SOCIAL SECURITY TRUSTEES REPORT
by Dale Coberly
SOCIAL SECURITY TRUSTEES REPORT:
There is yet time, brother. But not much.
The Social Security Trustees have issued their annual report. It is not much changed from last year. In fact it is a little better. Last year’s Report projected that by this year Social Security would have reached “short term financial inadequacy.” This year’s projections put that off for another year or possibly two.
Short term financial inadequacy means that in ten years the Trust. Fund reserves will fall below the level of one full year’s benefits if no action is taken.
This would not be a catastrophe, but it does mean we really ought to take action now. If we raise the payroll tax by one tenth of one percent per year until the total raise reaches about two percent of payroll, we would make Social Security solvent (financially adequate) forever: fully able to pay the benefits necessary for the people who paid the tax to live in reasonable comfort for their longer life expectancy… longer than that of their parents and grandparents. One tenth of one percent of payroll would be about a dollar per week subtracted from the paycheck of a worker earning $50,000 dollars per year. Or about fifty cents per week for a worker earning $25,000 per year. This is not money that goes into a government black hole, but money that comes back to the worker with interest when he needs it most. Enough money to pay for basic needs in retirement no matter how long he lives. Or pay for his family’s needs if he dies with dependents or becomes disabled.
Meanwhile, the Committee For a Responsible Federal Budget does what it can to make the new Report sound like a Catastrophe in the making… as they have been doing for years. They do this by screaming about Big Numbers without reminding the reader that these big numbers are big because they are about 2% of the wages of 250 million people over a period of 75 years. If you read CRFB you have to be on the watch for this kind of misdirection. It is their stock in trade.
Worse, perhaps, is they imply that Social Security is a driver of the National Debt. Social Security has nothing to do with the National Debt. It is paid for entirely by the people who will get the benefits.
That is essentially the case from the far Right. Lately there has appeared a new case from the far Left. They say that the projected shortfall is not a problem because it can be solved by “making” “the rich” pay their “fair share.” The fact is that “the rich” already pay their fair share for the insurance benefit they receive. But they will not pay for your retirement, and you can’t “make” them. Nor should you. Your parents and grandparents were proud to be able to say “I paid for it myself.” And the man who invented Social Security designed it that way: designed it to be not welfare but worker paid insurance “so that no damn politician can take it away from them.”
The bottom line is this: you need to get it fixed in your mind first that you can save Social Security… a secure retirement… for yourself and your children and grandchildren by raising your own payroll “tax” (retirement insurance premium) ONE DOLLAR PER WEEK while your wages are going up ten dollars per week per year. And second, IT’S NOT GOVERNMENT MONEY. It has nothing to do with government deficits or the national debt. YOU PAY FOR IT YOURSELF and it is wisest to keep it that way.
If the one tenth of one percent payroll tax increase per year does not begin this year or next, the rate of tax increase would need to be faster.. not much faster, but if we wait until 2034 or so, the tax would need to be increased about 2% all at once. Still not a big deal when you think about it, but likely to be shocking to some, and politically dangerous.
There is a sort of middle ground. The tax could be increased about one full percent (according to the Trustees 1.42% for the worker and 1.42% for the employer) this year, and that would see us through the next seventy five years without another tax increase. After that, about another one full percent would see us through the “infinite horizon.” None of us will be alive then, and things may have changed, but the enemies of Social Security call that distant extra 1% “not solving the problem”. They are sure we have to solve all possible problems forever before we can solve the problems we face today and for the reasonably foreseeable future. The one tenth percent per year “at need” proposed here actually does solve the problem over the infinite horizon… or at least past the 75 year actuarial,window, but they don’t want you to even think about that.
So, think about it and see what you come up with. If you don’t think about it, and don’t DO something about it, the bad guys will win. And if you “demand” the rich pay for your retirement, the bad guys will win.
I really think the Dem Party should run this plan as part of the platform.
EMichael
tell your friends. tell your Congressman and Senators. tell the press.
They will ignore you until maybe a million or so people have told them. Then they will have to listen.
Well done piece.
A constructive and sane assessment/recommendation that tends to be conveniently overlooked in most conversations — thanks for raising it!
However, I would suggest that the “rich” do not really “pay their fair share” as much as you may believe, due to the cap on FICA taxes (which I believe is currently at $127K or so). Another option for assuring SS solvency (perhaps an alternate or supplement) is to raise this arbitrary cap.
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For the past decade Coberly has repeated what he says in this piece:
Your parents and grandparents were proud to be able to say
“I paid for it myself.” And the man who invented Social Security
designed it that way: designed it to be not welfare but worker paid insurance “so that no damn politician can take it away from them.”
Is this statement true? There is only one source that can answer this question and that is the SSA. Fortunately, SSA has produced a paper on exactly this topic. They released it this week.
Coberly – Can you please review this and give me your take? Can all the other folks who are knowledgeable on SS and can read a report please chime in? My question is have current and past SS beneficiaries “Paid for it the selves”??
