Social Security Report – 2022
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.
Having been an employee and an employer and self-employed, I think too much is made of the idea that employers pay half the tax, or that self-employed pay double. While true at a transactional level, increasing the employer’s side will unquestionably come out of employee compensation. Also think it is important when using percentage figures to be really clear what is meant. For example, where in point 1, the idea is to “(r)aise the tax one tenth of one percent….” this is quite misleading. You are raising the tax more than an order of magnitude higher than that amount. If my tax were $10.00, it would go to $10.01 if raised 0.1%. This is not what is being proposed. Not saying don’t go something like these proposals, but the costs to the worker are going to higher than described.
Eric;
If this was foreign to you, I would agree. However you have mentioned being an employer, employee, and self employed. Also Coberly does mention tax rate later in the paragraph which should have clarified for you what he meant. In the former, I am very sure you knew what Coberly meant as you were calculating the amounts using the tax rate in the first and third instances of employment (ie employer and self-employed). I believe you are quibbling in your response.
Coberly’s numbers are clear to me; but I’ve been following the discussion for years. Explicitly saying “raising the tax rate from 6.2% to 8.2% in 0.2% yearly steps for ten years” leaves no room for misinterpretation.
Tom Bavis,
Thank you.
It is always possible my words are not clear, but it is always possible to make them clearer by asking questions or, gasp, thinking. People who don’t want to let go of what they already think is true find it easy to not understand what they are reading, and then to blame the author for intentionally misleading them…even when the author, in the same essay, explains it to them.
There are a couple of places in the essay where my poor editing has made things less clear than I would have liked, but the subject is compex enough so that it is hard to say everything in one or even several paragraphs.
So, yes, raise the paragraph one tenth of one percent (about a dollar per week) at a time. This would make Social Security solvent “forever”(as far as we can see…”over the infinite horizon.” But it would take 20 years during which the program would “fail the test of short term financial inadequacy”…meaning that the Trust Fund reserve could become less than the prudent one year of benefits. This is not necessarily a financial problem, but it is a political problem. Financially it would expose the program to the possibility of needing to raise the tax more than scheduled in order to meet a short term emergency.
Or, we could raise the tax two tenths of one percent (about two dollars per week) every year for about ten years. This would avoid the short term financial inadequacy problem, and result in a larger Trust Fund reserve and a lower ultimate tax rate. That ultimate tax rate will still be close to a 2% increase for the worker, because that is what it is going to cost for that worker to feed himself over a longer lifetime when he can no longer work, howver he pays for it.
Thee are small variations on this theme, two of which I mentioned mostly to give people an idea of the possibilities and the limits to what can be achieved by trading off a tiny increase in the tax rate now versus a slightly less tiny increase in the tax rate now.
Meanwhile the real income of the worker is expected to increase about ten times as fast as the increase in the tax rate…so that worker will be richer as time goes on, not poorer as the “not partisan expert” liars try to make you believe…and panic yourself into letting them destroy Social Security by “saving” it.
Having been an employee and an emplyer long enough to have a feel for these things, I assert ther is no real chance the employee would ever see that “employer’s share that is really the employees’s money” unless he has a strong union or unusual skills in high demand. But it doesn’t matter: the money becomes the employees the instant the employer puts “his” share into the Social Security trust fund. So the employee gets the benefit of the money whatever you call it. The whole point of Social Security is to put aside enough of his earned income to provide him the means to live on when he can no longer work.
Also as an employer, I learned very early on that penny pinching the employees wages is very bad for long term profits. As a self employed person, I can see that being “taxed”…forced to save…16 % of my income would be hard to swallow. That’s why it has to be a tax: because human beings…myself included….have a very hard time making good decisions about providing for future needs. That self employed person is in many respects much better off than the employee…otherwise he would not be taking the trouble to be his own boss. That 16% saving for the uncertain future… is going to leave him with more money today that his grandparents could even dream of. This is a hard sell, but it is not dishonest. And even the self-emplyed need to be made to understand it.
Eric 377,
What about one tenth of one percent of payroll did you not understand. Would it have made things clearer for you if I had said 33% of a 6% tax?
That’s what the highly paid non partisan experts have tried to pull off over the years. Panic people with a 33% tax increase that turns out to be a dollar per week per year until it turns into a 2% of payroll increase twenty years down the road when their income will have increased by over 20% or about two undred dollars per week.
I know there are a few more parts to consider here than you are used to thinking about all at once. But if you go off half-cocked thinking you are being lied to because you missed the point at first, you are never going to understand what is being talked to.
