Why Progressives Should Reject Social Security Cap Increases
The basic reason is simple: it undercuts the broader progressive agenda. Also it buys into a particular Right economic meme. Both are huge mistakes.
To understand this we need to step back and examine overall tax policy and tax progressivity. What should progressives want? Well I suggest that as a first step we restore top marginal income rates back to Reagan levels (50%) and extend them to all income including realized capital gains. And then as some potential second stop restore those top rates to Kennedy levels (70%). At this point the Federal government would have the funds to start addressing all parts of the progressive agenda from childhood education and health to retirement security in a direct way, that is we could once again engage in the New Deal and the Fair Deal in a quest to achieve the Great Society. Or in more restrained rhetoric start working on social democratic solutions to broad societal problems.
But if progressives and Social Democrats agree on this then proposals to lift current Social Security wage caps and/or extend FICA to all income starts crowding out any possibility to tax THAT SAME INCOME via changes in marginal rates. Moreover it floods cash into and through a Trust Fund system that doesn’t allow expenditures on anything other than the specific programs involved. With the result that the rest of the progressive agenda remains stymied by the crowding out effect even as the Right can ‘explain’ that ‘you can’t have nice things’ because all the money is going to Social Security. Thus proving that the whole program was ‘unsustainable’ to start with and that any extensions of it, say in the direction of Single Payer Health Insurance, is just foolish and ignorant.
The truth is that the actual cash flow issues facing Social Security are minor and manageable within its current structures. Indeed almost all that needs to be done for Social Security going forward can be addressed by policies focused on increasing real wage and labor share via minimum wage and wage theft/suppression enforcement and by embarking on a much needed direct expenditure on public infrastructure. After all 12.4% of every wage dollar funded directly by a bridge replacement projects and 12.4% of every wage dollar produced by the multiplier effects of those wage workers spending their remaining wages flows directly into Social Security anyway. Meaning that jobs projects ARE Social Security ‘reform’.
George Laffer wasn’t entirely crazy. There is a maximum rate of tax extraction that corresponds with the greatest growth of the economy. It would just seem that depending on how you structure the incidence of that tax between wage income and capital income the empirical data shows that rate to be closer to Johnson and Kennedy’s 70% than Reagan’s 50% then 35% or Clinton’s 40%. So lets get cracking on raising marginal tax rates. But that effort is only impeded by progressives explicitly endorsing ‘Social Security Crisis’ and sending any and all increased tax revenue through the Trust Funds.
This isn’t to say to neglect Social Security entirely. The DI Trust Fund needs an immediate boost in revenues and the OAS Trust Fund would well be served by a gradual increase in FICA rates (hi Coberly!). But that doesn’t require extending FICA to all income, that is simple overkill and overreaction to what Dean Baker and Mark Weisbrot appropriately named the Phony Crisis in their book back in 1999.
To me the broader progressive economic agenda is simple: Restore top marginal income tax rates to 50%, or better 65%. Pursue policies explicitly focused on increasing employment, real wage and so labor share. And then—. Well there doesn’t really need to be much more “And then”. Certainly not in regards to major adjustments in the structure of Social Security finance, that just will work itself out with the combination of higher employment at higher wages and maybe some tinkering with FICA rates under the current cap formula.
Progressive Taxation and MJ.ABW (More Jobs. At Better Wages). And oh yeah – leave Social Security alone (at least mostly). Cap Increases are just a diversion from the real progressive solutions to the total progressive agenda.
Removing the cap would turn Social Security into a wealth distribution program. Something that would open it up to attacks from the right. Increasing the cap with inflation, not so much.
Webb’s spot on. Raising/eliminating the cap will undermine SS. It would be better to raise marginal rates than increase FICA. A stronger economy would go a long way toward solving the issues at SS.
But what is the alternative to raising the cap? Higher FICA/SECA? I don’t see that being a Progressive rallying cry anytime soon. Boost GDP? The Fed is going in the opposite direction.
SSA did a write up of of the “Preserve and Protect SS” legislation. This would eliminate the cap by 2022. It would extend the TF to 2051 (an extra 16 years). But just raising the cap would not bring SS back to actuarial balance.
I think that the case for raising the cap was spelled out pretty well by SSA. A lot of Progressive/Liberals/Democrats will like the results. This will be high on the list of options when (in 2017+) Congress gets down to addressing the issue.
The report from 5/129/15 by Deutch:
John right you are.
Of course I am for a wealth distribution program, just one that starts with fairly allocating pre-tax income rather than using redistribution after the 1% grabbed 90% of the gains. But also supplemented by a progressive tax system that would be more than open to attacks from the right. So I am not shrinking from the fight.
I just wish they would leave Social Security out of this. (And suspect most of the Republican right base does as well)
Krasting I don’t see that you frequent Progressive circles much.
The major organized and institutional effort to preserve and expand Social Security is the Strengthen Social Security Coalition spearheaded by Social Security Works and CAF. You can see their 7 principles and a list of their Steering Committee here: http://www.strengthensocialsecurity.org/about
which includes such marginal progressive orgs as the AFL/CIO, the NAACP and NOW. You can see the full list of 200+ members here:
The SSSC has mostly if not universally signed onto Social Security Works ‘All Generations Plan’ just published in book form under the Title Social Security Works!; Why Social Security Isn’t Going Broke and How Expanding it Will Help Us All (http://thenewpress.com/books/social-security-works)
The components of the ‘All Generations Plan’ has been scored by the OACT and their numbers do run. Those components are listed in Appendix B and include one that might seem a little familiar to readers of AB:
“Increase Social Security contribution rate by 1/20th of a percentage point per year, on employers and employees alike, from 2020-2039 until rate reaches 7.2% on both employers and employees”
Hmm. a total of 2% combined over 20 years.
(For what it is worth Coberly is only given partial credit in the book, sharing it with the similar proposal by Virginia Reno of NASI – see note 25 on p. 266)
So while raising FICA may not have been a rallying cry a few years ago, in fact most progressives tended to reject it, it turns out that unrelenting efforts by a certain Dale Coberly (with an assist from BW) got his proposal noticed by the powers that be in DC and incorporated in one of the major policy efforts going.
Nice try though.
Though I guess it is fair to admit that Virginia Reno left her top position at NASI (National Academy of Social Insurance) to take up a new job and so might not be in a place to advance —–
What the hell am I saying! Reno was named in January to become the new Social Security Deputy Commissioner for Retirement and Disability Policy http://socsecnews.blogspot.com/2015/01/reno-to-become-deputy-commissioner-for.html
Perhaps Krasting can write her and explain why only lunatics like Dale and me even think that raising FICA is a possibility. Me I am not ready to toss dirt on the grave of the Northwest Plan just yet.
“Of course I am for a wealth distribution program, just one that starts with fairly allocating pre-tax income rather than using redistribution after the 1% grabbed 90% of the gains”
This, in a nutshell, explains a basic problem with how issues of equality are framed. Our current system encompassed in property rights, tax policy, and other institutional elements is a wealth distribution and redistribution system – one that is currently weighted towards the very top of the pyramid. The issue isn’t redistribution it really is about the fundamental way we favor certain specific kinds of wealth and ways of wealth accumulation. We give corporations, essentially assemblies of capital, all sorts of legal protections and benefits while hamstringing assemblies of labor like unions. We, or at least some of us, treat markets as natural occurrences rather than as institutions based on man made definitions and legal constructions.
Social Security and healthcare are fundamental elements of a just society. The idea that these fundamental building blocks should be paid for universally and that benefits should be essentially commensurate with contribution with some weighting towards the lower tiers is a matter of basic justice and equity in an advanced society. I agree generally that the caps should remain in place although all income not just wages should be subject to withholding and the caps should be indexed to inflation.or perhaps graduated progressively as income increases beyond certain levels. Actually the caps wouldn’t be such an issue if we didn’t have such huge disparities in income, something that might better be addressed fundamentally rather than after the fact by higher marginal rates (rates should be broadly progressive).
Having followed the discussion here at AB for several years I have to agree largely with Coberly although I wonder if we couldn’t create some sort of automatic mechanism that would adjust withholding rates periodically and incrementally based on demographic factors.
Let’s really get those sneaky Republicans – let’s lower the cap.
That’ll show ’em.
