said for offering ANOTHER plan that would provide private-market accounts managed like state pensions that could supplement Social Security and eliminate the need for future “tax” increases, but they would still need to be paid for by the workers, but managed by the government (to reduce the fraud and abuse that comes inevitably from “private” management… though i am aware that some states are not any more honest in managing their pensions than are the private financial services.
AND the workers would need to understand that in the event their private plans did not work out, they couldn’t expect Social Security to make up the difference beyond what they had paid into Social Security… which, I am afraid, would need to remain “mandatory” if it is going to work.
So see if you can offer a plan that would actually work. But you would need to get it scored by someone I trust, which is not the crop of “non partisan experts” who are expert liars paid to mislead people about Social Security.
One more time class: you can keep Social Security adequate to your increased life expectancy, increase standard of living, and possible decrease in the rate of growth of wages… by simply paying for it… about eighty cents per week more than you pay now, increased another eighty cents per week each year while your wages… by the pessimistic projections… will be going up eight dollars per week long after the full higher tax rate has been reached.
that last sentence is hard to understand. if anyone is still reading this and wants me to try to make it clearer, just write to comments.
Food for thought:
If you knew that the price of food was going to go up (because of increasing population and decreasing new sources of good cropland)
you would expect to have to budget a little higher percent of your income to pay for your groceries. not what you wanted, but what you have to do to survive.
similarly, if you know you are going to want to retire some day and that the cost of retirement is going to go up (due to your longer life expectancy and the predicted lower rate of growth in wages) you would expect to have to budget a larger percent of your wages to saving for retirement.
this is all the “growing cost of Social Security” amounts to. the larger cost will not be very much higher… you can save for it by saving an extra eighty cents per week per year. The safest place to save for your retirement is Social Security. The “payroll tax” is the money you are saving for retirement.
You may think you can get a better deal by “investing” that money in private investment schemes. You might be right. But you might also be wrong. Badly wrong. Smartest thing to do is pay the increase in the payroll tax, and “invest” as much more of your money as you are willing to risk… and do without for your present needs.
At least try to understand that much before you run off into meaningless word fantasies as you are invited to do by the Big LIars and those who hope to ride the “crisis” to fame and fortune.
Coberly – You’re completely out of step with America in 2015. This is not 1933 – the world has changed.
One of my favorite suggestions for SS?
Anyone making $25,000 of less (in 2014 $s) pays no SS tax. That saves this person who is on the bottom of the income scale $1,550 a year!
This would make a very big difference to many people. Over 40 M workers would get a raise. What would it cost? About $45 billion in 2014 dollars. That’s peanuts.
I would make this revenue neutral to SS. I would have a new mandatory payment to SS from the general ledger. It comes to 0.1% of the budget but tens of millions of workers would benefit. They would not lose the credits towards retirement benefits.
Coberly – can you argue against this? I hope not, but you always surprise me.
One would almost think that Generational Accounting was explicitly designed to argue against Social Security. It only looks at taxes and transfer payments and ignores equally important things like childhood benefits, education, economic robustness, job availability, infrastructure, availability of credit, scientific research and so on. It seems intentionally blind.
Social Security is our society’s excuse for providing goods and services to old people (and the disabled). Those goods and services are provided by generally healthy people of working age, and most of them are going to expect money in exchange, because that’s how our society rolls. (I say “most”, because traditionally female people have been expected to do all sorts of things in exchange for no pay.)
However one describes for Social Security in our ontologies, it has a number of attractive properties. Working individuals contribute. They vest. The more they put in and for longer, the more they are likely to take out. It is also a big pile of money that a lot of already wealthy individuals would like to get their hands on which is why they fund things like “Generational Accounting”.
Krasting
this is not 1933. you got that right. now, explain to the rest of us what that has to do with anything.
then explain why taxing “the general ledger” (welfare) is a better way to pay for Social Security than letting the workers pay for their own retirements, using the government only to manage the details of protecting their savings from inflation and market losses, and providing them with insurance against arriving at old age without having been able to save enough to retire?
Kaleberg
yes.
Yes, Mr. Kaleberg, “generational accounting” is to SS as “dynamic scoring” is to CBO budget projections. As you point out, there is a whole lot of money involved. It is well worth the money it takes to hire inventive people to think these custom-made notions up in light of what’s to be gained by doing so.
I suspect the very idea of somehow acquiring even 5% of annual FICA contributions as administrative fees on some new retirement scheme is truly heady stuff. Wuff! I can’t do the math but it would certainly buy big chunks of land in developing countries with mineral rights thrown in, wouldn’t it? And no bothersome Constitutional governments to stand in the way of really efficient development. And, scads of cheap or even free labor. Oh, yeah.
Thanks for coming by. And, please come again. NancyO
I am commenting to thank Coberly and AB for continuing to provide sane information about SSI. The Big Lie folks, like Krasting, are working hard to create agnotology about the most successful insurance policy ever.
I fault the gilded puppets Greenspan and Ronnie from turning SSI from a stand alone insurance program able to change as reality evolves into the political football it has become.
Please keep standing up to the propaganda and thank you for your efforts.
Psychohistorian
thanks. i keep trying, despite despair.
The only thing I know to say is that we can “save” Social Security forever just by paying for it. The cost is reasonable, and the extra cost needed over the next twenty years is so small we would never notice it.
But the people need to hear this and understand it. And no one is telling them, or explaining it.
Beyond the usual lies of the Big Liars, and the culpable stupidity of the “press,” I find myself beset by ankle biters. People who say they are on the side of Social Security who want to turn it into wefare as we knew it. Or confuse the people by “explaining” to them that Blahouse is really right about SS “contributing” to the “deficit.” [he is not, but the professors among us are hung up on the technical meaning of “deficit” while ignoring the plain meaning of “contributes to.” And of course those who just want to call me names because they think I disagreed with them about something. I might have disagreed with them if I had ever gotten them to be clear about what they meant. But we couldn’t get that far.
So don’t be too optimistic, unless you can think of a way to get past the Liars, the Press, and the “friends of Social Security.”
And, in the unlikely event of somebody still listening, the facts are these:
you will need to retire some day. Social Security is the only way you have to guarantee at least the minimum amount of money you will need. You pay for this yourself… but you get “interest” that comes from the fact that the people who will retire after you do are paying into Social Securtiy a larger amount of money than you did because the same percent of their larger incomes is more money.
people will try to confuse you about “technical” words… mostly they are lying. sometimes they are just confused. but get ahold of the basic facts. Social Security does not receive money from “the government” it has nothing to do with “the deficit,” it is not welfare.
It is just a way for you to pay in advance for your own retirement basic needs. It does not deprive you of the chance to make more money with investments or ordinary savings or winning the lottery. It just makes sure that whatever happens you will have “enough.”
The best deal workers have ever had.
And it does it without “taxing the rich.” Which is hard for some people to accept because they believe that the only way to have “justice” in the world is to take from the rich and give to the poor.
maybe, but it is politics that won’t work in America.