Social Security has Nothing to Do with Debt or Deficits
Dale Coberly lead-in to his discussion on Social Security is something which has been debated back and forth by politicians, those who wish to cut it, those who seek to end it, and those who have done all of the above such as Andrew Biggs. Social Security for the today’s elderly and those who will retire in the future can be fixed rather inexpensively. Dale, Bruce, and Arne etc. have argued the points extensively on Angry Bear.
Dale has given me some latitude on this commentary, so I am going to add to it with regard to healthcare.
I just completed an exchange with a commenter on the costs of commercial healthcare plans such as found on the PPACA. The PPACA is another government plan. It includes commercial healthcare insurance who are supposed to compete against each other to provide insurance to citizens who are above a certain income level where Medicaid steps into the picture. In other words, the PPACA is not perfect.
You are limited to where you can go with your plan. Prices increase as you age. However, it can not penalize you due to pre-existing conditions. It can restrict you to where you go for care and what doctors you use. Complexity makes it difficult to use. The one factor which might have changed all of this was purposely stymied by the Senator from Aetna Joe Liberman in 2008 who promised a filibuster if the Public Option was not removed from the PPACA. Todays he threatens with the No-Labels party. Some things never change and some people are who they are . . . PITAs. We need something like Social Security in healthcare.
On to Dale Coberly’s points on Social Security.
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Social Security has nothing to do with the Debt/deficit. It is, and always has been, paid for entirely by workers who are paying in advance for their own longer life expectancy after they can no longer work. Living longer costs more but does not mean they will be able to work longer. And it is quite possible “longer life expectancy” will be longer for those with higher incomes than for those with less.
That means workers should anticipate their needs for greater . . . that is, longer . . . benefits by saving more while they are still working. The safest way for them to do that would be for them to increase the amount they save by raising their own payroll tax a total of two percent . . . best reached by increasing their tax one tenth of one percent per year. That is about a dollar per week per year for a worker making fifty thousand dollars per year.
The Congress, the pundits, the journalists, and the “non-partisan experts” are ignoring this solution even though it has been published by real experts such as the American Academy of Actuaries. That makes me think the fix is in. Sorry if that sounds paranoid, but after twenty years paying close attention to the issue I think it would be insane NOT to distrust the Congress and the people who call themselves experts.
What this means is that “the rich” instead of paying the Debt created by not paying for the things they bought with deficit spending, they intend to place the entire burden of that debt on the backs of retirees by cutting their benefits and forcing them to work longer . . . with no guarantee they will actually hire people who are old.
The Debt was created by Congress not paying for the things it bought . . . presumably to hold taxes down at least for the present. That may have made sense at the time: capitalism works by borrowing money. But if the Debt/deficit and the interest on the Debt are reaching unsustainable levels as claimed by Congressmen and other deficit hawks, it may be time to start paying back the money Congress borrowed. The honest thing to do is to pay for it by raising the tax on the people who got the tax breaks from deficit spending in the first place.
Therefore I suggest . . .
A “Patriotic Debt Emergency Surtax” of 10% on income tax liability (what you would otherwise owe in income tax) until the Congress decides the Debt Emergency is over . . . that is, the Debt has been reduced to sustainable levels.
This would mean the Debt would be paid off by the people who created it, instead of being used as an imaginary and lying excuse to cut Social Security and thereby place the entire burden of the Debt on retires, who did not create it, but instead paid for their own retirement in advance.
The surtax would be quite small for lower income taxpayers . . . hopefully zero on those below the poverty level…and increase proportionally along with the progressive income tax on higher incomes.
Any thoughts?
Surplus SS receipts “bought” special treasuries. The cash went to pay for discretionary items like war in Middle East and Ukraine.
The SS deficit should be paid by cuts in wars, and other discretionary play things.
If US stopped funding stuff to fight Russia about 40% of the Pentagon budget could pay back the SSTF.
Problem is the treasuries in SSTF are bad investment.
SSTF are safe investments. The problem is the input coming from individuals which makes Social Security theirs and to which people like Andrew Biggs can not infringe upon. That should remain the same and which is very minimal in increase for individuals as Dale explains. The funds are still there as debits and credits to Social Security. If you wish to fix something? Reverse trumps’ TCJA for corporations and for the upper 20% in income. That upper 20% input to tax revenue would pay for the taxes of the lower 80%. Corporate taxes could fund Medicare from that reversal could fund Medicare.
If US stopped funding stuff to fight Russia … surrender?
Ten Bears
apparently paddy knows nothing about the lead-up to World War 2 either.
In which the British, wishing to save money. failed to stop Hitler when it would have been easy (and cheaper). Putin is doing what Hitler did. almost to the letter.
it is also true that many of the upper class in England admired Hitler.
It has long been my contention that you don’t have to be a Peace Freak to be Against War, based in no small part on my limited experience with War. I’m still trying to decide how I actually feel about it, but for now I’m bothered ~ bothered in a ha-ha sort of way ~ by how all those chicken-hawks for all those years are now spouting every hippie argument Against War made since the sixties, and beyond
Which in turn backs my contention that they don’t have what it takes to backup their bullshit. They’re bullies but not real bullies, they don’t have what it takes to backup their bullshit, they only get away with it because they have, there’s a bunch of ’em, and no one has busted their noses yet
Don’t have to be a Peace Freak to be Against War …
Ten Bears
it’s one thing to be against stupid wars of choice. quite another to be “against war” in the face of a growing threat from dangerous country that is not against war.
and yes, i know. all stupid wars of choice are presented as wars against a growing danger. i suppose “it is the business of a man to tell the difference.”
