SOCIAL SECURITY, OBAMA, and the CRFB
by Dale Coberly
SOCIAL SECURITY, OBAMA, and the CRFB
Obama once offered to cut Social Security as part of a Grand Bargain with the Republicans. Now he says he thinks Social Security ought to be expanded.
The Committee for a Responsible Federal Budget (CRFB) answers him with their usual list of reasons why Social Security is going to ruin the country. [ here ]
I am going to try to explain to you what’s wrong with this picture.
The most important thing to understand is that Social Security is not welfare.
The government does not pay for it. The rich do not pay for it. The workers who will get the benefits pay for it. It is a mandatory savings and insurance program. Workers are required to save about 6% of their wages by means of the FICA deduction from their paycheck In return, these savings are protected from inflation and market losses. And they are insured against personal bad luck including a lifetime of low wages (being unable to save enough), Their savings earn an effective interest directly from the growth in the economy through “pay as you go” financing, so that in retirement workers will get back about three times as much as they put in.
Roosevelt thought it was critical that Social Security be paid for by the workers themselves and not be welfare, “so no damn politician can take it away from them.”
But the “damn politicians” have been telling the Big LIe for eighty years, and now everyone talks about Social Security as if it IS welfare. The enemies of Social Security have always understood that calling SS welfare, or even turning it into welfare, is the first step to taking it away from the workers. But it is only recently that the Left has decided to “save Social Security” by turning it into welfare.
I think this has happened because the Left has bought the Big Lie. After hearing so much about the “looming XX Trillion Dollar Unfunded Deficit!” they have decided that the only way to save Social Security is to find the money to close the deficit, and since the only people in America who have money are the rich, it’s “obvious” that the way to save Social Security is to tax the rich. [This is not to be confused with Bill Clinton and Newt Gingrich’s grand bargain that the “obvious” way to save Social Security was to raise the retirement age… so the poor would not be able to retire when they get too old to work.]
Just the other day Michael Hiltzik (LA Times) , a friend of Social Security, discovered that Social Security can be “saved” by any or all of a large number of new taxes on the rich.
I can see why CRFB thinks Social Security is going to ruin the country.
But here is what they all forget:
The “looming XX Trillion Dollar Defict” can be closed entirely, simply by letting the workers save an extra one tenth of one percent of their pay each year in Social Security. This would amount to an increase in the SS “tax” of about one dollar per week (in today’s terms) each year while wages are going up over ten dollars per week each year. Because wages are going up ten times as fast as the tax, the increase in the tax each year would never be felt as more of a burden than one dollar per week would be felt today. And the tax increase would not go on forever. About twenty years should see us through the demographic changes (increasing life expectancy, lower birth rates, and slower growth in wages) responsible for the actuarial deficit. At that time workers would be earning about two hundred more dollars per week in real dollars, while putting away twenty dollars of that toward a longer, richer retirement.
I am not sure I understand the people who think an extra dollar per week each year is more than workers can afford to save for the food and shelter they will need when they are too old to work. Or why they think “the rich” will be willing to pay ten times that much for someone else’s retirement (there are more workers than there are rich people). Possibly they are just fixated on the Justice of making the rich pay for the poor.
Maybe they are right about the justice, but it’s a bad bet to expect the rich to pay. It’s always a bad bet to bet everything you have on the chance that you’ll get lucky. By not letting you pay that dollar per week while demanding the rich pay for your retirement, they are guaranteeing the rich won’t rest until they destroy Social Security entirely.
As for “expanding” Social Security…
Social Security was designed to be as small as possible, so people would be free to invest the rest of their money in the ways they think best, while Social Security provides insurance in case their other investments come up short. Most people today have a great deal more money than their grandparents had. When they say they don’t have enough to save they mean they just don’t know how to stop themselves from spending every dollar they make. Those who truly don’t have enough are the ones who need Social Security the most… even if they have to find an extra dollar a week to pay for it.
If there is some reason to expect that in the future those other investments or pension plans will come up short for everyone, putting more money into Social Security would be a good idea. But only if the workers pay for it themselves.
Another dollar a week
CRFB says that the Sanders plan to expand Social Security would eventually cost 1.3% of payroll (which they pretend would come out of general taxes and force the government to cut programs… “for the children”). 1.3% of payroll would be about twelve dollars per week for the average worker in today’s terms. Six dollars from the worker and six dollars from the employer is not an unreasonable amount to save for a more comfortable retirement. But that twelve dollars can be reached by the time it is needed just by saving an extra one dollar per week per year for twelve years.
By that time wages will have increased about one hundred and twenty real dollars per week. The employees six dollars, plus the twelve dollars (by then) that closing the actuarial deficit will cost, means that instead of a $120 raise, the employee will have to get by with only about a hundred dollars more each week than he has today while saving an extra.twenty dollars (through the FICA “tax”) that he will get back three times over when he retires. Calling it a “burden” is simply foolish. It’s an increase in living standard both while working and in retirement.
But trying to get the money by imposing new taxes on the rich will cause the rich to fight to destroy Social Security entirely.
The workers need to hear and understand
This is really all I should have to say. I know many people won’t believe that “one dollar per week” will do the job. I can show the arithmetic, and it has been checked by experts, but somehow people don’t believe arithmetic if it disagrees with something they have always been told. I could try to give detailed answers to what they think they believe, but I am afraid that at the end of the day the Right will just know that Social Security is bad, and the Left will just know that the rich should be made to pay for it.
The Right wants to destroy Social Security by calling it welfare. The left wants to destroy Social Security by turning it into welfare. I’m sure the workers are smarter than both of them, if given the chance. But they need to hear about it, and they will need to have it explained to them by someone better at that than I am.
Coberly is back with the same story from years ago. All that is necessary to “fix” SS is to raise taxes on workers every year for the next 20++ years.
Coberly do you really believe that Hillary is going to walk into the WH and push for this? Not a chance. Do you think that E Warren (and the Bern crowd) would allow this?? Not a chance.
It may be required to raise payroll taxes a bit to stabilize SS finances. But those increases will come with other taxes that raise the cap and expand the tax base to include unearned income.
There is no such thing as a “single solution” to addressing SS. It has to be a combo of measures. Hiltzik is right – a combo of tax increase is the only fair option.
Coberly, your plan to raise PR taxes might have been an option in 2005. But that was 11 years ago, your single solution proposal simply does not work any longer. Sorry….
Krasting
My solution will still work. And it will work even if it is put off another ten years, though by then the then immediate cost will be higher.
I don’t know what Hillary or Bernie would do, but if you read what I said you might have noticed that I was arguing against what I think they are doing and saying now.
You have been saying the same thing for 11 years now. You have shown no sign of understanding what I am saying.. You have no argument, evidence of logic what you think”a single solution will not work.” And in fact your “fair” option would be the death of Social Security, which is what you want.
Since Krasting Brings it up:
The one tenth of one percent solution will still work, and should still work at one tenth of one percent if it starts by 2018…not very far away.
After that the cost … the starting cost… of the fix will go up, and the yearly increase will go up… but not very much.
Or, we could wait until the Trust Fund is exhausted and the need would be for about a 2% total increase all at once from each worker.
This would be about 20 dollars per week. But not per year as it would be the final cost needed to pay for SS for the forseeable future.
If wages have gone up by then as expected, this 20 dollars of extra tax would be offset by about 200 dollars of extra wages. So the workers still will not be hurt relative to where they are today.