Marko methinks your snark is mis-aimed. I am proposing a 11-26 or more point increase on all income, including capital income. I hardly think Republicans would be laughing or thinking that leaving the cap alone is somehow doing them a favor. I don’t mind a laugh at my expense but prefer jokes that actually are witty or at least make some sort of sense.
As it is I am baffled.
Mark you first paragraph was so spot on and insightful that I was just going to give the whole comment a :”Right on brother1″
But I have certain problems with paragraph 2. First I DON’T think Social Security and health care are fundamental elements of a just society IN THE SAME WAY. And so I don’t think they need to be financed in the same way. Instead I would split the baby.
First I would argue that health care is a universal right and that the basket of basic services provided should not be determined by income at all. As such the system should be transitioned to single payer and be financed from the general fund via income taxes. And since I would expose all income whether from wages or capital gains to the same tax rates. Which would mean no equivalent of a cap, which of course Medicare doesn’t have now. Medicare is only about half paid by direct contributions on workers, contributions that are not capped (Part A), with much of the other half paid for out of the General Fund (Parts B & D) and I see no downside to just taking right to a fully General Fund program.
On Social Security I have only a mild quibble, and that mostly operational. You say ” all income not just wages should be subject to withholding”. But how would that work in practice? Wage withholding is very simple to implement, employers simply take a certain percentage out and forward it to Social Security. Only when combined employment has the worker approaching the cap is there any complexity at all, and that only if there are two or more employers involved. And one reason it is easy is because employers are tracking all kinds of deductions and taxes from Federal and State taxes, to unemployment, to workers comp, to company retirement, etc, etc. Social Security is just one more line item and a simple one to boot.
On the other hand there is no practical way to track the gain or loss on any individual purchase or sale of a capital asset AS IT OCCURS and no easy mechanism by which a portion of that gain be “withheld” for Social Security tax purposes. The whole thing would be a compliance and enforcement mess. Even if Congress didn’t right different exemption rules for capital gains for both programs. IMHO we would be far better just taxing capital gains as regular rates in one operation overseen by the IRS with any subsequent transfers to Social Security being done through the regular appropriations process. That is extended FICA to capital gains income sounds a lot simpler than it would be in practice.
We largely agree on the health issue although I see both provision of healthcare and dignity in old age as fundamental rights in a just society. I absolutely agree that funding for healthcare has to be different – I wasn’t trying to get into that depth in the comment. I would prefer that we eliminate the premium component of Part B and replace it with stouter co-pays that have a means testing component. I know there are problems with that but our entire way of looking at healthcare through the lens of market adaptations like insurance seems like pounding a square peg into a round hole. Somewhere between a bureaucratically directed command system and our current multi headed chimera lies an appropriate way to deliver healthcare and find an equitable away to fund it. I’m not nearly smart enough to have a plan but a good start might be eliminating opportunities for rent seeking from the healthcare system.
You may also be right about the practicality of accounting for capital income but my hope that we find ways to stop distinguishing between wage and investment income makes me want to try to find a way.
Maybe not all that difficult by applying the calculation at filing time. For example, a hedge fund manager paid solely through carried interest or via investment income becomes liable for the percentage at time of tax return.
There probably is no reasonable or practical way to withhold on investment income as we do with wages but it doesn’t seem too difficult to take a percentage of investment income up to the cap (less wages that have been taxed on withholding).
And this one will probably generate disagreement but I think the amounts withheld for SS and Medicare should not be subject to income tax. Of course we’d have to jigger the marginal rates but I think this would go even further towards making SS a stand alone, individually and universally funded plan and eliminate any arguments of “double taxation”.
Well there are a lot of ways to skin the “Dignity in old age” cat.
For example we could just make Retirement Security a three tier system with Tier One being a version of UBI (Universal Basic Income) that would replace SSI and the bottom bend point of the Social Security benefit formula. And then perhaps pay for this new UBI with a wealth tax on investment income. Tier Two could then be a flat Social Security wage insurance program set to replace 40% of income up to a cap. With that tier financed like current SocSec with a flat FICA. Then Tier Three would be some tax privileged program alongside and above Social Security perhaps using the current TSP (Thrift Savings Plan) available to Federal employees. And then sweeten Tier 1 and Tier 3 to taste with other revenue.
Simple system with basic dignity the goal for Tier 1, a reward for work the goal for Tier 2, and a reward for thrift and drive for Tier 3.
As to granting exemptions for SS and Medicare contributions that is more a matter of framing as anything else. You could mostly get the same dollar effect by adjusting personal exemptions or the bottom rate. And someone will always get rewarded or conversely screwed just due to life’s vagaries.
But tossing a bone to Coberly here. There is no particular obstacle or inequity in simply funding Social Security within its current contribution structure simply by adjusting FICA. We are talking literally nickels a day in contributions. If some people are being shorted by this system then pick up the slack with a transformation and expansion of SSI from a horribly bureacratic means based eligibiity welfare system to some sort of UBI Citizen’s allowance. I think that if we did that we could also flatten Social Security by eliminating the bend points and so turn it into a true wage insurance plan.
But really what I want is to separate out the policy issues around Social Security from the larger debate about Progressive Taxation. Which I firmly believe was part of the original design.
Think of it this way. Social Security always had a cap on contributions right from the beginning. But this wasn’t because FDR and the Brain Trust were doing a favor to the wealthy. Because right along side this slow increasing cap number you had FDR sharply increasing top marginal rates.
By the time the first monthly check went out under Social Security Title 2 (the contribution funded component we know as SocSec today) in 1940, top marginal rates were at 79% and had been since the SocSec Act of 1935 had gone into effect. So it can’t have been that FDR was adverse to taxing the rich, even before the war he was smacking them hard and then later took that rate up to 94% to pay for the war. Yet at no time between 1935 and his death in 1945 did FDR ever tap that income tax stream for Social Security.
I believe that firewall was set up for a reason. A good reason. And I don’t want to be the one urging “Mr. America! Tear Down That WAll!”
Which doesn’t mean I am against taxing the rich. From my reading the Eisenhower 90% rates were too high. That led to such extremes as the “unlimited expense account” and Mad Men lifestyles (little of that booze was coming out of anyone’s actual salary). On the other hand I could be talked into Kennedy 77% rates. But there was no reason then or now to tap that particular stream for Social Security.
The kinds of progressive reforms you’d like to see aren’t new – people have been proposing such things since Ronnie & Maggie’s neoliberal steamroller started to flatten the middle class. I’d like to see those reforms , too , as well as many other reforms , proposed by many other progressives. The problem is that these things will never happen. Never , at least , absent a revolution or a perfect-storm-type repeat of the FDR post-Depression years. If either of those things happen , we don’t have to worry about ” buying into” the memes of the Right. We’ll be shoving those memes up their asses , crosswise.
Given that today we have to try to do what we have some chance of actually accomplishing , to take raising the SS cap off the table as one such goal makes little sense to me , and defending the cap as it stands today – not too high , not too low , just right – makes even less sense.
The SS “fix” of the 80s , it could be argued , was just fine. The cap was set at a level that captured 90% of incomes , a reasonable figure , but with no knowledge that the income distribution would evolve in such a way that a smaller and smaller share of incomes would fall under the cap. Setting the cap back at the original 90% capture level – along with a mechanism to keep it there – can be posed as an overdue repair to an otherwise solid Reagan-era reform. In other words , we might actually have a chance of getting it done.
thanks. i mostly agree with you entirely. (and yes the grammar is deliberate).
I don’t think Jamison, who is usually pretty smart, really understands the point of Social Security: we could always have just taxed the rich to pay for “dignity in old age.” Works in Europe.
The point of making SS “worker paid” is that it works in America. The rich are spared the “tax,” and the workers keep their dignity.
Anything that SS does not pay for could be paid by SSI or some other welfare that does indeed tax the rich. But taking the rich to pay for Social Security will turn it into welfare as we knew it. And that will not be good for the workers.
As to the rest: “keep it simple.” SS works fine. Raising the FICA will not hurt anyone… they get their money back with interest.
I would structure universal single payer health care the same way… but i don’t want to open that can of worms here.
The difference between 1/20 of one percent and 1/10 of one percent is forty cents per week for the average worker. And the 1/10 per cent solves the Social Security “insolvency” problem forever. Takes away the Peterson Big Lie. Avoids the threat of turning SS into welfare as we knew it. Worth the forty cents.
