April Fools! Belated Social Security Joke.
Compilation of the Social Security Laws: Title 2
FEDERAL OLD-AGE AND SURVIVORS INSURANCE TRUST FUND AND FEDERAL DISABILITY INSURANCE TRUST FUND[3]
Sec. 201. [42 U.S.C. 401]
(c) With respect to the Federal Old-Age and Survivors Insurance Trust Fund and the Federal Disability Insurance Trust Fund (hereinafter in this title called the “Trust Funds”) there is hereby created a body to be known as the Board of Trustees of the Trust Funds (hereinafter in this title called the “Board of Trustees”) which Board of Trustees shall be composed of the Commissioner of Social Security, the Secretary of the Treasury, the Secretary of Labor, and the Secretary of Health and Human Services, all ex officio, and of two members of the public (both of whom may not be from the same political party), who shall be nominated by the President for a term of four years and subject to confirmation by the Senate. A member of the Board of Trustees serving as a member of the public and nominated and confirmed to fill a vacancy occurring during a term shall be nominated and confirmed only for the remainder of such term. An individual nominated and confirmed as a member of the public may serve in such position after the expiration of such member’s term until the earlier of the time at which the member’s successor takes office or the time at which a report of the Board is first issued under paragraph (2) after the expiration of the member’s term. The Secretary of the Treasury shall be the Managing Trustee of the Board of Trustees (hereinafter in this title called the “Managing Trustee”). The Deputy Commissioner of Social Security shall serve as Secretary of the Board of Trustees. The Board of Trustees shall meet not less frequently than once each calendar year. It shall be the duty of the Board of Trustees to—
(1) Hold the Trust Funds;
(2)[11] Report to the Congress not later than the first day of April of each year on the operation and status of the Trust Funds during the preceding fiscal year and on their expected operation and status during the next ensuing five fiscal years;
(3) Report immediately to the Congress whenever the Board of Trustees is of the opinion that the amount of either of the Trust Funds is unduly small;
(4) Recommend improvements in administrative procedures and policies designed to effectuate the proper coordination of the old-age and survivors insurance and Federal-State unemployment compensation program; and
(5) Review the general policies followed in managing the Trust Funds, and recommend changes in such policies, including necessary changes in the provisions of the law which govern the way in which the Trust Funds are to be managed.
The Social Security Annual Reports used to show up like clock work. In fact I used to have links set up on my blog that would activate the second the Reports was released to the web. Until one year late in the Bush Administration when it didn’t. A pattern then followed by the Obama SocSec Trustees every year since – no Report – no explanation – no corrected release date. Nope it just happens when it happens. Sure Social Security represents 5% of GDP and Medicare even more, but why should the American People or say Congress know WTF is going on.
The 2014 Report got released on July 28. Maybe we’ll beat that this year. Oh well since we CAN’T talk about a Report that doesn’t exist I guess this will have to be an Open Thread.
Long as I decreed this an Open Thread feel free to chime in on the implications of NBC and Macy’s dropping Trump as it relates to this article last month from Slate Donald Trump Thinks His Name Alone Is Worth $3 Billion
From an accounting standpoint this was always dubious, typically you can’t carry the ‘Good Will’ of a native company name on its own books, that is the brandname ‘Coke’ is not carried on the books of its parent company while any acquired brand names are. This is mostly because the premium paid for any company above its own book value has to be accounted for somewhere and that somewhere is “Good Will” which is then amortized away.
But that is of no matter. Presumably Trump gets some income from licensing his name out under current deals but any future value is at risk of vanishing into thin air every time he opens his mouth and alienates someone. For example there are not likely to be any Trump branded hotels opening up in Cancun anytime soon. So how much value has been lost off that putative $3 billion already?
FWIW, even if the $3 Billion was an honest number, the Trump balance sheet made no provision for the deferred taxes ($1 Billion +/-) that would be incurred on a disposition of the name at that value. http://www.cpajournal.com/1999/0399/dept/acct399.html.
The SSA needs PAC’s like those run by Boeing and Lockheed.
If the pentagon were viewed as SSA the US would not be fumbling through so many retrials of counterinsurgency dogma using its unsuitable, gigantic mega-military machine.
