Social Security and Medicare: Fun with Numbers Time
I have added little to this commentary.
Economist Dean Baker has taken a position on various aspects of the economy. A positive position which you will see many other commentaries trashing. We avoided one hell of a recession to date which would have been the equal to the 2008 collapse due to Wall Street’s addiction to gambling. You will not hear the news media promoting this. I will be posting more on this issue.
Meanwhile, there exists a lot of talk about SS draining the pockets of the young. There are no subsidies to Social Security today and is it ran short of funds in 2034, here are solutions such as MMT. We could avoid issues in 2034 by small incremental increases in SS taxes for both employees and companies which would go unnoticed. The US always prefers a catastrophe to get it to do something. Onward to Dean Baker . . .
Social Security and Medicare: Fun with Numbers Time, Center for Economic and Policy Research, Dean Baker
As a Thanksgiving present to readers, Washington Post columnist Catherine Rampell decided to tell us again how old-timers are robbing from our children with their generous Social Security and Medicare benefits. This is always a popular theme at the WaPo, especially around the holiday season.
The story is infuriating for four reasons:
- Even by the calculations highlighted in the piece, Social Security is not a big subsidy to retirees,
- Medicare appears to be a large subsidy only because our healthcare system is so inefficient,
- What counts as a government payment, as opposed to a market outcome, is arbitrary, and
- We pass on a whole society to our children, focusing on these programs to the neglect of the larger social and physical environment is close to absurd.
Social Security
The Social Security program has always been reasonably well-funded, even as slower growth and the upward redistribution of income over the last five decades have hurt the program’s finances. It is now facing a shortfall in a bit over a decade. Thebgap between scheduled benefits and taxes is not exceptionally large, as calculated by Gene Steurele and Karen Smith, Rampell’s source.
Source: Steurele and Smith, 2023.
The chart below above shows Steurele and Smith’s calculations for lifetime Social Security benefits and taxes, for people turning 65 in 2025, for men and women at different earnings levels. There are a few points worth noting on these calculations.
The calculations are highly stylized. They are assuming a worker puts in 43 years from age 22 to age 65 always earning the same wage relative to the overall average. This means that their wage rises year by year in step with inflation and the increase in average wages. No one actually would follow this pattern.
They are likely to earn less early in their career and more later in their career. They also are likely to have some years of little or no earnings. This is especially the case for women who are likely to spend some time outside of the paid labor force caring for children or parents. These adjustments would generally lead to higher benefits relative to taxes.
The second point is that the calculations assume that everyone lives to age 65 at which point they start to collect benefits. Some people will die before they can collect benefits, so we are looking at the benefits for workers who survive to collect benefits. (Social Security also has survivors’ benefits that go to spouses and minor children of deceased workers, so their tax payments are not necessarily a complete loss.)
The third point is that Steurele and Smith have opted to use a 2.0 percent real (inflation-adjusted) interest rate to discount taxes and benefits. This is a standard rate to use in this sort of analysis, but one could argue for a higher or lower rate. A higher rate would make the program seem less generous, while a lower rate would raise benefits relative to taxes.
As can be seen, they are projecting low earners will receive more in benefits than they pay in taxes. An important qualification here is that there is a large and growing gap in life expectancies between low and higher earners. These calculations assume that everyone of the same gender has the same life expectancy regardless of their income. This means the benefits will be somewhat overstated for low earners and understated for high earners.
Ignoring the life expectancy issue, the chart shows that projected benefits end up being less than taxes once we get to high earners ($105,800 in 2023). For men projected lifetime taxes exceed benefits by $106,000. For women the gap is smaller at $49,000, reflecting their longer life expectancy.
Moving to maximum earners, people who earn the income at which the payroll tax is capped ($160,200 in 2023), the gaps become larger. In the case of men, projected lifetime taxes exceed benefits by $319,000. For women, projected lifetime taxes are $249,000 more than benefits.
There are some simple takeaways we can get from the Steurele and Smith analysis. First, for low and middle-wage earners Social Security does indeed pay out more in benefits than workers pay in taxes. However, the gap is not very large. For average earners, who got $66,100 in 2023, (not shown to keep the size of the graph manageable), the gap is $3,000 for men and $46,000 for women.
For higher income earners taxes actually exceed benefits. In the case of maximum earners, these excess payments are actually fairly large, as noted $319,000 for men and $249,000 for women.
This raises an interesting issue, if we are looking to cut benefits to reduce the “subsidy” to the elderly provided by Social Security. We can cut back benefits by a substantial percentage for low earners to bring their lifetime benefits more closely in line with their lifetime taxes, but do we really want to reduce retirement benefits for people who had average earnings of $29,700?