Whats wrong with waiting is mostly that people will by shocked by the sudden increase in the tax and they won’t be allowed to think that the money will come back to them when they will need it most… when they are too old to work, and that they will be easily able to afford it.
In fact no one really noticed when the payroll tax went back up 2% after the “payroll tax holiday”. If no one said anything, most people would not notice a 2% increase in FICA ten or twenty years from now.
But people like Krasting WILL say something. Their whole purpose in life is to stampede people into doing something that hurts themselves.
The point I am arguing here is that Social Security has always been worker paid, it MUST be worker paid or the very bad people will turn it into welfare as we knew it and take it away from them at their leisure.
Krasting failed to notice that there is something new in the present essay., though some things that were true eleven years ago are still true today… that Social Security is not welfare and will be destroyed by efforts to turn it into welfare…
today there is a movement to “expand” Social Security, which is probably a good idea AS LONG AS THE WORKERS PAY FOR IT THEMSELVES. I have tried to show that the cost is not large… about another dollar per week per year over 12 years, and the workers will get this money back in the form of about a 25% increase in benefits.
Coberly is right, as usual. All it amounts to is paying more payroll contributions over time. It’s simple and boring but it works now and will always work. NancyO
Coberly is right, as usual. All it amounts to is paying more payroll contributions over time. It’s simple and boring but it works now and will always work. NancyO
Dale, nice restatement of your argument.
On Krasting. Note that he always manages to pivot to politics from economics. That is once defeated on the numbers he says “Hillary will never be able to pass this”. While ignoring the fact that the political realities are even MORE against his (implied) solutions.
That is the fundamental argument against Social Security as currently configured is that it is “unsustainable” and so that “SOMETHING” has to be done. Indeed it was this agreement on “Crisis” that was the stated goal of Bush’s 2005 Social Security Tour. The belief then and largely now is that if you can get both sides to agree on “Crisis” AND have constrained the possible policy responses to “sensible” “centrist” “bi-partisan” “non-partisan” ones that rule out revenue increases, often on the basis that they are politically impossible, that by magic “crisis” and “intergenerational warfare” etc, etc will smooth the path to “solutions” that are restricted to benefit cuts. While ignoring the fact that the American people have (when asked by neutral observors) have embraced the basic Coberly vision of small increases in revenue to maintain and even increase benefits.
That is Krasting maintains that popular measures to strengthen and enhance SocSec through revenue increases are politically impossible while massively unpopular ones (outside the Beltway) somehow are the only achievable source are the equivalent of the Magic Gnome theory of Great Wealth:
1 Steal underwear out of dresser drawers
2. ——……?????
3. Profit!!!
Whereas the truth was that the Bush Social Security Tour and related efforts since Butler and Germanis’ ‘Leninist Strategy’ have always relied on bait and switch:
1. Crisis!!
2. Gosh, we can’t do it THAT WAY
3. So we will have to do it OUR WAY.
Ignoring the innumeracy and political unpopularity of the enemies of SocSec’s “Our Way” compared to “That Way”. Well I guess we will see how that (or “THAT”) shakes out.
Often in the popular media I see something like this: a young worker gets his or her first paycheck and exclaims, “Who is this ‘FICA’ and why are they taking my money?” Mr. Coberly’s semi-annual reminders (long may they continue) are a good antidote to this but I wish they were in every newspaper and TV News Show. If I were in control in Hollywood, I would mandate that at the end of every scene such as the above, Mr. Coberly would do a cameo (like Stan Lee in the Marvel films) to give the answer.
Jim V
trouble is I am uglier than I write. Now, if you or Bruce or Nancy would do the video…
The reality is, Social Security OA benefits are mostly welfare. The proof of that is the fact that what is currently in the Trust Fund cannot cover the benefits now due to those who have paid into the system. Not even close. In fact, it can only cover about four years of current payout.
The Big Lie is pretending that workers pay for their own retirement. They don’t. They pay for their parents’ and grandparents’ retirement. That is welfare. When the current workers retire, their children and grandchildren will be paying for them. That is welfare.
If we are going to try to keep up the pretense that it is not welfare, then raising the cap is not the way to go, because the last dollar put in at that level affects one’s retirement benefit only one-sixth what the first dollar does.
https://www.ssa.gov/pubs/EN-05-10070.pdf
That’s welfare.
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Make sure you tell those young workers getting their first paychecks that those FICA payments will not count to their Social Security benefits when they retire. If you have a normal career, with full retirement age at 67, only your taxes paid after age 32 count.
Warren
you are a source of invincible ignorance. I’ll try one answer to see if you understand it:
when you put money in the bank, the bank lends the money to someone else who spends it for his own purposes. when you go back to the bank to withdraw your money, the money comes from some other person who has put his money in the bank for the same reason you did… to keep it safe and to earn interest.
this is no different than “pay as you go” except in the case of Social Security you put your money in the “bank” (SS) and it is used to pay the people who need to withdraw (with interest) what they put in in their turn. when you need to withdraw your money, it will come from someone paying their own SS “tax” for the same reason you paid yours: to keep your money safe and earn interest.
i don’t think you are capable of understanding this. i hope anyone who might have thought you had a point will understand it.
Warren’s other nonsense:
The Trust Fund is NOT intended to pay all of the benefits of those who have already paid into the system. SS is “pay as you go” (remember?)
those who paid into the system are paid (mostly) directly out of the money paid into the system by the following generation. this does NOT mean they did not pay for their own retirement… remember, they paid in. Paying in and getting paid back later is a normal aspect of banking and business in general. ONly those who don’t want to understand Social Security think it means you don’t “really” pay for your own benefits. Warren collects “benefits” from his stocks and bonds. Who the hell does he think are paying those benefits?
The Trust Fund is only the excess money paid in relative to the then current need in order to create a reserve to help pay for the boomer retirement over what the “normal” pay as you go taxes of the following generation would fairly provide. note that in this case the boomers paid, in advance, for their own retirement… only in this case instead of “lending” their money to SS, they lent it to “the government” who used in to buy government goods and services and will pay it back with interest just as it pays back all the money it borrows.
But the bulk of future benefits will come from pay as you go…. and the people doing the paying as they go will get their benefits in turn from the next generation paying as they go… which means saving their own money for their own future.
I am sorry Warren cannot understand this.
Warren completely fails to understand the way Social Security manges the “insurance” part of its function. So he looks at the “best 35 years” of your pay-in and decides that the other years you paid in “don’t count.”
But those other years are part of the money that pays for your benefits, they just don’t form part of the way your benefit level is determined. This is higher math to someone like Warren, so I am going to have to try to leave it to your common sense: You pay into Social Security a certain percent of your wages while you are working. When you retire you get that money back… about three times over due to the effective interest that comes from pay as you go in a growing economy. People who have paid in… because of low wages… less than the average pay out based on average wages get a higher percent payout so they will not starve, that money comes from giving those who had high wages and therefore paid in more than average would get from the “average return” more than they need. This is not “robbing” the high earner. It is just the way insurance works. The people who do not have a fire get less of their money back than the people who do.
Warren thinks insurance is theft. After all, if you don’t have a fire, you should get your money back, with interest, in fact with the interest you “would have” earned if you had invested in good stocks.
