Just (another) quick word on the so-called Social Security Trust Fund. Once you begin to deplete the TF — to begin drawing down to cover shortfall of FICA income with benefits outgo — the flaw in the whole idea is exposed.
How can we be building a TF for the next generation of retirees (and the next, etc.) while at the same time draining the TF for this generation of retirees? Ha!
The first mistake was to even have a fund that big which they did not want to pay back. The SS funds collected in excess of what was paid out should not have been included in revenues. It hid the giveaways to corporations and from the tax breaks. Now they believe it is a negative as it draws down interest payments first and then principal. Coberly is better on this than I.
I guess I don’t understand. The Trust Fund was supposed to cover the boomer wave. Boomers are retiring in earnest now. I know. I’m a boomer born in the mathematical middle and all my contemporaries are retired or months away. And the boomers are dying. They won’t live forever or even for more than another couple decades. Then why do we still need a trust fund?
Coberly did have a mathematical model to bridge the reduction in SS payouts after the TF is gone, and AB should post a link. But after 2030, SS should still be able to pay ca. 80% of projected benefits. Raising SS taxes now modestly will bridge that difference.
I don’t understand why we should fetishize the trust fund.
The trust fund was never intended to be built for the next generation. Social Security is being operated as a Pay-As-You-Go program. The trust fund is intended to be large enough to cover most economic variations. A threshold of one years expenses was set early in the program (but not when it was passed in 1935). Unfortunately, few people really understand how it works, and that includes Congresspersons.
In the 70s Congress legislated cost of living increases without legislating the taxes to pay for it. By 1983, costs exceeded income by enough that the TF was nearly depleted. The Greenspan Commission provided increased taxes that nearly covered the demographic problem of the Baby Boom generation, but it did not provide funds to deal with the fact that workers were living longer.
Again, unfortunately, lots of people thought/think the Greenspan Commission’s solution fixed things forever. They blissfully ignored that COLA still goes up and taxes do not.
Before complaining about SS, you need to learn how it is supposed to work.
Learning about how SS is supposed to work is not easy. To keep it short I left out how increasing Average Wage also increases costs in ways that are not funded. Because they don’t like SS, many other people will levae out whatever else they find inconvenient.
My bottom line is that SS should work very well because the rate of increase in taxes needed to fund scheduled benefits smaller than the increase in your take home pay as average wages increase over the decades.
This is true. I get weary having to explain it and that SS agreed it would work and also stabilize SS out past 2035. Mind you, more people working to where PR is 66% and not 63%, a young workforce, and higher productivity gains would help quite a bit also. Immigration is important to a young workforce in the US so we do not run the same issues as in Europe.
I generally dislike analogies, but complaining about the trust fund is like saying your car does not work because the gas tank is smaller than you would like.
“I guess I don’t understand. The Trust Fund was supposed to cover the boomer wave.”
You understand very well.
Two simple questions.
1. Who benefits from Social Security? (Obviously not the wealthiest Americans.)
2. Who loses if the federal government has to raise taxes to pay back the money that it borrowed from Social Security? (Obviously not the poorest Americans.)
So this is about robbing the poor, to give to the rich. What a great country!
One can make arguments about the degree of wealth or the degree of poverty but the injustice still remains.
You also have to look at the number of workers starting to pay social security taxes.
Historically, the age chart looked like a triangle or a Xmas tree with a very broad base and a small peak. So there were numerous workers for each retired person collecting social security.
Now the age chart looks more like a cylinder with a much larger number collecting social security and a smaller number paying into social security.
This is due to the baby boomers aging and living longer because of better health care and living styles ( not smoking and exercising, for example).
Moreover, the following generations were smaller than the baby boomers.
The Greenspan commission and higher social security taxes were just to support a few years of the baby boomer bulge. But it has turned into a much more permanent problem.
I know as liberals we are only suppose to look at the spending side of the equation but we also need to look at the revenue side of the equation.
Last I looked, the numbesr will have settled down permanently to two workers for one retiree by 2020 and forever after.
Of course if average wages had kept up with per capita income growth there would be no Social Security problem today — except maybe how much to increase benefits (yaaa!).
If the TF is supposed to be about an extra cash bump to match the baby population bump then why does the projected gap between FICA income and outgo not swell and then shrink back to something like zero, instead of growing until SS outgo is only covered 75% by FICA income — and staying there forever (or until Congress gets its gut up to actually raise FICA? Over the generations, while this is going on, per capita income and population are doubling and growing by half respectively. (See preceding paragraph.)
Before the changes in the 1980s, Social Security only maintained a small Trust Fund (TF).
But the boomers had fewer children than their parents, thus fewer workers to support their Social Security benefits.
That and the magnitude of the baby-boomer generation caused the US Congress to call for a much larger TF so as to cope with the large increase in the number of Social Security beneficiaries over the period of the baby-boomers retirement years.
The theory was that the TF would go back to former levels.
Social Security was enacted in 1936. Life expectancy in 1940 was 12.8 years and in 2017 it was 19.4 year. That is a total gain of 6.6 years spread over almost 80 years.
But these statistics can not tell us how long the boomers will live. Out of my parents six children two have died of disease at exactly age 65, that leaves four.
These statistics can not tell us the toll that stress takes.
These statistics can not tell us the toll that drafted military service takes.
These statistics can not tell us the toll that unaffordable medical care takes.
These statistics can not tell us the toll that unaffordable medication takes.
And most of all, these statistics can not tell us the toll that a wrecked economy takes. Suicide and accidental opioid drug overdose are risk factors at a level not seen in the past.
I get more and more scared every day. Where did these people go to school? How is it possible that they can succeed in life despite brain numbing stupidity? Or even worse, that they have any power at all to do anything to the world?
