ANOTHER LOOMING CRISIS IN SOCIAL SECURITY?
Dale Coberly is a writer and frequent commenter at Angry Bear Blog who is well known for his understanding of Social Security and his proposed Northwest Plan. The Northwest plan was recognized by the Social Security administration as a solution to fixing the shortfall in funding now thought to be in 2034.
An article about Social Security appeared in the Washington Post today. As written by another journalist on the Social Security beat who knows nothing about Social Security but what was told by the famous “non partisan experts.” Experts who are expert liars, “non partisan” of course, and well paid by the people who have hated Social Security.
I thought it worthwhile to try once again to give truth a chance. In the following I put the article’s statements in quotes. My observations follow each.
Another urgent item for Biden’s to-do list: The looming Social Security funding crisis (msn.com) by Michelle Singletary
“Biden needs to put this on his to-do list: fixing Social Security. Many young adults already believe Social Security won’t be around for them to collect. Although Social Security isn’t bankrupt, it’s certainly facing a serious shortfall in income to cover promised payments.”
What “many young adults believe” is not a reliable guide to what is true . . . unless we make it come true by “fixing” Social Security. Young adults have been told the lie “Social Security won’t be there for you” ever since grade school.
“Social Security and Medicare both face long-term financing shortfalls under currently scheduled benefits and financing,” according to the 2020 trustee report for the Social Security and Medicare trust funds.”
The shortfalls are “real” only if we do nothing to avoid them. They will not happen if we pay for our future needs the same way we pay for any insurance (SS is a form of insurance):
Gradually increase the amount of the “premium” we pay for the insurance to cover the probable cost of our retirement (or disability or death with dependents). The increase that will be needed is one tenth of one percent of income per year. That’s about one dollar per week per year for a few years while incomes are projected to increase at a rate of ten dollars per week per year. This means we can pay for our own Social Security and still have more money in our pockets than we have today after paying the increased payroll tax.
This is THE fundamental truth about Social Security which the WaPo article, and all the articles about Social Security for the last thirty years miss . . . because everyone who writes about Social Security bases their “facts” on the Big Lie that has been told to the media and the politicians by the highly paid “non partisan expert” liars.
“However, given the impact of the coronavirus on millions of individuals, the solvency of the trust fund may be in jeopardy sooner than the projections show. In an update last April, the trustees noted that the pandemic could affect the financial health of the funds. “The duration and severity of the pandemic will affect the estimates . . . and the financial status of the program, particularly in the short term,” said Social Security Commissioner Andrew Saul.”
An updated 2020 Trustees Report has come out taking into account the loss of revenue due to the Covid recession. It shows no essential change in SS finances. They can still be “fixed” by that dollar per week per year raise in the payroll tax.
I have not heard of any “fix” in the works for the payroll tax “holiday” that Trump gave us . . . essentially telling us to rob our life savings in order to buy a new car. Some “facts” show minor changes in the projections from year to year. These changes have no effect on the essential “Fact” of Social Security:
The fact that Social Security is insurance that we pay for ourselves because we are almost certain to need it. And the cost is low.. certainly no more than we would need to save for our retirement in any case. But SS adds insurance to that savings that protects it from losses due to inflation, market losses, and personal failure to make enough money over a lifetime of work to save enough for retirement. The changes in the projected date that the Trust fund will run out of money are not big enough to notice… and would be entirely eliminated simply by paying an extra dollar per week each year.
“brief by the Bipartisan Policy Center.”
I looked at this. I didn’t see anything worth seeing. (I have grown to distrust anything that says “Bipartisan.” It usually means paid liars from both parties who have reached a brilliant compromise that gives the haters of Social Security what they want, with a few cosmetic flourishes to fool the people.
“One solution often touted is raising the income threshold for the Social Security payroll tax. This year, the maximum amount of earnings subject to the Social Security tax will increase to $142,800, up from $137,700. Earnings above the maximum are not subject to the Social Security tax, which is 6.2 percent for employees and a matching 6.2 percent for employers.”
This is attractive to the Left. But it is a poison pill. It changes SS from “insurance for workers paid for by workers” to welfare. This is exactly what Roosevelt insisted it not be . . . ”so no damn politician can take it away from them.” I am sorry to say it depends on stupid greed:
To save ourselves from having to save an extra dollar per week, we propose to “tax the rich” thousands of dollars each to pay for benefits they don’t get. They can afford it, and in some “cosmic justice” sense, perhaps they should. But they won’t, and if we manage to make them, they . . . and the new enemies of Social Security that “tax the rich” would create . . . would not rest until they destroyed SS entirely . . . turned it into welfare “we can’t afford.”