The link to the SSA report:
https://www.ssa.gov/OACT/NOTES/ran1/an2018-1.pdf
Mmm; the so called Trust Fund — should be called the bridge-over-troubled-shortfall fund. Truly ractical use: covering over temporary shortfall in FICA income (over outgo) while waiting for Congress to raise FICA tax rate. Happened a couple of times.
There are now four years of full replacement in the fund — three more than needed for bridge fund (legal definition of fund solvency: one year full replacement) — twenty less than needed to pay out retirement to the last living pay-iner. One forty year cohort was forced to pay out enough extra FICA tax to build up four years of retirement pay out. ???
Mmm, the Trust Fund designed to prevent raising FICA so soon. Soon, only way to keep Trust Fund from drawing down it’s meager savings will be to, er, uh, raise FICA tax enough to at least fully cover yearly pay out. ???
Mmm, but the Trust Fund guarantees that full benefits will be paid until 2034? (That’s a question.) Mmm, that means more and more retirement benefits will be paid for using federal income tax to cash the bonds. Income tax payers are in the upper half of income earners — especially in the top end of that half. FICA tax payers are effectively in the bottom half. Upper end folks do what they will and bottom end suffer what they must. Upper end much more likely to kick up a storm over increased tax load than bottom end. Mmm.
Bruce K.
The report states “The unfunded obligation for any program must be
defined on the basis of the intended funding method for
the program. Because the OASDI program is financed
on essentially a current-cost or pay-as-you-go basis, the
open group unfunded obligation measure is appropriate.”
Basically, they are saying that they are not trying to answer the question you are asking.
Note that if you assume that we will adjust the payroll tax rate to match changes in the economy, then the unfunded obligation is zero.
Denis,
“the Trust Fund guarantees that full benefits will be paid until 2034?”
I am guessing that you did not really mean guarantee in the above question. SS is not allowed to pay out more than it takes in. But the period over which that is true is not a year, or 10 years, or even a working career. It is the life of the program. So, since the amount that SS has collected is in excess of what it has spent (as accounted in the TF balance), it can continue to pay full benefits even as the annual amount exceeds the annual income.
The 2034 date is an estimate of when TF accounting will no longer allow (per existing law) benefits to exceed income.
It is fair to discuss how voters will react to a budget that has money going to paying principal as well as interest, but I don’t think it should make any difference to how the voters see SS. Note:
1) We have already been paying interest, so it is a matter amount, not kind.
2) If/when we get SS back into balance over whatever term we deem valid, the TF will be ever growing because one year’s expenses will be ever growing. SS needs the “on-budget” portion of the government to run a debt.
3) If we do as coberly suggests (gradual rate increases), the TF balance in current year dollars never decreases, so the discussion of how the voters will react becomes moot.
4) While lenders may want to know how borrowers will repay loans, they don’t actually have any control. If you can recognize that SS is for workers by workers and not by government, then SS is the same as any other lender, with no control of how income tax payers determine who will pay how much.
Krasting
I have to agree with Arne. I can’t see anything in the article you cite that has anything to do with the question you are asking.
Your question seems to depend on your not knowing anything about how Social Security is funded, or about money, or banking, or the concept of ownership.
So let me ask you a question: If you put 100 dollars in the bank and go back a year later and take out your money plus the interest it has earned… say 103 dollars, is the 103 dollars your money?
If you buy a fire insurance policy for a hundred dollars a month and you have a fire and the insurance company pays you ten thousand dollars for your loss, is the ten thousand dollars your money?
Did (in both cases) you pay for it yourself?
Social Security Benefits are paid for entirely from the money paid into Social Security by the people who ultimately get the benefits.
The fact that on a pay as you go basis the money they get … if you marked the dollars… came from someone else paying for his own future benefits on that day is no different from the fact that when you take your money out of the bank a year later the actual dollars, if you marked them, came in that same day from someone else making a deposit into his own savings account.
When you collect your profit from investments in stocks or bonds you are getting dollars paid in that day by someone else making his own investments in hope of a profit. You paid for your profit, or interest, or insurance payment by buying the investment or the insurance policy.
Social Security works the same way. The United States manages the economy, and the program, in such a way that everyone who invests in Social Security, or buys Social Security insurance… it’s the same thing…is guaranteed to be able to collect benefits equal to or greater than his payment. the extra money comes from growth in the economy and the fact that future generations will want to make the same investment, or buy the same insurance, with the expectation of making the same “profit” or getting the same insurance benefit.
There are some people who cannot understand this because they don’t want to understand it.
The “government” does not pay a dime for Social Security. the workers pay for it themselves. Always have. Always will… as long as they are smart enough to keep the bad guys from “fixing” it. It ain’t broke.
The math for a gradual increase looks solid. But I wonder how this might work from a practical point of view. Has a congress ever passed a phased-in incremental tax increase before?