While pentagon supporters gauge the % of GDP for “we the people” as a threat to their trough.
Having seen such erosions in the making, I would venture to guess that more and more people have asked to “help” proof-read and approve the drafts and “final” report. Many such people may know more about what they want the report to say than the means by which the report data is generated. This results in endless changes and changes back in the “how” to say it category.
Webb – Did you see the employment #s this morning?
A total of 640,000 additional people fell out of the work force in June. The total is now 93.6m people not working. This equates to a workforce participation rate not seen since 1977.
This mega trend is another of the areas that concerns me when it comes to SS. SSA’s calculus of the number of workers contributing is far from the current reality.
An example of the problem as I see it: since 2007 America has lost 1.4m manufacturing jobs and gained 1.4m waiters and bartenders. How do you turn this around?
“Total nonfarm payroll employment increased by 223,000 in June.”
“The civilian labor force declined by 432,000 in June”
Does the calculation of AWI include wages that are higher than the cap?
Arne – I didn’t think so, but I tried to confirm this, and now I think it does. From SSA( http://www.ssa.gov/OACT/COLA/netcomp.html):
In keeping with the legal term “national average wage index,” we often loosely refer to the basis for the index as average wages. To be more precise, however, the index is based on compensation (wages, tips, and the like) subject to Federal income taxes, as reported by employers on Form W-2.
Beginning with the AWI for 1991, compensation includes contributions to deferred compensation plans, but excludes certain distributions from plans where the distributions are included in the reported compensation subject to income taxes. We call the result of including contributions, and excluding certain distributions, net compensation.
Thanks Mike,
That is what I found, but since there is no link to IRS data, and since it was not what I used to think, I wanted confirmation.
Arne – Here’s a more explicit definition from SSA (this is what I was looking for before, but I found the definition above instead). Anyway, this one is explicit that it includes wages above the cap.
http://www.socialsecurity.gov/OACT/TR/2013/VI_H_glossary.html
Average wage index — AWI
A series that generally increases with the average amount of total wages for each year after 1950, including wages in noncovered employment and wages in covered employment in excess of the OASDI contribution and benefit base. (See Title 20, Chapter III, section 404.211(c) of the Code of Federal Regulations for a more precise definition.) These average wage amounts are used to index the taxable earnings of most workers first becoming eligible for benefits in 1979 or later, and for automatic adjustments in the contribution and benefit base, bend points, earnings test exempt amounts, and other wage-indexed amounts.
Bruce,
If I proposed that the cap increase with AWI, but that a revised AWI based on top-coded wages were used to calculate the PIA, is there a way to determine if there is an improvement in outlook? It seems to me that benefits based on wages within the pool of workers makes sense when revenue is already based on the wages within the pool. It is perhaps also a more reasonable estimate of the gain in standard of living that workers see. It is certainly a more reasonable tradeoff than increasing the cap or increasing the retirement age.
Arne I have always maintained that I was a ‘number-pointer’ and not a ‘number-cruncher’ so take the following as being top of the head/intuitional..
The short answer to your question about “way to determine” is Yes. There seems to be nothing in your formulation that would be beyond the analytical and computational skills of OACT, they model variables significantly farther in effect than any wage based one. That said I am not the man to do it.
To the extent that I understand the question you would be calculating PIA only on the wage pool under the cap which itself is dependent on total AWI. This would seem to lower the PIA and so Cost and so improve Solvency. But since that lower PIA would seem to me to be the same as a cut in benefits I am not seeing a tradeoff that is remotely ‘reasonable’. Moreover I don’t see how that would necessarily be preferable to just sticking with current methods of calculating PIA and just taking the benefit cut at time of Trust Fund Depletion. (Other than avoiding the shock factor).
But I am thinking I don’t actually understand at all. Because you start with this: “If I proposed that the cap increase with AWI” and yet end up with “more reasonable tradeoff than increasing the cap”. I trust that you know what you are talking about, but it doesn’t quite compute to this Number Pointer. What is the difference between “cap increase with AWI” and “increasing the CAP”. Which as far as I know increases with Real Wage anyway – which off the top of my head should track with AWI. No??
