Social Security Works…A friendly review from a different perspective
by Dale Coberly
Social Security Works by Nancy Altman and Eric Kingson
A friendly review from a different perspective.
I have great respect for Altman and Kingson for the work they they have done writing this book. I disagree with their ultimate “fix” for Social Security (it ain’t broke), but I want you to read the book. I want everyone to read it.
This book does a comprehensive job explaining Social Security and the lies of those who are trying to destroy it. I do have a different point of view and reach a different conclusion, but you should read their book so you can understand the problem. It would be far better for you to disagree with me and agree with Altman/Kingson than to leave yourself at the mercy of the Big Lie being told by the haters of Social Security and the politicians and press who have been bought or fooled by them.
The book demonstrates conclusively that Social Security is not going broke. And so far from being a “burden on the young,” it is perhaps the only thing standing between today’s young and terrible poverty in their own old age. They describe the situation in America today in which all forms of reasonably secure retirement savings are under attack or already destroyed. The attack is orchestrated by a few very rich people who are either true believers in “free enterprise’ (as opposed to what they call “socialism”) or they are simply looking at the huge profits they can make by forcing everyone into “the market” and collecting fees while the workers take all the risks.
I would go a bit further, based on statements from people like Alan Simpson, or Peter Peterson when he isn’t being careful, I think these people truly hate the poor and would rather see everyone who isn’t rich like them working at menial jobs into deep old age. I have nothing against “the market” or taking risks, and I am very much not a socialist. But there are some things that people can do better for themselves if they cooperate in what is called a “government” and use that government to organize if not pay for what no individual can do by himself. One of those things is retirement insurance. Currently “the government” does NOT pay for Social Security. Neither do “the rich.” Nor “the young.” YOU do. Your “payroll tax” is the best way for you to save and insure “at least enough” for a basic retirement “if all else fails.” After that you are free to take whatever risks you want in the hope of getting rich or at least “a better return.”
Here I will offer a different framing of only one point that the authors make. It is important to recognize that I do NOT disagree with them as to “the facts.” I just think I have a better way of looking at the facts.
In Chapter 10, “The Conventional Wisdom”, page 171, Altman/Kingson answer the charge that “Social Security is unsustainable” by appealing to a concept called “the dependency ratio.” They show that while the number of old people no longer working is increasing, the number of those too young to work is decreasing. Since from a societal point of view the number of people “dependent on” those still working remains unchanged, society can afford to “pay for” the old.
This is true. But people don’t think in terms of what “society” can afford, so I would like to show what this means from the point of view of an individual person, even a very selfish individual person.
Imagine there is no Social Security and no “market” safe enough for prudent savings.
Suppose at the age of sixteen you get your first paycheck. Your grandfather whom you love, or perhaps a rich uncle whom you respect, advises you to put 10% of that check in the bank. “Pay yourself first.” he says. ”That money will be what takes care of you when you get too old to work.”
[Now, remember this is sort of a parable, so I am making it much simpler than real life.]
You aren’t particularly worried about getting “too old to work” yet, but almost without knowing why, you do what grandfather recommends.
It turns out that saving 10% per year results in your saving a total of four years pay over forty years. That four years pay will be just enough to pay for ten years in retirement if you can live on 40% of what you lived on while you were still working (and buying your house and taking care of your kids). And that ten years is your life expectancy after you retire.
[You make a $1000 per year. You save $100 per year. After 40 years you have saved $4000. You spend $400 per year during retirement. It lasts 10 years.]
Now suppose that fifty years later, incomes are twice as high, and your grandson’s life expectancy after he retires will be twelve years. If he wants to keep the same standard of living relative to what he had while working, what should you tell him? You might think, “well, save 10% for forty years and then live on 40% for…. oops… that won’t last twelve years. What to do?”
The answer you and every other prudent person would come up with is… “save 12% each year for forty years.” Then he will have saved 4.8 years worth of wages. And if he spends that at 40% of his working wage per year, it will last 12 years.