With so many billionaires about, why not a private prize of $10 million for the scientist who genetically creates an O2 producing organism that will thrive in the frigid, methane lakes of Titan?
1,793
2:40 PM – Jan 18, 2020
Well, you know, we can’t possibly increase average gas mileage by 3MPG but bet for TEN MILLION DOLLARS we can all go to another planet’s moon or some shit.
by Atrios at 18:22
543 Comments”
You were expecting something different of Congress?
This is like the 40,000 people die every year from a lack of insurance or are under insured. First that statistic came from a study which has questionable sources and assumptions. Second, the numeric is from a 2009 study which came into being after the ACA came into play and one year before it was mostly implemented. Did the ACA have an impact on that number? It did. Yet the public, Sanders, Slotkin, and other pols will recite it like it is current and as if nothing happened. It is not, it is flawed, and it does not explain the entire story. Do a lot of people die because they have no or not enough insurance?
Yes they do. and they die because Republicans have been sabotaging healthcare, Congress has been blocking Single Payor, the healthcare industry has been pricing people out of the market, and Congress is backing the healthcare industry over people. If you do not believe Congress and state legislators are in bed with the healthcare industry, I would suggest you look at Purdue who has been freely murdering people since 1996 all making a sizeable profit in doing it.
Stupid and malicious.
And here, I preach healthcare and push Single Payor.
Meanwhile, white working class voters are suffering from their votes for the GOP over the last 5 decades, and are too stupid to realize what they have done to themselves. Or maybe they do realize, but their racism makes it a price they are willing to pay.
“What’s especially striking is the contrast between the way we treat our children and the way we treat our senior citizens. Social Security isn’t all that generous — there’s a good case for expanding it — but it doesn’t compare too badly with other countries’ retirement systems. Medicare actually spends lavishly compared with single-payer systems elsewhere.
So America’s refusal to help children isn’t part of a broad opposition to government programs; we single out children for especially harsh treatment. Why?
The answer, I’d suggest, goes beyond the fact that children can’t vote, while seniors can and do. There has also been a poisonous interaction between racial antagonism and bad social analysis.
These days, political support for programs that aid children is surely hurt by the fact that less than half the population under 15 is non-Hispanic white. But even before immigration transformed America’s ethnic landscape, there was a widespread perception that programs like Aid to Families With Dependent Children basically helped Those People — you know, the bums on welfare, the welfare queens driving Cadillacs.
This perception undermined support for spending on children. And it went along with a widespread belief that aid to poor families was creating a culture of dependency, which in turn was the culprit behind social collapse in America’s inner cities. Partly in response, aid to families, such as it was, increasingly came with work requirements, or took the form of things like the earned-income tax credit, which is linked to earnings.
The result was a decline in assistance for the poor children who needed it most.
At this point, however, we know that cultural explanations of social collapse were all wrong. The sociologist William Julius Wilson argued long ago that social dysfunction in big cities was caused, not by culture, but by the disappearance of good jobs. And he has been vindicated by what happened to much of the American heartland, which suffered a similar disappearance of good jobs and a similar surge in social dysfunction.
What this means is that we’ve established a basically vicious system under which children can’t get the help they need unless their parents find jobs that don’t exist. And a growing body of evidence says that this system is destructive as well as cruel.
Multiple studies have found that safety-net programs for children have big long-term consequences. Children who receive adequate nutrition and health care grow up to become healthier, more productive adults. And in addition to the humanitarian side of these benefits, there’s a monetary payoff: Healthier adults are less likely to need public aid and are likely to pay more in taxes.
It’s probably too much to claim that helping children pays for itself. But it surely comes a lot closer to doing so than tax cuts for the rich.”
Look at the newsy-things I posted and see what is happening to SNAP and the McDonalds lunches Trump has put in place for school lunch programs. Killed veggies, etc.
The 2000 Social Security Annual Report projected that the TF would fall to zero in 2037. The 2019 report projects that in 2035 the TF goes to Zero.
Twenty years, not much change in the outlook. It has been understood for more than 20 years that the TF would not grow to a sufficient size to handle all of the cost of the Boomers.
Joel asks:
“I guess I don’t understand. The Trust Fund was supposed to cover the boomer wave.”
Jim H responds:
You understand very well.
So neither of them understand.
Dennis D says:
Once you begin to deplete the TF — to begin drawing down to cover shortfall of FICA income with benefits outgo — the flaw in the whole idea is exposed.
Sorry Dennis, not correct. This year, 2020, will be the first year in history that the TF falls. Nothing bad will happen. This annual cash deficit was projected decades ago.
Social Security is a PAYGO program. The TF does not matter much. The ratio of workers to beneficiaries matters a lot.
If you calculate the average taxes paid by workers and the average benefit of (mostly) retirees, you can find how many workers you need for each beneficiary (with the current tax rates, scheduled benefits, and demographics). In 1984 the answer was 3. Since then it has been decreasing slowly. Now it is 2.7 or 2.8. So, 2 workers per beneficiary is not enough. We need to make changes to SS.
As Bruce Krasting says, we have known this for a long time. Anyone looking at the 1984 report could see that the Greenspan Commission did not fix the issue. They only delayed it.
If we want to keep SS, we need to understand how a PAYGO system is supposed to work. We can’t adjust demographics, so taxes and scheduled benefits have to be adjusted to come to a balance.
I think Bruce Webb and Dale Coberly underestimated the likelihood of the entire program being destroyed by Congress unwillingness to deal with making reasonable adjustments in a timely fashion – abrupt changes are a great scare tactic for people who don’t like the whole idea of SS. I still agreed with them that the NW Plan to maintain scheduled benefits was analytically the best approach. Increasing taxes to maintain scheduled benefits still assures average increasing take home pay. This remains true even though the worker is balancing one half of a retiree instead of one third of a retiree.