Can one congress obligate a future congress to a tax increase. I know that there have been sunset provisions before, but not “sunrise provisions”.
Can congress delegate taxing authority to the Social Security Trustee Board?
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The idea that SS and medicare are in trouble is tea party/Peterson blither. The issue is as we boomers retire the deferred taxes made possible by the Greenspan Moynihan Reagan Social Security “deal” need to be raised.
I have been following the audit of the bureau of federal debt for years. It is supposed to be reported by GAO who gives an audit opinion a month or so after the close of the fiscal year.
It tracks all federal debt that held by the public and that held by the numerous trust funds.
Of the largest trust funds only SS and Medicare are funded by dedicated payroll taxes.
The next large trust funds that cover civilian employee retirement and military retirement are largely funded by appropriations which do both raise cash for paying beneficiaries and create T-bills that differs from SSTF t-bill in that SSTF t-bills are from cash sent to cover the cash deficit.
https://www.gao.gov/assets/690/688263.pdf
It is 40 pages .pdf, loads easy.
While in 2019 the war parties ant to spend $674B for bombing for al Qaeda and tilting in the South China Sea over PRC islands……
There is a little something coberly is leaving out of his analysis: in addition to the taxes he proposes, the general fund has to redeem $2.6T in Special Treasuries, or IOUs, that have to be redeemed in the next 17 or so years. This is about $250B per year, or roughly 1 years entire federal tax receipts, that has to be either raised in taxes, borrowed, or cut elsewhere in the budget.
This of course is possible, but it entails significantly more difficulty than coberly insinuates.
Excellent Article and analysis Coberly and as an Certified Financial Adviser who has also read and studied the SS Trustees report each and every year for the last 15 years I agree 100%. I used to take issue with not removing the CAP but the more I have watched the Republican Terrorist try to blow up government and prove nothing government can’t work the more I have come to accept the logic of why doing it the way you describe is the safest route to go. Keep up the good work on SS.
Sammy,
The government borrowed the money. Now it has to pay it back.
Social Security did NOT borrow the money. Social Securiy LENT the money.
Your theory about borrowing seems to be that it’s the lenders fault that you have to pay it back.
The government won’t raise taxes to pay it back. It will just borrow more, only this time “from the public.” That means that you and I will buy bonds that pay interest, and the government will pay us back with interest by borrowing more money. there is nothing wrong with this. The British invented the forever-National Debt and used it to conquer the world. Alexander Hamilton re-invented it for the United States and made us the richest country in the world.
Since you don’t understand this I suggest you don’t borrow any money from anyone. Some people are not amused when you tell them you shouldn’t have to pay it back because it’s their fault that you borrowed it.
“It (governments) will just borrow more”
There are limits. The US is a little over 100% debt to GDP, which has historically been kind of a red light to international creditors. Adding another $3T would bring it up to 125% or so. In-the-news Italy is at 132%, Greece is at 181%.
So could we do it? Yes, but the whole rest of the budget would have to run a virtual zero deficit, so this requires some combination of large tax increases or spending cuts. So name what you think is a beneficial government expenditure, and it will be cut. All because you refuse to entertain any sort of SS benefit reform. Millionaires receiving max social security checks, along with their pensions and investment portfolios have priority over Medicaid, medicare, AIDS, whatever…..
You seem to think you’ve solved the social security problem. You’ve only solved a small part of it.
I’ve never heard a rich person express the slightest discomfort with other people paying for things that they get. In fact, rich people expect other people to pay for their stuff whether it be local infrastructure, sports stadiums, an educated work force, an affluent market, cleaning up toxic messes, technological innovation and so on. Most rich people feel entitled to get such things paid for by others and no one, except a few flake ass liberals, expects them to feel bad about it.
Somehow or other, the less well off are expected to cover all of their own expenses and buy things for rich people as well. Only Marxists and radicals want wealthy people pay for the stuff they get.
We can fix Social Security at lot of ways. We could just raise the payroll tax a bit. We could raise the ceiling on wages that are considered for Social Security taxation. We could raise the tax on the sale of securities of companies who hire workers who will have to rely to Social Security now that no companies provide pensions to their less well paid workers.
Just lay off the guilt trips.
And this is why I say mean things to Sammy. He can always find some reason why the government shouldn’t have to pay back the money from the people who lent it to them.
You see, when Sammy was eighteen he wanted to go to college, but he didn’t have any money. So his grandmother said, “i can lend you the money, Sammy, so you can get a better job and make more money than I did, but you have to understand it’s a loan and not a gift. I will need you to pay me back when I get too old to work.”
So Sammy promises to pay it back. And goes to college, and gets a better job, and makes more money, But when his grandmother gets too old to work, she comes to Sammy and asks him to pay her back the money she lent him.
He says, gee, Gramma, I really can’t. I already owe as much as I can afford to pay for my house and car and my vacation in Las Vegas.
The words to describe someone like Sammy really can’t be printed here. But he has the makings of a good Congressman, or one of the people who buy congressmen.