Moreover he won’t have been hurt by saving that extra 2% because, remember, his wages are now twice what they were when you were his age. So, if you made a thousand dollars a year and saved 100, you had 900 to live on. Now he makes 2000 per year and saves 240, leaving him 1760 to live on, plus having 800 per year for his old age. (You had $400).
Now if you (or I) haven’t got lost in the oversimplification, I hope you can see that without regard to “society” it is in your own self interest… and a perfectly easy thing to do… to save a little more per paycheck to save enough for a longer retirement. That is what raising the Social Security “tax” does. Only Social Security combines the risks of 300 million people into one insurance pool, so that there is no chance you will lose your savings on the market… or to inflation, thanks to pay as you go financing.
I am sorry I can’t make this explanation as comprehensive as I would like in a short blog post, so I’ll have to leave the rest to you.
My point here, besides explaining why you should raise your “tax” 2% without reference to dependents or society, is to encourage you to examine your Social Security “costs” and “benefits” from your own perfectly selfish point of view. The authors of Social Security Works are sociologists and tend to think in terms of “society,” which is valid and important, but leads them down a primrose path to sounding like “socialists” and making Social Security an easy target for those who hate it.
Their conclusion is that “society” should raise the taxes of the rich to pay for YOUR retirement. The rich won’t let that happen. Or if they did, they would own Social Security and turn it into “welfare as we knew it.” You won’t like that.
It would be better for you to raise your own “tax” (it’s really savings plus an insurance premium), pay for your own basic retirement, and “no damn politician can take it away from you.” Which is the way Roosevelt designed it… over the heads of his own social insurance commission.
The cost of raising your own tax would be eighty cents per week each year while your wages are going up over eight dollars per week each year. Or you could wait about twenty years and raise your own tax about 20 dollars per week all at once (after your wages have gone up over 200 dollars per week). I think this would be harder, much more dangerous (by giving the Big LIars another 20 years to create hysteria), and be marginally less fair (you would be getting a free ride for 20 years and pay less in taxes than you “should” pay for what you will get in benefits.
Or you can count on the rich to say, “Sure, I’ll pay an extra 12% on my million dollars, and an extra 10% on top of that to “expand” SS benefits. I won’t notice 220 thousand dollars on top of my other taxes.”
God knows, the politicians never listen to the rich, so you should be okay.
My objection to this is that raising rates another 2% or so delays redemption of the Social Security Trust Funds for more years. In 1983 it seemed a reasonable program to build up reserves using a quite regressive tax and then redeem those in the fairly distant future with funds from a much more progressive tax structure. The distant future is upon us and the country faces a test as to whether or not there exists the political will to make the redemptions. The system is coming under attack because of how significant the current balances are in the Trust Funds to high income individuals who suspect that they are going to be substantially funding the redemption of that Trust Fund unless they can alter the timeline in some way. “Not my fault that the country pissed away fortunes in Iraq – why should I pay through the nose so that granny in Hoboken can eat gourmet pet food?” The problem being worked on is not that the system has gaps in the 2030s – even though that is certainly true – but that a whole lot of progressively raised general revenue is planned to go into SS between now and then. Blink on redemption now and blinking will never end: the country’s bills will be substantially borne by regressive taxation without end. How about this instead: work down from the top incomes where 12% also gets taxed on every dollar above a floor to raise the revenue needed to close the gaps. Every dollar below $120K and every dollar above $300K (WAG) gets the current SS tax and the additional revenue is very, very progressively raised.
Nancy Altman and Eric Kingson have been important contributors to the discussion about SS for many years. Altman was on the staff of the 1980’s Greenspan Commission that set up the current payroll tax levels and other aspects of how SS benefits are computed, financed, and accounted for. he was directly involved with discussions with the principle actors (Robert Ball, Sen. Moynihan, and Chairman Greenspan being the most prominent). Her knowledge of the intent of all the parties including Pres. Reagan is unique. Most people have never heard of her, but she is someone worth listening to about SS. The book is a worthwhile read and absolutely reliable in its presentation of the current status of the SS program’s finances.