This kind of stupidity is why SS cannot be “voluntary.” There are too many people like warren who would bet all their money on sure things, and them have to be fed by the rest of us when they lose their shirt. With SS everybody who pays in gets back at least as much as they put in, plus enough interest to equal inflation, plus enough interest to equal the average rate of growth in the economy during their working years. According to a report Warren sent me, but did not understand himself, this “interest” works out to about 6% real (say 9% nominal) for low income workers, and about 3% real (say 6% nominal) for high income workers and in between for in between.
My own calculations are a little different but not enough to be meaningful for this kind of “prediction.”
“They pay for their parents’ and grandparents’ retirement.”
While Warren is not wrong about this statement, that does not make it welfare. He implies that a larger enough trust fund would make it not be welfare in his opinion. But if the amount going in and the amount coming out are unchanged, how can what’s going on inside the TF change whether it is welfare or not?
“Or, we could wait until the Trust Fund is exhausted … Whats wrong with waiting is mostly that people will by shocked by the sudden increase in the tax ”
This is the thing I fear more than some of the revenue enhancing and cost cutting ideas out there. If we can eliminate the chance of shocked people accepting changes which turn SS into welfare 15 or 20 years from now by accepting compromises which do not turn SS into welfare now.
Since Bruce K is probably correct about current politics, perhaps I should just stay quiet until Elizabeth Warren has changed politics enough that the no tax increase crowd starts feeling the need to compromise.
Um, I doubt Bruce K is correct about the current politics.
IE,
” Do you think that E Warren (and the Bern crowd) would allow this?? Not a chance.”
He should perhaps take a small look at Bernie’s proposals and the tax increases for most people involved. He won’t, but he should.
“[When] you put money in the bank, the bank lends the money to someone else who spends it for his own purposes. when you go back to the bank to withdraw your money, the money comes from some other person who has put his money in the bank for the same reason you did… to keep it safe and to earn interest.”
In which case, the bank has sufficient assets to pay back all the depositors. While the bank does not have the CASH to do so, it does have the ASSETS, which are the outstanding balances on the loans it has made.
Does the Social Security Trust Fund have such assets? No.
“[Warren] looks at the ‘best 35 years’ of your pay-in and decides that the other years you paid in ‘don’t count.’
“But those other years are part of the money that pays for your benefits…”
No, they help pay the benefits of those currently in retirement.
“Warren thinks insurance is theft.”
The Old Age portion of Social Security is not insurance. It is welfare. The Disability and Survivors parts are insurance. They are different topics, different programs, and different trust funds.
“This kind of stupidity is why SS cannot be ‘voluntary.’ There are too many people like warren who would bet all their money on sure things, and them have to be fed by the rest of us when they lose their shirt.”
Why would you have to do that? You can contribute to your parents’ upkeep in retirement or not, as you choose. You can contribute to food banks or not, as you choose.
“With SS everybody who pays in gets back at least as much as they put in…”
“You pay into Social Security a certain percent of your wages while you are working. When you retire you get that money back, plus enough interest to equal inflation, plus enough interest to equal the average rate of growth in the economy during their working years.”
That is incorrect.
http://www.investmentnews.com/article/20150303/FREE/150309976/social-securitys-negative-returns
Only 35 years of your wages are counted to your benefit. As for the rest, it does not matter whether you were working and paying into the system or not, your benefit will be unaffected.
“According to a report Warren sent me, but did not understand himself, this ‘interest’ works out to about 6% real (say 9% nominal) for low income workers, and about 3% real (say 6% nominal) for high income workers and in between for in between.”
Actually, the numbers were nominal returns, not real. For more information, you can look at the SSA reports. For those born in the years 1956 through 1960, the top two quintiles get negative real returns:
https://www.ssa.gov/policy/docs/ssb/v65n1/v65n1p33.html
Table 5 is the killer. For the 1956-1960 cohort, “net benefit from OASI minus forgone benefits under an annuity based on actual life span” is -3.5%. And guess who gets the short end of that stick?
The BOTTOM quintile.
They come out at NEGATIVE sixteen percent.
Warren,
Try not to talk.
“But if the amount going in and the amount coming out are unchanged, how can what’s going on inside the TF change whether it is welfare or not?”
It really doesn’t. The SSTF is a sham, because we are just making loans to ourselves that our children will have to pay, just as they will pay for benefits that the SSTF cannot cover.
If the SSTF contained real assets, like a bank, such as notes for loans made to those who will pay them, then those who deposited their money would get paid back by those to whom the money was lent. But not with the SSTF. We make loans to ourselves (from the SSTF to the general fund) and will require our children to pay them off.
Warren
the articles you cite are long and somewhat complex. it will take me a while to read them to see if you got them right, or if they are misleading.
my first guess is that you do not understand that getting a lower return than you paid in IN PRESENT VALUE is not the same as getting back less than you paid in. it means you got less than the two or three percent discount rate assumed in the PV calculation, hardly unusual in an insurance product.
second, i think you must have read the tables upside down.
“The Trust Fund is only the excess money paid in relative to the then current need….”
So what happened to all that money the first generation put in, when almost nothing was being paid out?
The early cohorts paid in practically nothing, and got huge benefits. They were not saving the money to pay for their own retirements. If they were, then the trust fund would still have enough to pay everyone who has paid in.
That first cohort got WELFARE — welfare paid for by their children and grandchildren. And in turn, the children and grandchildren of the first beneficiaries are getting welfare from THEIR children and grandchildren. One generation after another screwing the generations that follow.
Being robbed does not give you the right to rob someone else, even if the people who robbed you were your parents and the people you are robbing are your children.
Warren utterly fails to understand what “assets” means.
In the case of the United States of America, the assets are those of the United States, not only I suppose the fire sale value of the Pentagon and the White house, but the earning capacity of 150 million workers, all of whom will want a safe place to save for retirement, which is what SocialSecurity is. Theonly threat to Social Security’s assets is the campaign of lies and misinformation funded by the enemies of Social Security and bought hook line and sinker by people like our Warren.
“[I] think you must have read the tables upside down.”
No, the report itself explains the phenomenon:
“The main reason OASI hurts retirees in the bottom income quintile is that their life expectancies are relatively short.” (Right below Table 6.)
Warren,
Please stop. These guys possess multiple times your knowledge of SS. They can also add.
BTW,
I absolutely loved this part:
“If the SSTF contained real assets, like a bank, such as notes for loans made to those who will pay them,,,”
Yeah, if only SS had a payment stream that would allow them to meet the obligations………….OH!, Wait!
“Warren utterly fails to understand what ‘assets’ means.
“In the case of the United States of America, the assets are those of the United States, not only I suppose the fire sale value of the Pentagon and the White house, but the earning capacity of 150 million workers.”
Are all of those assets in the Social Security Trust Fund?
The first generation of SS taxpayers and beneficiaries got a fairly high return on investment… not unlike investors in stocks hope to get when they buy stock in a new company.
But first, they only paid a tax of about 1%, second, they paid for several years before they were eligible to collect benefits. third, the people who came after them collected more in benefits than they paid in… just as the first cohort did, and as all cohorts have since then… hard to see how this is stealing from anybody.
The only way Warrens claim would make any sense is if the following cohorts who paid for the first cohorts did not get paid in their turn. But they did.
Warren can’t understand any of this but he’s sure he sees a giant fraud going on.