You see “benefit reform” mans stiffing gramma and giving tax cuts to your friends.
And please note the government did NOT borrow the money to pay for Social Security. It borrowed the money FROM Social Security to pay for war toys, wars themselves, and tax cuts for millionaires.
Which brings me to another subject: If you want to tax millionaires I’m all for it. Just don’t do it by “raising the cap.” That will just give them an excuse to cut Social Security. Tax them the ordinary way: the progressive income tax. That is not a sneaky way to get them to pay for Social Security. It is a sneaky way to get them to pay for their wars, war toys, and to pay BACK the money they borrowed FROM Social Security.
Your Congresspersons, and the reporters and columnists who cover them don’t want you to understand that. In fact they don’t want to understand it themselves. It’s the only way they can look in the mirror and not puke.
Sammy said, yes of course I will pay it back.
Typos in the above
congress and sammy always find a reason not to pay back the money THEY BORROWED from the people who lent it to them.
The last line showed up from cyberspace somewhere, it should have been cut and not pasted.
coberly,
Social Security and the Federal Government are the same entity. They borrowed from themselves. So there is no stiffing anyone. You can’t stiff yourself. And the benefit formulas are not sacrosanct or a contract, like a normal retirement fund It says right at the social security benefits statement “Congress can change this at anytime.”
The Federal Government has a responsibility to take care of it’s aged citizens. Period. But how much and at the expense of what is what has to be politically determined. Pull your head out of your Trust Fund, and quit spewing falsehoods like “You paid for it.”
No politician cares about the Trust Fund. So neither should you. It’s a dead issue.
Kaleberg
i don’t know what guilt trips you are referring to. but one more time: the reason for not raising the cap is NOT to be nice to rich people. it’s to keep rich people from killing Social Security entirely.
sure there are a few rich people who already want to kill SS entirely, but they are insane… or believe they are already paying for your retirement.
and you probably will not change their minds, but i prefer to be honest when i say “I paid for it myself.” And “I paid for it myself” has been the reason Social Security was “the third rail of politics.”
It is not so much a third rail anymore because the insane rich have been telling the Big LIe for at least 30 years if not 80 years, and no one has bothered to tell the people the truth.
raising the cap would turn their Big Lie into a fatal truth.
now, just what guilt trip are you talking about?
Sammy
Social Security and The Federal Government are not the same entity.
Social Security was created legally separate from the Government. That’s what the Trust Fund is all about… to keep the government from mingling SS funds with government funds.
The only dead issue here is your soul. The people who tell you what to say are ghouls. They feed off the misery of the people they harm.
And if it were “only” a political issue… with no moral or legal constraint… then what you are so kindly advising me to do is to surrender to the crooks in politics and let them hurt the people who trusted them.
Have you ever heard of “good faith”? Do people avoid you or get sick when they listen to your rationalizations for not paying your debts?
I’d say you had a brain lesion that keeps you from understanding simple morality, but it’s hard to believe that 535 congressmen and all the reporters are suffering from the same lesion.
Of course, it is not “simple morality.” It is also “the law.” And while Congress can change the law… if the Supreme Court lets them… we used to have an honest Supreme Court, and the people used to know a crime when they saw one.
Since you won’t go away, I will. congratulations. you have won. welcome to the swamp of your making.
“congratulations. you have won”
coberly,
I didn’t win. Reality won.
This is what you get for trusting the Leviathan. It has its positives, and it has its negatives. I, on balance, prefer to be free.
coberly,
I know that you consider yourself on the side of angels, and everyone else who disagrees with you on Social Security the spawn of the devil…… what would you say about some child who can’t pay for life saving medical care so that some rich retired guy can afford a second Country Club membership?
Who is the moral one now?
If the generations decide to do some overlapping, then fine. More likely the generations would prefer not to overlap, yet. It is a voting issue, if the one generation get’s it wrong, you want them to have the voter’s regret, not me or you; them.
Sammy and Matt posting in the same thread is hazardous to your mental health.
Beyond scary the lack of knowledge combined with the inability to put a coherent paragraph together.
When the government spends money, it’s tax-payer-funded.. be it taxation, or borrowing in the name of tax-payers; debt that tax-payers will carry and service, as surely as if it were a credit card, with “our” name on it.
When the government incurs the expense of repaying (and paying interest, to) trust fund bonds, it’s “we” who actually bear that expense… a program for which “we” have already paid into. Consider the man who borrows against his 401K, all of it and every contribution as it is made. The 401K has its value, in the form of accounts-receivable, from the man himself. IOW, every dollar he wants to retrieve from the 401K at retirement, he must first repay TO the 401K… a de-facto wash.
I’m not arguing legal/accounting definitions nor borrower/lender obligations.. just pointing out what cannot be dismissed.. the very real cash-flow (or borrowing to pay back borrowed money) problem, that meeting SS obligations presents. A burden that “we” will have to bear, regardless a “one-percent-per-year” to keep things solvent, on paper.