Krasting as to this:
“An example of the problem as I see it: since 2007 America has lost 1.4m manufacturing jobs and gained 1.4m waiters and bartenders. How do you turn this around?”
I see why that is a problem for the total economy, at some point those waiters and bartenders need customers beyond the finance guys who are ordering craft cocktails, that is we need more beer and a shot guys. That said I don’t see how this is Social Security’s problem. At least not in the medium term. A wage dollar is a wage dollar and the fundamental problem is not sector shifts in employment but overall employment numbers and reversing income inequality.
As to your 640,000 number. Well you don’t source it or break out what percentage of those people retired (who wouldn’t show up under U-6) as against those who lost jobs. That leading edge Boomers (second highest demographic cohort behind Millennials) are entering retirement should ceteris paribus decrease labor force participation in alignment with the drop in worker/retiree ratio. But most of that latter was baked in the cake decades ago when those Boomers were born and is not particularly a surprise.
I’ll take your word on the “lowest since 1977”. Because I have better things to do than to chase down numbers that you have not sourced prior to asking me my opinion on them.
On Trump:
‘Professional Suicide’: Donald Trump’s Big Mouth Chews Hole in His Wallet
http://www.nbcnews.com/business/business-news/professional-suicide-donald-trumps-mouth-chews-hole-wallet-n385906
Krasting I think I stumbled on your source. Talk about Cherry picking:
Mixed U.S. jobs report dampens September rate hike bets
http://www.reuters.com/article/2015/07/02/us-usa-economy-employment-idUSKCN0PC1BJ20150702
So far so good for BK.
“U.S. job growth slowed in June and Americans left the labor force in droves, tempering expectations for a September interest rate hike from the Federal Reserve. ”
Oh is my face red!
“The unemployment rate fell two-tenths of a percentage point to 5.3 percent, the lowest since April 2008, but that was a sign of weakness as 432,000 people dropped out of the labor force. ”
Well this is mixed. 5.3% is below what used to be considered NAIRU and close to the new consensus number. And 432000 is not 640000. But hey we’ll give BK “sign of weakness”
“The labor force participation rate fell to 62.6 percent, the lowest since October 1977, from a four-month high of 62.9 percent in May. ”
Bingo! Sweet vindication for BK! But what is this just following?
“By far the biggest source of the increase in non-participants was people transitioning from employment to not in the labor force,” said Michael Feroli, an economist at JPMorgan in New York. “Far fewer transitioned from unemployed to not in the labor force.” ”
Translation: lots of retirees, few discouraged workers. Sad face for BK.
Sadder yet?
“NOT ALL BAD
There were, however, some encouraging signs in the employment report. Though the participation rate tumbled last month, other labor market measures that Fed officials are eyeing as they contemplate raising interest rates for the first time since 2006 improved significantly.
A broad measure of joblessness that includes people who want to work but have given up searching and those working part-time because they cannot find full-time employment fell to 10.5 percent, the lowest since July 2008, from 10.8 percent in May.
The number of discouraged workers in June was the lowest since October 2008. In addition, the number of long-term unemployed continued to fall, touching its lowest level since late September 2008. Americans are also experiencing shorter spells of unemployment.”
Krasting on balance I have to say I am not much chastened here.
“What is the difference between “cap increase with AWI” and “increasing the CAP”. ”
The cap is currently increased each year by the AWI as the AWI is currently calculated. Therefore, changing the calculation of the AWI would change the cap, which I would not propose to do. Most people when they say they want to “increase the cap” mean by much more than the annual AWI correction.
“Moreover I don’t see how that would necessarily be preferable to just sticking with current methods of calculating PIA and just taking the benefit cut at time of Trust Fund Depletion. (Other than avoiding the shock factor).”
Avoiding the shock is not just a good thing, it is critically important. There will be negotiating. SS will not get through TF depletion without deals being made. So the question of what cuts are acceptable is every bit as good as the question of what revenue increases are acceptable.
Eliminating the cap – really stupid.
Increasing the cap to get back to 90 percent of wages – a negotiating point, but goes too far.