The only way anybody can lose money from Social Security is if Warren’s friends persuade Congress to end the program. No doubt he thinks the aged parents of each generation born since humans became humans were stealing from their children when they were invited to a dinner…. a dinner they had paid for by supporting their children while they were young, contibuting to the support of their own parents, and building the infrastructure that allowed each generation to be richer than the last.
“honor your father and your mother” wasn’t just some socialist idea dreamed up by Moses.
And
those first customers of Social Security were the people who had lost their savings in the Great Depression… which they did not cause, and which their own children could not rescue them from.
Those people had also paid in their turn not only for their own parent’s needs in old age, but taxes for the welfare needed by those who reached old age without children who could support them.
which is a way of saying those people had paid their share… in a system that failed. SS replaced that failed system and to some extent the first cohorts where “grandfathered” into it. But not by robbing their children.
You see, Warren sees the startup of SS as robbing from the children. but the children were not robbed from, they got their money back in their turn.
in his twisted mind “paying in advance for your own needs” looks like “robbing the young.”
“’If the SSTF contained real assets, like a bank, such as notes for loans made to those who will pay them…’
“Yeah, if only SS had a payment stream that would allow them to meet the obligations………….OH!, Wait!”
That is an entirely different conversation. There is no question that there is a sufficient payment stream to meet obligations. The policy debate is about how to direct that stream to those obligations, and whether the obligations should remain as they are or be reduced.
But the FICA tax and the SSTF are merely accounting methods. Nothing more. They keep track of FICA taxes paid so that your benefit may be computed. They could make the same computations based on your income tax returns. The SSTF is just an accounting convenience. Current retirees are paid by current workers, the excess is put into the general fund to be spent, and entries are made in the SSTF ledger. Future workers will pay both the future benefits and the future draw-down, if any, on the SSFT.
Let’s say we do as Mr. Coberly suggests, and increase the FICA tax. The Trust Fund will grow, and the excess will be put into the general fund. Assuming spending does not change because of this, the deficit will decrease.
How is that in any way different from simply increasing the income tax? The only difference is the entry in the SSTF ledger.
““The main reason OASI hurts retirees in the bottom income quintile is that their life expectancies are relatively short”
no, the people at the bottom get a much higher payout than the people at the top while they are alive. they get a much higher payout than they could have hoped to get from “the market” from the very small amount of money they could have “invested” at their low level of pay.
of course, if they die young, they may not get as much in the long run. but they don’t really need the money after they are dead.
and that’s the thing with insurance. you pay the money to protect you from certain eventualities, and if those eventualities do not occur then you don’t get as “high a return” as those to whom the eventualities happen.
until i read the article i won’t know if this is a mistake the authors made or a mistake Warren is making. based on current experience, I’d bet Warren didn’t understand what he was reading.
SS is insurance against running out of money by living too long… among other things.
“The first generation of SS taxpayers and beneficiaries got a fairly high return on investment… not unlike investors in stocks hope to get when they buy stock in a new company.”
More like the first investors in a Ponzi scheme. No-one is forced to pay more for a stock.
“[The] first customers of Social Security were the people who had lost their savings in the Great Depression… which they did not cause, and which their own children could not rescue them from.”
Indeed? Then how were those children paying the FICA taxes?
Did that first cohort not elect those who caused the Great Depression? Did they not elect those who put in the 10% rule for margin accounts? Did they not elect those who passed the Smoot-Hawley tariffs that crushed global trade?
“No doubt he thinks the aged parents of each generation born since humans became humans were stealing from their children when they were invited to a dinner.”
Oh, are FICA taxes voluntary, like inviting one’s parents to dinner is voluntary?
>> “The main reason OASI hurts retirees in the bottom income quintile is
>> that their life expectancies are relatively short”
> [No], the people at the bottom get a much higher payout than the
> people at the top while they are alive. They get a much higher
> payout than they could have hoped to get from “the market” from
> the very small amount of money they could have “invested” at their
> low level of pay.
That was the comparison the SSA was doing, and the bottom quintile can out the worst for it because of their shorter life expectancy.
“SS is insurance against running out of money by living too long.”
Which is why the SSA made the comparison against an annuity.
“[They] don’t really need the money after they are dead.”
Their children and grandchildren do.
For the love of God, please stop.
Senseless, baseless rhetoric.
Obvious you have no knowledge of the subject, nor the ability to learn about the subject.
E Michael
I hope everyone sees what you see. Warren can sovel bullsh*t faster than I can do the chemical analysis to see what he has been eating.
Unless someone new comes in, I’m done.
Cob,
You are fighting against a trumplike personae who needs no relation to the truth to make an argument.
Facts mean nothing.
But the humor was great.
As much as I like the payment stream thing, the thought that excess SS funds would be swallowed up in the general fund to reduce the deficit was the best.
As I said, it is a different reality.
Thanks E Michael.
unfortunately i don’t have much of a sense of humor about this sort of thing. i am always afraid that people like Warren will infect others.
“The early cohorts paid in practically nothing, and got huge benefits. They were not saving the money to pay for their own retirements. If they were, then the trust fund would still have enough to pay everyone who has paid in.”
Warren you know less than nothing. The Social Security Act of 1935 established two programs, one under Title 1 and one under Title 2. Title 2 is what we know as Social Security today and ONLY paid benefits to contributers. Title 1 was a straight out welfare system funded by the General Fund and administered through State Old Age Pension systems and because it carried the vast bulk of legacy costs (people taking benefits out that never paid into Title 2) covered more people and cost more dollars right through 1950.
That is there was NO ONE in those “early cohorts” who “paid in practically nothing” and yet collected “huge benefits” from the program now authorized and run under Title 2 of the Social Security Act. Because they never participated at all.
If what you believe was true then the Social Security Trust Fund would have ran initial deficits or at least deficits by say 1949 when it had a Trust Fund ratio of 1487 or almost 15 TIMES 1950 cost for TITLE 2. (edited for grammar and clarity). Which fact you would know if (like Dale) you had the remotest awareness of the actual numbers of the historical data. For example that included in Table VI.A1.— Operations of the OASI Trust Fund, Calendar Years 1937-2014 https://www.ssa.gov/oact/tr/2015/VI_A_cyoper_hist.html#282924
You are repeating stale talking points that mostly originated in Cato’s Project on Social Security Privatization renamed Project on Social Security Choice and still promoted by its former number two Andrew Biggs now of AEI. They are beyond wrong. They are knowing lies. That is among people smart enough and informed enough to know they are lies. Like Biggs, a VERY smart and VERY informed person.
On the other hand you are just an ignorant chump that imagines that you are qualified to pass on the lies that Biggs has been promoting. You have been pwned and owned. And that faint sound you hear is the informed people on both sides laughing at your ignorance. Read numbers.
The 2016 Report is overdue by almost three months. When it comes out there will be more, indeed much more, from me and I suspect Dale. Please for the love of Bog do YOUR OWN READING. And at least become a knowing liar.
The Social Security Trust Fund piled up massive reserves from its initial incarnation in 1936 and its formalization in 1939 when its ratio of assets to expected benefit payments was at 8086. That is on Dec 31, 1939 the Trust Fund held government bonds equal to 80 times expected outlays in 1940. Now how was this possible in a fund that started collecting funds in 1936 and started paying out benefits in that same year to people who had never contributed? Well because there is a category error. Under the Social Security Act of 1935 NOBODY was to collect monthly benefits under the Social Insurance program established under Title 2 until 1941. This was to allow the reserve fund to backstop what we know as Social Security today to build up to reasonable levels to allow a true pay as you go system. And it did. Even though monthly benefits under Title 2 started being paid out a year early in 1940.