The tax on financial transactions would be easy to collect, but the money should be applied to the normal business of government, not used to make the rich hate SS. They hate it now without reason. Don’t give them a reason.
Well nobody I know is actually proposing a cap adjustment to take it back from 83% to 90%. Instead Bernie Sanders would leave the current cap alone and just raise taxes for people earning over $250,000, arguably as radical as anything I have suggested. While my friends at Social Security Works are looking to Raise the Cap completely and toss a wealth tax on top of that.
And actually what you are proposing by implication is a plan that would mostly hit the professional and administrative classes the hardest (the people making between $118,700 and about $180,000) while essentially giving the vampire bankers and the hedge fund guys a free pass. I am not sure that even if the 90% thing is possible that a policy of “fuck the upper middle class but leave the actual rentiers alone!!” is my idea of economic or social justice.
But to get back to my first ask. Who beyond some blog commenters is actually pushing for a cap increase rather than a cap lift?
Dale the ‘All Generations Plan’ proposes 1/20th EACH for a total of 1/10th. That is they are adopting NW or if you will Reno and then adding a whole raft of revenue and benefit changes around that.
But it is the same core as NW: 1/10th combined per year for 20 years starting a couple of years out. IIRC pretty much exactly NW 2009.
I don’t know what you called the NW plan but the spreadsheet i wrote assumes 1/10% EACH.
It is not a big deal in terms of the cost to anyone. but we need to get our math straight.
the cost to the average worker was 80 cents per week on an average pay of 40k per year. Now the average pay has gone up… so the cost would be closer to 90 cents per week. That was always understood. It will go up more as wages rise. It’s still cheap and won’t be noticed by workers. And should not be “noticed” by their bosses who will painlessly work it into their “cost of labor.”
Don’t try to overthink this. At the end of the century the workers will be taking HOME up to twice as much real dollars as they do today, while paying a “tax” that is 2% higher than today. That tax will come back to them two or three times over in the form of higher real benefits over a longer life expectancy.
This “plan” will work for the same reason Social Security works. The left will kill Social Security by getting greedy and “demanding” that “the poor” not have to pay for anything, and “the rich” should pay for all the needs of the poor.
Maybe in heaven that’s the ultimate in cosmic justice. But it won’t work in America today.
Social Security was not designed to solve all the problems of the poor and the elderly. You do it and them no favors by trying to load it to carry all weight of justice you can think of.
Social Security forces workers to save. It protects that savings from inflation and market losses. It insures the workers against a lifetime of wages too low to save enough for retirement. And it pays “interest” at a rate equivalent to the rate of growth of wages subject to the tax. That is an automatic result of “pay as you go” with wage indexing.
And just that essentially solved the problem of massive elderly poverty in this country. Social Security works. Indeed. It does not need to be “fixed.”
Especially by people who don’t know how it works.
There are still lots of good things that need to be done for the poor, and for the elderly, and for “justice.” But don’t kill Social Security by making it bear all the burden of your good intentions.
Okay Dale I just reviewed a couple different versions of the spreadsheets and you are right. On the whole. Because the ‘2009 Trigger’ one does have some .1% combined increases in ‘trigger years but does have the .2% in the core years.
But I think I was confusing it with CBO’s Policy Option 2 in their Policy Option publication from 2010:
Because this one shows 2% over 20 years as backfilling the entire gap. Perhaps because there model shows the increases starting immediately (as I believe the original Coberly Plan did) while the 2013 version of the NW spreadsheet shows those increases not starting until 2018.
A lot of the discrepancy might be because over the years that we have been discussing this the actual actuarial gap has climbed some and the start and stop dates varied by version.
For example I just looked up this fairly early post:
“This is doable, but the Northwest Plan seeks to make it even more doable with two alternative plans. One plan shows the actuarial result if you phase in this increase starting a 0.1% in 2010 and increasing it at that rate each year until 2030, then holding until 2053 where if need a trigger kicks in with gradual increases from there. This is what Coberly calls Tenth Now. The second plan would hold rates where they are until 2028 and start the increases then. This is what Coberly calls Trigger 2.”
So “Tenth now” DID have an immediate increase of COMBINED 0.1% or 1/20th each starting immediately (or just what the SSW ‘All Generations Plan’ does) even as “Trigger 2” delayed the increases and had them phase in faster.
And just to reinforce that the next post in the series shows the same thing:
“Under Tenth Now FICA rates would be boosted by 0.1% every year from 2010 to 2029 then held steady until 2053 where if needed a new series of increases would be triggered. We say if needed because there are very good chances that we may never need to pull that trigger, and pretty good chances that we can halt the original set of increases prior to 2029 as actual numbers come in.”
i guess 2009 was a long time ago.
I see a number of spreadsheets i did back then. i think the one you are looking at did a “separate” fix for DI and for OASI, each triggered by it’s own “short term actuarial insolvency”.
it really doesn’t matter. the point is that a one tenth percent combined increase will not fix OASDI… while a one tenth percent each will.
quite soon perhaps, the one tenth percent each won’t be quite enough to avoid the 2030 or so “death of the trust fund.” that is not a big problem either… a 0,11 percent would do as well (raising the tax increase per worker to 88 cents per 40k instead of the 80cents that would have been needed if the “one tenth” was started in time.
it would work just as well to raise the tax one full percent (each) right now and then wait until “short term actuarial insolvency” to start adding the one tenth percent increments…. but that route would introduce a few complications i think better avoided… but again, no big deal. after about 20 years of no tax increases after the initial one percent, the one tenth percents would NOT occur every year, but from about every other year at first to about every five or ten years toward the end of the 75 year window.
or you could just wait and raise the tax 2% each all at once when the trust fund actually runs dry. this would cause some howling but no real pain.
thing is it can be done any way you choose it. the cost is low, low, low. and the benefits are priceless.
what i don’t like to see is a ‘plan” that calls for an increase that is not enough to “fix” SS. this leaves the bad guys with a lot of room to keep on lying.
a time could come, but is unlikely, when the cost of “fixing” SS would be more than the people wanted to pay for the benefits. i’d take the risk that if they know the facts they would never choose that option. but i certainly don’t want to “offer” them that option when all they know are the lies they have been fed for the last thirty years. thing is, though, there is no need to “cut benefits now” to avoid the “high cost later.” none.
the time could also come, though i think it unlikely, when a welfare solution (no cap, tax the rich) would be needed… wages have fallen so low generally that the people generally can’t save enough to retire.
if that happens, good luck with “taxing the rich.”
the really bad guys simply don’t want to see a poor man retire. the honest rich, there are a few, don’t currently hate SS (except insofar as they are being lied to). threaten to tax them an extra 12% of all of their income, and they will destroy SS with a vengeance.
Might be interesting to see a comparison of the effects of raising/eliminating the cap on contributions compared to changes in the minimum wage.
How much does the minimum wage have to go up before you can start talking about reducing the cap? Might be worth knowing even as a rough estimate.
Excellent question and I will try to start rummaging around for answers. As a start I forwarded the question to Dean Baker, but he is a busy guy and may not have time to get back to me.
Off the top of my head it would seem a lot would depend on ripple effects and assumed multipliers. Ripple effects being the effect on wage levels just above current minimum wage, and multipliers from new jobs supported by minimum wage workers spending pretty much every dime of their new higher wage.
The Social Security Reports do have tables and sections showing the impact of higher Real Wage on Social Security solvency. But that mostly reflects across the board numbers and not bottom up.
But absolutely this is the right question to be asking.
As you both know I agree wholeheartedly with the outline of Bruce’s post and all those from Dale in the past few years. But that’s the sticking point. It is a subject that has been argued over for years now with no sign of any political will in the Congress or the White House to bring such plans to fruition. Marginal general tax rates of 50% or more won’t happen unless there is a wholesale sweep of the current Congress with a turn to the progressive side of the political spectrum. What is the likelihood of 65 Elizabeth Warrens in the Senate? The House won’t change until nationwide gerrymandering and biased voter ID laws are swept out. That won’t happen until the Supreme Court becomes a group of truly Constitutional scholars with no political agenda.