We can make some cuts for more middle-income workers, but someone earning $66,100 during their working lifetime was not terribly comfortable, and there is not much subsidy here to start, especially with men. When we get to higher earners, taxes already exceed benefits. We can still make cuts to their benefits, but we would not be taking back a subsidy by this calculation, we would be increasing their net overpayment to the program.
It’s also worth noting who is a high earner in this story. The high earner had annual earnings of $105,800 in 2023. President Biden promised that he would not raise taxes on couples earning less than $400,000. That puts his cutoff of $200,000 at almost twice the high earner level, and the calculation of lifetime benefits and taxes turns negative at a considerably lower income than the stylized high earner.
These calculations show that if we just take Social Security in isolation and want to reduce the subsidy implied here we either have to cut benefits for people who are not living comfortably by most standards, or we have to cut benefits for people who are not currently receiving a subsidy. We may decide that the latter is good policy, but we should be clear that it is not taking back a subsidy.
There is an important qualification to this discussion. Married couples will generally do better in these calculations than single workers. This is because the spousal benefit allows the spouse to collect the greater of their own benefit or half of their spouse’s benefit. Also, a surviving spouse will receive the greater of their own or their deceased spouse’s benefit. For these reasons, lifetime benefits for couples will generally be higher relative to taxes than for single individuals.
The Medicare Subsidy and the Broken Healthcare System Story
The Steurele and Smith analysis shows much larger subsidies for the Medicare program, as shown below.
There are a few qualifications to these calculations that should be noted. First, the same caveats about earnings patterns noted with the Social Security calculations also apply to the projected value of Medicare taxes.
Second, the differences in life expectancies by income matter here also when assessing the size of the tax penalty or subsidy. The program is less generous for low earners than shown in this figure and more generous for high earners.
The third point is, unlike the designated Social Security tax, the Medicare tax is not capped. This means people earning above the Social Security cap will be paying more taxes to support the program. For very high earners ($185,000 for men and $207,000 for women), projected taxes would exceed benefits. The size of the tax penalty increases further up the income scale.
Finally, high-income people also pay a designated Medicare tax on capital income, like dividends and capital gains. For these people, it is virtually guaranteed their Medicare taxes exceed their projected benefits.
With these caveats, we see the same general story as with Social Security, where there is more of a subsidy for lower earners than higher earners. While the overall gaps are larger for Medicare, projected benefits exceed taxes by a larger amount, this changes less with income than in the case of Social Security.
This is due to the fact that, unlike Social Security, the payout is not designed to be progressive, with all retirees getting in principle the same benefit.[1] This is qualified by the fact that higher-income retirees can expect to receive benefits for a considerably longer period of time, making the benefit regressive.
I have added a third bar to this graph, labeled “Benefits-Canada.” This is a calculation of what the cost of benefits would be if we paid the same amount per person for our healthcare as Canada does. The Medicare program appears as a huge subsidy to beneficiaries primarily because we pay so much more for our health care than people in other wealthy countries.
According to the OECD, we pay 57 percent more per person than Germany, 107 percent more than France, and 99 percent more than Canada. This sort of massive gap can be shown with U.S. costs relative to every other wealthy country. We don’t get any obvious benefit in terms of better healthcare outcomes from this additional spending. Life expectancy in the United States is considerably shorter than in most other wealthy countries.
The “Benefits-Canada” bar allows us to assess the value of Medicare benefits if our healthcare costs were more in line with those in other countries. It multiplies the projected value of Medicare benefits by the ratio of per person health care costs in Canada to costs in the United States (50.3 percent).
As can be seen, if we calculate Medicare benefits assuming we pay as much for our health care as people in Canada, most of the calculated subsidy goes away. Low earners still receive a substantial subsidy, $102,000 for men and $122,000 for women, but this quickly goes away higher up the income ladder.
If we assume Canadian health care costs, a high-earning male has a net Medicare tax penalty of $21,000, while a high-earning woman has a net tax penalty of just under $1,000. For those earning at the Social Security maximum, the net tax penalty for men is $111,000, and for women it’s $91,000.
The implication of this calculation is that the seemingly large subsidies that Medicare provides to retirees is not due to the generosity of benefits, it is due to the fact that we overpay for our healthcare. Medicare is not providing a large subsidy to retirees, it is providing a large subsidy for drug companies, medical equipment suppliers, insurers, and doctors. (In case you are wondering, people in the U.S. are not generally paid much more than people in other wealthy countries. Our manufacturing workers get considerably lower pay.)