But under the original plan, mostly observed, retirees whose work lives were largely or fully in the years before Title 2 contributions started being taken in the form of payroll withdrawels would instead draw their retirement benefits through the States under programs funded via Title 1 of the 1935 Act.
Very few people understand this history. But the next time you hear a big ‘Hur, hur, hur’ from people mansplaining that people drawing benefits out who never paid in established huge and permanent legacy costs that have never been overcome (cough, cough, Biggs) ask them to explain the difference between Title 1 State Old Age Pensions and their financing and Title 2 Federal Social Security Old Age Insurance.
Title 1 was not Pay/Go. It was welfare. Title 2 was Pay/Go. Is is insurance. That insurance REPLACED the welfare program. It never SUPPLEMENTED it. That in a nutshell is the category mistake in question.
You will see serious studies claiming that current ‘Unfunded Liabilities’ for Social Security thorough either the 75 year actuarial window or the ‘Infinite Future Horizon’ are in fact due to legacy costs as seen in Warren’s formulation of “huge benefits” paid out to legacy beneficiaries.
These seem convincing enough until you drill down into them and realize they seem to be based on a total misunderstanding of the meaning of three terms: “past participants”, “current participants” and “future participants” as used in the Social Security Reports. In brief the error seem to stem from believing that “current participants” means “current beneficiaries” while “future participants” means “future beneficiaries”. Reasonable enough. Yet dead wrong. Once you realize that “current participants” means everyone over the age of 15 and so everyone potentially in the legal workforce and then examine the imbalance between historical and projected revenues in relation to cost you will find (to your amazement perhaps) that the vast bulk of transfers is not from “future participants” to “current participants” but instead from “current participants” to THEN “current participants” in the years around mid century. That is the “backwards transfer” much promoted by Biggs and his chumps like Warren is actually scheduled for the FUTURE.
You can call it Back to the Future Part 4.
Okay there were a tiny number of people who paid in little to Title 2 and yet collected big. And by a VERY strange coincidence this included the VERY FIRST person who collected Title 2 monthly benefits, one Ida Mae Fuller.
Ida Mae managed to live to what was then the extraordinary age of 100. That is she collected what were in retrospect relatively tiny checks starting in 1940 for a two plus decades after her expected mortality date. Making her ROI (Return on Investment) from Social Security almost miraculous. Or we could almost skip the “miraculous”. Because Ms. Fuller could have been run over by a bus on the way back from the bank that day in which case the enemies of Social Security would be invoking her as proof that the whole thing was a Ponzi Scheme where Ida Mae paid in and never was able to spend a penny.
But I swear to Bog and the FSM that the enemies of Social Security will STILL deploy Ida Mae’s ROI as “proof” that the system was from the beginning “unsustainable”. Because I guess we should have allowed Ms. Fuller to live out her 90s on the charity impulses of her church. Or the proceeds of selling apples on the streets. That Social Security managed to allow this woman to maintain at least a minimum sense of dignity through her very long life after retirement should be a tribute to how successful this program was and is. And not a source of mockery by the haters.
But here we are.
Coberly, you may find the URL below of interest.
The 7 Biggest Myths and Lies About Social Security
I read this with a mouthful of coffee and think it needs a ‘spew alert’. (I do love a good turn of phrase though.)
Coberly said…….
Warren can sovel bullsh*t faster than I can do the chemical analysis to see what he has been eating.
Seriously?
Sooner or later it is good to stop feeding the animals with intelligent comments back at them.
This exchange is along the lines of ” I know you are; but, what am I?” type of conversation. It just keeps going. A lot of great information on SS otherwise.
“[There] was NO ONE in those ‘early cohorts’ who ‘paid in practically nothing’ and yet collected ‘huge benefits’ from the program now authorized and run under Title 2 of the Social Security Act. Because they never participated at all.”
“[On] Dec 31, 1939 the Trust Fund held government bonds equal to 80 times expected outlays in 1940.”
That is the way it should be. So why is that down to less than four times now? Why does the Trust Fund not have sufficient assets to cover all the benefits due those who have paid in? Where did that money go?
Coberly – I still don’t understand your stubborn refusal to consider any increases in SS revenues other than more regressive PR taxes on workers.
Why do you appose 1) increasing the Cap, 2) widening the base to 90% of income or even something like 3) a SS tax on unearned income (what Bern was pushing for) 4) means testing benefits.
These are popular proposals and would go a long way toward stabilizing SS. Why your fixation on a single solution “tax the workers” approach?
Is it your fear that “It would turn SS into welfare”?? That is not a good argument. This is 2016, not 1935.
PS I’m surprised that Nancy O jumps on your bandwagon. Next time she writes about SS I will remind her (and her readers) that she advocates a single solution – tax the workers – approach.
BK, Coberly has explained this many times. You don’t like his “turn SS into welfare” argument. Fine. That you claim to not understand it says more about you than anyone else.
My argument is slightly different. There are many items on the progressive agenda which will require additional cash resources. Social Security’s minor funding gap, which can be backfilled within the current structure by small and phased in increases in FICA, should NOT be allowed to crowd out all those other agenda items. Particularly if it allow the enemies of that progressive agenda to be able to claim that taxing the rich ‘proved’ that Social Security and by extension the New Deal as a whole were failures from Day One. Which has been the goal all along.
I have often claimed that the biggest fear of the Right is that Social Security will be seen to be NOT in crisis and actually a fair and efficient way of ensuring minimum dignity in retirement. Because it makes a total mockery of the ‘Government is the Problem’ narrative.
It is worth noting that Bush launched his Social Security Tour in 2005. The exact moment that Social Security was sitting at its most solvent projected state in half a century. In fact at that point in time Social Security was not projected to go to Trust Fund Depletion until 2042 (SSA OACT) or 2048 (CBO), a date that was advancing in time at a rate of almost two years per Report year. And one that using then standard projections of economic growth under the Washington Consensus would NEVER go broke. Which made the enemies of Social Security frantic. They NEEDED Crisis to validate their entire economic world view. For the enemies of Social Security the worldwide economic meltdown that was the 2008 recession was a God’s send.
Warren on what logic do you argue that Social Security should have a reserve 80X next year cost?
Do insurance companies maintain cash reserves equivalent to 80X their known upcoming claims? Do banks hold reserves actually in excess of their combined deposits? Or do each make reserve decisions using (hopefully) prudent analysis of the range of needs over the next few years?
Social Security built up huge levels of reserve (measured in terms of Trust Fund ratio) precisely to BECOME a Pay-Go with prudent reserve system. In part to avoid the precise argument that enemies of the system have been presenting every since the 1935 Act, that it is some sort of Ponzi scheme with unsustainable legacy costs. As argued by people using crap arguments like “huge benefits” from “practically nothing”. Instead the design of the system and the way it operated from inception until the 70’s and from 1983 to present show that that argument is numeric nonsense. All hype and no actual appeal to the data tables.
As here. Why does the Trust Fund not have 80 times the dollar amount in reserves needed to pay next year’s benefits? Because that would be a crazy way to operate a system based on collecting 12.4% of payroll tax. Remember that even in the case of a severe recession/depression 90% of people actively seeking work actually are working. There is no possible scenario that would reduce Social Security revenues to a level that a one year reserve would run out in the course of one year. Or even five years. As we can see now where a system that is actually entering cash flow negative status still has 18 years of being able to fund full benefits. And still will be able to pay out benefits that are greater in real basket of goods terms than they payout today even beyond that.