We need Congress to do something. Ask your Congressperson to become educated about supporting our existing PAYGO program. It means they will need to be willing to make (or allow for) small changes in every administration – not keep kicking it to the next Congress.
Other than a few of us, 90% of the people do not give a hoot about the solvency of SS, mostly because they would have to think and read the numbers. One can see similar but non-numeric thought processes being applied with regard to Herr Trump. Wait till the tax break is removed due to Reconciliation and the tax breaks disappear due to deficits. Funny how we can give a tax break of which a majority goes to a few and can not fund SS properly at 1 tenth of 1% for employers and employees for ten years.
I do not believe anyone with a brain under estimated the need to fix SS properly. But then too, I see the Grahams, Coryns, etc. and McConnell defending a lying, thieving, bigoted, racist, misogynistic President. Then there are the Collins, Murkowskis, Flakes, Romneys, etc., of Congress who feint concern and then back away when it is time to vote. You are right, Congress will not do anything other than fake concern for the issue. Perhaps the public will rise up on their hind quarters and call them out when they learn of their treachery?
“I think Bruce Webb and Dale Coberly underestimated the likelihood of the entire program being destroyed by Congress unwillingness to deal with making reasonable adjustments in a timely fashion – abrupt changes are a great scare tactic for people who don’t like the whole idea of SS.”
The scare tactics about Social Security have been with us since 2000 at least. They have achieved nothing. Bkrasting is just another of those shrill naysayers.
While large numbers of baby-boomers are around, the political party that makes large benefit cuts to large numbers of Social Security retirees is going to find themselves unelectable to the US Congress.
And as baby-boomers pass away, the burden of protesting cuts will be slowly passed to their children. Many of those will already be contemplating retirement. And many of them will be in the same situation as many of their parents were. (No pension, small amounts of money in 401Ks, and pitifully low interest rates.) But they will have paid into Social Security all of their working life.
So the 2 major political parties will still face the opportunity to make themselves anathema to a large segment of US voters.
Coberly’s idea would be best, but one way or another the US Congress will be forced to act.
Just as they were forced to act in the early 1980s when Social Security only maintained a small trust fund. They raised payroll taxes!
Scare tactics are part of what has made it politically impossible to implement something such as the NW Plan (which would have started raising tax rates 4 or 5 years ago). If Congress waits until 2034, the shortfall will be much larger than it was in 1983.
It is also worth noting that the 1983 changes did reduce scheduled benefits. Gradual increases started 4 years ago (the NW Plan) would not have needed to reduce benefits. Any compromise that waits until 2034 is bound to include benefit cuts.
In any event, we need Congress to understand that in the future (unless they enact automatically triggered tax increases – not going to happen), they will need to act at reasonable intervals. Workers/voters need to understand that as conditions change, the amount they need to pay in to get SS benefits will need to change. There is no auto-pilot. If we want a soft transition from the 3x TF needed to get through the Boomer bulge to the 1x TF that should be our continuing goal, we need people who are willing to do the math.
When Congress is finally forced to deal with SS, they will expect accolades for solving the crisis, and the media will laud those who put their names on the legislation.
They are not forced to deal with SS before it is a crisis because, as you say, people/voters do not give a hoot.
I speak up here because I hope that those who do give a hoot can at least learn to give a hoot about the meaningful part of the issue.
I don’t think I underestimated the difficulty of getting Congress to act, much less think. I am not much of an expert on politics. All I did was some simple math (with careful attention to some actual facts) that showed SS could be paid for forever by simply raising the payroll tax one tenth of one percent per year while wages were going up more than one full percent per year. The tax rate increase does not go on forever. The wage increase does (or should, or would if the takeover of the government by Trump related criminals does not stop all wage increases).
I am very pressed for time right now. I would like to write a longer reply to all this, but let me try to suggest what I think is the key to the whole problem:
We have been taught, first by the enemies of Social Security, and lately by people calling themselves friends of Social Security , to think of it as welfare, or at least as ‘the young paying for the old.”
It is better to think of it — the facts don’t change, but ou attitude toward them would be much healthier — to think of SS as YOU paying for YOUR OWN expected basic needs in retirement by saving your own money for that purpose. The only SAFE way to save, for sure, enough money to provide for at least your basic needs, is though a government program called Social Security which does not tax anybody (but you) to pay for it. In return fro your “tax” you get a guaranteed basic pension protected from inflation, and protected from your own possible failure to otherwise make or save enough money for your basic needs. This is insurance. Not welfare. It is you paying for yourself, not you paying for some old person. Or some young person paying for you when you get old. You get back about three times as much as you pay in because of the automatic inflation adjustment and effective real interest that comes from pay as you go financing. The only difference between this and any other savings plan is that the workers insure themselves and each other against certain very predictable losses.
And the whole trouble with SS comes from the Big Liars who twist facts and conceal facts to make SS look like a bad idea. They are aided in this by really stupid newspeople who claim to know “the facts” which they get from the Big Liars, and the Congress people who are either big liars themselves or completely taken in by the Big Lie.
If I get time I will try to write a longer post on this, but it will not change many minds.
I could try to say something about the motivation of the Big Liars, but I can’t see where they get any profit from killing SS unless I indulge in some kind of conspiracy theory. I think it more likely they just believe their own lies, which are founded in what is called “ideology”… something like Ayn Rand thinking handed down from father to son, for centuries since the “haves” grew to fear the “have nots” and were too stupid to see that feeding the poor, or letting them feed themselves, made them less likely to want to murder the rich.