Changing CPI – really stupid.
Changing AWI – I don’t know.
Across the board cuts – really stupid because 80 year olds and 30 year olds are not in the same place.
Across the board tax increase – good, but will never be the whole story.
Increasing the NRA – actually worth discussing because it is an across the board cut of future benefits and is much better than just taking the cuts at TF depletion.
The NW Plan may make sense to you and me and most AB readers, but it won’t get through Congress. Knowing what should be on the table is important.
Well there are other strategies.
For example the only real issue confronting Social Security is the DI Trust Fund. And while both ‘reformers’ and supporters of Social Security tend to be against splitting the OAS and DI babies there is good reason to do so.
One there is no particular reason by DI shouldn’t be treated like HI instead of OAS. That is considered as a societal wide responsibility rather than one financed just by other workers under the cap. HI has not cap limit and we could equally take the cap off for DI only. That would still leave some gap (I think, using top of head numbers) which could be backfilled by a mini-NW of .15% or so increase in FICA for two years. Under the numbers in play last year that would fund DI not only for the 25 year sub-period but for the entire 75 years. That is unlike OAS the projected shortfall for DI is frontloaded and not actually kicking in after 2040 as it mostly is for OAS.
Fixing DI would in turn marginally fix combined OASDI even as it drained a lot of juice out of the ‘fraud’ argument. (That is there is a good case to fully fund DI and THEN start pursuing fraud and efficiency measures).
If we were able to take DI off the table then we are back at a ‘crisis’ 20 years in the future and one that can be addressed by any number of approaches including ones that directly aim at driving up labor share. In any event I see no reason to accept any current package that targets OAS benefits. Because the crisis is mostly artificial.
Arne as you know well the DI crisis was by official SSA measures already upon us back in 2005 when Bush started pushing reform. The time to address it was before it failed the Short Term Actuarial Test which I believe it did in 2006. But the dirty secret is that no system of PRAs would have served to save DI. Because DI is actually not funded by the person who actually earns it, the 40 quarters of contributions not really being enough to fund the annuity as is. Instead the annuity amount is calculated AS IF the beneficiary was going to be in the workforce until retirement. What this means is THAT worker could not have enough set aside in a carve-out or add-on PRA to really make a difference, the only way to save DI under the then Scheduled Benefit was to increase revenues to it. That is just the arithmetic.
But in point of fact the Bush Administration proposed nothing to address the part of OASDI that was broken but instead proposed pie in the sky plans to ‘save’ the part that wasn’t. And used the real crisis in DI to maintain overall ‘crisis’. Leaving DI to fester.
So I just don’t buy plans that however presented just bake in reductions to OAS as against Scheduled Benefits. That is although my preferred plan back in 2004-2005 for OASDI, the one I called “Nothing”, is no longer a workable option for DI, I haven’t abandoned it for OAS. At least where “Something” is defined as benefit cuts.
“Reserve army of unemployed” now at 93.6m people.
NSA had better step it up!
well, as someone who used to have something to say about Social Security, I feel I should comment on all of this. But I can’t see what there is in here that is clear enough to have anything useful to say about it.
Meanwhile, without changing anything else at all (forgive me if I see all these “little changes” as exercises in ego without responsibility) Social Security can continue to pay for itself forever with no changes in anything except maintaining the payment level (payroll tax rate, which is really a “savings” rate) that is needed to provide adequate benefits “as we go.”
two ways in general to do that:
gradual increase in the tax, on the order of one tenth of one percent per year (about 80 cents per week per year on a yearly wage of 40k) over about 20 years.
or
wait until actual depletion of the Trust Fund, when otherwise benefits would have to be cut all at once (shock) by about 25%, and at that time increase the payroll tax all at once by about 2% of payroll (for each the worker and the employer). not so much of a shock. in fact, recent experience suggests a 2% increase in the payroll tax would go unnoticed.
i favor the first approach because it would be completely invisible to workers. the tax increases would be less than 10% of the average in increase in wages, and would be born more heavily by those in the future who would both have higher wages, and so be able to afford it, and would expect to live longer than present workers and so get a more “fair” return on their money.
but as long as the Kratings, and sorry to say Arnes, are looking for a compromise (this is the negotiating strategy made famous by one Obama… back into the room with your pants down and bend over saying “is there anything I can do for you?”) because, God knows, we can’t put forward a plan based on the Truth that actually solves the problem, we have to “negotiate” with the liars and destroyers
like when the Hun is at the gate demanding surrender, we should begin by offering our virgin daughters if they will only go away for a year.
those who are willing to compromise by trading away the retirement age don’t have jobs they hate, don’t have “minor” ailments that make work hell, and don’t have any right to trade away something that isn’t theirs to someone who has no right to demand it.