“tackling the looming Social Security crisis needs top billing, too.”
For fifty years, the “crisis” has been “looming.”. This is the favorite lie of the people who hate Social Security.
Beat this into your heads . . . and tell your friends:
We can keep Social Security for ourselves, our children, and grandchildren forever. All we have to do is pay for it ourselves, just like our parents and grandparents did. A dollar per week more because we are going to be living longer than they did.
You will hear many lies about this. The Truth will not change.
I am waiting to hear what the new administration is going to do about the money Trump’s holiday stole from the Trust Fund. It’s funny what people have been saying erroneously for years about the government stealing from the Trust Fund. This was never true until Trump showed them how. If not paid back, the “holiday ”WILL advance the Trust Fund depletion date significantly.
Even that can be fixed and you will notice the fix. At the time of depletion, Social Security can be made solvent forever by raising the payroll tax about 2% for worker and employer .
This is exactly what the dollar per week per year would do . . . only spread it out over more than twenty years so you would never feel it. And the Trust fund would never be depleted. The “looming crisis” would disappear forever.
did George Bernard Shaw wants quip, “there is nothing wrong with Social Security except that no one ever tried it.”
imprecisely but he did give us a gentle hint about what is wrong with Social Security. you see what I’m saying? Social Security covers some of the expenses of Old Folks if and only if they own their own home, but if they have to pay rent, that Social Security doesn’t go very far. what we need in addition to Social Security is land reform, but how to effectively Dole out land reform in a free market economy? by creating a gigantically expensive land reform bureaucracy? no! it’s all very simple. we just levy an annual real property tax for example 9%. tax the price of the land according to the county assessor. Seeing the tax on the horizon taxable entities who own land will quickly sell their land which means that land prices will drop enough so that every poor person will be able to buy land to build his house on. he can get his teenage Sons to help him build a house from commercially available kits. you can now see how simple that is.
the extra Revenue coming in from the real property tax will reduce our public debt enough to give investors from around the world a glimpse of how solid are equities are. this debt reduction will prevent a stock market crash which is otherwise scheduled for about 3 weeks from now, 3 weeks or less.
I have a question. What does raising the minimum wage to $15.00 do for social security revenues and solvency?
Since incomes are rising, isn’t changing the Social Security threshold from $137,700 to $142,800 just a matter of adjusting for a constant percentile? I agree that any fix is going to require raising the Social Security tax rate, though, as you note, rather moderately, but that threshold increase seems pretty modest too. It’s not like putting a Social Security tax on all compensation over $1M or the like.
Run, why does no one ever say the funds to pay for the military are about to run dry? Rhetorical question, we all know why. As long as government helps the poor and needy someone will say we do not have the dough to help them. But if the government protects the rich and powerful, there is no limit to what we can spend. Lets just cut the crap and say that the government can always pay for SS with FIAT money.
I think you have received some good answers from Arne and Coberly so I will not add to what they have said. Coberly is an acknowledged expert on the topic.
As to the politics? I think the government will always have its preferences as to where to put money being driven by the political interests with more purchased pull than what you or I do. The one way we can change that is by our votes, proving to the politicians in office we do have more pull than one billionaire which is why we are kicking you out of office.
I do not know how to change stupid or those who are obsessed with out-of-the-mainstream power beliefs such as what we have seen in the last administration. People are being manipulated by lies and subterfuge. They will vote against themselves to deny others.
The rise from $138K to $143K is the part of the current law. The cap goes up by the amount of the Average Wage Increase (AWI).
Social Security is set up by law such that it can not pay out more than it receives. Of course, Congress can change the law. They did so almost every session from 1939 to 1983. One of the problems is that Congress needs to change the law again, but too many people actually thought that the 1983 changes were a permanent fix, and the idea of making more changes scares people. Especially congress people because they need other people to vote them back in.
This story is almost as old as I am!!