In other words the fight is more a political fight against huge money in politics and total the control of the government by corporate wealth and the individuals who dispense that wealth. It’s a chicken and egg issue. Get rid of the draconian Congress that has been put in place by the wealthiest sectors of the economy and it is likely that good things can then be discussed and accomplished. So long as people like Scott Walker get the kind of attention being shown there will be no room for a progressive agenda in the Congress. Think of how absurd it is that the heart of the government, the legislative branch, is always griping about government. And the Executive branch does little to earn the title of defender of all of the people. The Supreme Court? Those jokers have allowed all of this to creep forward and destroy the balanced fabric of our society. the question is not so much, how do we fix any part of any individual government program? It’s more, how do we get a government that is not dominated and controlled by great wealth?
Jack my only answer to that is that any political change movement requires activists and analysts. Without the latter the risk is that the movement or revolution simply lacks focus, without the former nothing actually gets done.
Also for me the danger is that activists unchecked tend to reject any kind of incrementalism as being a betrayal of the movement and hence to be rejected in favor of some sort of “heighten the contradictions” strategy to bring about real revolutionary change. Historically that hasn’t worked out well. The barn and house get burned down to get rid of the rats and the arsonists are left with nothing but slogans.
Personally I don’t see the Fight for $15 movement as being hopeless. Incremental yes. Never likely to actually have universal results yes. But also having real potential for bringing up labor share. Which as a byproduct will help fund Social Security.
What isn’t helpful, it seems to me, except perhaps for Friday nights when we are all sitting around a table drinking and arguing politics for the hell of it, is just coming to the conclusion “Screw it, we are all fucked, lets have another round and talk about GoT while playing Cards Against Humanity”.
Of course you can argue that is just about as useful as what I have been doing when measured in real world terms. Because I am not personally translating any of this into action. Well I am not in a place (by any definition of ‘place’) where that is practical or would be effective. So all I can do is to point out that certain incremental changes would have certain positive effects and leave it to the activists of this world to say whether we should pursue steps or burn the house down.
it would be an interesting question. but it also misses the important point
that Social Security is not a welfare program. it’s an insurance program. the cap needs to be set at the point where the insurance value stops being worth the cost of the premium.
tiny adjustments in the premium rate will solve all financial problems in Social Security that can be reasonably envisioned at this time.
you don’t want to get yourself into a situation where the economy is “good” so you cut the cap and then when the economy turns bad you don’t have any money coming in from those who still have good jobs to pay for the benefits needed by the now-retired.
keep it simple. rube goldberg solutions will just mess up something that isn’t broken.
I agree with Bruce. working on the min wage is a good idea.
but you don’t have to do one thing or the other. you can do both.
i think it is important to get people to understand they can pay for the SS they NEED for so little money they won’t even notice it. and that is without any other change in the situation at all. there should be no problem getting this “fix.” except that the Big Liars control the congress and the press. And the people who claim to be defending the little guy are not interested in saving is social security if all it means is a tiny tax increase on the little guy (it’s not really a tax… it’s the amount he needs to save protected from inflation and other losses by the government). They won’t be happy without a Revolution.
unless the people can be made to see they can at least protect their ability to retire at a reasonable age by simply very gradually raising the amount of money they save via SS, the bad guys will win.
The “left” will not win. until they learn to act like Roosevelt and stop sounding like “activists.”
you might have a chance of getting it done (raising the cap) and destroying SS in the process. The cap needs to be set at the point where the cost of the insurance (SS tax) is worth the value of the insurance (benefits expected/risk of needing them).
talking about shoving reforms up people’s asses is a good way to make them dislike you so much they destroy SS just to do you in the eye.
get an old fashioned pan balance (scale). and put “80 cents per week” in one pan, and “raise the cap/risk the backlash” in the other.
and think about it.
is saving yourself 80 cents per week worth the risk of losing SS entirely?
unfortunately i know too much about people’s ability to compare numbers and evaluate risk to have much hope that you will get the right answer.
but i do believe a real effort to keep explaining this to people until they think they understand it will create the political momentum to actually save Social Security.
but as Bruce notes, this will take some actual help from people with more political leverage than i have. i don’t think it will take much, but as you see i don’t have that talent.
Just to be clear on the marginal rates, it was our Cactus publishing here that the “effective” top rate needs to be between 55% and 65% if I recall with 65% being the better. We have read here at AB that others have come to the same conclusion.
In our discussions regarding income tax rates, that is what we need to keep in mind. I also suggest on my publishing past tax tables, that a true progressive income tax will have multiple steps to produce an effective tax curve that looks like the distribution of income. This I believe is what helped to engineer the middle class. (Helped being the word.)
At the same time, and it’s not my forte but going forward part of the discussion and blathering on the MSN will involve the debt. I think we need to be vigilant on that issue here at AB for the coming election. This weekend at my cont ed (medical) happened to weave in his spiel on the debt suggesting that the real debt was $114 trillion. I will be sending him an email.
Yes Daniel keep on top of all the hucksters selling “real debt”. Because almost always what they are referencing is “unfunded liability” which is not “debt” at all.
For example a few years back Medicare had an “unfunded liability” that totaled $40 trillion dollars. Then with the single release of a Report that “real debt” was reduced to $10 trillion dollars or by 75%.. And the reason wasn’t because the U.S. hit some sort of Galactic Lottery, instead a change in Medicare finance introduced by the ACA chopped off $30 trillion in costs over 75 years.
If that $40 trillion had actually represented “real debt” then Obama would have been the champion debt cutter in the history of not only this world but most possible worlds. Yet the whole Cato/AEI/Peterson complex that has been pushing this whole “intergenerational warfare” crap based on “real debt” just passed the 75% cut over as if it was just nothing.
Which was true enough. Because the whole “real debt” metric is crap to begin with. For example you might ask your correspondent if that $114 trillion ALSO includes future defense spending either contracted or expected (because we are not going to scrap our carrier and sub fleets and our fighter wings) that is also ‘unfunded’. And you will find out that it NEVER does. Because ‘different’.
There is hardly anything more unreal than “real debt”. At best “unfunded liability” is a useful accounting tool for budget geeks, it has no business in regular policy discussions meant to be shared with the public. GIGO.
And I will go with Cactus and that 65% top rate. We can call it a compromise between Reagan and Kennedy.
note that the top “marginal” rate is not the effective rate. the effective rate for the top earners in this country is about 25% according to the Statistical Abstracts, and more like 17% for the “next to the top” earners.
as for the “real debt”… that is probably ultimatley from Larry Kotlikoff who is insane, but useful to Peterson. Dean Baker has pointed out that the calculations are absurd to begin with, but the real dishonesty is that they are not compared to “income” on the same basis (infinite horizon present falue), where it turns out those “unfunded liabilities” (not even real liabilities as Bruce points out) amount to somthing like 30% of national income…. about the current combined state and federal tax rates.
better look up Baker on this. he knows a lot more than i do.
my experience with Kotlikoff was personal email which is where i got the idea he was insane. we went round and round when i showed him that his 20 Trillion “unfunded deficit” (if i remember correctly) could be paid for with the one tenth of one percent per year for twenty years “tax” raise i have been trying to get a hearing. he said it was impossible and demonstrated that he didn’t understand present value… it’s just an algorithm he learned in school without understanding… some weeks later he came back and admitted that in fact my tax increase would solve the problem, but then he said “who would pay 16% for Social Security… again, any sensible person would if that’s what it costs to guarantee a retirement income that may last more than 20 years at a higher standard of living than today… and the cost as seen by the worker would only be 8% etc
can’t tell the whole story in one comment… but it’s just the same old story of phony experts trying to dazzle the people with big numbers that amount to very small numbers when you know what you are talking about.
and the people fooled are often fairly successful accountants and financial advisors… also “experts” who work with algorithms they learned in school without understanding.
Dale who claimed that “top marginal” meant “effective” to start with?
And I don’t know if Kotlikoff is nuts exactly. I like to think as these guys like Mafia Lawyers or Tobacco Industry Lobbyists: well paid to back up talking points with ‘mathy’ numbers while not backing down or cracking a smile.
For people like Kotlikoff sociopathy is useful while being neither sufficient or totally necessary.
see Dean Baker, he knows more than i do.
but just to get some perspective on this
an infinite horizon present value of 100 Trillion means that’s how much money you’d need to have in the bank today to pay those costs as they come up.
