SOCIAL SECURITY, a little bad news (sorta) and a little good news (sorta)
by Dale Coberly
The bad news is that we have slipped past the day when we could have saved Social Security from ever reporting “short term actuarial insolvency” by raising the payroll tax one tenth of one percent per year (about a dollar per week). This is only sorta bad because it doesn’t really matter . . . sorta. Social Security can still pay ALL promised benefits forever . . . by raising the payroll tax one tenth of one percent per year.
The reason it is sorta bad is that the people who hate Social Security will react to a Trustees Report of “short term actuarial insolvency” as if the world was going to come to a violent end tomorrow and they would lose all their money. “We told you so!” would be their last words. Well, not their last words, unfortunately. They would keep saying it at least every year if not every day, loudly, in the halls of Congress and on a TV station near you. Even the serious and responsible ones.
That’s because at one tenth of one percent per year short term insolvency never goes away; it just gets put back a year every year. Actually, the one tenth percent per year would catch up and “short term insolvency” would go away. But not before the Congress did something stupid and “fixed” Social Security by privatizing it, or by turning it into welfare as we knew it . . . depending on which party gets the votes first.
But the good news is that “short term insolvency” could be made to go away by raising the payroll tax one-and-a-half tenths of one percent per year starting next year. This would be a dollar and a half per week. But the “per year” is misleading. The tax would only need to be raised about every other year for a few years and at increasing intervals after that. This would average less than one tenth of one percent per year until the tax increase stabilizes at a little less than two percent above the current 6.2%
There are many other ways to accomplish essentially the same thing. But this is probably the simplest. It is also the fairest because it spreads the cost more or less evenly over the people who will get the increased benefits from their longer life expectancy. It also avoids creating a large Trust Fund which gives the bad guys so many opportunities for mischief (mostly crying “Social Security is Broke! Flat Bust!”) whenever the Trustees Report says “the Trust Fund may run out of money in seventy-five years or so unless we raise the tax a tenth of a percent or so . . . when wages will be twice as high as they are now.”
Please note, the percent tax goes up, but due to the magic of mathematics and a rising standard of living, you will have more money (real dollars) in your pocket after paying the tax than you have today. AND you will get the “tax” back with interest when you need it most. Without a “means test.”
If we don’t get around to raising the tax one and a half tenths of one percent starting next year (2020), we would still be able to avoid further projections of “short term insolvency” by raising the tax two tenths of a percent by 2021. Again this would be only for a few years, then the tax increases could fall back to one tenth of one percent per year, OR we could continue with the two tenths every other year or so for a few years, and then at decreasing intervals for a few more years until the total tax increase reaches the magic two full percent above what it is today. That would be a sustainable level for as the eye can see into the infinite horizon.
But the really bad news is that you won’t do anything to make Congress understand this, and probably sooner than later they will “fix” Social Security in a way that destroys its value as retirement insurance for workers. REAL insurance. Backed by the full faith and credit of the United States of America, which used to mean something.
Coberly – Nothing will happen in 2020.
If Trump is reelected nothing will happen until at least 2025.
If Biden is elected nothing will happen until at least 2025.
If Sanders or Warren were to win there is no way they would raise taxes on workers.
The “raise taxes every year” plan is officially dead. It was never a realistic option.
To address the shortfalls at SS will take a combo approach. There must be revenue increases, and there must be benefit cuts. Just raising taxes is a no-go.
thank you for your wisdom. i thought no one cared.
of course yu cannot understand that raising the payroll tax is not raising a tax on workers. but you aren’t the only one who doesn’t understand anything.
you also don’t understand that i don’t write about SS in order to predict the convention wisdom. that’s what bond traders do. i write about SS in order to tell people what is true. i am very careful about that:
if we don’t raise the payroll tax “about” one tenth of one per cent per year we will need to raise it a little faster in succeeding years. but that will mean we won’t need to raise it for as many years. the total amount needed over the next 75 years will be the same. some ways will be easier and more fair across generations. nothing real to worry about except what the politicians will do to provoke hysteria and really damaging changes.
you don’t understand this. no loss to the world. but what worries me is that no one else understands it … and that will lead to politicians promoting hysteria to let them make damaging changes. won’t be the first time in America.
Krasting said “If Sanders or Warren were to win there is no way they would raise taxes on workers.”
he failed to note that i have been saying that raising the FICA tax on the RICH will provoke a backlash that will destroy SS as meaningful INSURANCE for workers.
he also thinks raising “taxes” ONE TENTH OF A PERCENT” is some huge burden “every year” in order to avoid a 2% all at once tax raise about fifteen years from now. that is because his brain like most people’s has no ability to deal with numbers meaningfully. sure they can say “two plus two is four” but they don’t much understand that. and asking them to understand the importance, or lack of importance of numbers far in the future is like asking a chimpanzee to do algebra.
keep the government out of the money and make people go to work instead of sitting home on welfare. That would help as much as anything. And make sure that people are really disabled and not fooling doctors. there’s a lot of people who are on disability that shouldn’t be. Don’t allow illegals to ge any of the money. They did NOT put in they should not be allowed to take out.