If I sound angry, it’s because I have been through this so many times with people calling themselves things like “Joe the Economist” who call me a liar because they are desperately lying to fool the people they are being paid to fool.”
Please read my long reply to Tom Bavis above. See if that helps.
typos?
in my long reply to Tom above I made a number of “typos” which could make things hard to understand…for a few seconds while the reader realizes, “oh, he made a mistake” and reads on far enough to understand what the poor writer was trying to say, and would have said if he took the time to proofread what he had written. sorry about that.
i guess i am sorry also that some readers can’t understand that living in retirement is going to be more expensive than they realize, so they need to save enough money, in as safe a place as they can, and not rely on “the government” or “the rich” or even “the stock market” to provide for their old age.
statistics show that without Social Security 50% of people would reach old age without enough money to escape serious poverty. which is about exactly what happened before there was Social Security. back then you could count on your kids if you were lucky, or the poor house if you were not, or simply dying before you were too old for anyone to give you a job.
nowadays we haave a population, and politicians, who can’t face reality. they want to talk about things that are not even real, let alone serious, until they have confused themselves beyond repair.
it’s a terrible shame, i know, that “the government” (we the people?) forces you to save enough for your old age so the rest of us don’t have to pay for your needs or watch you starve in the streets, and suffer the world-wide depression that always accompanies mass poverty…in which the rich thrive..or think they are…while the poor jsut disappear. freedom, you know.
did youcatch that: poverty causes depressions. of course when mass poverty is the norm, then you don’t think of it as a depression, but just the way things are. Roosevelt made the rich richer, and they have never forgiven him.
Absolutely.
The problem the rich have with Roosevelt is that he expected to put some of their money back in the pot. Rich people resent having to pay for things, hence they are always tax dodging, stealing wages, demanding subsidies and declaring bankruptcy.
Social Security was the difference between having to support parents and not, between leaving assets instead of liabilities when they died, and between being able to save for my own retirement or not.
If Social Security is cut substantially, expect the reverse to happen.
Jane
Thank you. Hold onto that insight. They will try to make you think it is unsustainable. They will tell you they are going to increase benefits, either from the stock market or by “making the rich pay their fair share.” Both of those are traps for the unwary and the greedy.
Too many people on the left still believe we should just keep our hands off Social Security. It has gone for nearly 40 years without Congress having to discuss it meaningfully, so why not just wait? (After all, Bush’s plans were awful). Dale has been saying for over 15 years that we could use “short term financial adequacy” as a trigger as to when we would want Congress to act. Dale’s analysis, based on readily available annual reports, has been born out.
Life expectancy for a 65 year old male was 14.3 years in 1983. It reached 18.1 in 2019; a 25 percent increase. It should be obvious that it will cost more to be retired when you are going to live longer.
We need to let everyone know that it is past time to keep hands off. It is time to say we need Congress to raise our taxes so that we can have insurance that will pay in enough to cover our retirements.
Most Americans believe that the country has lost jobs under Biden. The data show that they are wrong.
Most Americans believe that their standard of living is lower than that of their parents. Again, the data show that they are wrong (on average).
This is important with respect to Social Security because it people were not living longer, taxes could actually go down. It is because people are living longer that we need to pay in more. Do you know anybody who does not believe that living longer is a good thing? Do you know anybody that cannot understand that living longer costs more?
Arne
thank you. unfortunately the Left is no longer “hands off” it is “let’s make the rih pay for it.”
meanwhile, they won’t even listen.
I think Republicans have largely converged on being wrong in the same way, but Democrats still have a wide array of ways to be wrong.
Eric 377
please accept my apologies for getting angry at your comment. it is a chrater flaw in me. made worse from having to deal for fifteen years with people accusing me of lying—which you did not do —when they don’t understand what i am trying to say
Well,
I was thinking of emigrating to Ukraine.
https://www.levernews.com/biden-taps-anti-social-security-ideologue-to-oversee-program/
AmSoc
It was like looking up from my nwspaper and seeing the face of the devil leering at me across the breakfast table. Now I know why I can’t get the Dems to listen to me.
“It is very difficult to get a man to understand something if he believes his paycheck depends on him not understanding it” -Upton Sinclair
Biden’s public record regarding SS is well documented. He’s been at this for decades, and now he’s in charge. But maybe the GOP will manage to oppose him.
AmSoc
we can only hope.
though doing something would be better. got any friends?
i met Uppy once. (I don’t know if I am the only person who called him that, but only to myself.)