We pay roughly twice as much in all of these categories as people in other wealthy countries. It is misleading to imply that these overpayments are generous to retirees. While all of these interest groups have powerful lobbies, which makes it politically difficult to bring their compensation in line with other wealthy countries, we should at least be honest about who is getting subsidized by the high cost of our Medicare program.
What Do Subsidies Mean, When the Government Structures the Market?
There is another aspect of these calculations that should have jumped out at people when I noted that the designated Medicare tax is not capped and also applies to capital income. The taxes that are designated for these programs are arbitrary. We can designate other taxes that people pay as being Social Security and Medicare taxes, and apparent subsidies will disappear.
In fact, the idea that we can make a clear distinction between income that people have somehow earned, and income that is given to them by the government, is in fact an illusion. The government structures the markets in ways that allow some people to get very wealthy and keep others on the edge of subsistence.
Those who make big bucks in the healthcare industry are just one example. While our trade policy was quite explicitly designed to open the door to cheap manufactured goods, we actually have increased the barriers that make it difficult for foreign-trained doctors to practice in the United States.
We have made patent and copyright monopolies longer and stronger. The government subsidizes bio-medical research and then gives private companies monopoly control over the product. In a recent example, we paid Moderna to develop a COVID vaccine and then gave them control over it, creating at least five Moderna billionaires.
We have allowed our financial sector to become incredibly bloated, creating many millionaires and billionaires, even as we demand efficiency elsewhere. We give Elon Musk and Mark Zuckerberg Section 230 protection against defamation suits that their counterparts in print and broadcast media do not enjoy.
And, as was recently highlighted with the UAW strike, our CEOs make far more than the CEOS of comparably sized companies in other wealthy countries. The difference is as much as a factor of ten in the case of Japanese companies. This is not due to the natural workings of the market, this is the result of a corrupt corporate governance structure that allows the CEOs to have their friends set their pay.
Yes, I am again talking about my book (it’s free). It is absurd to obsess about tax and transfer policy while ignoring the ways in which the government structures the market to determine winners and losers. It is understandable that the right would like tax and transfer policy to be the focus of public debate, since the default is a market outcome that leaves most money with the rich.
However, it is beyond absurd that people who consider themselves progressive would accept this framing. We can structure the market differently to get more equitable market outcomes. This should be front and center in public debate. Unfortunately, the right wants to hide the fact that we can structure the market differently, and progressives are all too willing to go along.
Future of the Planet
There is a final point on the sort of generational scorecard implied by these calculations of Social Security and Medicare benefits. We don’t just hand our children a tax bill, we hand them an entire economy, society, and planet.
If we experience anything resembling normal economic growth, average wages will be far higher twenty or thirty years from now than they are today. Will the typical worker see these wage gains? That will depend on distribution within generations, not between generations.
We also see costs from items like the military. When I was growing up in the 1960s we paid a much larger share of our GDP to support the Cold War. (Young men were also drafted.) We will again pay lots more money for the military if we have a new Cold War with China. The implied taxes don’t figure into the Social Security and Medicare calculations, but will be every bit as much of a drain on the income of people in the future as taxes for these programs.
And, we should always have global warming front and center. If we paid off the national debt and eliminated the programs to support retirees, but did nothing to restrain global warming, our children and grandchildren would not have much reason to thank us. First and foremost, we must give them a livable planet.
Phony Answers to a Phony Question
The whole subsidy to retiree story is a diversion from the many important issues facing the country. Even the core idea, that we don’t adequately support the young because we give too much to the elderly is wrong.
We saw this very clearly in the debate over the extension of the child tax credit. As with everything in Congress, much is determined by narrow political considerations. Republicans had no interest in giving President Biden and the Democrats a win, but the bill could have passed without Republican votes.
The deciding factor was the refusal of West Virginia Senator Joe Manchin to support the bill. Senator Manchin was very clear on his concerns. He didn’t argue that we were spending too much on retirees, he didn’t want low-income people to have the money.
This is in general the story as to why we don’t have adequate funding for early childhood education, children’s nutrition, day care and other programs that would benefit children. There is a substantial political bloc that does not want to fund these programs. And, they still would not want to fund these programs even if we didn’t pay a dime for Social Security and Medicare.
1 This is not strictly true, since the premium payment that retirees make for Part B and Part D of the Medicare program depends on income in retirement.
As a Thanksgiving present to readers, Washington Post columnist Catherine Rampell decided to tell us again how old-timers are robbing from our children with their generous Social Security and Medicare benefits. This is always a popular theme at the WaPo, especially around the holiday season.