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To your points:
1. Undocumented immigrants do add to the SS TF and in 2010 it amounted to $12 billion. In return they do not collect SS benefits or Medicare or Disability. I think you should be thanking them for their donation. If we are going to collect anything I would have the fat orange-haired in the White House pay back all the money he stole by going bankrupt numerous times.
2. Sorry, I am not going to answer the welfare meme. It has been refuted numerous times.
3. People who are disabled deserve to collect benefits and they do not fool doctors. If anything, doctors are usually the scammers when it comes to Medicare and Disability.
4. Undocumented immigrants do not collect benefits in the US. It is illegal for them to do so and results in a quick ticket out of the country. White Americans do take advantage of their status and often times cheat them.
In any case, you have spoken what you believe and we have in turn addressed it with the truth.
If Estell is real then reply was well said.
has reduced the question to “raise taxes every year!”
and that of course stops thought. stops his thought anyway, and will stop the thinking of most voters who are not much smarter than he is.
as if the Congress was going to vote every year to raise the tax.
even Congress is not that dumb. they are perfectly capable… and have done so many times… of raising a tax once, and phasing in the increase so it will be proportional to the needs of the time and the ability of the people to pay.
and of course by saying “raise the tax” he makes it sound like a huge burden. one tenth of one percent per year, about a dollar per week per year, would not even be noticed, much less felt by any sane person.
and of course by saying “tax” it makes it sound like your money is going to be lost forever into a government black hole. but with Social Security your money is saved for you, with interest, and given back to you when you are going to need it a LOT more than you do today.
experience has shown that most people can’t think that far ahead, so the Social Security “Federal Insurance Contribution” has to be mandatory or people would forget, put it off until too late… and fifty percent of the population would reach old age without enough savings to live indoors or not have to eat out of garbage cans.
but this is what politicians do. they think of cute ways to wildly misrepresent some honest proposal in ways that fool enough of the people enough of the time. and the people who pay politicians don’t care if you starve in the streets when you are old, or your children starve if you are disabled or die while your children are young… as long as they can get their hands on your money right now. today.
you lose more money in interest rate fluctuations over a life time or during one average recession than you would lose to the Social Security “tax.”
but the bond traders want your money today. and they don’t care.
Congress does raise taxes and Presidents go long with them. They just do not tell you about it until it is too late. The Trump tax break was passed under Reconciliation. If it is still producing a deficit in 10 years, it will sunset. Except in 7-8 years taxes will increase for the middle income bracket so the 1% can keep their tax break. Republicans are siding with businesses, keeping the lower corporate rate permanent while setting nearly all of the individual tax cuts to expire in eight years, at the end of 2025.
thank you for answering Estell so I don’t have to.
I think you are agreeing with me about even Conngress being able to raise a tax ONCE which phases in over time.
The Congress and Presidents are definitely in the thrall of the bad guys. But even the good guys are in danger of destroying SS in their zeal to “make the rich pay their fair share.” The rich already do pay their fair share of SS (but not of general, real, taxes). Making them pay more for SS will guarantee they destroy it.
Want the rich to pay? Fine. Just not for SS. Want to “expand SS?” Fine, just don’t turn it into welfare. Want more welfare? Fine, just don’t call it Social Security.
you need to stop believing the lies that politicians tell you. lying is their stock in trade. they tell you the lies they know you want to believe.
SS DOES keep the government out of the money. that’s the whole point of the Trust Fund and the payroll ‘tax.”
NO ONE gets money out of Social security that they did not work for and pay for themselves. (SS does make some insurance payments, but the workers pay for those too, the same way you pay for any insurance… it comes out of the money they and other workers paid in to insure themselves.
most people would rather go to work than sit t home on welfare. the pay is better, and working is more fun.
people who apply for Disability are made to go through hell to prove they are disabled. it is laughable that they could “fool the doctors.” doctors go to school to learn about illness and injury. did you know that?
NO ONE, illegal or not, gets money out of Social Security they did not pay in (except for the interest, which they earn the same way you earn interest on your own money.
try to learn how to understand this and stop letting yourself be made a fool of by the politicians you love.
To all of those that are in favor of cutting S.S. benefits you should try to live on this piddling amount. I worked and paid SS for 46 years. I was also able to put back a little nest egg, however this will be gone in another 7 years. No I am not whinning about the state of my affairs. It is what it is and my wife and I will make best of it.
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