Social Security can pay for itself without forcing old people to work longer: what are you going to trade? raise the tax… the amount people save for their own retirement (that is “not yours”)… by 40 cents less per week in return for forcing those who are least able to do it to work an extra year of a lifetime that will most likely be shorter than yours.
something to enjoy in YOUR retirement, after a lifetime with a great job at high wages and good luck with your investments, you can retire early and have the pleasure of being waited upon by frail old people who didn’t have your luck?
try to remember that Social Security is INSURANCE in case, you know, your luck runs out. maybe you won’t get so much pleasure watching other people suffer if you can imagine it happen to you.
of course what is more likely to happen is those old people won’t be able to find jobs anyway.
corporations are even today finding ways to lay off people over sixty because they are not as “productive.”
and one of the reasons CBO projects a higher “cost” of SS is that it doesn’t think wages will be rising over the next forty years.
good way to help wages rise: keep more people in the labor supply, and scare them with the prospect of poverty in old age.
i love it when folks with nothing on the table come up with “obvious” solutions to non-problems that just happen to hurt people who have no way to defend themselves.
Wow Coberly. Grab a cocktail.
Just curious, are we down to saving SS at 40 cents a week? You say this, and I’m not sure what you mean.
“raise the tax… the amount people save for their own retirement (that is “not yours”)… by 40 cents less per week”
The best way for people to have enough for their retirement is to save it on their own and to be lucky enough not to run into any issues like living too long or working for a company that decides to downsize when you are in your 50s.
People don’t do the first very well and the latter is rather random, so we have retirement insurance. We have a system that has worked well enough we should keep it going, but that means getting Congress to agree. Like it or not, even if it makes you angry at people you mostly agree with, it will take negotiation for Congress to do anything.
Asking what should be on the table is something that should be discussed.
And raising the Normal Retirement Age does not prevent people from retiring earlier any more than allowing their benefits to be cut 25 percent if nothing was the only thing that Congress could agree on.
Every year the FRA is increased represents a 8% cut in benefits. Even if early retirement stays at 62.
Per Dean Baker and some others.
Plus increases in FRA are going to lead to pressures to raise eligibility age for early retirement even as many to most people who take it are forced into it.
Krasting
the 40 cents was what Arne would save by “compromising” and requiring the old to work an extra year.
Arne probably understands this better than anyone here except, maybe, me and BWebb, but he’s had it stuck in his head for a long time now that raising the retirement age was a reasonable compromise.
What he can’t get stuck in his head is that no compromise is needed
what part of 80 cents do you want to compromise about?
He’s a little like you in that respect: you say we can “never get a tax increase” even if its not a tax (it’s a savings rate) and even if it’s only 80 cents per week (on 40k per year) per year, Arne just wants to compromise now to avoid the humiliation of having stood up for the truth.
Sorry Arne, I don’t mean to be mean. I know you mean well, but if someone doesn’t point out the terrible consequences of “compromising” then everyone will think it’s a good idea. After all, isn’t that what they teach you in kindergarten?
80 cents or another year added on to your sentence? and remember it’s your own money they are talking about “compromising” with… something they can’t seem to wrap their minds around. they talk about it as if somehow it was their money, their choice.
and they lie about it. always the sort of people you want to be compromising with.
Yep, Krasting, I get pretty mad about it. but I’m not going to drink myself stupid, or into a compromising situation.
The consequences of failing to compromise are likely to be worse than the consequences of compromising. My views have changed in the 10 years I have been posting here, and the current Republican obstructionism does make me wonder, but I just don’t see maintaining scheduled benefits without changing the definition of scheduled benefits.