We don’t have a bank to put 100Trillion in, but we do have a working economy (which is what the bank would rely on to generate the interest it would need to pay the costs) that generates about 18 Trillion dollars per year (2014 GDP)
That hundred trillion in the bank at 5% (enough to cover inflation and keep up with “growth”) would generate 5 Trillion per year…. this is the “debt” that Kotlikoff says we need to pay for with that 100 Trillion present value in the bank that we haven’t got. But it turns out to be about 28% of that GDP which turns out to be about what State and Federal taxes amount to.
So, a hundred trillion in unfunded debt over the infinite horizon turns out to be roughly the current income available to pay for it. “unfunded” only means we haven’t actually dedicated the taxes to it yet.
and keep in mind that Kotlikoff and friends are none too honest about what they are counting as “unfunded deficit.”
I hope this helps show that big numbers sometimes conceal small problems. But don’t expect your audience to accept this without screaming all their rage at taxes at debts.
My point was exactly that marginal is not effective and thus we need to clarify what we are saying. I suggest we best note “effective” rate when we are talking the need for policy change. Other wise, we will not get the results we want. : )
“How much does the minimum wage have to go up before you can start talking about reducing the cap?”
Increasing wages increases income now but also increases costs (benefits) later. One of the problems with discussions about increasing the cap is that doing so while maintaining the current formulas implies increasing benefits to those making over the current cap but some people actually mean to change the formula along with. So (besides being a bad idea) increasing the cap is not a particularly coherent idea.
Changing the law will require Congress to act. It will involve the stuff of which sausage making metaphors are built.
Current law has the cap increase with Average Wage Increase. This has resulted in the total wage subject to SS tax decreasing as inequality has increased. Total elimination and donut holes are horrible ideas that should be resisted, but if it will increase the number who are on board for tax increases, some adjustment to the cap should be negotiated because that is how Bills are made.
Arne of course increasing wage increases benefits later and this is true both individually and across the board. The question is then two-fold: One do increases in real wage pay for themselves in the sense of making the system more solvent. And it seems the answer to that is “Yes, Real Wage advances improve the Revenue to Cost Ratio”
The second question is more subtle and requires reference to Rosser’s Equation. Even if Real Wage increases just broke even or perhaps lost a little ground when it comes to actuarial gap between “Scheduled” and “Payable” would they still be beneficial to the system over all? Well yes. Because both numerator and denominator are important and the real metric is basket of goods.
For example the original theoretical example of Rosser’s Equation in action was 75% of 160% = 120%. Which is to say that if Real Wage Increases had driven the future benefit payout to 60% higher than current retirees get today, even a 25% cut still leaves future retirees with a larger basket of goods. By 20%. Now lets say that Real Wage stagnates somewhat and/or the date of Trust Fund exhaustion moves back in time such that “Scheduled” had been reduced to 140% but that the needed cut was reduced to 20% then to that degree Social Security is more solvent. But lets substitute into Rosser’s Equation. 80% of 140% = 112%.. Voila – Social Security more ‘solvent’ but with new retirees with a small real basket of goods.
So the only way that wage increases could ever hurt future beneficiaries of Social Security is if they had a suppressive effect on the denominator enough to offset the increase in the numerator. And it is far from clear that that can be true. It might be under certain sets of circumstances but we can’t just stop by saying “higher wages make higher benefits therefore it is zero sum”. Particularly when we have the example of Low Cost in front of us where much of the improvement in solvency is explicitly because of higher rates of employment and real wage than the Intermediate Cost baseline model.
Although I agree with you about the incoherence of the “increase the cap” idea. Because people often fail to distinguish between increasing the cap with concomitant increase in benefits as against one without. Still the scoring shows that increasing the cap while allowing benefits to go up is because of the bend point structure not a zero sum game for solvency. You can compare Option 4 (Eliminate taxable maximum) with Option 6 (Tax covered earnings above the maximum: no increase in benefits) in CBO’s Social Security Policy Options:
Option 4 closes 100% of the gap vs the 150% of 6. Even as 4 has benefits going up for above previous cap earners.
I suppose it is a good idea to have given some thought to funding strategies, but I do not sense a whole lot of prospects for the actual policies that would potentially be executed with these fresh funds. For example the near total lack of motion on the universal pre-K idea does not seem tied to agonizing about where the money might be found, but rather that the concept is not that popular.
Eric I disagree.
If you examine the rhetoric actually deployed by the Right on their resistance to expanding such things as pre-K it seems more often weighted to the “unsustainable” “entitlements will crowd out” side than the “fuck the poor kids”. The latter may be what they really mean but we a a couple of decades into “entitlements crisis” and the explicit message that the “olds” are engaged in “intergenerational warfare” on the “young workers (and their children)”. You see this a lot in the current Right talking point that shows that the Federal government spends much more on those oldsters than on the young. Ignoring that the largest category of spending on the young is state and local support of education and that a long-standing plank of the Republican Party is to eliminate the Education Department and any federal role in education to start with, which would just skew the ratio even more against children. But which doesn’t stop them from deploying the “intergenerational warfare” and “crowding out everything but Social Security and interest on the debt” storyilines.
In fact a lot of the appeal of the Northwest Plan is that it cuts these narratives off at the knees by making this deal: “Okay workers will fund Social Security out of our own pockets, so now you can drop all this crap about it crowding out universal pre-K”
I think there is actually a large group of even the Republican base that embraced the George Bush “compassionate conservative” messaging but had also bought the countering “if we could only afford it, which we can’t because of foreign aid and buying steaks, crab legs, and Obama phones for blah people”. After all even the most militant Tea-hadis have grandkids.
” But to get back to my first ask. Who beyond some blog commenters is actually pushing for a cap increase rather than a cap lift? ”
I don’t know what it takes to qualify as “pushing” , but eight of the the recent proposals submitted to SSA for evaluation refer to the 90% threshold. It looks like a half-dozen or more different groups made such submissions :
( E1-3, E5-7,E14-15 )
In the 2014 NASI public survey , out of four revenue-raising options presented , the highest score for both favorability and strong favorability was for the 90% cap raise :
( p19 , fig 5 )
“…you might have a chance of getting it done (raising the cap) and destroying SS in the process.” ( Coberly)
“Why Progressives Should Reject Social Security Cap Increases – The basic reason is simple: it undercuts the broader progressive agenda. Also it buys into a particular Right economic meme. Both are huge mistakes.” ( Bruce )
You guys have really jumped the shark.
nobody here said top marginal was the same as effective, though i think someone did say “marginal effective..”
so i was not criticing anyone. merely pointing out in case they ever needed to make it clear that a “marginal rate” of 50 or 90 percent did NOT mean that the taxpayer was giving 50 or 90 percent of his income to the government.
i know you know that, but the bad guys rely on the confusion to create a sense of “injustice”in the minds of their hearers.
Well I don’t know about your numbering. I see explicit references to the 90% level in E3.1 to E.3.3, E3.5 to E3.7, E3.13. Also in E3.14 but that comes accompanied with a 6.2% rate on earnings above that cap. But note that your number excludes the E2 series entirely.
Also it is worth noting that the ‘pushers’ of these proposals are listed under multiple proposals and that really what you have is not ‘pushing’ at all but an examination of a whole range of possible options by the Social Security Advisory Board and the National Academy of Social Insurance which are quasi-public with NASB being appointed by the President. That is they are not advocacy groups as such. Plus a lot of those proposals are not in any sense “recent”. Of the outside ones Liebman-MacGuineas-Samwick is from 2005 and Warshawsky is from 2008. Of the rest a whole bunch are from Johnson, Brady, Ryan which is to say Congressional Republicans and cannot be seen as serious proposals for action given their stated hostility to Social Security but instead requests for scoring ammunition to push their preferred private/personal accounts proposals.
Of the plans being pushed by actual advocates of increasing revenues in which I would include Larson, Moore, Deutch, Sanders/DeFazio, Wexler, Harkin, Begich/Murrary and LMS only a minority reference the 90%. I am seeing LMS and Simpson/Bowles and if you like BPC in that group .
So I am not sure this list bears the weight you want to put on it.
Webb you point to a study that is five years old and was done with 2009 data? Things have changed since 2009 – and you know that.