Facts which have been demonstrated here by detailed arguments by Dale, me and others right here since before 2009. And yet here you are trotting out the same stale arguments that the trolls of yesteryear trotted out with ZERO attempt to actually engage with the relevant data. No wonder we laugh at you.
Under your logic nobody should ever buy a house until they not only had the purchase price in hand but also cash dollars to cover all repairs over the building life. And replacement cost after that. And then a reserve after that. At least that is the takeaway from “That is the way it should be.” in relation to a Trust Fund Ratio of 8069 on Jan 1 1940. WHY should reserves be at that level? Or did you even pay attention when you typed that sentence?
Run and Michael ask different versions of the important question “Why feed the trolls”. And then Run actually presents the answer:
“A lot of great information on SS otherwise.”
Coberly and I and other defenders of Social Security need a constant supply of Useful Idiots like Warren to justify our relatively constant stream of tl;dr lessons on Social Security. In the course of nuking folks like A*ron, CoRev, Formerly Anonymous/FA from orbit on this topic over the years we have educated lots of people. And even gotten our names in the indexes and footnotes of important books on Social Security policy. I mean being cited by Eric Laursen in People’s Pension and by the people at SSW in their book Social Security Works is maybe not something to put on your gravestone but I for one feel pretty good knowing that some of my arguments and Dale’s arguments have proven to be heard. And some thanks for that goes to a series of Useful idiots like Warren.
Every good backyard party needs a big fat pinata to whack. Warren is ours. And AB readers get the candy. In the form of links to boring data tables mind you. But then they are attending a party at an Econoblog and not Buzzfeed or ET!.
Bruce:
I just follow along and always read the comments of you and coberly on SS. It is a refresher for me which adds new and updated info. Feel free to whack a comment or two if it gets really bad. I do not believe he realizes you have that capability also.
Fortunately much of what gets said on Angry Bear does end up in other places in recital.
Thanks Run. I had an (in retrospect) amusing tussle with a then and current commenter who angrily ‘explained’ that THIS was NOT my site and that he (and it is always a ‘he’) would appeal over my head. Until I demonstrated in real time that while AB is NOT my site I do have keys that allow me to do things like reply directly (as here), edit not only my own comments but also the posts and comments of others, or if I get sick and tired of being sick and tired make people who annoy me just go away against their will.
As it happens I have an understanding with the people who actually run this site that I should resist using the BanHammer without prior agreement. In fact I have often been the person advocating for forbearance using the ‘Useful Idiot’ defense for otherwise annoying folk. Because I believe it. But it does get wearying sometimes.
Then again I do whack (in the Mafia sense) actual haters. Whatever else they are Krasting and Warren are not that. There is a reason why you never see comments explaining how you can make $86 an hour working from home or showing you cheap places to buy boots and sunglasses here at AB. Because Dan and Run with some assistance from Ken and me and others do police this place very strictly and continuously. And yet allow it to be pretty much a Free Speech Zone for critics. But folks shouldn’t confuse forbearance for impotence.
well, i am extraordinarily grateful that Bruce came in to take up the slack.
as fpr the playground level of the argument, i could see that i was losing my patience and that counts for victory among the trolls.
it’s hard enough for me to find the answers to the “real” questions in time to explain the “what’s wrong with that” to people who may have honest doubts. it is wearying beyond imagination to have to deal with the purely stupid “arguments” that get repeated and repeated.
and with the Krastings and now Warrens who take their persistent refusal to understand the answers they are getting as “no answer.”
and act proud of themselves because they keep repeating the same playground taunts they have relied upon “for eleven years.”
if anyone out there who is not a troll has honest questions or doubts i will try to answer them honestly. but that means some answers will take a while, and some answers may begin, “i don’t know, but…”
well, but … I am quite sure of the arithmetic that shows SS can be “fixed” for about a dollar a week, and be “expanded” for about another dollar a week.
i am also quite sure that SS has saved not only the elderly from poverty, but the rest of us from the economic results of living in a country where a large proportion of the elderly face dire poverty without hope.
those are “facts.” i don’t have much use for metaphysical “if only’s” from either the hard right or the hard left. we can fix things in the here and now just by using ordinary reason and ordinary decency.
of course we have to somehow figure out how to “tell the people” when all they hear from their “leaders” is lies, damn lies, and Big Lies.
the article Warren cited is not the work of SSA. it was presented to a conference and published by SSA. it is not a “study.” it is a mathematical fiction so burdened by complicated “what if’s” that it has … in my opinion… no value whatsoever.
anyone who has the time is free to study it and see if they can see what’s wrong with it… or what’s right about it. or even what Warren got wrong about it.
Speaking of boring data tables and to the folk that really want to understand the history of Social Security finance I refer you again to
Table VI.A1.— Operations of the OASI Trust Fund, Calendar Years 1937-2014
https://www.ssa.gov/oact/tr/2015/VI_A_cyoper_hist.html#282924
and in particular to the last column: Trust Fund Ratio. In it you will see a number that climbed from zero to 8086 in two years and stayed at an otherwise ridiculous level of more than 500 right through 1954, almost 20 years after the inception of the system. How and why do you build up a five year reserve for an ostensibly Pay-Go system that realistically needs only a one-year reserve to be actuarially ‘solvent’? By shifting legacy costs to an external program. Which is to say the State Old Age Pension system funded by Title 1 now phased out for most workers by the Old Age Insurance system established by Title 2 and funded by those same workers using FICA.
If you actually look at the Table linked above you can see that Social Security really only worked in near ideal fashion through the 60’s where a series of FICA increases easily funded out of true increases in real wage stalled in the face of the needed tax increases to fund Medicare. Which IMHO should NEVER have been funded by payroll tax to begin with and which was only ever partially funded by it to start with. (Only Part A Hospital is funded by payroll even now, Part B Physician and Part D Drugs being funded by a combination of General Fund dollars and beneficiary premiums).
Between 1971 and 1983 Social Security was allowed to drift into a deep crisis state and one that required a steeper catch up using the increases phased in pursuant to the 1983 legislation that came out of the Greenspan Commission. But a deep read in the deliberations showed that the important Commissioners understood that the fix, though scoring as backfilling the whole gap, was in fact both front loaded and ultimately inadequate. In fact the numbers showed that a better solution in 1983 would have been some version of what I call the Coberly Plan (imperfectly represented in the joint plan called Northwest). That is instead of a series of relatively steep increases starting in 1983 and stopping in 1993 it would have been better to phase in smaller and persistent increases throughout the entirety of the next thirty years which would have avoided both the current bloated $2.8 trillion TF balance and near 4 year reserve and the projected shortfall in 2034.
That is instead of the increases seen in this Table we could have had smaller increases more spread out.
https://www.ssa.gov/oact/progdata/taxRates.html
But there were political reasons as well as certain aspects of the internal metrics of Social Security that made it imperative to design a program that would show 100% results by the ten year mark of 1993 (and did) rather than a more measured approach that would have kept reserve levels steady through the 75 year window. And avoided the totally predictable (because predicted) crisis of the 2000’s oddly marked by a bloated Trust Fund that at the same time projects to go broke.