Another New Dealer
Yes, those are intelligent questions. You may be in a better position to answer them than I am. I think the answer is that yes, the congress can pass a phased in tax increase, I believe it has done so before.
I believe congress can obligate a future congress to honor if not pass a future tax increase. I hope (on other issues) that those future congresses are not OBLIGED to honor what a previous congress has done. But they can and will honor it if the circumstances and politics have not changed. This sounds contradictory, but only on paper.
I don’t believe congress can delegate taxing authority to the SS Trustees. But sometimes I think there should be a separate entity, like the Federal Reserve, that can manage SS including adjusting the “premium” to fit changing needs.
I would also say that my original purpose here is just to get people to understand that the cost of fixing SS is not huge. Not even noticeable if done right. And to get them to understand that SS does not cause federal deficits or the national debt. Once those lies are exposed the whole hysteria should go away and the people can adjust their own “tax” (insurance premium) to best serve their own (national) needs.
what i get drawn into is a debate with the liars who are willing to say anything they think they can get away with. beyond the Sammy’s and the Krastings, there is a whole industry of liars … who are currently claiming that the government is now paying more for the elderly than it pays for children. this is not true, and if it were true it would not be an
intelligent way to think about it. SS, paid for by the people who will get the benefits, is not a government expense. Education, as currently paid for, is. The question is not who gets more money, but is the money spent wisely, according to need, according to the best (most efficient) way to pay for the need.
Again, thank you for the intelligent questions. I hope you will look into it and share with us what you discover.
Oh… a couple of loose ends:
the gradual phase in of the small tax increase required to make SS “solvent” would actually eliminate the need for the government to repay the money it borrowed from the trust fund. that money would just remain a paper debt on the books and act as the required reserve for SS without being drawn down except in an emergency and then not much.
and…. the one tenth of one percent per year is not the only way to solve the SS shortfall: a one time only 1.43% tax increase this year would solve the shortfall for the next 75 years. After that another 1% might be needed, but that’s a long time from now and much could change by then.
or a half percent now, and another half percent five years from now… it happens that the one tenth percent per year is the best (cheapest and fairest) way to go about it. but the other options will work well enough. the point is that just paying for the shortfall is not going to be a crushing burden to anyone, and it won’t add to the national debt.
the goal of the Sammy’s and the Big Liars is to so change SS that it will no longer provide security for people so they can live their lives free of the fear of poverty in old age, or because of death or disability .
For what it is worth, the GOP tax cut was a perfect time to raise the employee and employer contributions a smidgen because no one would have noticed. Instead we simply grew the debt with to date virtually no stimulus. Raising the cap is not very effective because the more you pay in the more you get–I know it is not dollar for dollar but its effectiveness is limited. Raising the minimum wage, protecting DACA, increasing legal immigration would all help social security’s solvency. If the increase in tarrifs lead to a trade war that will hurt social security as will any other reason for reduction in exports or decreased domestic production. I happen to agree that the size of the national debt is a problem but social security has nothing to with that except being one of the larger creditors holding a piece of that debt. As someone who is counting on social security to be there for me beginning in 4 years when I turn 70, I would be in favor of cashing in the entire trust fund now by selling three trillion in new bonds to the world thereby eliminating the threat that The GOP will view reneging on social security debt as a means to keep Income tax cuts to the wealthiest Americans and shutting up the trolls who egg them on. Finally, what do we do about Medicare Coberly? Increase premiums to the old retired folks who are scrapping by on their social security benefits? Increase the taxes both payroll and the higher non working incomes? Let younger people buy in at rates that subsidize the older folks? Could still be a bargain for younger people and their employers and it would help increase the pool with at least somewhat healthier folks. All good issues which get ignored by the national media in favor of the latest salacious information about our adolescent, narcissistic , mendacious Dear Leader.
Terry
mostly i agree about the other things that would help SS. trouble is making those other things happen is not easy. meanwhile raising the tax a dollar per week is (theoretically) easy and cheap.
as for Medicare… I hate to open another can of worms when I am trying to solve one easy problem. Medicare is not an easy problem. But consider this:
all of us young and healthy people are going to become old, likely less healthy, and likely with less income.
wouldn’t it make sense to pre-pay our health insurance while we have the money? that is what Medicare was supposed to do. Getting people to think in terms of us against them: the young versus the old, is a political trick, a snare and a delusion.
raising the medicare tax, cutting the cap (to make it fair), and working honestly to control costs, seems to me to be the most sensible way to go. which means we won’t go that way.
yes an extra hundred dollars a month when you are young might seem like a needless burden. but compared to a thousand dollars a month when you are old on a fixed income… it might seem like the smarter choice. (the dollar figures here are entirely made up on the spot.. i don’t know what the final choices would be.)