Face it – Nothing will happen with SS in 2015. And nothing will happen in 2016 either. What might have worked 6 years ago is not going to work three years from now.
as for Kotlikoff. i talked to the man. he is insane.
the other guy, whose name i can’t bring to mind, is not insane. he is quite smart. smart enough to practice the kind of dishonesty that you can get away with by never saying anything that is exactly untrue.
nevertheless i don’t need to cast ad hominems at Kotlikoff. he just needs to be answered by someone like Dean Baker who knows the numbers.
thank you for your usual inciteful and helpful comments.
i try not to worry too much about what the politicians are going to do.
all i can do is try to tell the people what will work that is best for them.
inciteful is not a typo. you have nothing to say but you can be counted upon to say it.
the fact that you can’t understand something does not make it unlikely.
Marko, and on the NASI Study
I don’t think that figure will support your conclusion either. What you have is four options presented NOT head to head but as stand alone propositions. The alternative that would have the cap go to 90% did indeed score 84% combined Favor Strongly/Favored Somewhat while the alternative that would lift the cap completely scored 80% Favor. But when you turn to Oppose Strongly the two score almost the same with 6% strongly against lifting the cap altogether as against 5% against the 90% proposal. Instead the missing 4% is found in the Somewhat Oppose category. So what that suggests to me is that there is a broad consensus on increasing the cap at around 82% with only some drag on increasing it over 90%.
Moreover these side by side proposals were eventually combined into packages and when it came to selecting a total package it came out as shown on page. 2 (sorry wouldn’t cut and paste correctly). Which shows that any resistance to a total cap increase was overcome, perhaps because that was needed to fund the entire package.
I am not hostile to cap adjustments as such, and if they are adjusted than restoring them to the 90% level that they used to be is reasonable enough. I would just prefer that that be done by policy that addressed labor share rather than arbitrary changes in the cap formula. Because the root cause for the shift to 83 from 90 was growing income inequality to start with. Fix the inequality and the ratio readjusts on its own.
Krasting your first sentence-paragraph is not logically connected to your second.
As far as the five year old CBO study, one there is no reference to it in my actual post, and two it is the latest available information to address the comment You apparently believe the scoring of those options would be materially changed by the 2014 data. I disagree. So where does that leave us.
And for your political judgement that nothing will happen, I have to take that in conjunction with this: “I don’t see that being a Progressive rallying cry anytime soon.” To which I countered by citing not some book released years back but instead to one published THIS YEAR.
Maybe you don’t have your finger quite on the political pulse in the way you imagine.
“as for Kotlikoff. i talked to the man. he is insane.
the other guy, whose name i can’t bring to mind, is not insane. he is quite smart. smart enough to practice the kind of dishonesty that you can get away with by never saying anything that is exactly untrue.”
Dale based on past discussions I suspect the “other guy” is Andrew Biggs, now at AEI, formerly at Cato and in between (God help us) Principal Deputy Commissioner of Social Security.
And BTW Krasting you seem to have skipped reading the actual post when you wrote the following:
“Face it – Nothing will happen with SS in 2015. And nothing will happen in 2016 either.”
Because in this particular post I am proposing that NOTHING be done at ALL in regards to the Social Security cap. And while I have not backed off from Northwest entirely, the latest version of it IIRC doesn’t propose anything on the OAS piece this year or next EITHER.
As to DI. It is IMPOSSIBLE that nothing will be done. Or near impossible. Because the DI Trust Fund is set to go to zero in November 2016 and despite the opinions of many there is not actually a legal mechanism in place to simply cut benefits by 20%. That is Congress will be forced to do SOMETHING, even if that is just to endorse the Trustees adjusting Scheduled Benefits down to Payable.
(I base this last on a discussion I had some years back with Andrew Biggs in the course of some typical argumentation back and forth on solvency. Say what you want about Biggs, he didn’t fall asleep in meetings when he was no 2 at SSA and he really does know the law and the numbers.)
re Biggs, absolutely.
he is a pleasure to talk to because while he is devious, if you have your wits about you you can escape being fooled, and learn something.
while talking to, ahem, some people just leaves you feeling iike you are wasting your time with someone who can’t or doesn’t want to understand what they are talking about.
When talking to Biggs you get the same feeling as people do talking to Consigliere Tom Hagen in the original Godfather
What’s a nice guy like you working for an outfit like Cato/AEI/the Bush Administration/the Corleone Family?
BTW his blog is still up and has a substantive post from Friday. I haven’t jousted with him for some years now but I am sure it is still a nice test for defenders of Social Security.
” I am not hostile to cap adjustments as such, and if they are adjusted than restoring them to the 90% level that they used to be is reasonable enough. I would just prefer that that be done by policy that addressed labor share rather than arbitrary changes in the cap formula. Because the root cause for the shift to 83 from 90 was growing income inequality to start with. Fix the inequality and the ratio readjusts on its own.
Nor am I hostile to the sort of gradual rise in FICA rates that have been suggested here , as I’ve stated in the past , and I’m certainly in favor of trying to compress the income distribution via more progressive taxes at the top as well as higher a minwage , empowering labor , etc. What I do object to is the hyperbole suggested by the title of this post and by Coberly’s comments – that adjustments to the cap would somehow doom the progressive movement.
Also , there’s a chicken-and-egg effect to consider with the relationship between inequality and the drift to a lower capture rate of SS incomes. Just as lowering the top marginal tax rates encouraged higher top incomes , so does an “escape velocity” occur when wages move above the cap – suddenly each additional dollar of wages is taxed much less.
If the cap was back at 90% , we’d reclaim a bunch of allies that we’ve lost – people who now may be against raising top marginal rates on the super-rich ( because , being beyond the cap , they now identify with them ) – we’d have a new cohort who are highly-paid but taxed more progressively , and they might be more willing to join us in ending the kid glove treatment of the super-rich , like , e.g. , the carried interest boondoggle.
Going forward , maintaining the cap at 90% would set a new , higher barrier to increasing inequality up to that limit , whatever it would be. Then the focus could remain on properly taxing the smaller group at the very top.
BTW , right-wing think tanks like Heritage hate the idea of raising the cap back to 90%. That alone is a sign that it’s probably a good idea to do it.
Marko I always understood that you and I were standing on the same side of the barricade and that my snark directed ostensibly at you was really targeting the assholes on the other side. Sorry for what may feel like me treating you as Costello to my Abbott.
That said. I find the following to be problematic:
“If the cap was back at 90% , we’d reclaim a bunch of allies that we’ve lost – people who now may be against raising top marginal rates on the super-rich ( because , being beyond the cap , they now identify with them )”
Because shitting on the 83-90% in hopes that they will ally with the “rest of us” to stick it to the top 1% gets a little too close to “Heighten the Contradictions” for my taste.
Not to say that people of good faith would not and should not disagree. This is a question of tactics and not strategic goal.
As for ‘hyperbole’. Well I am afraid that that is a feature of writing headlines or blog post titles and not a bug. It might drive sober reporters (if that is not an oxymoron) crazy to have headline editors write them in a way that screams ‘Clickbait!!!!’. But as both reporter (and not particularly sober) and headline editor I deliberately go big on the latter. Hoping to establish an actual conversation on the merits after the fact. Which I think you and I might be doing here.
And as long as I am doing some agitation. If you refer back to the SSA Solvency piece you referenced you would see that one of the promoters of raising the cap back to 90% was in fact the LMS – Liebman-MacGuineas-Samwick plan. Which since Maya MacGuineas heads up the Peterson supported CRFB (Committee for a Responsible Federal Budget) which in turn funnels money to other right wing think tanks and operations as Fix the Debt undercuts the idea that the billionaires really hate the idea of cap adjustments as compared to cap lifts.
I for one would be very interested in checking out a link to a Heritage publication that explicitly resisted a cap increase to 90% as opposed to a unlimited cap lift. Because I have been following the various right wing projects for a long time now and find most of them open to shifts from tax on capital to tax on upper income wage workers. As an example both the Rubio and Ryan plans (eliminate tax on capital funded by restrictions of deductions that mostl favor the upper middle class – i.e. ‘Fair Tax).
This Heritage piece is the one I came across. It trashes the 90% cap in various ways , including making the claim that the additional revenue wouldn’t help anyway since the gov’t would just spend it on something else :
first, i did not say raising the cap would doom the progressive movement. i said it would motivate the “honest rich” to kill social security.
the “movement” would go on as it always has “protesting” and “demanding” while the people suffer.
your reasoning about the “new allies” is far fetched. by raising the taxes of the near rich you will motivated them to fight against social security, not somehow identify against those more rich than they are.