I think that Coberly has thinking of SS as “saving your own money” figured out for himself well enough that he fails to understand why some people have trouble thinking of it as he does. Let me suggest a couple of things to keep in mind.
People are used to saving for retirement by buying annuities or mutual funds. They come with statements that show your equity and ROI. You “own” a piece of Amazon, so when they turn around and spend your money, you feel invested.
When you save your money with the government, It turns around and spends it on useful programs. It does not provide a monthly statement with which you can see your equity position increasing. Still, the net present value of your future benefits is increasing as you continue to pay SS taxes, so your risk adjusted ROI is reasonable.
I think I understand Coberly’s way of looking at SS, but I see another way of looking at it as well. If people look at it as “saving” they tend to want to see a huge equity position and they can’t find it. (We could go into a sideline about the net present value of taxing authority, but let’s not). I suggest that looking at it as “the young paying for the old” is not so horrible. There is real value in not having my parents living with me. There is real value in not paying for the kind of poor house programs that existed before SS. There is real value in paying insurance premiums. Seeing the current value to current tax payers simply requires more time thinking about and understanding SS than most people are willing to give.
There is a problem with the idea of SS as “the young paying for the old” because there is more to current value of SS to current SS tax payers because there is more going on than whatever personal value you get from older people getting benefits. There should not be a problem with trying to understand SS by understanding its cash flows.
I received a statement the last several years before I actually retired at 65. It gave my my payment stream for the future and adjusted as my contributions increased.
That payment stream shows the equity on a constant basis. Of course death cancels that payment(except to a spouse and/or young kids)..
I see no problem in figuring that as an investment. As Arne mentions an annuity as an investment, why is SS any different?
they raised the retirement age to collect full benefits. this results in about a 10% or so (i don’t remember) cut in the benefits you get if you retire at the age of 65. on the other hand, if you actually do live longer than the then expected life expectancy, you will get it all back.
there was some talk at that time of just raising the tax a bit more, but congressmen hate tax increases to the point of blindness (like not seeing it is not a tax increase if you get your money back with interest). and they expected a small tax increase (like the one i am proposing) down the road about twenty years… which actually was a better way to do it as it put the “burden” of the extra tax on the people who would actually be living longer and having a higher real pay (even counting the tax increase) to pay for it.
but this all gets lost in the noise and lies.
Arne
i probably do have some trouble understanding why people fail to think of it as i do. but i have gotten used to it. still, i try to explain it the way i see it because i think that should solve the biggest problem people have understanding the way SS works.
Raising the Normal Retirement Age is the same as decreasing benefits. My NRA is 67. I can still take benefits at 65, but it will be 16% less. (8% per year – at least when I last looked it up). You can still take benefits at 62, but if you are a late Boomer, it delivers less (with respect to full scheduled benefits) than if you are an early Boomer. Of course, full scheduled benefits went up in the mean time, so I still prefer being at the latter end.
No. it does no good to blame Congress if we do nothing.
Especially since there are / will be necessary payroll tax increases if we are to save SS at all as meaningful insurance for working people.
i think raising the tax a tiny percent would have been, will be, a much better solution than raising the retirement age or otherwise cutting benefits.
The correct conversation is “whether SS will be there at all.” Even a modest benefit cut is better than changing the basic nature of SS from insurance to welfare or to “personal” accounts. But any benefit cut is not necessary, and a benefit increase is possible with only a very small increase in the payroll tax.
because SS was not killed yet does not mean it won’t be killed tomorrow. and it will be killed if we fail to understand how it works… the workers paying for it themselves.
you are enjoying its benefits today and i wager you never missed the money you paid for it while you were working.
Disabled people are more impacted by recessions than able-bodied, so if you were disabled, you probably would not refer to the changes as a problem. Since we are talking about math, I would say you are right that DI rates are one of the things that have increased overall SS costs.
Still, doing the math, using number from the report, https://www.ssa.gov/oact/TR/2019/lrIndex.html
DI had a cost rate near 1.1 percent in the 80s and near 1.8 percent in the 00s where it is also projected to be in in the 30s. OASI had a cost rate of about 9.6 percent in the 80s, 9.4 percent in the 00s, and 14.4 percent in the 30s.
Your children should (mostly) blame the fact that they insist on living longer for the necessary increase in payroll taxes.
This should be obvious, given that your financial planner will also tell you to have more in your 401k if you expect to live longer.
Just (another) quick word on the so-called Social Security Trust Fund. Once you begin to deplete the TF — to begin drawing down to cover shortfall of FICA income with benefits outgo — the flaw in the whole idea is exposed.
How can we be building a TF for the next generation of retirees (and the next, etc.) while at the same time draining the TF for this generation of retirees? Ha!
Denis:
The first mistake was to even have a fund that big which they did not want to pay back. The SS funds collected in excess of what was paid out should not have been included in revenues. It hid the giveaways to corporations and from the tax breaks. Now they believe it is a negative as it draws down interest payments first and then principal. Coberly is better on this than I.
I guess I don’t understand. The Trust Fund was supposed to cover the boomer wave. Boomers are retiring in earnest now. I know. I’m a boomer born in the mathematical middle and all my contemporaries are retired or months away. And the boomers are dying. They won’t live forever or even for more than another couple decades. Then why do we still need a trust fund?
Coberly did have a mathematical model to bridge the reduction in SS payouts after the TF is gone, and AB should post a link. But after 2030, SS should still be able to pay ca. 80% of projected benefits. Raising SS taxes now modestly will bridge that difference.
I don’t understand why we should fetishize the trust fund.
The trust fund was never intended to be built for the next generation. Social Security is being operated as a Pay-As-You-Go program. The trust fund is intended to be large enough to cover most economic variations. A threshold of one years expenses was set early in the program (but not when it was passed in 1935). Unfortunately, few people really understand how it works, and that includes Congresspersons.