The story is infuriating for four reasons:
Even by the calculations highlighted in the piece, Social Security is not a big subsidy to retirees,
Medicare appears to be a large subsidy only because our healthcare system is so inefficient,
What counts as a government payment, as opposed to a market outcome, is arbitrary, and
We pass on a whole society to our children, focusing on these programs to the neglect of the larger social and physical environment is close to absurd.
— Dean Baker
[ Perfect. Dean Baker has long been understand to be a superb economic analyst; widely read but little credited. Baker for instance was writing about the real estate bubble by 2003 and alerted Paul Krugman to the severe developing problem. ]
I like Dean Baker.
But I think he is over-complicating the issue here and missing THE important point.
I am not sure, but I think his figures..or the ones he is talking about, would look different if he took away the 2% iscount rate, I avoid that problem with looking at the tax as it is paid, and looking at the benefits as they are paid, remembering that a lot of the increase is due to inflation.but inflation is a cost any savings would have to pay first before it ralized any “real” gain. I sus pet…not sure… that if Dean and I got together we could resolve our different results.
But THE point he misses is that the workers are paying for their own future benefits. We used to understand this, and recognized its importance. But today we have become so stupid we look at the moment when cash changes hands… so even though the now-beneficiary receives his benefits we forget that he paid for them his whole working life. The cash transfer from the person paying into SS for his own future benefits being used to pay for the current benefits of the person who already paid for his seems to be a concept too abstract to grasp,even though it is the fundamental concept of ALL savings (and investments),
I have tried for years to present the financial reality of SS in terms the worker can understand. Not terms the professional economist…or professional non-partisan liar… might understand if he did not have to conform his understanding to an “economics” that he learned in school and confuses itself by trying to describe SS as if it were an investment club.
That said, it troubles me very much that all of a sudden MMT is regarded as a realistic optiion for paying for Social Security…expecially by the very person who identified the “ownership” of SS benefits (because you paid for them) to the understanding of what FDR accomplished in NOT making SS “welfare.” MMT does not yet exist in the real world, if it ever will. I do not mean that governments (and banks) do not print money from time to time…but that is not the basis of any conomic system or government policy and is not likely to become so anytime in the forseeable future. certainly not in time to save Social Security from the “old stealing from the young” liars.
Baker is a good guy, and smarter than I am. But this paper does not help Social Security deal with the current threats to its existence as meaningful insurance for workers against the time when they can no longer work.
Speaking of which, Baker does not here even mention SS as insurance. When you buy insurance you are not looking at ‘an expected 2% return on your money,” You are looking at paying for the risk that something will happen to you that you otherwise could not afford. SS is needed all the more because that something bad has about a fifty percent chance of happening to you the way our economy presently works. (that something is “without enough money to live on.” The chance of getting old is 100%, though today’s young don’t seem to understand that concept either. The difference between not-enough and enough is huge. Much more significant than the analysis here recognizes.
Some points I found worth commenting on with respect to Social Security
If so, it is a useful illusion. Having a dedicated source of income for well defined benefits is part of what makes sense to most people and in turn has made SS very popular.
This is the main point in most of Baker’s posts. While I think he is right about how we have allowed the government to structure things, I think it is not absurd to maintain the separation that allows workers to understand that they can pay for their own retirement security.
Many people would use the success of SS to try to solve problems it was never meant to solve. Keep its structure and put it in balance. That is all we should do. That is what the NW Plan does.
Thanks Arne, you give me hope.
For those that don’t know
Social Security has nothing to do with the National Debt or the Federal Deficit: it is paid for by the workers themselves.
It is not the young paying for the old. The old paid for their own benefits while they were young and still had a job.
The huge great big “looming unfunded deficit in SS” turns out to be about a dollar per week increase in the tax for each worker, per year while their incomes go up about ten dollars per week per year.
The only threats to Social Security are the liars in Congress and the think tanks, and the people who don’t do anything about it.
Social Security is not designed to make you rich. It is designed to keep you from getting poor. It is insurance, not an investment plan.
Before there as SS 50% of the elderly were in serious poverty. Today 50% of the elderly would be in serious poverty if they did not get SS benefits (which they paid for). Tomorrow…do you really trust Druckenmiller?
The “rich” do pay “their fair share” if you mean they get the value they pay for in insurance and the “real dollar” vaue of what they paid in. They get less interest on their money…so the very poor can get more. That’s what makes it insurance.