Fellas, I guess what I’m trying to make clear is that none of the good ideas discussed here and else where will evolve into real policy until we get to the base of the problem. Money out of politics. Money out of electoral campaigns. Increments, you say. The first increment for change is the basic. Money out of political activities, especially elections. So long as the money is spent by those who are willing to pay for their preferred form of government no other increment is going to creep forward. We’ve been moving backwards for a few decades now, in tandem to ever escalating amounts of campaign spending.
All other discussions are no more than arm chair musings because even if others are listening there is no path to implementation until the broom sweeps clean. Of course when things get much worse than they are at present one never can tell what the underclass reaction may be. We currently have the worst government that money has bought. Why expect an intelligent discussion to change that? Money out of politics is the only first step with any meaning.
so how do you propose to get money out of politics?
the opposition i get here is not funded by money. it is funded by stupidity. no doubt the stupidity is nurtured by money. but you are not going to cure that by overturning citizens united.
there is a lot going on in the world i don’t like. there has always been a lot going on in the world that most people didn’t like.
it’s nice to blame the people at the top but even those were swept away by “forces of history” beyond their or anyone’s control.
doesn’t mean you need to give up fighting, or hating the bad guys, because you, your fight, may be a force of history.
but largely the forces have more to do with methods of production that lead to rearrangements in who gets the power. sorry if that sounds marxist, but i think it’s generally true. i would not discount, however, the emergence of a purely abstract idea that sweeps all before it.
I come to this question from the perspective that SS is overfunded, and that even modest proposals like Coberly’s concede too much of the discussion to the right. This comment it somewhat sideways to the discussion, but I’m hoping some of you can help with these questions:
1) Why do we need or have such a large Trust Fund?
My understanding of it in a pay-as-you-go system is that it is like a checking/cash/liquid account: you want it to cover expenses for a short while if your income goes down, but beyond that, what does it buy you?
2) Is the big Trust Fund just a way to go to the front of the line when Congress allocates funds? I.e., to cut payments, Congress would have to default on debt instead of “just” defaulting on promises to seniors.
3) Is the big Trust Fund then a way to say we cannot trust Congress to keep its promises to seniors?
4) Doesn’t Congress have an infinite number of ways to default on the promises to seniors? Like raising the retirement age, or taxing more of the benefits.
5) If you oversimplify the world into two groups: workers who pay payroll taxes into the general fund, and rich people who pay income taxes into the general fund, is the Trust Fund a loan from the first to the second?
If so, is preserving a big TF (instead of running it down) a way to roll over that debt and never paying it back?
Marko thanks for the link. It was a farrago of nonsense but did focus on the 90% thing while taking a sideswipe at a total cap increase.
Julio it will take some time to draft answers to your questions. I just got your comment out of moderation and expect other people will weigh in before I get back to you. But I will. B
Julio let me take some stabs at this
1) The Trustees are mandated to maintain the Trust Funds with a one year reserve as measured in the next years projected cost. This allows a Pay-Go system to weather a fairly extended and deep recession. The Trust Fund on a combined basis now has a reserve of just under four years. But this mostly reflects a demographic reality that was understood thirty and more years ago, that the demographic bulge represented by the Boomers would place a strain on the system starting around 2010 and extending to 2040 and beyond. As such it was prudent and necessary to build up a larger than normal Trust Fund via changes put in place in 1983. The 1983 deal didn’t take place in a vacuum and almost came a cropper, in fact the final deal was cut outside the actual structure of the Greenspan Commission and is detailed in a excerpt from former SSA Commissioner Bob Ball’s autobiography published separately as The Greenspan Commission: What Really Happened
Bob being Tip O’Neill’s proxy on the Commission and on the final deal. The deal as it passed out of Congress and got signed by Reagan was not ideal from a technocratic sense, it was a little too front loaded and should instead have incorporated a future tax increase that would have kicked in about now. As a arithmetic matter this would have kept the Trust Fund from getting quite so high. On the other hand it is not like the money is not needed, as things stand the Trust Fund projects to be totally drawn down by 2033. So to answer your question of “what does it buy”. Well it buys the 22 years of retirement between the time the OAS (Retirement) program stopped taking in enough cash from FICA to pay benefits. Which point we reached in 2012. Social Security is still in surplus due to interest on its assets but it is not Pay Go based on current worker contributions. I’ll get to questions 2-5 in a moment
Julio the answer to 2) is “sort of”
Social Security was set up in a way that insulates it from the normal appropriations and budget process. Benefits are not reliant on annual appropriations, instead they can legally be paid as long as the Trust Fund has a positive balance. And the Trust Fund is constantly replenished by payroll contributions, tax on benefits and interest payments that all flow automatically to it outside the normal budget process. Which is why with the Post Office that Social Security is legally “off budget”. In practical terms this means that Congress can’t screw with it by doing nothing and so holding it hostage, instead they have to take active measures in the form of legislation that in turn can be filibustered or vetoed. Which is why Bush was stymied in his privatization attempts back in 2005. And Congress can’t act to default on the debt instruments held by Social Security, not without declaring that all Treasuries are in default. Because despite some naysayers the Special Treasuries in the Trust Funds are legally on a par with regular Treasuries and no foreign holders of those Treasuries is likely to think that their money is safe if they see Congress fucking over 60 million voting seniors. So to that degree Social Security is secure for decades, the checks will continue to roll out in full as long as there is a Trust Fund and in part as long as people are paying payroll tax. The Trust Fund in that way acting as a Chinese Wall.
On 3) Well that is a cynical way of putting it. A Trust Fund with a normal reserve allows Congress to automatically keep its promises to seniors without having to go through some annual battle on the order of the Medicare Doc Fix (which finally got a permanent fix but did roil Congress each year).
On 4) Well yes. While Congress cannot keep benefits from being paid as long as there is a Trust Fund with a positive balance it can change benefit levels more or less at will. And if Social Security had to go through the normal appropriations process every year then you can bet its enemies would be attaching changes and poison pills every year. The existence of the Trust Fund is as such a political buffer as much as an economic buffer.
5) Well no. Once you grant the need for a reserve, and the further need for that reserve to itself be buffered from economic currents then the choice of using Special Treasuries for that reserve makes perfect sense. Now you can make the point that any purchase of a Treasury bond is a ‘loan’ but as long as the interest and principal is being honored then you can’t really say that anything is being diverted. Now things get a little murkier when the Trust Fund balances are well over the mandated target, if the Trust Funds were projected to maintain Trust Fund ratios of 400 (4 years of reserve) forever then it would be fair to complain about the extra three years that indeed would represent borrowings that were not being paid back. But as it is we are drawing on the interest on the Trust Funds now and expect to be drawing down principal in the next decade with exhaustion of the Trust Fund in the mid 2030s so the ‘loan’ is in this case temporary and needed. That equation could of course be changed if Congress cut benefits in a way that kept the current excess reserves from being paid back. But for now that is a hypothetical, instead Congress just wants to cut benefits back to now scheduled revenues rather than maintain or expand benefits via new revenue.
Hope that begins to answer your questions.
1) the big trust fund is an effort to preserve “worker paid insurance” for the baby boom generation which was enough larger than the generations before and after that the ordinary “pay as you go” would have resulted in a “generational inequity.” there is nothing wrong with the idea except that it give the haters of Soci Security another “factoid” to confuse the people with.. by claiming the expected paying down of the Trust Fund as the boomers go through the system is “social security going broke.” It also creates the illusion in the minds of people who think backwards because they have no moral sense that somehow SS “contributes to the debt” (by lending money to the government. apparently enough people are too stupid to see the sleight of hand in that, so the Bad Right scores points.
2)no. the Trust Fund is just a way to keep the finances of SS separate from the general budget. That is to keep the congress from robbing the people who paid for their future benefits.
3)yes. sort of. but see 1) and 2) above.
4) yes. that’s what we are fighting to prevent. can’t do better than that in a democracy.