There was a simple solution in 1983. Which would have looked a lot like the Coberly/Northwest Plan. But I wasn’t paying attention at the time and if Dale was then for some odd reason nobody thought to make him Social Security Emperor. Which is too bad. Because it would have worked.
“Do insurance companies maintain cash reserves equivalent to 80X their known upcoming claims? Do banks hold reserves actually in excess of their combined deposits?”
First, that “80X” number was eighty times that year’s payout, not 80X what was required to pay the benefits of those who had paid into the system, according to how much they had paid in.
If the Social Security retirement program is supposed to be a “pay for your own retirement” program, then the assets in the trust fund should be sufficient to pay benefits to those who have paid in, according to how much they have paid in. YES, absolutely, insurance companies keep sufficient assets to pay annuity benefits to those who have purchased annuities. YES, absolutely, banks keep assets according to how much their depositors have put in. (Those assets are mainly in uncallable notes such as car loans, mortgages, and business loans, and a run on the bank would cause a cash-flow problem, but that is entirely different. No bank has the cash to pay out all its depositors at once, but that does not make the bank insolvent.)
“WHY should reserves be at that level?”
The reserves should be at the level that, with no more FICA taxes, those who have paid in could get the benefits they have paid for. That is required for annuities, is it not?
“There is no possible scenario that would reduce Social Security revenues to a level that a one year reserve would run out in the course of one year. Or even five years.”
Indeed there is — the cancellation of the program.
An insurance company offering annuities has statutory capital requirements under the U.S. Regulatory Solvency Framework. So if the company stops selling annuities, it can still pay those who have purchased them in the past.
Of course, with the SSFT, that would be a fiction anyway, because to pay down the trust fund balance would require increased income taxes. It will not matter to those getting taxed whether it was income taxes or FICA taxes. Whatever the balance of assets in the SSTF, the money was spent by those who paid those taxes at that time, and will be repaid by those paying taxes in the future.
Bruce
I defer to your expertise in historical matters. Let me make two (or three) comments however which have a slightly different take.
First, I think there were people paying attention in 1983 or so who advocated a fully paid (gradual) by worker taxes then. It would have been enormously cheaper (peryear) than even the current version of Northwest. But the politicians couldn’t stand the idea of “taxes” even at the rate of pennies per week so WORKERS COULD PAY FOR THEIR OWN BENEFITS… so we got the big Trust Fund and the “looming crisis” all in one package.
Second, I don’t know the details of Title I vs Title II, but I can show a simple reason why the early days Trust Fund would have built up so fast just on the simple demographics:
SS was paid for by the first cohorts at a rate of 1% of payroll. Since only those who had paid in were eligible to collect the insurance on retirement [note, because it was “inssurance”, even those who have made only one payment are eligible to collect benefits, just like with your car or fire insurance.) Because the amount being taken in by SS was 1% (2%?) of payroll, it was more than adequate to pay the benefits of the tiny number of retirees. The rest went into the “trust fund” building up a reserve so the rate of growth of the tax which would be needed to reach somewhere around 10% of payroll when the system was fully matured and the rate of retirees was roughly equal to the rate of new workers,.. so the tax rate would not have to grow quite as fast (though by the same amount) as it would have if the tax had initially been just barely enough to pay for the new retirees, and then had to pay, by each worker, the full amount to “pay for” his eventual retirement. Don’t try to explain this to Warren. He’s not up to it.
Third, I disagree with your about Medicare. I think it should be fully paid by worker contributions. That should make it harder for the “damn politicians to take it away from them.” And I, for personal psychological reasons, which naturally i think the world would be better if everyone agreed with me, would rather pay my own way as much as I can. “as much as I can” means that i would be happy to pay taxes to help those who can’t pay as much as their needs require.
But also note, I think medical care would be a lot cheaper if it was not in the hands of predators, who seem to have a lot to do with what the law is. And, because like Warren I have been lucky, I have to pinch myself to accept the fact that I have been healthy with very low medical costs, and intend to keep it that way, i end up paying, through insurance, however constructed, for those not only less lucky, but improvident in caring for themselves.
Please don’t misunderstand this.It’s just a suggestion for the direction to move, not an arrogant writing off of those less fortunate. We lhave the world, and the neighbors we have, not the ones we think we wish we had.
Unlike Warren I know that a lot of “improvident” people are very nice, and good company, and contribute more to the world and my own comforts and pleasures than people who think only about money can bring themselves to realize.
But all of this is missing the point, which is that future taxpayers will be paying for future retirees. Increasing taxes now will not change that. That money will simply build up the SSFT. To pay it down will require that future taxpayers pay more.
The relevant facts come from the Trustees Report:
“Social Security’s total expenditures have exceeded non-interest income of its combined trust funds since 2010, and the Trustees estimate that Social Security cost will exceed non-interest income throughout the 75-year projection period. The Trustees project that this annual cash-flow deficit will average about $76 billion between 2015 and 2018 before rising steeply as income growth slows to its sustainable trend rate after the economic recovery is complete while the number of beneficiaries continues to grow at a substantially faster rate than the number of covered workers.”
That means we need to increase taxes NOW to pay current retirees. It does not matter whether they are FICA taxes or income taxes. That just changes who pays them. FICA taxes are regressive. Income taxes are not.
Pick your poison.
Warren
you keep on. nothing can penetrate your iron clad theory of everything. I have tried. i am tired. you are full of one line solutions, which turn out to be impossible in a million line universe. who has the time to explain it to you, when your head is full of one line certainties?
hint for you: the assets of SS are the paychecks of those millions and millions of people who need someplace to save for their retirement safe from the bad things that can happen to them “in the market.”
your fundamental belief is that “government is bad” and “the free market solve all ills” and “those who don’t prosper in the free market are lazy and deserve to die in the streets as an example to others.
there is real world history that explains all this. but you will never learn because you already know the One Thing that you know.
“Unlike Warren I know that a lot of ‘improvident’ people are very nice, and good company, and contribute more to the world and my own comforts and pleasures than people who think only about money can bring themselves to realize.”
You wound me, sir. It is indeed out duty to care for the poor, the widow, and the orphan. I object to being forced to do so by the government, and I object to the fiction that workers are “paying for their own retirement” via Social Security.
The provident and improvident were made by the same hand. Shall the expensive vase look down in disdain on the base cup made by the same potter? The vase did not make itself, nor did the cup.
“[The] assets of SS are the paychecks of those millions and millions of people who need someplace to save for their retirement safe from the bad things that can happen to them ‘in the market.’”
Then the money should have been put in individual accounts, in E-series bonds. They would have been far better off.
contrary to that Fountainhead of Wisdom, Ayn Rand, the Free Market is full of predators who cause most of the poverty in this country. Left to themselves, the predators eventually get rich enough to buy the “government” and make rules that enshrine the predatory business model.
The only hope ordinary people have is to organize themselves to fight the predators. Ordinary people are not particularly good at organizing themselves. I am afraid I think, therefor, that their only hope is that leaders will emerge who, while they remain honest and alert, create institutional barriers to predation. Those barriers only last until the predators figure out a way to get around them or tear them down.
They are much aided by the folks, like you?, who did well under the old system… including the one with the protections… and think they “did it themselves,” and can now do without all that government interference and all those protections.
The problem is at least as old as Deuteronomy 8:17 “Beware lest you say in your heart, ‘My power and the might of my hand have gotten me this wealth.”
note I offer this as a lesson from history, not as a religious creed… or there is some overlap between the two.