Even banks make you buy insurance on the property they lend you the money to buy.
oh, yes
the “interest” you get on your social security payments comes from growth in the economy..just like all interest ultimately does. difference is that with private investment you bet on one enterprise. with SS you bet on an enterprise known as the United States of America,
Coberly,
These comments are as usual most helpful.
Thank you, lots.
my sense is that the big reform of the 1980s had some serious flaws in the underwriting. Not saying these hypothetical flaws were knowable then or purposefully included, but if the hit in around 2034 is on the order of 20% of benefits if nothing is done, well that’s pretty darn big. One thing that puzzles me a lot is the redemption of the Trust Fund. I seem to recall that for much of my working career, it seemed as if the point of finally hitting the point of net redemptions moved further into the future, not got pulled back. Is there a concise comparison of the underwriting and what actually happened and how much of the 2034 “gap” comes from which element? I have the impression -which could be wrong – that the “fund toward” aspect of “overpaying” to accumulate Treasuries to then pay the Boomer demand was more successful than modeled…..higher balances, lasting longer.
Eric,
During the tech bubble and the housing bubble the “depletion date” was actually moving outward. Bruce Webb even wrote posts suggesting we could grow the economy to maintain SS balance. When the financial crisis hit in 2008, it became apparent that those gains were illusory.
The 1984 report shows they already knew the 1983 “fix” was not permanent. The actual changes in fertility, mortality, (and perhaps especially) the divergence between median and average wages have impacted the balance by more than expected, but careful readers of the annual reports have been able to see it for decades.
Arne:
I have commented on both points in the past. They are correct.
Erik
what can i say? if i say that you have got it absolutely wrong people will say I am being mean to you, but the Trust Fund is operating exactly as intended..allowing the Boomers to pay in advance for their own retirement when their larger numbers than the following generation would have made the normal “pay as you go” financing unfair to that following generation. I know that some have said that was not the intent of the designers of the 1983 Commission. But that’s all politics…even people who know what they are talking about sometimes have to fudge the truth to to preserve their political position. When I look at a Ferrari I have to conclude that it was designed to win races, and when someone tells me, “no, no, it was designed to look good in the showroom” I have to conclude that someone is missing the whole point. The Trust Fund is what is does, and it was designed to stabilize Social Security over the period of the Boomers working years and retirement. The actuaries knew at the time that it wold be better to increase the tax rate a little more, or at least a little once more. the Congress preferred to raise the retirement age and leave the need for a very small additional increase in the tax rate for the future. Well, the future has come.
You seem to have some expectation that the Trust Fund needs to be “redeemed”. It IS being redeemed as we speak…in time and as planned. But I think it is possible you know someting about other trust funds that does not apply at all to the Social Security Trust Fund, and you confuse yourself by looking around for the gas tank on an electric car.
The “hit” around 2034 would be a tax increse of 2% of payroll. most people would not notice it if there were not Liars running around trying to scare them into destroying SS entirely. The alternative of cutting benefits 20% of what retirees need to live on WOULD be noticed. it can be avoided by raising the tax 2% all at once in 2034. or 1.55% now, or one tenth of one percent each year starting by 2025. Try to focus on what IS, and what works, or will work according to the actuaries. And set aside whatever you think “redeemed” requires according to your own ideas that are shared by no one.
Focusing and rewording some of coberly’s response to Eric:
What Eric called “point of net redemptions” is more usually called the “depletion date”. It is only a mathematical construct that tries to distill a complicated set of factors into one number. The trust fund is a reserve – letting it get to zero is not something anyone actually proposes.
Arne
thanks. sometimes i need focusing and rewording. i don’t mind.
as for no one actually proposes letting the TF run to zero, i am not so sure. I expected a big outcry from the bad guys when SS entered the Trustees Report of “short range financial insolvency” (a warning, not a tripwire). but it did not come. i suspect the bad guys didn’t want to wear out their trumpet when it will be much more effective in scaring people when the TF has actually fallen below 100 and is within two or three years of zero.