But Like Coberly, I don’t agree with Altman, Kingson and other progressives that the payroll/income tax contributions of upper income people should be additionally taxed by “scrapping the cap” or other similar gimmicks to tax the “rich” more to pay for the program.
Why? Whoever pays for it, owns it. Just like FDR said. If rich people have to pay more, they will revolt. They’re already revolting (/snark) but their ire would know no bounds if they have to pay more for “undeserving” poor people like the rest of us. Class warfare is real, it’s here and it’s now. The inequality we see around us is there by design and will remain unchanged unless we understand that basic fact.
Ordinary people are the main beneficiaries of SS. As long as we the majority pay for our own program we will be able to control it and control the benefits it pays. If we can afford perpetual war, we can afford a decent standard of living for retired people in our society. If you believe we are so impoverished as a nation that we must abandon all pretense of social justice for the old, disabled, blind and survivors of deceased workers think again. We should and can have a better outcome than that. FWIW. NancyO
Typo line three of the above comment. “he” should be “She.” NMO
Eric
you are simply wrong as to the facts. The Trust Fund is being “redeemed” on schedule as planned.
If the payroll tax were raised that one tenth percent per year starting by 2018 the “principle” in the Trust Fund would never need to be redeemed at all. It would stand as a paper “iou” in the “required reserve” against the day when another great recession would call upon the actual money … resulting in a transfer like every other transfer during a recession: from funny money to real purchasing power to stiimulate the economy or at least ameliorate the suffering.
you are right,however, that the PERCEPTION that they will have to pay back the Trust Fund, acts on the “rich” and the Congress to inspire their desperate need for benefit cuts.
frankly i don’t think it’s the money that drives the Big Liars. they hate Social Security because they hate the idea that “the poor” are allowed to retire at all. it’s probably deeply psychological to the point of “religious” with them. and in any case it would make it easier for them to keep the poor desperate and cheap, not to mention contributing their “savings” to “investment plans” the rich would be glad to manage for them, for a fee.
now, even if the Trust Fund had to be redeemed by those rich, in the words of that arch liberal Calvin Coolidge: “they hired the money, didn’t they?” they have made money off their “tax savings” from borrowing SS funds for thirty years. they can easily afford to start paying back what they borrowed. of course, being rich, they will never pay a dime they don’t have to. unless it’s on a boat or expensive whore to impress their friends at the country club.
Nancy O
“social justice” is a tricky concept. in the minds of some it means “tax the rich.”
in better minds, like Roosevelt’s, it seemed to mean write laws that keep the rich from preying upon the poor. making Social Security “worker paid” was an act of genius “so no damn politician can take it away from them.”
without taxing the rich it has become the most important anti poverty program in the nations history: the best Deal workers have ever had.
even the President’s own Social Security commission (it wasn’t called that at the time) didn’t understand this and Roosevelt had to intervene personally to keep Social Security from becoming just another welfare program.
Altman et al seem to me to be too deeply committed to the idea of relief of all societies ills by taxing the rich to understand this.
and i need to say, though no one hears me: i have nothing against taxing the rich, and nothing against welfare. i just don’t want to see those things piled on the back of Social Security. They will kill it.
i have to go to work. but i’ll be back this evening in case anyone wants a serious answer, or needs a serious reply.
Coberly keeps pounding this dead idea. For five years he has been spouting “It’s only 80 cents a week”.
Just for the record, if you kicked off a Coberly’s plan in 2018 (as suggested in the article) then the .01% tax increase would have a cost to the average worker of $1.10 a week, So Coberly is low balling to the tune of 30%.
Coberly will respond that the extra 30 cents in the first year is nothing. Okay, but at least we will not have to suffer through the 80 cent stuff any longer.