Also note Deuteronomy 5:16 “Honor your father and your mother…that your days may be prolonged, and that it may go well with you in the land.”
Again, this is offered as history not religion: note the reason given.
Warren will not understand that at least by the twentieth century, it was no longer possible for “honor your father and your mother” to be understood strictly in terms of blood relationship. Even in Moses time it was understood in terms of tribal relationship. By 1932… and really long before that… it was obvious that “the nation” needed to care for the elderly without regard to blood relationship…”so that your days may be prolonged (that’s YOUR days, oh taxpayer) and that it may go well with you in the land.
“Then the money should have been put in individual accounts, in E-series bonds. They would have been far better off.”
this is why we don’t like to talk to Warren. he keeps saying the same thing again and again even when he has been answered again and again:
the poor don’t have the money to buy bonds. the interest they get from Social Security is about 10% REAL. E bonds don’t pay that much. The benefit from Social Security lasts, adjusted for inflation, for the rest of their life.
Warren could force the poor to buy E bonds.. but then what becomes of his argument against SS being “the government forces” us to pay?
looking at Warrens contributions above I see that time after time he repeats claims i have answered. probably he just forgot the answer, or hope that you have, so we end up in a game where he who shouts the loudest and longest wins.
unfortunately there is a lot of truth in that.
“the poor don’t have the money to buy bonds.”
Then how do they have money to pay their FICA taxes?
“[The] interest they get from Social Security is about 10% REAL.”
How is that possible, when the Trust Fund earns only 3.4%, nominal?
“EE bonds don’t pay that much. The benefit from Social Security lasts, adjusted for inflation, for the rest of their life.”
True. They could be invested in normal treasuries, then. They are just as guaranteed as the trust fund bonds. The workers really would be paying for their own retirement that way. Isn’t that what you want?
“Warren could force the poor to buy EE bonds… but then what becomes of his argument against SS being ‘the government forces’ us to pay?”
Nothing. And it would still be wrong. But at least they would be paying for their own retirement, which is what you want.
It is income via any ways and means that covers the cash outlay claims on Treasury. This can come from the sale of land, mineral rights, oil in reserves, or by Congress directing by law that the Fed buy trust fund bonds at double some notional value and then have them write them off (helicoptering the money via accountants’ entries, fictional ones really).
The public’s law establishes a legal claim to pay the earnings due to lawful claimants.
We only need to be concerned should our net wealth and GDP-flows plung downward. In the meantime, since this is simply not the case (net wealth of $88 Trillion now), just get the money when it is needed.
But employment policy, here we need a body politic that cares. I for one would much prefer that we lower tax burdens on the incudence if labor. Our society would works better if we had labor markets that were less distorted by the buyer side, helped in part by public policy that appears to signal that it is ok to make a job a cost-object which needs to be controlled. The 1980 era increases in payroll taxes at the time that globalized labor competition was increasing and easier to foster distorted labor markets via the politics known as rent-seeking by the politically powerful. In 2017, we really can do better, and leave the accounting fictions out of it (oh, at the same time SS earnings checks should increase to remediate in some small way for the unfair policies and economi harms, decades in length).
These are earnings, dividend claims, so to speak, absolutely not welfare.
Warren
SS can pay an effective interest of 10% to low income retirees because the “interest” comes from the growth in the economy redistributed a bit by the insurance function of SS. In any case it has NOTHING to do with the interest on the trust fund. as we have tried to explain to you.
as for the poor having the money to pay FICA… the money is taken out of their nominal pay. that means they never see it, so they can’t spend it on beer.
(liberal friends, don’t yell at me. the beer crack was because i was talking to Warren who believes what “the rich” have always said about “the poor.”)
meanwhile the poor do get that 10% return on their money , which they would never get from any Bonds or even stocks over 40 years.
“they” actually get quite a bit more, because they are more likely to get death or disability benefits… which you won’t get from stocks or bonds.
there is a whole story here, which Warren will never get. hell, he even thinks the Trust Fund is where SS gets it money from.
“meanwhile the poor do get that 10% return on their money”
I will ask you again, Where do you get that number?
I have given numbers from the SSA itself, with links, that show the best group was a couple born in 1935, who would see 6.79% return.
“[‘They’] actually get quite a bit more, because they are more likely to get death or disability benefits…”
Disability is a different side of the program, with a separate trust fund.
The SSA report I posted earlier does factor in the Survivors Insurance. I will address a statement you made about it:
“[The] article Warren cited is not the work of SSA. it was presented to a conference and published by SSA.”
Here are the authors: “Karen Smith is with the Urban Institute, Eric Toder is with the Internal Revenue Service, and Howard Iams is with the Division of Policy Evaluation, Office of Research, Evaluation, and Statistics, Office of Policy, Social Security Administration.”
Allow me to repeat a quote from that article: “OASI hurts retirees in the bottom income quintile [because] their life expectancies are relatively short.”
I am late to this thread, but it needs moderation. Warren, you are way out of your league on these issues. Time to stop.
Warren
Social Security “hurts’ the poorest according to a very bad “study” which by “hurts” means gives them a lower return in present value from what they might have gotten in present value from private annuity…. if they had been able to save the money to afford the annuity, and everything had gone according to the “present value” scenario, which it never does:
look around you.
i got the 10% by taking SS figures for “average wage” over 35 years, using the percent of that wage that goes to OASI that actually comes out of the paycheck of the low wage worker. assumed that worker worked steadily at fifth percent of the average wage (about 20k in today’s terms), determined by computer successive approximation what the interest rate on his tax amount if saved would have had to be to arrive at retirement age with enough saved to pay for an annuity that with no fees would have paid him as much over his life expectancy (which i took to be 20 years after retirement) as his Social Security benefits, as computed by the SS formula, would have been, including cost of living increases which i took to be about 3% per year, counting interest earned by the annuity.
my model is different from the articles you cite, but not by very much.
the most important difference i can see is my assumption that the worker never faced long term unemployment… this actually biases my result toward reducing the effective interest
this small difference does not come close to justifying “ending SS” and replacing it with a “your on your own” to invest as you choose in the hopes of buying a good annuity when you need to retire.
i tried to find the source of Miller’s article (that you cited) for SSA’s own calculation so I could compare method. so far i haven’t found it.
the article that you cited here contains too much room for finagle factors for me to take seriously.
especially from people who take “make less than “present value” to mean “hurts.”
especially when “make less than present value…” is attributed to a shorter “average” life expectancy (with no indication by the study whether this means after retirement expectancy, or are they counting the people who die before they retire)
in any case the point of SS as insurance that it pays for your needs if you DON’T die.
I am sorry it does not provide for what you hoped to inherit from your parents’ savings. on the other hand your parents might have eaten just as much after they retired on a private nest egg as they do when they retire on SS. the loss to their “savings” is exactly the same in either case.
but note that SS DOES pay for your needs if your parents die while you are still under age.
you won’t get that with private savings.
and if you say “buy insurance”, i hopeyou are adding that cost to your comparisons with the cost of SS.
meanwhile you blithely told me on another thread that people should just hold on to their stocks during a downturn. you don’t seem to contemplate that they might lose their jobs during a downturn and need the money… however much that means “selling low.”
i assume that you have been lucky so far… and may be lucky smart for the rest of your life. you can’t seem to understand that it doesn’t happen that way for most people. never has. look around you.