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.