Discussion on Solutions to Social Security at Angry Bear

A different viewpoint by myself which is not so new and very workable. Dean Baker at CEPR offers up his viewpoint on saving Social Security. I believe we are in close proximity to a solution except I would suggest a different source of funds. Dale, Bruce, and Arne have talked this simple solution up until blue in the face. People still want to tax other entities and impair the existing Social Contract with Labor or the Worker.

Big Victory on Retirement Income in Omnibus Spending Bill,” Center for Economic and Policy, Research, Dean Baker.

Defending Social Security was crucial, both because tens of millions of people depend on it for most or all of their income, but also because it was a model social program. The administrative costs are minimal, with the total program’s costs coming to less than 0.6 percent of annual benefits, with the costs of the retirement program alone coming to less than 0.4 percent of benefits. By comparison, the fees from private 401(k)s run in the neighborhood of 15 to 20 percent of annual retirement benefits. 

Commenter skeptonomist in the comments section at CEPR


The Secure 2.0 Act seems to be another step in the replacement of defined-benefit retirement plans with individual retirement accounts. One definite outcome is that more of worker’s earnings will go into management by the financial system, and that is certainly one reason why legislators passed it. The Thrift Savings Plan would be a better option than current ones but it also puts retirement income into standard funds where it will be at the mercy of the ups and downs of the stock market and the decisions of the Fed to change interest rates as well as the fees of the financial institutions. The Thrift Savings Plan uses investment plans administered by Blackrock.

The way to insure a minimum retirement income is with Social Security. It should be expanded rather than expanding investment programs of any kind. If income from the financial system is required, it can – and should – be obtained from taxes on rents, dividends, interest and capital gains, which are not now taxed at all for SS. I suspect that most people are not aware that: a) SS is not really a savings or investment plan, it mostly just takes money from workers and distributes it to retirees; b) most of the money in the Trust fund is only a temporary supplement for baby boomers (who paid the money in), not the whole of the program; c) the “unearned” income from rents, dividends, interest and capital gains, which of course goes mostly to upper income people, is not taxed; d) the idea that the program will go “bankrupt” is nonsense – there is no moral or economic reason why it has to always be in the black, any more than other programs such as the military. Congress could change that arbitrary requirement at any time.

The media do a terrible job of explaining the real nature of Social Security. Apparently most younger people don’t believe they will get anything from SS when they retire. I don’t know whether editors and pundits deliberately give out or tolerate false information, or whether they don’t really understand the system. I am afraid that a result of the Secure 2.0 Act will be to increase the economic and political power of the financial system, and decrease the perception of need to protect and expand Social Security.

In classical free-market economics savings are needed to provide investment capital. But the US at least has no lack of investment capital – there is said to be a “savings glut” and corporations use the money from tax cuts to buy back their own stock rather than increase investment. There is no need to essentially tax workers by means of semi-voluntary deductions to provide more money to jack up stock prices and provide income for the financial system.

Hmmm . . .

Lot to answer here. Mostly agree.

The Trust fund was meant to get SS past baby boomers arriving on the scene. We are a large lot of hungry mouths, retired, and getting ready to retire. But there are issues.

Just some simple facts which I outlined over at Angry Bear. Prof. Baker is familiar with Angry Bear. In particular with Dale Coberly and also Bruce Webb.

Some Data

– Reproduction is at ~1.7 people per family. Down from the 2.01 that Joel Garreau discussed in “300 Million and Counting” in 2006.

– Moreso, Statistical Replacement Rate in 2020 fell to 1,637.5 births per 1,000 women and down from 1.7 births per 1,000 women in 2019. Unless there is increased and younger population, the nation could have economic issues as a growing portion of the population ages out.

– The U.S. Census Bureau Vintage 2021 Population Estimates released December 2021 revealed the population grew 0.1%. The COVID-19 pandemic exacerbated the slower growth the country has experienced in recent years.

– The latest SSA projections indicate there will be 2.1 workers per Social Security beneficiary in 2040, down from 3.7 in 1970. This threatens the viability of SS unless something is done early on to minimize impact.

– In 2020, 1 in ~6 people were 65+ years of age and in 2040 1 in 5 will be 65+ years of age. Yes, people are working longer. That is people who have less risky or safer employment.

– Twenty twenty-one was the first year since 1937 the U.S. population grew by fewer than one million people. The lowest numeric growth since at least 1900 (Census Bureau began annual population estimates).

This reduction in population and other factors create a viability issue for Social Security beneficiaries by 2034. There are workable solutions to this dependent upon how much independence recipients want to surrender to politicians and investment interests. The data is from other AB posts and are backed-up with sources.

However . . .

Today’s issue is fixable. As Dale Coberly would tell you, incremental increases of 1 tenth of 1% for individuals and similar for companies would secure SS for 50+ years. A total increase would be 1% for each. This is called the Norhtwest Plan which was said to be workable by SS.

The other side of this is allowing funds to be invested by commercial interests . . .

Does it make sense for labor to turn their meager earnings over to Wall Street investors and banks who take their portions directly from those funds? And then invest in risky entities? Then taking fees from positive or negative returns?

Should states be offering retirement programs? It was not until recently states have demonstrated greater fiscal responsibility in their retirement plan funding. Pew has a recent article on the turn around.

However, this turnaround is recent. Since 2001 (PEW) state sponsored retirement funds have been in trouble due to politicians borrowing from the funds to subsidize programs or tax cuts. Large states such as Texas, Florida, Illinois, Massachusetts (as well as smaller states) still experience negative amortization (Pew). Don’t believe PEW? Other sources are out there. Illinois is a stepchild for political interests invading retirement funds. It is also a battle for other state spending needs and priorities. States are not sovereign either.

But why do this in such a manner?

For one thing . . . SS was and I believe still is the third rail to politicians which is why many politicians will not mess with it. SS belongs to the worker as they paid for it out of their taxes. Once you start adding other sources of revenue, political interests will want larger control and interest in adjusting it to budgets or using it for political interests it and the ability to adjust it.

I have gone back and forth on SS and its supposed issues. Issues which are readily fixable in the near term. However, my expertise is supply chain and manufacturing throughput. Supply chain has never had an impact on the economy, right? Then there is the rant is MMT or print more dollars as the US is sovereign. We probably could print more dollars to cover the need. Why do so when the fix is simple and maintains the social contract with Labor?

The overall solution is so simple and very workable. Keep SS as a part of the social contract with Labor. Increase SS withholding one tenth of 1% for both Labor and companies presently for future shortfall years. There may even be years an increase may not be needed. Maintain the social contract with workers keeping it the third rail for politicians.

Why mess with something and its funding that works? Perhaps, your opinion differs?

Big Victory on Retirement Income in Omnibus Spending Bill,” Center for Economic and Policy Research, Dean Baker