5) SS is NOT ‘paid into the general fund.” that is the point. yes the TF is a loan from the workers to the high end taxpayers. nothing wrong with that. same as a savings bond. in fact raising the tax a tiny amount WOULD preserve the trust fund instead of running it down. But the growth in the economy would result in that TRust Fund becoming just enough to maintain that “sufficient reserve” that you mentioned in your comment. The general fund would still have to pay the interest due on the money it borrowed from the TF… but that’s what it has to do on any money it borrows from anyone. and if they don’t like the interest payments they could always pay the principle, and then SS would have to fund the TF out of it’s own tax… essentially no difference… it could invest the paid back principle in some other “bond” or it could just use it to supplement taxes until it runs down, and then about another half percent on FICA would make up for the lost interest. It really comes out the same thing when you look at what people are paying and what they are getting.
it may not be obvious, but as far as I can tell Bruce and I are in complete agreement on this. there are some minor divergences that come from entertaining slightly different branches of the argument.
My! So many Progressives ready to increase regressive taxes. I’ll wait for Senator Warren to weigh in on this.
Is any of this tax talk really necessary? I don’t think so. I’ve tried to make this point to AB readers before, I’ll try once more.
The issue is that the SSTF will run dry in 2033. That will force changes according to current law. The SSTF is headed from 2.8T to zero by 2033. But now look what is happening to the Military Retirement TF. It is is projected to grow to 2.7T by 2032. MRSTF will grow at a rate that is greater than the SSA TF will fall.
There is no crisis that must be fixed. Just merge SSA with MERS.
In 2032 MRS will have a TF ratio of 26. That is crazy. A waste of savings.
The details of the MRSTF on page 17 of the annual report:
so, we should invest all that wasted savings in what? mortgage backed securities?
you are so perversely wrong about SS that I am beginning to suspect you must be paid to be.
SS has worked well for eighty years, and will continue to work well forever with a tiny tax increase… i know that eighty cents per week would be hard for an old bond trader to come up with in these times, but i’m betting that most people working for a living at a wage of 40k per year would not even notice the “tax” increase. Especially if they realize they will get it back with interest when they need it most.
Which is why it is not a “regressive” tax. The people who have the lowest incomes will get back considerably more as “interest” than those with the highest incomes… though even those will get back everything they put in, adjusted for inflation, plus a reasonable amount of interest given the insurance value of their “tax.”
So you want to destroy this, which works, to merge it with MERS…. for what reason, exactly?
The ideal SS trust fund would be zero. That is not practical because you need a reserve for monthly ebbs and flows and the occasional long recession. The larger than 100% of a year’s benefits reserve, was created to help the boomers fund their own retirement where normal pay as you go would have resulted in a generational “injustice”. The injustice would not have been significant, so maybe preserving pay as you go wouldhave been the better choice, given the political worms that have grown out of “the death of the trust fund.” But as Krasting demonstrates the worms can grow out of the hard right brain just on the smell of a confusion they can pour on the people’s heads.
The facts are quite simple: you pay about 6% of your pay, and the government “keeps” it for you, safe from losses due to inflation and bad days on the market. it earns “interest” from the growth in the economy through pay as you financing with wage indexing. and then the government gives you your money back with some adjustment so the “rich” get a little less interest, but more absolute dollars, in order to give a few more dollars to the poorest so they can afford to retire.
this has worked for eighty years, and no one even noticed the 6% payroll deduction until the right thought it had a chance to kill the program entirely by making an issue of it…. think how much you “could have” earned on the stock market with that money! yes, indeed, think about it.
now because you are going to live longer and you are going to want benefits that will be enough for the higher standard of iiving world that will arrive by the time you retire, you should plan to raise your payroll deduction, gradually, from 6% to about 8%. you won’t miss it. your wages will go up in real dollars ten times as fast as your “tax” goes up.
but the hard right will use any words it can think of to confuse you about this.
if you think you can do better than SS. go for it. you won’t miss the 80 cents per week per year it takes to keep SS “solvent.” but if something goes wrong with your personal investments you will be very very glad you had SS. And that is what happens to more than 50% of the people.
Krasting the MRSTF has no source of dedicated funding. It is instead funded via the annual appropriations process as part of DODs portion of the budget. And since it is unconstitutional to pre-fund at least the Army and it is certainly true that no Congress can bind any other Congress the future state of the MRSTF is literally just marks on a piece of paper. If Congress continues to make appropriations according to that schedule then the Trust Fund will grow to a TF ratio of 2300. But there is no reason other than a political calculation to believe that they would do so.
It literally makes no sense to merge Trust Funds that have a dedicated tax stream that is legally off budget with a Trust Fund that has no legally dedicated revenue stream beyond the currently stated intent of a current Congress and which is part of the regular appropriations and budget process.
What you see as simple is in reality simple minded. Gee this positive number over HERE is the same magnitude as that negative number over THERE. DONE!!!!
No. Just No.
Dear Bruce Webb
thank you. you said it better than i did.
Webb – The MRS projections are made on the same basis as SSA – current law. Hard to call one worthless while the other sacrosanct.
And yes, I do see one pocket of the government being empty and in need of a few $Bil while at the same time I see another pocket that is overstuffed with savings. I will take a screen save of your response. I think this issue will come up in a few years.
But I ask you, as one who has a good understanding of these matters, do you think it makes any sense that MRS has a TF ratio of 2300%?
Thank you for the detailed (and quick!) responses.
good to know that “current law” is a sufficient feature in common to base policy on.
kind of like saying that since football and baseball are both played with a ball according to current rules, we should merge the leagues.
and it would be fair. the yankees vs the packers… as long as the yankees got to use bats.
i don’t know which pocket of the government you see as empty. SS can pay for itself forever even if NO changes are made whatsoever, not even my one tenth percent tax increase.
it’s hard to see how whatever funding is going to increase the MRS can be used to decrease the “debt” in SS. Especially when SS has no debt, and according to current law can never have a debt.
and just where would that money come from? and why would they want to spend it on SS…
Krasting, I think you have outdone yourself with idiocy this time. and that’s saying something. you can’t just shove words around without regard to whatever real world “things” they represent.
Krasting problem is in neither the projection nor the current law. It is in the source of funds.
You claim that there is no possible way that Congress will approve an increase in FICA that would fall on and only on workers. Yet you blithely propose that a Republican Congress will happily divert General funds away from the military to bail out a hated (by them) social insurance plan.
Yet you call me naive.
Webb – you didn’t answer the question. Admit it – 2300% is just dumb policy.
How might this work? How about the excess MRF assets are used as a guarantor for SSA. This would eliminate the need for a 1 year cushion at SSA. It would extend the sustainable solvency for many years.
Coberly – Nice rant. I will take a screen save of those pearls too. The final words from the conclusion section of the 2014 SSA Report:
“With informed discussion, creative thinking, and timely legislative action, Social Security can continue to protect future generations.”
The issue with MERS is something that can be exploited. It falls withing the definition of “creative thinking”. What you and Webb continue to push is a single solution, all tax increase proposal for SS. Neither politically practical nor creative.
What you advocate blows against a central issue in America. Income distribution is already badly skewed, what you propose would make things worse,
Krasting dumb policy is mandating that the Post Office set aside funds to pay for 75 years worth of worker health care. Why did a Republican Congress do that? Well I suspect I know, but suffice it to say that paying for health care for future employees who won’t get hired until mid-century is dumb, dumb, dumb.
So I don’t see why it is my obligation to explain why the military prefunds retirement. Even though 23 years worth would make a system where you can retire after 20 years pretty damn actuarially sound.. But it is not my policy.
As to the MRF guarantor thing, let me make a counter proposal.
Why don’t we put wheels on my grandmother and call her a bus. It makes just as much sense. I mean I get and admire “creative thinking”. But this sounds like it came out of the business end of a tube of model airplane glue.
Social Security, like any insurance plan, redistributes “income” from those who don’t have bad luck to those who do. But in the process it protects everyone from having much worse luck with the “traditional” ways of saving for their retirement.
You are annoying. Because you don’t know a damn thing about Social Security but you keep coming back with your hare brained “ideas”. I would have ignored you long since, but, sadly, there is too much evidence that too many people jump at hare brained ideas if they are told it will save them, or make them, money.
You didn’t answer Webb’s question. Or mine. The answer to your question is that it contains too many logical absurdities to be susceptible of an answer.
The only time I saw anything like your style was in a book in which “the devil” maintained a steady, dishonest, and entirely meaningless “argument” for the only purpose of driving the protagonist insane, and possibly seducing an entirely innocent “person” into a fatal deception.
but so far i don’t think i have heard anyone expressing an interest in your ideas but you… and perhaps the groupies on your own site.