In the 70s Congress legislated cost of living increases without legislating the taxes to pay for it. By 1983, costs exceeded income by enough that the TF was nearly depleted. The Greenspan Commission provided increased taxes that nearly covered the demographic problem of the Baby Boom generation, but it did not provide funds to deal with the fact that workers were living longer.
Again, unfortunately, lots of people thought/think the Greenspan Commission’s solution fixed things forever. They blissfully ignored that COLA still goes up and taxes do not.
Before complaining about SS, you need to learn how it is supposed to work.
Learning about how SS is supposed to work is not easy. To keep it short I left out how increasing Average Wage also increases costs in ways that are not funded. Because they don’t like SS, many other people will levae out whatever else they find inconvenient.
My bottom line is that SS should work very well because the rate of increase in taxes needed to fund scheduled benefits smaller than the increase in your take home pay as average wages increase over the decades.
Arne:
This is true. I get weary having to explain it and that SS agreed it would work and also stabilize SS out past 2035. Mind you, more people working to where PR is 66% and not 63%, a young workforce, and higher productivity gains would help quite a bit also. Immigration is important to a young workforce in the US so we do not run the same issues as in Europe.
I generally dislike analogies, but complaining about the trust fund is like saying your car does not work because the gas tank is smaller than you would like.
That is good . . .
Joel,
“I guess I don’t understand. The Trust Fund was supposed to cover the boomer wave.”
You understand very well.
Two simple questions.
1. Who benefits from Social Security? (Obviously not the wealthiest Americans.)
2. Who loses if the federal government has to raise taxes to pay back the money that it borrowed from Social Security? (Obviously not the poorest Americans.)
So this is about robbing the poor, to give to the rich. What a great country!
One can make arguments about the degree of wealth or the degree of poverty but the injustice still remains.
You also have to look at the number of workers starting to pay social security taxes.
Historically, the age chart looked like a triangle or a Xmas tree with a very broad base and a small peak. So there were numerous workers for each retired person collecting social security.
Now the age chart looks more like a cylinder with a much larger number collecting social security and a smaller number paying into social security.
This is due to the baby boomers aging and living longer because of better health care and living styles ( not smoking and exercising, for example).
Moreover, the following generations were smaller than the baby boomers.
The Greenspan commission and higher social security taxes were just to support a few years of the baby boomer bulge. But it has turned into a much more permanent problem.
I know as liberals we are only suppose to look at the spending side of the equation but we also need to look at the revenue side of the equation.
Last I looked, the numbesr will have settled down permanently to two workers for one retiree by 2020 and forever after.
Of course if average wages had kept up with per capita income growth there would be no Social Security problem today — except maybe how much to increase benefits (yaaa!).
If the TF is supposed to be about an extra cash bump to match the baby population bump then why does the projected gap between FICA income and outgo not swell and then shrink back to something like zero, instead of growing until SS outgo is only covered 75% by FICA income — and staying there forever (or until Congress gets its gut up to actually raise FICA? Over the generations, while this is going on, per capita income and population are doubling and growing by half respectively. (See preceding paragraph.)
Wages and getting the rest of the population back to work
Denis,
Before the changes in the 1980s, Social Security only maintained a small Trust Fund (TF).
But the boomers had fewer children than their parents, thus fewer workers to support their Social Security benefits.
That and the magnitude of the baby-boomer generation caused the US Congress to call for a much larger TF so as to cope with the large increase in the number of Social Security beneficiaries over the period of the baby-boomers retirement years.
The theory was that the TF would go back to former levels.
It is wishful thinking to believe that boomers will live substantially longer than their parents.
From: https://www.cdc.gov/nchs/data/nvsr/nvsr68/nvsr68_07-508.pdf
Table 21 Page 53 – Life Expectancy at age 65 for all races and sexes
Year —————– Additional years after age 65
2017 —————– 19.4
1999-2001 ———- 17.77
1989-91 ————- 17.28
1979-81 ————- 16.51
1969-71 ————- 15
1959-61 ————- 14.39
1949-51 ————- 13.83
1939-41 ————- 12.8
1929-31 ————- 12.23
1919-21 ————- 12.47
1909-11 ————- 11.6
1900-1902 ———- 11.86
Social Security was enacted in 1936. Life expectancy in 1940 was 12.8 years and in 2017 it was 19.4 year. That is a total gain of 6.6 years spread over almost 80 years.
But these statistics can not tell us how long the boomers will live. Out of my parents six children two have died of disease at exactly age 65, that leaves four.
These statistics can not tell us the toll that stress takes.
These statistics can not tell us the toll that drafted military service takes.
These statistics can not tell us the toll that unaffordable medical care takes.
These statistics can not tell us the toll that unaffordable medication takes.
And most of all, these statistics can not tell us the toll that a wrecked economy takes. Suicide and accidental opioid drug overdose are risk factors at a level not seen in the past.
I get more and more scared every day. Where did these people go to school? How is it possible that they can succeed in life despite brain numbing stupidity? Or even worse, that they have any power at all to do anything to the world?
” Senator Rand Paul
✔
@RandPaul
· 16h
Despite climate alarmist predictions, humans will likely survive for hundreds of millions of years into the future. In the meantime, we should begin creating atmospheres on suitable moons or planets.https://cosmosmagazine.com/space/pushing-the-limit-could-cyanobacteria-terraform-ma …
Senator Rand Paul
✔
@RandPaul
With so many billionaires about, why not a private prize of $10 million for the scientist who genetically creates an O2 producing organism that will thrive in the frigid, methane lakes of Titan?
