Dale Coberly: The 2022 Social Security Report came out on June 2.
There were no surprises. Things are still predicted to turn out pretty much as they have been predicted to turn out since the 1990’s or earlier.
The Report projects the Trust Fund will run out of money in 2035. After that, benefits will need to be reduced about 20% or the tax will need to be increased about 4%. Workers who are not their own boss will see a tax increase of about 2%.
The Report projects Social Security “fails the test of short term financial adequacy.” This means the Trust Fund falls below 100% of prudent reserves within ten years. This is not necessarily a real problem, but it warns of a coming real problem: When the Trust Fund actually runs out of money in 2035 or so, this creates the “long range actuarial deficit” which is the difference between scheduled, or promised, benefits and the amount of money coming into Social Security from payroll taxes. We could have avoided all this trouble by starting to raise the payroll tax one tenth of a percent per year when short term financial inadequacy was first reported two years ago. Missing that chance will cost us more money, but so far not so much more that it will make a real difference to anyone if we act now.
The Report projects a deficit over 75 years of about 20.4 Trillion Dollars. This is not as bad as it looks. It turns out to be exactly the same amount of money as that projected 4% tax increase needed in 2035. The 4% increase then would erase the 20.4 Trillion Dollar actuarial deficit entirely.
If we raise the tax immediately, a raise of only 3.2% would be needed to see us through 2096. Keep in mind that the worker would see only half of the tax. That is, a tax increase of 1.6% for the worker today would be sufficient for the next 75 years. This is not a lot of money, and no one would notice a change in their lifestyle.
But there are even better ways to erase the deficit. Here are four:
1) Raise the tax one tenth of one percent each for the worker and his employer in 2023. Then another one tenth percent every year after that. Until reaching a total increase of two percent (for the worker) by about 2042. Then Social Security would not need another tax increase “as far as the eye can see,” not even in 2096. The ultimate tax rate would be 8.4%, with a Trust Fund reserve (TFR) in 2096 of 222 (two hundred and twenty-two percent of what the actuaries consider prudent).
2) Raise the tax two tenths of one percent for the worker each year for ten years. Then Social Security would not need another tax increase “as far as the eye can see.” The advantage to paying more now…(2 tenths of one percent is about two dollars per week)…is that not only would the long range deficit be entirely erased, but the “short term actuarial inadequacy” would also be erased much sooner. ultimate tax rate 8.2% TFR 238
3) Raise the tax two tenths of one percent each year until the short term inadequacy is erased in about ten years. Then raise it one tenth of a percent about once every five years, as needed, to keep short term inadequacy at bay. This would also erase the long range deficit, but it would result in a smaller Trust Fund going forward. Since the interest on the Trust Fund pays for part of Social Security’s yearly costs, this would result in a higher payroll tax than either option 1) or 2). ultimate tax rate 8.5% TFR 128
4) Raise the payroll tax two tenths of one percent per year for seven years, and then raise it one tenth of one percent for eight years. This would avoid short term inadequacy, erase the long range deficit, and result in a lower tax than option 3). ultimate tax rate 8.2% TFR 211
I like option two the best, because two dollars a week would not be noticed by anyone. The larger Trust Fund appeals to me because it’s better insurance against hard times. Besides, Congress needs the money. [Congress borrows from the Trust Fund to pay for its own needs, resulting in lower income taxes than it would otherwise need. Borrowing from the Trust fund is a good thing and not a bad thing,]
Other things that are not mentioned in the Report:
Social Security works because it is worker paid insurance for workers. It is not welfare. Nor is it the government forcing you to put your money at risk in the stock market (which is what “private accounts” means). Of course, you are free to invest in stocks if you want, or in your own business. You will have more money to invest after paying for your Social Security insurance than your grandparents had in the days before Social Security. Back then they had to try to save 10% of their smaller income and pray they didn’t lose it to inflation or bad days on the market, or simply never make enough money to put away enough to retire.
“Making the rich pay their fair share” will destroy Social Security. If the rich pay for it they will own it. It will be welfare, and they know how to cut welfare. Mor eover,the rich already pay their fair share: they pay more than you do, and they get back less as a percent of what they pay in than you do. But of course if they stop being rich by the time they retire, they will be very glad they paid for that insurance.
Don’t be fooled by cries of “regressive tax.” This is nonsense put out by some liberal professors who can’t seem to remember that a coin has two sides. Social Security is the most successful progressive program ever invented. The fact that the rich pay a lower percent of their income for Social Security is no more meaningful than that they pay a lower percent of their income for a loaf of bread.
You are going to need your Social Security. If you personally are lucky enough or prudent enough to make it on your own, you still would not like living in a world where half of the old people could not afford groceries or a roof over their heads. Nor will you be able to make as much money from your business if old people have no money to spend, and young people are afraid they won’t have enough money when they need to retire.
I mentioned the people alive in 2096 might want to raise their own payroll tax to fit their own needs and wants. Actually we could do this at any time. Another half percent right now would give people a more comfortable retirement, and would not be missed today. But first we’d have to teach them to think more clearly about Social Security and retirement itself. And find a way to stop the liars from fooling them.
And none of this means anything unless you find a way to tell your Congressmen and Senators, in a way they can’t pretend not to hear, to raise your payroll tax enough to keep your benefits and retirement age at least at the level they are at today, and keep Social Security “actuarily solvent” for at least the next seventy five years.
Note . . . putting 16% of payroll into Social /security is NOT like paying 16% interest on a loan. You are saving 16% of your income so that you will have an income of about 40% of your working income to live on for a likely 20 years after you can no longer work. This seems expensive, but this is what a basic living for 20 years will cost however you pay for it.
If you paid for it yourself you can retire at the “normal retirement age” even if you “could” keep working. You can do it because you pay for it yourself and are entitled to it. It’s not the government’s money, it’s not the rich man’s money, it’s not “the children’s” money. It’s yours. You paid for it.
Social Security is insurance so you can afford to retire as guaranteed by the government, but not paid for by the government.