After all, the Trustees Report has in plain language stated for years what the “immediate and permanent” fix would be (an amount less than the 2% fix that will be necessary when the TF runs out), but the only response from the “SS is broke” crowd is “that would just be kicking the can down the road.” What does that mean: it means that a fix that lasts 75 years would make the fixers have to wait anouther 75 years before they could hope to scare people into letting them kill SS. It certainly doesn’t mean that the deficit would get worse or more difficult to solve. Sadly, even the Trustees Report that the “immediate and permanent” fix would leave a “significant” deficit at the end of that time. The significant deficit would be less than one percent combined, and i bet the people alive in 2099 will be smart enough to deal with that according to the situation they face at that time, they will almost certainly have more money, and they will have the advantage of seeing how we fixed it this time…if the Congress will let us. There is no evidence the current congress is smart enough or honest enough to do that.
unless we ‘splain it to them in terms they can understand.
ess we ‘splain it to them in terms they can understand.
ah okay done
Nikki Haley Is Coming for Your Retirement
NY Times – Paul Krugman – Nov 27
I can only find fault with this by observing that FICA (the tax that is not a tax) is what pays for Social Security benefits. Has nothing to do with income taxes as such. Lowering income taxes would not reduce FICA payments necessarily.
Obviously PK know this. Looks like he is in favor of raising FICA payments, presumably using the methods suggested by Dale Coberly, who has convinced me that this is a start at least. FICA payments go towards Soc Sec benfits. Maybe Nikki Haley is ok with this.
Dobbs
just a note on this in case anyone is still reading:
Krugman says, correctly, that the cost of Social Security is expected to rise from 5.1% of GDP today to about 6.2% of GDPn at the end of the century.
Since income subject to the payroll tax is about (about) one third of GDP, this would mean the payroll tax would need to increase abou three times as much as a percent of income as it does as a percent of GDP. Three times 1.1%` is 3.3%, which is about what the Actuaries, and I, project. Workers pay half of that, so you are looking at about a payroll tax deducton of about 1.6% of income greater than your FICA deduction today. This is not going to change anyone’s lifestyle because real income will have gone up at least 10% by the time the increase is needed..in 2025 if we are stupid enough to wait that long…in about 2050 if we introduce it gradually (that one tenth of one percent per year turns out to be a lot less than that because the gradual increases push the Trust Fund depletion rate back a year for about every one tenth percent increase in the tax. [this is somewhat front-end loaded, so don’t call me a liar if you can’t check the math}.
aside from the non-effect of the needed tax increase for the worker, a 6% of GDP is not a huge amount to pay for the groceries and other needs of 60 million people who can no longer work because of age or disability. [life expectancy is not a good measure of a persons ability to work, hard physical labor or not, or even get a job, or keep a job when his boss thinks a younger worker would be cheaper and more productive.]
AND it is going to cost this much to feed the elderly even if there were no Social Security at all, AND the workers–now retired– willl have paid for it themselves…even if you can’t understand how pay-as-you-go works.
and yes, Krugman is right, as is Baker: the economic system is unjust…but that is very hard to fix. SS is easy to fix. today. if we stop spinning fairy tales about MMT or “taxing the rich” and just tell Congress that we can fix SS by paying for our own future needs ourselves with a raise in the payroll tax of about a dollar per week per year while incomes are going up about ten dollars per week per year.
AND, what I used to call “percent paresis”…the idea that it is the percent of our income that matters. that we can never change [raise] the “tax rate” even if our needs change and our incomes increase so we have more money after paying the needed tax increase than we had before. Like the wise father who says we can’t raise the percent of our income that pays for groceries even if we have two more kids, or suffer a [real] pay cut due to inflation, recession, or injustice in the labor market.
speaking of injustice: note to all you self employed people: you are not suffering injustice because you pay both the workers share and the employers share: the “combined tax) is what it will cost to feed you in the future. the tax for people who work for someone else is divided into two parts because workers for wages are more subject to ‘unfairness in the labor market” than people who are their own bosses. You know that or you would quit being your own boss and go work for someone else.
or in the words of Peter Peterson, it’s time to grow up. [though he didn’t mean it that way. he meant we should run around and scream and shout and give him our money to manage so he could make us all rich.]
[note to MMT-ers [and “tax-the-rich”-ers]: we CAN’T all be rich unless we find a way to increase production…limited by real world constraints.]
Coberly:
You take away from the legitimacy of your points when you make a comment such as this:
MMT is a legitimate point. Making sure that those making more than the income limit exposed to Social Security are not able to exempt income less than the limit exposed to the Social Security tax would help keep Social Security fully funded. Higher incomes can and do find ways to avoid payroll taxes. Shifting income to Capital gains is one way of doing so. Making sure those who can d so, can not avoid the percentage everyone else pays out of their income.
Bill
I do not take away from the legitimacy of my argument by making my argument against fantasies like MMT and “taxing the rich.”
my whole argument is and has always been that workers can save their own social security by raising their own tax (FICA) one tenth of one percent per year for a few years. The Deputy Chief Actuary at SSA and the American Academy of Actuaries agree with me.