1,793
2:40 PM – Jan 18, 2020
Well, you know, we can’t possibly increase average gas mileage by 3MPG but bet for TEN MILLION DOLLARS we can all go to another planet’s moon or some shit.
by Atrios at 18:22
543 Comments”
https://www.eschatonblog.com/
EM:
You were expecting something different of Congress?
This is like the 40,000 people die every year from a lack of insurance or are under insured. First that statistic came from a study which has questionable sources and assumptions. Second, the numeric is from a 2009 study which came into being after the ACA came into play and one year before it was mostly implemented. Did the ACA have an impact on that number? It did. Yet the public, Sanders, Slotkin, and other pols will recite it like it is current and as if nothing happened. It is not, it is flawed, and it does not explain the entire story. Do a lot of people die because they have no or not enough insurance?
Yes they do. and they die because Republicans have been sabotaging healthcare, Congress has been blocking Single Payor, the healthcare industry has been pricing people out of the market, and Congress is backing the healthcare industry over people. If you do not believe Congress and state legislators are in bed with the healthcare industry, I would suggest you look at Purdue who has been freely murdering people since 1996 all making a sizeable profit in doing it.
Stupid and malicious.
And here, I preach healthcare and push Single Payor.
Good morning.
Meanwhile, white working class voters are suffering from their votes for the GOP over the last 5 decades, and are too stupid to realize what they have done to themselves. Or maybe they do realize, but their racism makes it a price they are willing to pay.
“What’s especially striking is the contrast between the way we treat our children and the way we treat our senior citizens. Social Security isn’t all that generous — there’s a good case for expanding it — but it doesn’t compare too badly with other countries’ retirement systems. Medicare actually spends lavishly compared with single-payer systems elsewhere.
So America’s refusal to help children isn’t part of a broad opposition to government programs; we single out children for especially harsh treatment. Why?
The answer, I’d suggest, goes beyond the fact that children can’t vote, while seniors can and do. There has also been a poisonous interaction between racial antagonism and bad social analysis.
These days, political support for programs that aid children is surely hurt by the fact that less than half the population under 15 is non-Hispanic white. But even before immigration transformed America’s ethnic landscape, there was a widespread perception that programs like Aid to Families With Dependent Children basically helped Those People — you know, the bums on welfare, the welfare queens driving Cadillacs.
This perception undermined support for spending on children. And it went along with a widespread belief that aid to poor families was creating a culture of dependency, which in turn was the culprit behind social collapse in America’s inner cities. Partly in response, aid to families, such as it was, increasingly came with work requirements, or took the form of things like the earned-income tax credit, which is linked to earnings.
The result was a decline in assistance for the poor children who needed it most.
At this point, however, we know that cultural explanations of social collapse were all wrong. The sociologist William Julius Wilson argued long ago that social dysfunction in big cities was caused, not by culture, but by the disappearance of good jobs. And he has been vindicated by what happened to much of the American heartland, which suffered a similar disappearance of good jobs and a similar surge in social dysfunction.
What this means is that we’ve established a basically vicious system under which children can’t get the help they need unless their parents find jobs that don’t exist. And a growing body of evidence says that this system is destructive as well as cruel.
Multiple studies have found that safety-net programs for children have big long-term consequences. Children who receive adequate nutrition and health care grow up to become healthier, more productive adults. And in addition to the humanitarian side of these benefits, there’s a monetary payoff: Healthier adults are less likely to need public aid and are likely to pay more in taxes.
It’s probably too much to claim that helping children pays for itself. But it surely comes a lot closer to doing so than tax cuts for the rich.”
https://www.nytimes.com/2020/01/16/opinion/children-america.html
Look at the newsy-things I posted and see what is happening to SNAP and the McDonalds lunches Trump has put in place for school lunch programs. Killed veggies, etc.
Run,
And just to show how mean and little this admin is, he cut Michelle Obama’s lunch program on her birthday.
Mind boggling.
The 2000 Social Security Annual Report projected that the TF would fall to zero in 2037. The 2019 report projects that in 2035 the TF goes to Zero.
Twenty years, not much change in the outlook. It has been understood for more than 20 years that the TF would not grow to a sufficient size to handle all of the cost of the Boomers.
Joel asks:
“I guess I don’t understand. The Trust Fund was supposed to cover the boomer wave.”
Jim H responds:
You understand very well.
So neither of them understand.
Dennis D says:
Once you begin to deplete the TF — to begin drawing down to cover shortfall of FICA income with benefits outgo — the flaw in the whole idea is exposed.
Sorry Dennis, not correct. This year, 2020, will be the first year in history that the TF falls. Nothing bad will happen. This annual cash deficit was projected decades ago.
Social Security is a PAYGO program. The TF does not matter much. The ratio of workers to beneficiaries matters a lot.
If you calculate the average taxes paid by workers and the average benefit of (mostly) retirees, you can find how many workers you need for each beneficiary (with the current tax rates, scheduled benefits, and demographics). In 1984 the answer was 3. Since then it has been decreasing slowly. Now it is 2.7 or 2.8. So, 2 workers per beneficiary is not enough. We need to make changes to SS.
As Bruce Krasting says, we have known this for a long time. Anyone looking at the 1984 report could see that the Greenspan Commission did not fix the issue. They only delayed it.
If we want to keep SS, we need to understand how a PAYGO system is supposed to work. We can’t adjust demographics, so taxes and scheduled benefits have to be adjusted to come to a balance.
I think Bruce Webb and Dale Coberly underestimated the likelihood of the entire program being destroyed by Congress unwillingness to deal with making reasonable adjustments in a timely fashion – abrupt changes are a great scare tactic for people who don’t like the whole idea of SS. I still agreed with them that the NW Plan to maintain scheduled benefits was analytically the best approach. Increasing taxes to maintain scheduled benefits still assures average increasing take home pay. This remains true even though the worker is balancing one half of a retiree instead of one third of a retiree.
