Dean Baker at Beat-the-Press has pointed out (sorry, not able to link to it) that Associated Press put out a tweet that presents an essentially hysterical story about future prospects for Social Security following the recent release of the Trustees. This report says that as of 2026 Medicare and as of 2034 Social Security will face a “shortfall.” However, the AP tweeted that what they face is “insolvency.” Needless to say, “insolvency” is much more serious than “shortfall” and simply feeds the overblown hysteria that so many think about these programs, feeding political pressures to mess with them.
The new report provides the latest update on what would happen if the forecast happens and nothing is done. Given that the projection is that Social Security benefits are set to increase by about 20% by 2034, if somehow nothing were done and benefits were set to be reduced so that they could be paid by expected tax revenues, the benefit would be cut back by about that amount to about what they are now in real terms. In short, this is not the hysterical crisis AP suggested or that so many think is out there. We have seen this nonsense before.
Of course, Dean accurately points out that by law the benefits must be paid. This may also be a time to remind everybody that the US is really in much better shape demographically in terms of life expectancies, retirement ages, and expected population growth rates than most other high income nations, with such cases as Japan and Germany in much worse shape than the US. However, all these nations are making their public old age pension payments. In the case of Germany the payments are higher than in the US, but the payments are being made, and its economy is humming along very well. There simply is not basis for any of this hysteria in the US regarding the future of Social Security.
People will not remember that 25 percent less was enough for their parents. I worry that the anti-SS machine will finally have the lever they need to kill SS. By the time we have people in control of Congress who don’t want to kill SS, the 20 percent Barkley mentions will be quite a bit smaller.
yes, this is the famous Rosser equation that Bruce Webb taught us about.
It is true as far as it goes, and was truer ten years ago when it was first pointed out. And it was, and is, worth pointing out… just to help take the hysteria out of the problem.
But it can be read as a justification for doing nothing about Social Security now and then cutting benefits in 2030 because, after all, it’s not “really” a cut if the “real value” ends up the same as it was twenty years ago.
thing is, people don’t live by “real value.” times will change and what is called “real value” by economists will turn out to be not enough for people to live on.
partly that’s because people expect to live according to the standards of their neighbors, or of their own pre-retirement experience.
and partly because as times change, the “real value” of money will be asked to buy things that no one “needed” twenty years ago.
for my grandmothers generation a 1936 “real value” would not buy a 1950’s automobile… not a necessity in 1936, but becoming one by 1956.
Today’s “real value” (by 1990’s standards) will not buy a computer.. not a necessity in 1990, but pretty much a necessity today.
And all of this to avoid a dollar a week increase in the tax to maintain the current projected level of benefits… scheduled to be reasonably consistent with expected standard of living at the time they will be needed.
If FICA tax payers had really intended to base their retirement on the SS Trust Fund they would have had to put aside twenty to twenty five years of full replacement — which would have had to draw on much higher income tax levels when it came time to cash the government bonds.
And — today’s young earners would be saddled with — both — much higher income tax — and — the same old FICA tax — their FICA pay in being used to save for their retirement. Get it? Every cohort after the first one would be doubly taxed! Sound like a sensible system?
Today’s actual (so-called might be better way to put it) Trust Fund is about a fifth of what should have been saved if the intention was to actually cover retirements and four times more than needed for a bridge-over-troubled-FICA-shortfall (which it really is).
If a five times bigger Trust Fund had to be drawn down over twenty-five years, income tax payer would probably insist on cutting benefits!
Sensible solution: burn the Trust Fund down to one year of full replacement — then raise FICA tax as needed.
The only persons benefiting from the current over-pay-at-first/under-pay-later FICA tax percentage are the politicians who were are preserved from raising the FICA tax for sixty-seventy years — that raise being much more transparent than income tax raises which pay for zillions of things (which payouts can also be covered up with deficit). I am dead sure that the politicians who set up this Rube Goldberg retirement structure did not have the intelligence to realize they were making things less embarrassing for their future replacement — nor would they have had the empathy to care about them — I’m dead sure.
Basically, it’s propaganda for the Republicans who want to eliminate Social Security.
Yes, this is the updating of the data that goes into the Rosser equation. I am probably closer to what you have long advocated. No, the political system will never allow a drop in benefits, so assuming things continue there will be some adjustment. As it is, I support only a minor variation of your old dollar a day tax increase, which strikes me as too regressive. Personally I support just lifting the cap on income to tax higher income people more as needed.
The setting up of the Social Security system had within it an original sin, that some old people up front got benefits without paying in. This has put an intergenerational imbalance in the system that will never be undone. But I do not think it is as big of a deal as you make it out to be.
So we can not afford to pay $1 /week and keep it our own? I already gave up a life time of earnings. I went forward and they can not? There are bigger issues with the financing of education than retirement.
Thanks for the reply.
The people who got the early insurance benefit without having paid in as much as they eventually got out did not really get a windfall. They had paid in all their lives to the previous welfare system.. that included, if you will, the care they gave their own aging or disabled relatives.
When the new, better, insurance system became available, they paid their premiums and eventually collected their insurance benefits. No one since them has paid in MORE than their fair share in order to provide that insurance payment to those who came before them. Those of us who came later pay in a fair amount for our benefits and usually get about three times as much back as we paid in due to the effective interest that comes from pay as you go financing.
The idea that the first generations of SS recipients got free money on the backs of susbsequent generations is just part of the Big Lie told by the people who have always hated SS. It is no more true than it would be true that the first people who bought IBM or Microsoft are riding on the backs of the people who bought later.
As for raising the cap… this would cause the higher earners to have to pay more than a fair price for the value of the insurance that
SS provides. It would also give the people who hate SS a “true” argument that SS is a burden on them (the “rich”), welfare, and “socialism.” I hate to hand them that propaganda advantage. If it were true that the cost of SS were a burden to the poor, I might see a reason for “making the rich pay,” But to save myself a dollar per week to pay for my own retirement, I’d rather stick with Roosevelt’s very good idea.
If you need to tax the rich, use the income tax. If the poor need welfare, use the income tax. But Social Security is a better way for most of us to pay for our own basic needs in retirement…. insuring that we will be able to retire at a reasonable age with a reasonable income no matter what happens to the stock market or inflation or our own businesses or our own wage history or our ability to remember to “put money away for our old age.” It even insures us to some extent against the “damn politicians” if we are smart enough to keep it.