Brett
in the first place there are more than two people in the country. the people paying the income tax are not in general the same people paying the Social Security tax.
in the second place, people borrow all the time to shift their expenses from “now” to “later” because that works out better for them.
in the third place, paying the extra dollar per week now for SS would eliminate the need to pay back the money “we” borrowed from social security.
beware of the “uncle sam borrowing money from himself” fallacy. there is no uncle sam. there are 300 million people buying things and borrowing money and paying taxes all for different things at different times. possibly you could just eliminate money and taxes and bookkeeping and everything would come out in the wash. but i think it’s better to keep track of who is paying for what when. it makes it easier for us to think about what we are paying for and why and what is the best way to pay for it, cash or credit.
I laugh until I cry when I see someone complaining about the impact of repaying the money borrowed from SS in the same year that we reduced the taxes going to the budget which did the borrowing.
It is absolutely true that rich people pay more income taxes that poor people. When you complain about repaying SS you are saying that more money should be shifted to the rich.
Coberly,
You said, “beware of the “uncle sam borrowing money from himself” fallacy”..
That’s the point I was making. It’s “we” borrowing from “ourselves” (hence the 401K analogy). “We” fund all government spending/borrowing; be it tax revenue “we” pay, or debt that “we” carry/service. The re-payment of TF bonds (and the interest “we” earn on TF bonds), is a cost that “we” pay, to “ourselves”.
I’m not disputing anything you asserted.. ala.. borrower/lender obligation, nor accounting for source/payout, nor where an individual lies on the contribute/receive, time-line. I’m just recognizing the SS cash-flow dilemma.. along the lines of this statement:
“in the second place, people borrow all the time to shift their expenses from “now” to “later” because that works out better for them”
I SS’s case, it did not work our better for “us” … the multi-trillion dollar “margin”, is being called in… and we’re in a negative cash-flow position.
Brett
no. you missed the point. there is no “we.” if the united states were one organism there might be a” we”. but we are 300 million different people. who pay different taxes for different things. and “the government” is not the same entity as social security. “the government” can borrow from social security, as it has, and repay social security, as it is doing.
the social security tax rate was raised in 1983 so that the boomers would pay a fairer share of their own retirement than they would if there was no generational correction. the extra money collected from the higher SS tax (higher than needed to pay for the then current smaller retired generation) was lent to the government, resulting in lower other-taxes than would otherwise be the case.
presumably the government spent the money in ways that made the country stronger and the rich richer. the rich effectively borrowed the money from the future Social Security recipients. Now those people are the present Social Security recipients and they need the money back that they lent the rich. The rich are richer, and they got that way in part by not having to pay the taxes for the government they wanted that made them richer. so there is no injustice in having them pay back the money they borrowed.
as it happens, if we raise the payroll tax a small amount, the money the rich borrowed will never have to be paid back. and the slightly higher payroll tax will be a fair amount for the now future Social Security recipients to pay for their future benefits.
I have somewhat oversimplified the picture, but the way you are thinking the government could never borrow money because the people “paying it back” would not be the same as the people who “got the benefit.” but that is only an incorrect way to think about it.
every country, every business, nearly every person, borrows money and because they do the next generation is better off.
the problem is not that we borrow. it is most certainly not “should we pay back the people we borrowed from.” it is only a matter of what do we borrow for, and do “we” as a country benefit from the borrowing… without imposing an unfair burden on any individual citizen.
the answer so far is that yes we as a country do benefit from the borrowing, and we individual citizens benefit as well… no one is being cheated.
but as long as you try to understand the problem in the way you lay it out, you will always get the wrong answer. an answer that would indeed reduce us to poverty and tyranny as a country if we tried to run things the way you think, or if we elected leaders who claimed to run things the way you think.
i am indeed sorry about that… that you think that way, but the fact is that the Big LIars have been teaching people to think that way for at least the last eighty years if not since the country was founded. so it is not your fault.
Coberly,
You said: “I have somewhat oversimplified the picture”
.. and you’ve mixed in a good measure of ideological “accounting”. I’m not going dissect that, as I too – by built-in limitations to blog/forum discussion – approach this simply, and ideologically.
Regardless.. the cash-flow problem is real.
Perhaps you could point me to a more thorough explanation of how the, 1/10 of 1%/year plan, will cover the ~$3T needed, over the next ~16 years ?
Mean time, please entertain this analysis (maybe, in effect, the two are similar?)..
Increase SS payroll tax conditionally, as opposed to “all at once”, as done in 1983 ? I.E..don’t allow for a surplus (that by law, gets spent). Adjust the tax yearly, or even quarterly, to meet current obligations. It is, in effect, what we’re already doing, and will be doing, but this would facilitate an accurate “account” of the process. Which is what we want, right ?