We need Congress to do something. Ask your Congressperson to become educated about supporting our existing PAYGO program. It means they will need to be willing to make (or allow for) small changes in every administration – not keep kicking it to the next Congress.
Arne:
Other than a few of us, 90% of the people do not give a hoot about the solvency of SS, mostly because they would have to think and read the numbers. One can see similar but non-numeric thought processes being applied with regard to Herr Trump. Wait till the tax break is removed due to Reconciliation and the tax breaks disappear due to deficits. Funny how we can give a tax break of which a majority goes to a few and can not fund SS properly at 1 tenth of 1% for employers and employees for ten years.
I do not believe anyone with a brain under estimated the need to fix SS properly. But then too, I see the Grahams, Coryns, etc. and McConnell defending a lying, thieving, bigoted, racist, misogynistic President. Then there are the Collins, Murkowskis, Flakes, Romneys, etc., of Congress who feint concern and then back away when it is time to vote. You are right, Congress will not do anything other than fake concern for the issue. Perhaps the public will rise up on their hind quarters and call them out when they learn of their treachery?
Coberly should be around also.
Arne,
“I think Bruce Webb and Dale Coberly underestimated the likelihood of the entire program being destroyed by Congress unwillingness to deal with making reasonable adjustments in a timely fashion – abrupt changes are a great scare tactic for people who don’t like the whole idea of SS.”
The scare tactics about Social Security have been with us since 2000 at least. They have achieved nothing. Bkrasting is just another of those shrill naysayers.
While large numbers of baby-boomers are around, the political party that makes large benefit cuts to large numbers of Social Security retirees is going to find themselves unelectable to the US Congress.
And as baby-boomers pass away, the burden of protesting cuts will be slowly passed to their children. Many of those will already be contemplating retirement. And many of them will be in the same situation as many of their parents were. (No pension, small amounts of money in 401Ks, and pitifully low interest rates.) But they will have paid into Social Security all of their working life.
So the 2 major political parties will still face the opportunity to make themselves anathema to a large segment of US voters.
Coberly’s idea would be best, but one way or another the US Congress will be forced to act.
Just as they were forced to act in the early 1980s when Social Security only maintained a small trust fund. They raised payroll taxes!
Jim,
Scare tactics are part of what has made it politically impossible to implement something such as the NW Plan (which would have started raising tax rates 4 or 5 years ago). If Congress waits until 2034, the shortfall will be much larger than it was in 1983.
It is also worth noting that the 1983 changes did reduce scheduled benefits. Gradual increases started 4 years ago (the NW Plan) would not have needed to reduce benefits. Any compromise that waits until 2034 is bound to include benefit cuts.
In any event, we need Congress to understand that in the future (unless they enact automatically triggered tax increases – not going to happen), they will need to act at reasonable intervals. Workers/voters need to understand that as conditions change, the amount they need to pay in to get SS benefits will need to change. There is no auto-pilot. If we want a soft transition from the 3x TF needed to get through the Boomer bulge to the 1x TF that should be our continuing goal, we need people who are willing to do the math.
Run,
When Congress is finally forced to deal with SS, they will expect accolades for solving the crisis, and the media will laud those who put their names on the legislation.
They are not forced to deal with SS before it is a crisis because, as you say, people/voters do not give a hoot.
I speak up here because I hope that those who do give a hoot can at least learn to give a hoot about the meaningful part of the issue.
Arne:
It is good to have you here to speak on SS. I am a bit more hopeful that this will be resolved in a manner such as what Bruce and Coberly determined.
I don’t think I underestimated the difficulty of getting Congress to act, much less think. I am not much of an expert on politics. All I did was some simple math (with careful attention to some actual facts) that showed SS could be paid for forever by simply raising the payroll tax one tenth of one percent per year while wages were going up more than one full percent per year. The tax rate increase does not go on forever. The wage increase does (or should, or would if the takeover of the government by Trump related criminals does not stop all wage increases).
I am very pressed for time right now. I would like to write a longer reply to all this, but let me try to suggest what I think is the key to the whole problem:
We have been taught, first by the enemies of Social Security, and lately by people calling themselves friends of Social Security , to think of it as welfare, or at least as ‘the young paying for the old.”
It is better to think of it — the facts don’t change, but ou attitude toward them would be much healthier — to think of SS as YOU paying for YOUR OWN expected basic needs in retirement by saving your own money for that purpose. The only SAFE way to save, for sure, enough money to provide for at least your basic needs, is though a government program called Social Security which does not tax anybody (but you) to pay for it. In return fro your “tax” you get a guaranteed basic pension protected from inflation, and protected from your own possible failure to otherwise make or save enough money for your basic needs. This is insurance. Not welfare. It is you paying for yourself, not you paying for some old person. Or some young person paying for you when you get old. You get back about three times as much as you pay in because of the automatic inflation adjustment and effective real interest that comes from pay as you go financing. The only difference between this and any other savings plan is that the workers insure themselves and each other against certain very predictable losses.
And the whole trouble with SS comes from the Big Liars who twist facts and conceal facts to make SS look like a bad idea. They are aided in this by really stupid newspeople who claim to know “the facts” which they get from the Big Liars, and the Congress people who are either big liars themselves or completely taken in by the Big Lie.
If I get time I will try to write a longer post on this, but it will not change many minds.
I could try to say something about the motivation of the Big Liars, but I can’t see where they get any profit from killing SS unless I indulge in some kind of conspiracy theory. I think it more likely they just believe their own lies, which are founded in what is called “ideology”… something like Ayn Rand thinking handed down from father to son, for centuries since the “haves” grew to fear the “have nots” and were too stupid to see that feeding the poor, or letting them feed themselves, made them less likely to want to murder the rich.