You have in fact convinced me that raising the NRA because people are living longer so they should work longer is not right. The data show that the rise in longevity is not reaching the poor. Nonetheless, mathematically, as Bruce confirmed, one year is an 8 percent cut in scheduled benefits for future retirees. That is better than a 25 percent cut and it does not impact current retirees (which is important). Raising the NRA will be on the table when Congress does deal with SS, so it is important to understand the actual impact.
Arne
thank you for your temperate reply. i cannot be temperate myself because i understand what “one more year” would mean to millions of “not old enough to die yet, but in too much pain to keep working, if they can even find a job” people every year.
best i can offer your temperance is that you try to understand my lack of it. tell your friends “see that man over there, his hair is on fire because we are talking about taking away Social Security… even one year of it… to “save” a few pennies a week. And this is not “the government’s” money, or the rich man’s money… it is the workers own money.
the worker pays for his own retirement. there is no reason to “compromise” with people who only want to hurt workers.
i hate to say this because it sounds like “compromising” is even a decent or sensible thing to do. but if you are going to compromise you don’t walk into the meeting announcing your willingness to compromise.
if you want the people to understand the actual impact.. tell them, it’s not the “8% cut”. it’s “an extra year added onto your sentence… to save you about 40 cents per week.”
Another thing that has changed in my understanding over the last ten years is just how much the forecasts can change. Bruce has convinced me that the SSA predictions were systematically pessimistic. I no longer believe. I think they systematically swing toward over dependence on recent years results. I think we will see the (depletion date) numbers start moving up again when workforce participation starts improving again.
I hope (not expect) that Congress will realize that trying to solve more than about 25 years is not only impossible, but actually a bad idea.. They should give some flexibility to the SSA. The NW Plan has already included that with payroll tax increases only if the ten year numbers come up short. Negotiated cuts could also include triggers.
“if you are going to compromise you don’t walk into the meeting announcing your willingness to compromise”
Of course you do.
You say, “look, we can do this entirely with payroll tax increases and it will work and it is justified, but I know we need to agree on something that will not be changed again the next time control of Congress changes, so what can we come up with?”
You also say, “Elizabeth Warren wants to increase benefits, but I think we can get her on board if …”
Do you actually suggest eliminating the cap when you don’t really want to? Take it off when they take off NRA = 70?
Well “pessimistic” doesn’t quite capture my claim back in 2005, though it does capture the facts as measured year over year in the Reports. In the face of better than expected first year numbers you had numbers for the third and further ou-tyears being suppressed. Which suppression translates to “pessimistic”. But my belief then was that the suppression was not necessarily based on actual beliefs about the future that can be measured along an “optimistic – pessimistic” scale but were instead outcome based.
In my most conspiratorial framing I had it that Intermediate Cost was being pegged to “Crisis” while Low Cost was simply not allowed to go beyond “Fully funded”.
Because the simple fact was that if you plugged in the growth numbers used by the Bushies to justify tax cuts into the models used by Social Security (for example 3% Real Growth forever) then Social Security would arithmetically overfund. To say this another way the economic model of the Washington Consensus was more postive (optimistic) than the Low Cost model that projected solvency.
Unfortunately for my modelling of Social Security and the Bushie modelling of the affordability of tax cuts on the one hand and the viability of Personal Retirement Accounts on the other economic downturns in 2001 and then the big one in 2007-2008 blew the hell out of the numbers of the Washington Consensus and its belief that we had broken the business cycle forever.
Which is why by 2009 I had moved away from my 2005 Social Security Plan I cleverly dubbed “Nothing” to the direct revenue boosting plan based on Coberly’s ideas and latter via introductions of ‘triggers etc’ transformed into “Northwest”. Changes in data and outlook required me to change my model. Which doesn’t mean my data analysis or the followup and checking of it by Arne before the recession were wrong. Not based on then best information.