MMT is an idea that may or may not have some merit. It is not a viable alternative for saving Social Security at the present time. “Taxing the Rich” is exactly what Roosevelt warned us against, and even changed the recommendations of his own Financial Security Commission to prevent that from being included in the Social Security plan offered to Congress.
People who want a free lunch, whether paid for by the MMT money fairy or by soaking the rich, are the enemies of Social Security, and of Liberal progans generally.
I agree with the MMT-ers that the Debt scare mongers, and the Debt Limit are very bad for the country, and I agree that “the rich” need to pay more taxes or shut up about “the debt.” But that’s “real” taxes and not Social Security mandatory savings and insurance payments. They already pay their fair share of those. “Fair” does not mean the rich guy pays more for a loaf of bread than you do…or pays for your loaf of bread. It means ‘everyone pays for what they get. Progressive taxation for general government expenses is different: no country can pay for all of its needs with a flat tax…the poor don’t have the money. It would be nice if people would grow up and look at what IS and what is NEEDED, and not throw themselves on the floor and cry because someone else got the biggest piece of the burfday cake.
But we need to start out by being honest with ourselves and not looking to them like we are as feckless as they are, or as greeday as we say they are. Not to mention ignorant of how people have paid for their groceries in the present and in their retirement since the stone age.
I have no doubt I lose friends by pointing this out, but I do not lose legitimacy by telling the truth.
Coberly:
Every time, you back yourself into a corner with you obstinance and insistence that your plan is the “only” way. It is not. Others will work and not in the best way for people.
You are your own worst enemy when it comes to delivering the good and unharmful plan to save Social Security. Your insistence shuts people down by your approach from even excepting or considering your plan. You do take away from the best plan because you will not listen and discuss the flaws in the other proposed plans.
The government funds itself by printing money because taxes do not equal expenditures.
Bill
i don’t see where I back myself into a corner. and i pay quite serious attention to the people who disagree with me. serious enough to tell them why i think they are wrong. this seems to drive some of them crazy.
and i know the government prints money. it is a legitimate thing for governments to do. but it is not MMT which appears to be the idea that the government can print money whenever it wants without regard to the consequences, or without thinking about who will be the people who decide how much to “print” and who to give it to. And people like Kelton who admit there is a potential problem with inflation, but just solve that by “taxing the rich.”
you did point out something interesting though, that I had not been thinking about since about ten years ago i pointed out that about 1% of the SS deficit was caused by paying people in non-taxed benefits. Even Andy Biggs congratualated me for recognizing that. I would agree with you that closing loopholes like that would be a good idea.. but I doube that is what the “progressives” mean when they demand the rich pay their fair share, or call SS a regressive tax.
Former New Jersey Gov. Chris Christie and former United Nations Ambassador Nikki Haley said they back raising the retirement age for younger workers, while Florida Gov. Ron DeSantis … said (he) wouldn’t change it at all. …
None of the candidates onstage for the NBC News Republican presidential debate suggested they would cut entitlement benefits for seniors — a position that would alienate older voters who reliably turn up at the polls during election years. …
NBC News – Nov 8
Mike Johnson’s Social Security ‘Death Panel’ Raises Fears Over Benefits
Newsweek – just in
(A suggestion: see to it that enough Dems are elected next year to return control of both houses of Congress to them.)
The Fiscal Stability Act of 2023
“The Fiscal Stability Act would create a bipartisan, bicameral fiscal commission tasked with finding legislative solutions to stabilize and decrease our national debt. This legislation is the companion to the House’s Fiscal Commission Act.”
Dobbs,
Thanks. I couldn’t have said it better myself.
PLEASE NOTE THAT SOCIAL SECURITY HAS NOTHING TO DO WITH THE NATIONAL DEBT.
Republicans have been lying about this with a straight face for years. Democrats seem to be unaware of the truth.
Mitt Romny enjoyed some great press when he retired [upcoming] and found fault with the Republican Party. But he is a bad guy. Always has been. Now he can pretend to be non partisan.
Big Money supports Niki Haley. Romney has always been for Big Money.
Alas, since people are living longer, it might be considered necessary to raise the age for Soc Sec benefits to commence. We shall see. If so, presumably further increases in FICA rates will be required. So be it. Young people should be planning for this, most likely.
Nikki Haley might be considered a more suitable GOP candidate than Trump.
Is she ‘likeable’ enough, I wonder.
I’m all for the Anybody but Trump sentiment. I support Biden & expect to be voting for him again next year.
However, it has been noticed that it’s the wealthy people, who don’t really need Social Security benefits, who are living longer, not ‘everyone else’ (who do.)