Coberly:
Let me know and I will put your commentary up.
I think that Coberly has thinking of SS as “saving your own money” figured out for himself well enough that he fails to understand why some people have trouble thinking of it as he does. Let me suggest a couple of things to keep in mind.
People are used to saving for retirement by buying annuities or mutual funds. They come with statements that show your equity and ROI. You “own” a piece of Amazon, so when they turn around and spend your money, you feel invested.
When you save your money with the government, It turns around and spends it on useful programs. It does not provide a monthly statement with which you can see your equity position increasing. Still, the net present value of your future benefits is increasing as you continue to pay SS taxes, so your risk adjusted ROI is reasonable.
I think I understand Coberly’s way of looking at SS, but I see another way of looking at it as well. If people look at it as “saving” they tend to want to see a huge equity position and they can’t find it. (We could go into a sideline about the net present value of taxing authority, but let’s not). I suggest that looking at it as “the young paying for the old” is not so horrible. There is real value in not having my parents living with me. There is real value in not paying for the kind of poor house programs that existed before SS. There is real value in paying insurance premiums. Seeing the current value to current tax payers simply requires more time thinking about and understanding SS than most people are willing to give.
Let me modify that:
There is a problem with the idea of SS as “the young paying for the old” because there is more to current value of SS to current SS tax payers because there is more going on than whatever personal value you get from older people getting benefits. There should not be a problem with trying to understand SS by understanding its cash flows.
I received a statement the last several years before I actually retired at 65. It gave my my payment stream for the future and adjusted as my contributions increased.
That payment stream shows the equity on a constant basis. Of course death cancels that payment(except to a spouse and/or young kids)..
I see no problem in figuring that as an investment. As Arne mentions an annuity as an investment, why is SS any different?
Arne,
“It is also worth noting that the 1983 changes did reduce scheduled benefits. ”
I must have missed this in 1983. I don’t remember any cuts.
Do you have a link to that information?
Jim H
they raised the retirement age to collect full benefits. this results in about a 10% or so (i don’t remember) cut in the benefits you get if you retire at the age of 65. on the other hand, if you actually do live longer than the then expected life expectancy, you will get it all back.
there was some talk at that time of just raising the tax a bit more, but congressmen hate tax increases to the point of blindness (like not seeing it is not a tax increase if you get your money back with interest). and they expected a small tax increase (like the one i am proposing) down the road about twenty years… which actually was a better way to do it as it put the “burden” of the extra tax on the people who would actually be living longer and having a higher real pay (even counting the tax increase) to pay for it.
but this all gets lost in the noise and lies.
Arne
i probably do have some trouble understanding why people fail to think of it as i do. but i have gotten used to it. still, i try to explain it the way i see it because i think that should solve the biggest problem people have understanding the way SS works.
Jim
Raising the Normal Retirement Age is the same as decreasing benefits. My NRA is 67. I can still take benefits at 65, but it will be 16% less. (8% per year – at least when I last looked it up). You can still take benefits at 62, but if you are a late Boomer, it delivers less (with respect to full scheduled benefits) than if you are an early Boomer. Of course, full scheduled benefits went up in the mean time, so I still prefer being at the latter end.
Arne,
Yes I see what you mean about the change of the Normal Retirement Age.
That affected me too, but I guess I never thought of it as a reduction in benefits.
I am a boomer, and the conversation in my extended family was whether the Social Security system would be there for us at all.
It was and we worried over nothing. The same conversation is going on today.
On of the problems today is the it is much easier to get on Social Security Disability than it was in the 1980s.
So my children’s generation can blame the US Congress’s generosity for any necessary increase in payroll taxes.
Jim
No. it does no good to blame Congress if we do nothing.
Especially since there are / will be necessary payroll tax increases if we are to save SS at all as meaningful insurance for working people.
i think raising the tax a tiny percent would have been, will be, a much better solution than raising the retirement age or otherwise cutting benefits.
The correct conversation is “whether SS will be there at all.” Even a modest benefit cut is better than changing the basic nature of SS from insurance to welfare or to “personal” accounts. But any benefit cut is not necessary, and a benefit increase is possible with only a very small increase in the payroll tax.
because SS was not killed yet does not mean it won’t be killed tomorrow. and it will be killed if we fail to understand how it works… the workers paying for it themselves.
you are enjoying its benefits today and i wager you never missed the money you paid for it while you were working.
Coberly
In a comment above I wrote:
“Coberly’s idea would be best, but one way or another the US Congress will be forced to act.”
I saw the wisdom of your solution from the first time that I read it.
I can not say that I never missed the money withheld for SS from my paycheck. But I never doubted the wisdom of paying into the SS system.
Jim,
Disabled people are more impacted by recessions than able-bodied, so if you were disabled, you probably would not refer to the changes as a problem. Since we are talking about math, I would say you are right that DI rates are one of the things that have increased overall SS costs.
Here is an interesting link on why.
https://www.cbpp.org/research/social-security/chart-book-social-security-disability-insurance
Still, doing the math, using number from the report,
https://www.ssa.gov/oact/TR/2019/lrIndex.html
DI had a cost rate near 1.1 percent in the 80s and near 1.8 percent in the 00s where it is also projected to be in in the 30s. OASI had a cost rate of about 9.6 percent in the 80s, 9.4 percent in the 00s, and 14.4 percent in the 30s.
Your children should (mostly) blame the fact that they insist on living longer for the necessary increase in payroll taxes.
This should be obvious, given that your financial planner will also tell you to have more in your 401k if you expect to live longer.