If and when the 2015 Report gets released I will probably be putting up a whole variety of Tables and Figures from it on my old blog. For those interested in my references to Intermediate Cost and Low Cost I put up Figure II.D7 from the 2014 Report which shows outcomes through the 75 year window. Note that Low Cost (line I) shows Social Security fully funded on a combined basis. Though dipping below a Trust Fund Ratio of 100 at mid-century. All this WITHOUT changes in FICA or FRA. That is hitting the numbers of Low Cost would make the Coberly-Arne debate moot.
The Bruce Web: A Social Security Blog
Bruce W
not wrong. you make many interesting and valuable observations that i do not.
but i do not choose to play the long term prediction game. it’s mostly nonsense. pernicious nonsense. instead i simply showed that the basic official projection (not prediction) amounts to “nothing to worry about.”
and speaking of “nothing” the Northwest plan (with the trigger) amounted to exactly “nothing” until an actual near term need appeared. and the eighty cent increase could be rescinded if the “need” did not materialize.
i am not in favor of a trigger for benefit cuts. cutting someone’s benefits is a life threatening act. if there ever comes a time when the payroll tax is a real burden and the benefits seem higher than they need to be, an act of congress at least, or a referendum of the people (i know, it scares hell out of me too, given how easily the people are fooled by the big money) should be required, and preferably the cuts be whittled away from the top end.
nor do i agree with Arne that offering to trade “raise the cap” for “minimum retirement age” makes sense. it’s like a couple of nazis arguing over “how many of your jews do i get to kill for every one of my jews you kill?”
but i do believe in the power of truth if those who know it can find a way to tell it to the people: there is no need to raise the cap. there is no need to raise the retirement age. We are talking about a “tax” increase (it’s really a savings rate) of eighty cents per week.
[note for the Krastings: I know, and I hope readers at AB by now know, that the 80 cents per week increases over time. but it’s a far more honest number to start with than “25 Trillion Dollars and we’re all going to die!”
please note “why it’s not a tax” even though it’s money the government takes from you whether you want it to or not:
it’s the amount of money you need to save in order to pay for a basic retirement. the government forces you to save it, and pays a quite good “interest” and insures it against inflation, market losses, personal bad luck, and personal improvidence, and insures you against a life time of earnings so low that you couldn’t save enough to pay for a basic retirement.
the government has to force you to save it for the same reason it forces you to stop at red lights: it (that is we the people) cannot afford the carnage of letting you make up your own mind.
see. the difference between me and the man in the suit, is he tells you, “you look like a smart young fellow, let me manage your investments and make you rich.”
i tell you that people are not any smarter than they are.
oh, and the reason
the “tax” increase is necessary (besides the fact that you are going to live longer than your grandparents) is mostly that
your wages are not predicted to grow as fast as your parents’ did.
think of it like this: if the price of bread goes up, you have to pay a larger percent of your income for a loaf of bread.
if your wages go down (don’t go up as fast as you expected) you will have to pay a larger percent of the wages you do have for groceries.
that’s all it amounts to. except in the case of SS we are talking about wages over a lifetime and the price of bread forty years from now.
Social Security works by the genius of pay as you go financing. That is how it avoids the need for market returns to beat inflation. This does not mean “the young” pay for the old. The old already paid for their benefits (including the time value of money). The young are paying for their future benefits. The fact that the actual cash changes hands “as you go” is no more significant than the fact that when you put money in the bank “your” money is building your neighbors house today. When you go back to the bank to collect your money, you will get your money back. Same with SS… if you don’t let the big money people fool you into letting them handle ALL of your investments.
It’s fine to let them handle some, or even most… but that SS buys peace of mind. Priceless.
Coberly – Good of you to acknowledge:
I know, and I hope readers at AB by now know, that the 80 cents per week increases over time.
Coberly knows that any plan to address SS has to have the equivalent consequence of the benchmark of the Immediate and Permanent increase in payroll taxes that is required.
For SS there are two estimates of the I&P worth considering. The 2014 SS report has it at 2.88% while a recent CBO report has it as 4.2%.
Take a current average wage of $45k and multiply it by the required increase. For the SS report it comes to $635 a year ($12 a week) for the CBO estimate the average taxpayer would see a paycheck reduction of $22 a week ($945 a year)
Yes wages will go up over time, but the cost of everything else will rise too. Coberly’s plan has a tax increase every year for the next 30. When he is done the Payroll deduction for the employed will rise from 6.2% to 9.2%.