There is no painless way through this…
Brett
to some extent what you propose is the same as what i propose: pay for it as the need arises.
but it is pretty painless; about one dollar per week per worker, and it’s not money he loses into a government black hole. it’s money he is saving for his retirement in an account guaranteed to protect him from inflation and market losses as well as his own bad luck.
take 2% of your wages, match that with the employers share. multiply that times the 250 million workers (average over the next 75 years) and multiply that by the 75 years. this should give you about 38 Trillion dollars which is a lot more than the 13 Trillion or so present value of the reported SS shortfall over the next 75 years. So we can approach that 2% gradually, one tenth of one percent increase per year will do nicely. (changes the result to 32 Trillion dollars).
This turns out to be larger than i expected, so I may have made some mistake. But I promise you I have done the calculation much more carefully and the SS Deputy Chief Actuary says I got it right.
I am not sure the 3 Trillion “needed over the next 16 years is the right way to look at it: we don’t need to replace the money in the Trust Fund. We only need to raise the tax enough to cover current expenses. By doing that the Trust Fund is never drawn down, and the current 3T remains on paper as a “reserve” to be called upon if needed.
You can calculate the needed tax increase yourself. Just read the Trustees Report very carefully. Then build a spread sheet that will take you from their inputs and recalculate their outputs… you know you’ve got it right when you get the same outputs they do. Then go back and enter the new tax in place of the present tax. press the button and you’ve got the answer. If you don’t show a zero deficit, you need to try a new tax level. etc.
We do not currently adjust the tax rate yearly. That is what I am proposing we do. And I am telling you how much it would actually take… one tenth of one percent of payroll per year until the tax rate is about 2% for the worker and 2% for the employer. According to present projections, this “fixes” Social Security forever… no more tax increases will be needed.
and please note, while you are increasing the tax by one tenth of one percent, workers wages are expected to go up by over one full percent. so at no time will workers have less money in their pockets than they do today, and they will end up with a retirement that is longer and at a higher standard of living than today’s.
Sorry I didn’t give you a more careful description of the calculations… they are a little complicated and I don’t want to take the time here. But, as said, the Deputy Chief Actuary thinks I got it right. And I have given you enough to go on to get a reasonable approximation.
take the 250 million working population i gave you for the rough estimate and change it to 100 million. do the calculation for seventy five years and then subtract half the amount for the first 20 years. should give you 13 Trillion which is the present value of the projected 75 year shortfall.
don’t get confused by present value. today’s average pay is a reasonably accurate estimate of the present value of future average wages… so you are doing the calculations in present values.
me and my computer with help from the Trustees did the calculations in current dollars. (as well as PV to compare with Trustees results.)
Coberly,
By off-the-cuff calculation, I can see where your plan draws a line to equilibrium (or better), way down the road. I cannot foresee (akin to expert oversight that got us to this point), future economic/demographic variables, that could re-bury the whole thing. For the sake of discussion, we’ll assume the better scenario.
If we accept your assessment.. “borrowing” (a condition written into SS from its conception) TF dollars , offset the need for additional taxation at the time. Then we must also accept that the taxation/borrowing needed to meet obligations today, would otherwise, not be needed. Of course, neither is realistic.. it would require both acknowledging and denying “unification” to fit a specific argument., and/or the practicality of government “sitting on” a multi-trillion dollar pile of money.
What I also cannot see, is how we deal with the short-term (trillions), other than what we are already doing.. making up the difference, out of the general-fund ( siphoned through the TF). A general-fund already experiencing significant, negative cash-flow.
I don’t doubt (read, hope), that we continue on course, but this cash-flow problem is significant. We’re already on the ragged edge of a debt crisis. Well into it it, if you consider that the average guy, has not been able to net even 1% on safe, long-term deposit-accounts, for over a decade,, a debate topic, for another time..
Brett
I was hoping we could end on some agreement (pay for it as the need arises), but I cannot understand at all what you have said here (june 8 4:40).
The Trustees have done a pretty good job so far of “foreseeing” future conditions. I don’t pretend to solve all possible future scenarios, but what we are talking about here is the Trustees Report. You… they… can’t have it both ways and scream “The Trustees Report Says We Are All Going To Die”, and, when shown that it says no such thing, say, “well, but something could happen that they don’t predict.”
In any case I am reasonably sure that a “pay for it at need” would solve all problems we are likely to encounter short of an invasion from Mars.
Social Security does not borrow from anyone.
ANY Trust fund lends out it’s idle money at interest. Safest place to lend it is to the U.S. Government. The U.S. Government ALWAYS borrows money. If it did not borrow from SS it would borrow from China.. or from you and me in the form of government bonds. Big market in that. It’s what makes the financial markets work.
The government does not “sit on” a pile of money. It spends it on the theory that borrowing now is better for us than taxing now. It’s a good theory. The only question is what are we spending it ON. I don’t care what we spend it on (for purposes of this argument), but once we borrow it, we need to pay it back or the whole system collapses. (Because of loss of faith in the government.)
The general fund has been experiencing negative cash flow since 1776. Somehow we always have more money next year than we had last year. That could change, but Social Security has nothing to do with that.