“Many young adults already believe Social Security won’t be around for them to collect. ”
One our young contractors said this to me in the 1980’s. They wanted to put their contributions in the stock market. Some of my co-workers drank the coolaide and took lump sum for their pensions. Heard later that they were crying they were running out of money.
raising wages should help perhaps enough to reduce the needed tax increase. but I think the actuaries will wait for it to actually happen before they do the calculations,
but keep in mind, people will be living longer. it takes more money to live longer. those higher incomes might result in higher benefits but since people will want to maintain a standard of living in retirement that they had while working, they will expect benefits to go up proportional to their income level…but if they are going to live longer in retirement it would still require that they save a larger proportion of their income for that retirement. that means an increase in the payroll tax rate would still be necessary.
an extra tenth of one percent savings (payroll tax) per year out of a rising income seems to me the best way to maintain a balance between lifetime earnings and retirement income. and we can do that now… must do that now. while we are waiting for that 15 dollar minimum wage…and seeing whether it is raised every year to keep up with inflation not to mention the expected increases in standard of living.
certainly ending rent gouging would help poor people. but your proposed extra tax on real property is going to play hell on those poor people who have managed to buy their homes.
meanwhile, our recent president’s son is one of the big rent gougers, so i am not sure i see an early fix to that problem.
so let’s go for the easy fix: raise the payroll tax a tiny amount to provide enough money to see ourselves through the longer retirement we expect to have.
Social Security had to be invented in order to make up for the shortage of teenage sons.
even rich people put some of their money in low interest “safe” investments.
recently it has been fashionable among the people paid to lie about Social Security to claim that “you won’t get back the money you pay in.” In fact you will get about three times what you paid in. This is due to the magic of pay as you go financing: The next generation paying for their own future retirement will be putting money into the SS “bank” that … at the same percentage of their income as you put in in your turn… will be about three times as much as you put in…partly because of inflation, and partly because of the rise in real wages over time. This is exactly where the money you get back from ordinary investments comes from. And it is exactly where the next generation will get their own 3x return. Note that even though part of this is inflation, you’d have to make that much from ANY investment before you started to get a “real” return.
The non partisan experts get their “won’t get your money back” by using “present value” to mean “your money.” Or I should say, “misusing.” Present value involves assmuing you can earn a certain amount (2% has been the recent rate) of interest on your money in investments with a similar risk. Trouble is that, as it turns out, you (YOU) cannot get a 2% real return today from any “safe” investment. You can never count on getting a 2% real return reliably on any investment. And Social Security is the safest investment you can make, your money is insured against inflation, pays a real interst in keeping with the rise in real wages, and insures you a much higher “real” return if you suffer a lifetime of income too low to save enough to retire, or die or become disabled before you have saved enough to get yourself or your family through hard times. So the “experts” are comparing oranges to rotten apples… so they can sell you a sure thing on Wall Street.
Meanwhile, after you have paid your Social Security “tax” you have maybe twice as much money as your parents and grandparents had, so if you want to make some “high return” investments, there is no reason you can’t. Just like rich folks do. It becomes a problem when people start expecting to get something for nothing.
second side note (aka the other side)
i used “about” in discussing rates of return above. “About” is the right word. There is a wide range of rates of return in SS. “Average” doesn’t mean anything to the person who gets “his” rate of return. It is important to note here that SS is able to provide a high rate of return to poorer people because it pays a lower rate of return to richer people. This lower rate is still a positive real rate, and amounts to the “insurance premium” that they paid in case they did not end up rich at the end of the game.
But it is important to remember this when the Left claims that “the rich don’t pay their fair share” because of the cap. The rich do pay their fair share… and if they end up rich, they get a lower rate of return (still positive) and they feel sorry for themselves… “if only,” they say,” i had not had to pay Social Security I could have put the money in IBM when it started up” (“as if” is what I say about that). But it is simply a lie by the Left to run around “demanding” the rich pay their fair share when what they mean is “the guy who has more than me should pay MY fair share.”
The biggest “ATTA BOY” that I can give you is hardly enough for this article and your ongoing comments and support for SS. THANKS!
Coberly you say:
“An updated 2020 Trustees Report has come out”
Can you please provide a link to this report. Tks.
Great job Cob, per usual. I put this up on Eschaton, thought you might like to see some of the replies it got. Be prepared though.
I was referring to “updated baseline,” November 24, 2020,
which YOU called our attention to. I will look for the link, but you might find it first.
I should say
it makes me uneasy to be called a recognized expert. SS is a big subject, and I only know for sure about one part of it: what the Trustees Report means in terms that people can understand.
Related to that, The Northwest plan was not “recognized by the Social Security Administration.”
I did get a letter from the Deputy Chief Actuary that said my calculations were correct and a one tenth percent (each) increase in the payroll tax, whenever the Trustees project short range financial inadequacy, would make Social Security solvent for the foreseeable future.