In today’s dollars the average worker would be paying out $1,350 extra bucks.
I don’t see that all of the cost should fall on the backs of average workers. Raising the cap and means testing benefits are much more viable options.
Krasting likes to mix things up so that nothing makes sense but sounds like it does. In fairness, I think he does this to himself first… except it makes sense to him.
Most people cannot think sensibly about future needs much less future costs.
The virtue of the Northwest plan is exactly that it costs virtually nothing now, and rises in cost only about one tenth as fast as wages so that by the time the worker is paying that 2% increase in taxes about twenty years from now his wages would have increased about 25%. In actual dollars this would mean wage today = 40k, tax today = $2480.
note, this is not a tax. this is you saving for your own retirement. you will get the money back when you need it two or three times over because of the automatic “interest” that comes from pay as you go.
wage expected in 20 years = 50k, tax in 20 years if increased 2%= $4182 (note this includes the tax on the whole 50k. This means that your after tax income in 20 years would be $45,818, compared to your after tax income today of $37,520. You will be 8 thousand dollars richer AFTER paying the tax increase.
Well, without the tax increase you would be (you think) 10k richer (that is two thousand dollars MORE richer than you will be with the tax increase. So, whine, whine, whine, why is the mean old government taking away 2k from my future income??? The answer is so that it can give you enough to live on when you retire:
Other things being equal, you would expect to get 16000 dollars per year from SS based on today’s income and taxes and it would run for about 18 years. Based on the income and taxes twenty years from now you would expect to get $20,000 per year from SS and would expect to get it for 20 years (life expectancy at age 65)
So today you pay in about 86 thousand over 35 years and get back about 290 thousand in retirement. After the tax and income raises you would pay in about 146k over 35 years and get back about 400,000 in retirement.
Note these are “employee share.” If you are your own boss, you would pay in twice as much. The numbers are inflation adjusted.
you can figure the “real return” if you want. It won’t be very high. But remember these numbers are for “average” worker who will have been getting an absolutely guaranteed “return” including inflation… something an average worker cannot expect to do today, PLUS he could expect a “return” on the order of 10% real if his luck was bad and he ended up being a low wage worker his whole life. or even more if his luck was worse and he became disabled, or died with dependents at an early age.
You can argue whether or not this is a good deal or a bad deal. I think you would be fooling yourself if you thought it was a bad deal.
Thing to remember is that while paying in that “tax” of about 8% of your wage, you have 92% of your wage left to “invest” for those higher returns. Good luck to you. But if your luck is not so good, you are going to be very very glad you had SS.
You CAN live happily on that SS benefit. But not on less. And if you have made some money with investments, you will still be glad to have that SS benefit in addition…. far more than you will have missed the “tax”. an “immediate and permanent” increase is not a smart idea. In the first place it is an expense you would notice if it hit you today on your present income… though you wouldn’t notice it as much as you think you would. In the second place it raises money “we” don’t need. Which means you WOULD be paying someone else’s benefits.
The gradual increase means you won’t even notice it, you will only pay it as you have more (ten times as much) money to pay it with, and you will be the one getting the benefit… to the extent that those coming later and paying more are the ones who will be living longer at a higher real benefit.
Please remember, that even if i didn’t make any mistakes here (doing it off the top of my head) these numbers are not at all precise… many things will change, and many factors will affect the result even if things don’t change.
But do try to give it serious thought.
and don’t fall for Krasting comparing tomorrow’s cost with today’s wages, or Coberly “tax increase every year” (of one TENTH of one percent) with CBO’s “one time” tax increase of 4.2% (that’s 42 times as much as Coberly’s “every year.:
And ask yourself why we get to panic when CBO disagrees with the official number by 50%.
Isn’t it smarter to raise the “tax” “as we go” as we need it, want it, and can afford it?
IT’s not a tax. It’s a way to save a small part of your income protected from inflation and losses, so you will be able to retire when you need to and not when you get rich on the market, or your boss says he doesn’t need you any more.