You can’t just say “the government is experiencing negative cash flow therefore we need to cut Social Security.” That makes no sense logically or financially,
“What [you] can’t see… is how we deal with the short term trillions” without paying back the money you borrowed (the money the government borrowed FROM Social Security? That’s what I have been trying to tell you: raise the payroll tax one tenth of one percent per year. This will enable the workers to pay for their own retirement insurance… and get more money back than they paid in… the same way anyone gets more money back than they paid in to any investment…. except SS has NO risk, except political risk. And that’s what I am trying to to: educate you so the political liars won’t get away with grand theft of your hopes for a reasonable retirement.
But I can’t make any sense at all out of “Then we must also accept that the taxation/borrowing needed to meet obligations today, would otherwise, not be needed. Of course, neither is realistic..”
or what the connection is between the debt crisis you see (but no one else does except the people who ALWAYS see a debt crisis) and the average guy not getting more than 1%.
My whole case here is that one tenth of one percent per year increase in the payroll tax (about a dollar per week) will pay for Social Security essentially forever. That Social Security has nothing to do with the National Debt… Social Security does not borrow. The government does NOT borrow FOR Social Security. It borrowed FROM Social Social Security.
I don’t see what your doubts and questions about the national debt have to do with that.
Try again… a dollar a week pays for it. with no effect on the national debt whatsoever.
you seem to be hung up on the idea that paying BACK the money the government borrowed FROM Social Security will somehow cause a financial crisis. There is no possibility of that, but stiffing the people who lent money TO the government, or cutting the pensions THEY PAID FOR would not be a good solution in any case.
If there were a crisis in the federal finances, maybe not cutting the taxes of corporations and millionaires would be a better solution.
Emichael says: “I really think the Dem Party should run this plan as part of the platform.”
There is a reason the coberly-$1-a-week-will-save-social security-plan is not part of the Democratic platform: It doesn’t pass the laugh test.
If the coberly plan was viable it would pass the House 535-0, and the Senate 100-0. Every rep could go home and claim “I solved the Social Security problem for a dollar a week” and receive universal acclaim and reelection. Coberly for the Nobel Prize.
Coberly claims the reason why his” easy” plan is not adopted is because everyone else are “a bunch of liars.” I believe the answer is much simpler. The coberly plan solves a Trust Fund problem, of which nobody really cares, and steadfastly refuses to address the larger problem.
Why? I don’t know. But I think it’s just an opportunity for him to denigrate and call people names.
coberly accuses others of using scare tactics with “big” numbers. He always uses “small” numbers: 1/2 percent, 1 dollar a week. Well they must add up to big numbers if he is to come up with $2.6T plus the cash flow shortfall over the next 15 or so years.
When challenged to put up the numbers, he defers or says they are too complicated. I call BS on that.
He also should put up a disclaimer: “The author of this post is a current SS recipient. He doesn’t care about any debt or diverted spending to insure that he gets his full to the penny SS check.
Seriously???
Doug H
i did not see your comment earlier.
raising the cap would raise the cost of SS above it’s value as insurance for those earning at the higher end of the scale.
SS works because it is fair. The people who want to destroy SS make distorted arguments that it is not fair. I would hate to give them an “honest” argument against it.
I understand the desire to “tax the rich.” But it is better to tax them via the income tax than to destroy the fairness of SS by using it as a welfare program.
I cannot understand the people who are unwilling to pay an extra dollar a week to keep Social Security for themselves and their children and grandchildren.
(yes i know the extra dollar a week per year adds up. but it never adds up to much…. always much less than the increase in wages that will be happening at the same time. and if wages do not increase as expected, SS will still be a very very good deal for workers… and even more important to them.)
Sammy
I am, truly, sorry if my expression of my dislike for you has caused you any unhappiness. I do try to be on the side of the angels. And looking at you… what you say… makes me think of evil.
I think I am a good enough person that if I saw someone suffering from a disgusting disease I would not comment on it. But I worry enough that evil is contagious that I cannot avoid commenting on it here where there is a chance someone else might catch it.
Sammy – “When challenged to put up the numbers, he [Coberly] defers or says they are too complicated. I call BS on that.”
That is an outright lie! Coberly has published his numbers several times. He has even made spreadsheets available where you can look at every calculation and every number and every assumption used in the calculations.
Sammy, your credibility has dropped to zero!
“If the coberly plan was viable it would pass the House 535-0, and the Senate 100-0. ”
It would seem so wouldn’t it. But then it would seem that anyone could see that Ayn Rand’s fear of collectivism in The Fountainhead is a bit insane too, wouldn’t it.
SS is very complicated and yet it is very popular. It has balancing elements that let people like it overall even though they may dislike some of its elements.
Most people see its progressive benefits as allowing it to help those who need more help without crossing the line into welfare. A few people cannot stand anything that smacks of collectivism.
Adjusting payroll taxes to maintain the current benefit formula is a good idea. It maintains the balance in SS so that it can remain popular even though it will never be exactly what everyone wants.