Since then the Covid recession, and time, has caught up with us, and I have had to modify my proposal to “an average” increase of one tenth percent per year, because it would be best if we increased the payroll tax by about two dollars per week per year for the first two years. After that we could either reduce the increase, or skip years (not increase the tax every year) and this would average out to one dollar per week per year over a few years, tapering off to less than a dollar per week per year fairly quickly, and then much less than a dollar per week per year until no further increases will be needed for the foreseeable future.
Quoting FDR over at Eschaton might be less effective than citing the US shortfalls in STEM education. E.g, if we remove the contribution cap on social security taxable earnings, then to maintain the paid insurance aspect the cap must also be removed from social security benefits. Since high earners on average have better healthcare and live longer, then removing the caps on both taxable income and benefits will be a net loss to the program further redistributing wealth upwards.
Of course the Eschaton crowd appears to only want to remove the cap on taxable income and not remove the cap on benefits. They want exactly what we know would end up killing social security. Morally they are socialists and intellectually they are foolish. So, it would be more clever insults that I am recommending rather than just a more logical argument. Nothing new here, our previous POTUS was also proud of being willfully ignorant. Of course, one can never be really sure whether or not that ignorance is willful just because of appearances.
Thanks. I see the problem.
Is there a link to the actual plan? Links in previous posts here in Angry Bear lead to google shared docs that are no longer available (no suprise since some of the articles are 12 years old).
Do you mean the “Northwest Plan”? It is ver simple to state: Raise the payroll tax one tenth of one percent on each the worker and the employer in any year the Trustees Report projects “short term financial inadequacy.”
I have a spread-sheet that demonstrates that given the Trustees Reorts over the last ten years or so this has always soved the problem for the foreseeable future.
Because the Covid recession has lost the economy a significant amount of total wages, I have amended the “plan” to say “raise the tax “an average” of one tenth percent per year…. because it would work out better to raise the tax about two tenths percent in the first years of the recovery.
That’s two dollars per week per year.
Other than that, I think “the plan” is what you read here. If you tell me what you are looking for, I will try to help. “Northwest Plan” is what Bruce Webb called it.
Please give me some idea what you are looking for.
I read the link to Robert Reich the commenter on Eschaton cited.
Reich makes a logiclal error. He assumes that because “inequality” has increased, that is the cause of the projected shortfall. That is not true. Earnings over the cap were not taxed before, and they are not taxed now. They have no effect on SS finances.
What does affect SS is that people will be living longer so they need to pay a greater percent of their income while working to cover the greater expenses of living longer. A secondary “cause” of the projected shortfall is that increases in total wages are not keeping up with projected increases in the cost of benefits (due to living longer). The shortfall in total wages comes from the wages of workers not keeping up AND the NUMBER of new workers is not what it used to be… and it used to be part of what enabled SS to pay more than each generation paid in.
This WAS all predicted by the Trustees. But the Congress at the time did not want to raise the payroll tax enough to cover the expected expenses far into the future. This was probably wise, as long as the payroll tax was increased when the need actually arose. Which is what I am arguing for here.
But as a footnote: another reason for the shortfall is that employers are shifting what they pay workers from “payroll” to non taxed “benefits.” This amounts to about one percent of income.. or about 25% of the projected shortfall. I wouldn’t mind seeing all “benefits” taxed as “pay.” Nor would I mind seeing “the rich” pay their fair share of the income tax…for which they receive more benefits than “the poor.” On the other hand aking “the rich” to pay more for SS than what they get from it is exactly like asking the well dressed man at the checkout counter to pay for your groceries because “he has more money,”
A time may come when working people will be forced to live on handouts from the rich. But until that time comes, it is better if we own our own right to pay for our own retirement.
Getting paid enough to do this is a separate fight. One we won’t win soon. Meanwhile an extra dollar a week is not a lot of money to make sure you can retire when you need to. Or simply want to “because you have paid for it yourself.”
Lots of good people over there, though several leftierthanthous. But I have a new name for those who believe good is the enemy of perfect: “The True Left”.
Scary comments from a liberal blog, huh?
“The True Left” :<) I really like that. Cynicism is next to godliness, but irony runs it a close second.
scary? yes indeed. i try to use them as a teaching opportunity. but usually they end up by getting my goat. then the subject changes to why i am such a bad person.
the true left has a nice ring to it, but i’m not getting your reference (if you don’t think it stands on its own… which it does.