So do us a favor when you post and re-post on this. Use real numbers. Time has passed; the 80 cents is a five-year old estimate. We’re up to a $1,10 now.
Average wage data from SSA – Table VI.6G – page 208 of the 2014 report to congress……
Krasting
I was hoping for a serious question or comment.
The average wage of about 40k per year had not gone up last time i looked. But it has always been understood that the one tenth of one percent was the figure to look at. Lots of folks will still be making 40 k when your 200k will have dragged the “average” up.
Is a dollar ten per week too much to pay to guarantee you will have more than twenty thousand a year for over twenty years when you are too old to work?
and by the way one tenth of one percent is 0.1% not .01%.
And if you consider my figures low-balling you have no concept of the numbers or what is at stake.
So let’s spare me the trouble of looking up the latest “average wage.”
Those of you who think my “80 cents per week is materially different from $1.10, or changes the stakes in any way, please raise your hand.
Well, I looked up the Trustees 2014 Report Table VI.G6
and found average wage of 46,786.77 per year or about 899.75 per week. out of which one tenth of one percent would be 90 cents per week (i like round numbers.)
so could we say Krasting is “hi-balling”?
I wouldn’t say “hi-balling.” I’d say it’s a pure case of just a dime’s worth of difference. Which hardly defeats your argument–rather the reverse, it seems to me. Gosh! Just occurred to me that BK is within a gnat’s bristle of buying the premise of the NW Plan. Gasp! Can it be true? Nawww, no chance. /snark. NancyO
Coberly – Just read the 2014 TF report please. For 2018 (the year you specified) the average wage is estimated at $56,590.98.
It is ready-aim-shoot, not ready-shoot-aim….
krasting
just read what i’ve been writing for five years: “that’s eighty cents per week IN TODAY’S TERMS.”
a dollar ten in 2018 is eighty cents per week in today’s terms. [or ninety cents if i concede that i wasn’t watching the clock.]
meanwhile what kind of a moron crows about a “30%” increase in the price of an eighty cent ticket to pay for 400 thousand dollars worth of retirement.
i got into this whole thing because the morons at the Trustees (not the actuaries, the morons) were calling the “needed tax increase” a 33% increase in the tax… and indeed it was…. a 33% increase in a six percent tax, or 2%.
you see, one of us knows what numbers are, and the other is just an idiot who thinks if he makes belching sounds in the back of the room it proves he’s smarter than the teacher.
you see, Krasting, a thing is what it is. a liar or a fool can always make it sound like something it isn’t by playing games with words or even numbers.
i have not been mindless and dishonestly repeating eighty cents per week for five years. i have carefully laid out how the cost grows over time and how it is still a very good price to pay for retirement security.
but you haven’t followed a word of that. you keep looking for some cheap stupid game you can play with words or what you call your own “calculations.”
the trouble with all this is that the rest of the class isn’t all that steady on their feet either. they have all they can do to understand even a part of this. and the class clown in the back of the room makes it a lot harder for them.
keep being a fool. maybe some day you will have grandkids and you can explain to them the minor role you played in destroying social security for the people who needed it.
OMG! bkrasting is dooming SS over $0.30 per week. The sky is falling! The sky is falling!
Jerry
I think I know what you mean, but you COULD mean that I (even I) am the one crying the sky is falling and blaming it all on old dear Krasting.
Nah, the sky is falling but right now I’d blame it on old dear “social security works” who could have educated the people to understand they could pay for Social Security themselves for “about” eighty cents per week (in today’s terms) while their incomes are going up “about” eight dollars per week (in today’s terms), and avoided a losing fight with “the rich” who will either cut SS immediately, or wait until they “are paying for it” and turn it into welfare as we knew it and kill it slowly at their pleasure.
Krasting is an annoyance, and one I haven’t learned to deal with gracefully, so maybe it’s me (even me) who is to blame.