Dobbs
looks to me like you are trying to undo the good you did with the series of posts that made me think you understood:
raising the retirement age is cruel and unecessary. workers can pay enough to cover their longer life expectancy by raising their own tax a dollar per week per year until it reaches 2% of payroll by about the same time their real wages have increased by 20%.
no further increases will be necessary…ever…as far as we can see now.
even if worse comes to worst and congress waits to the last minute to raise the tax 2%, no one wouls notice..it would not change their lifestyle…unles the liars scream “huge horrible tax increase!”, which would stampede them into accepting a stupid fix like raising the retiremement age. Young people will NOT plan for this. They never do. Or can…because they don’t know enough. The Actuaries do. Moreover things can happen that they could not plan for. That’s why SS is designed as Insurance.
If you are young enough to prepare for not having Soc Sec benefits until you are 70 (or whatever age it eventually gets to), because the funding mechanisms don’t collect enough funds, then you’d better do so.
If you are as old as us codgers, you can just look askance and wonder what’s to become of the young, while we continue to collect benefits.
If you are young, start putting money aside. And invest & hope for good returns.
One can prepare for almost anything, except maybe 50′ raises in sea levels. Head for the hills!
Dobbs
it is the wealthy people…as long as they stay wealthy…who are paying the “extra” tax (because their incones are higher s without the enhanced o a flat rate means “more tax”) that makes the insurance feature possible: because those who stay rich get a lower benefit as a percent of what they paid in. this is where the money comes from to pay adequate benefits for those who never earned enough to pay (save) enough to have enough to live on without the enhanced benefit SS pays lower income workers.
The fact that nobody undertands this is why we have a “Social Security Problem.
And why you all can keep talking it to death while ignoring the solution put in front of you by me and the Actuaries, and even Dean Baker wants to save the whole world and restore cosmic justice before he even looks at how Social Security works.
Dale:
True on the rich people paying before and after.
Well, I would say that the wealthy (& I suppose I include Mrs Fred & myself in this) are ‘helping out’ by paying extra income taxes on our Soc Sec benefits & payments from our IRA income.
After all, income taxes are what we pay to have a civil society. And to do some mitigation of income inequality.
But I wonder to what extent ‘people are aware that we even have a “Social Security Problem”‘.
Dobbs
i said somewhere but it got lost (along with some other typos I can’t imagine where they came from) that the young NEVER plan for their future. they can’t because they are not actuaries and have no idea what they can expect. They will know even less after they believe what the liars are saying in congress.
it’s possible some people have not heard about the SS “problem.” Big liars have been shouting that “it is broke and won’t be there for them because the old have stolen all their money” since 1996 that I have been paying attention. But since a lot of them don’t even know they will get old some day, perhaps they might not have heard about SS either.
Dobbs
“the rich don’t really need social seccurity”
probably not..if they are still rich when thy get old, or disabled. that’s why they need insurance.
as a society we can’t tell who will get poor or disabled, so we make everyone play by the same rules,,so we don’t have to pay for them when they have the accident.
of course, if you are still richwhen you are old, you not “need” social security…but you still get the real value of your money back, just not as much interest as those who end up poor and need the money to eat. could never happen to you, of course. just like you were never going to get old.
up above i said “not prove we are as feckless as they are.”
i was trying to say ” not prove we are as feckless as they say we are.’
meanwhile, the strength of Social Security has always been that the workers can say, “WE PAID FOR IT OURSELVES!”
and even Stephanie Kelton in her book advocating MMT admitted that ultimately to prevent inflation they would need to “tax the rich.”
I should also try to make clear that I do not oppose “welfare.” but Social Security has succeeded exactly because it is NOT welfare. Welfare is for people whose needs cannot be met by SS which is worker -paid. A lot of people do not have the income…never had the income…over a lifetime to save enough for old age, or disability, even with the insurance provided by Social Security. There is — are–welfare programs that fill in the gap. SSI is one of those.
It’s hard enojgh to get “the rich” to pay taxes to support needed welfare programs. Turning Social Security into welfare would assure the rich would destroy it.
SS takes about 50% of the elderly out of the “need welfare” population because SS is designed so they “pay for it themselves.”
Take away Social Security and watch what happens to the “employer’s share” [that nine new york economists say the employers would just naturally use to increase workers wages. then watch what happens to the “employees share” [which the employers will no longer pay either…after all it never showed up in the workers paycheck, so they will never miss it. and if somehow they did get a raise..how long would it be before rent and other scams of the market place took it away and left the workers broke when they get old or disabled.