[note.. the “business of a man” is a near quote from an author who meant “man” to include “woman” but the prose is smoother without saying “or woman” everytime you mean “man” to mean “all of us.”] saying “people” to avoid the “sexism” of saying man just weakens the thought that is is “us” as individuals who need to choose. saying people assigns the responsibility to “somone else.”]
I do know a bit.
For a concise exposure to the lead up (from 1937 when the allies did nothing when Hitler move regular army into Rhineland) and the rapid loss of France read
Strange Victory: Hitler’s Conquest of France by Ernest R. May | Goodreads
I have considered what France and Great Britain would have done to stop Hitler in 1938 taking Czechia?
There were no mobilized forces to attack across the Saar!
As May points out the period between declaring war in Sep 1939 and actually doing anything was inaction, and mobilization disrupted by German army assaulting.
Today Russia has a long way (huger mobilization than we see for Ukraine) to go to threaten Paris, and would it not be nice if it were the Russians with extended line of communication?
paddy
again, it doesn’t mean you understand it.
as far as I know Czechia did not exist in 1938. It was called Czechoslovakia at the time, and it had a significant army that with French and British help could have defeated or at least detered a still not fully developed German army. Even Hitler woould have thought twice. it’s one ting to face down a weak-willed potential enemy, and quite another to face a determined and ready foe.
paddy
you discourage me. this is not meant as an insult: you know nothing about Social Security finances, yet you know you have a way to fix it. but you are not the only one. after about twenty years of caring about and paying attention to Social Security, I have never heard a Congressman or a Journalist say anything honest about Social Security or show any knowledge of how it works. That might be considered an exaggeration, but while bits of truth sometimes spill out of their mouths like crumbs from cornbread chewed with your mouth open, they are so dismembered from the whole truth and slimed over with hysterical nonsense whatever truth falls on the table is unrecognizable.
As long as future retirees pay for their future benefits by increasing their own payroll tax there will be no need to get money from anyone else. the increase would need to be about an extra dollar per week per year until it reaches two percent of their income…which meanwhile will have increased a real 20 percent or more depending how soon the gradual tax increase starts.
it’s called a tax, but it’s really “mandatory savings”…you get your money back with interest and a very nice insurance policy you are very likely to need.
btw
the “deficit” is not the Trust Fund. The Trust Fund is an asset. “the deficit” is an “actuarial deficit” that is the amount of money future retirees will need that is not “funded” by the current level of the payroll tax.
I review the audit of federal debt each Nov…..
The accounting view!
paddy
doesn’t mean you understand it.
The conventional wisdom (which appears to be correct) is that Social Security is funded entirely by payroll taxes, 12% or so, with employees and employers each paying half.
Except for the payments made by Soc Sec for those in need who didn’t pay (much) in payroll taxes, which are substantial. The guv’mint must cover the cost of those payments, yes?
It is also true that the guv’mint borrows funds from the Soc Sec Trust Fund when it needs to.
For the ‘full faith & trust’ aspect of Soc Sec benefits to be true, we must depend on repayment of those loans, in a timely manner.
Why worry about that?
Dobbs
the enhanced benefits paid to workers with low lifetime wages is the insurance part of Social Security, paid for out of the payroll taxes those workers paid themselves..including those workers who were luckier…part of what those luckier workers would have earned from “interest” in a strict savings but not insurance plan goes to pay for the needs of the unlucky…just like the premiums paid by those who never have a fire go to pay for the benefits that those who do have a fire get.
SSI IS a welfare plan and is paid for by “the government” but it has nothing to do with “Social Security” which is a separate program….even if administered under the same law.
please note SSI is NOT Social Security in spite of what half of you think.
Thanks for that clarification.
SSI is financed by general funds of the U.S. Treasury — personal income taxes, corporate and other taxes. Social Security taxes collected under the Federal Insurance Contributions Act (FICA) or the Self-Employment Contributions Act (SECA) do not fund the SSI program.
Understanding Supplemental Security Income (SSI) (ssa.gov)
Dobbs
the Trust Fund loans TO the government ARE being paid back in a timely manner. That has nothing to do with the “actuarial deficit” which is a matter of paying enough in payroll tax to cover the needs of future beneficiaries {this is awkwardly stated, but it is so hard to explain even slightly complicated finance to people who don’t want to understand it).
and the “actuarial deficit” in SS own budget has nothing to do with the National Debt or Federal Deficit. Hard to keep this straight in your head, I know. Try drawing a diagram on a piece of paper with little boxes around where the money comes from and where it goes. start with the social security (payroll) tax: who pays for it and who gets the money…you may need to use two boxes that leapfrog each other to keep track of cash paid in and cash paid out because pay as you go does not keep cash paid in in a little box to be paid out to the people who paid FOR their eventual benefits, But like all finance, people get what they paid FOR directly..that is “the same day”…from the money paid IN that day by people paying FOR their own eventual benefits.
Then you will need another box for money paid in to “the government” by people paying generral taxes (income tax)…good luck tracing who gets that money…though arguably we all get our money’s worth in the form of a stable government that pays for our needs including both defense and “the general welfare” which has discovered you can’t have stable government, or even defense, if the people are dirt poor.
I sense Dale is inching his way to a more realistic position on the topic. His standard ‘workers already paid for it and debt and deficits have zilch to do with this’ now gets augmented by ‘but let’s raise a bunch of general revenue so it can be safer’. It almost as if having a huge net redemption of the Trust Fund going on for the next decade might impact the Federal budget and US debt structure somehow.
Back in the 40’s they called it a war surtax. Considering we have a few unpaid-for wars, saying that SS is the cause of the additional general revenue need is a bit much.
Would we even need a surtax at all if we just repealed the tax cuts from this century?
Jane
it’s not only a bit much, it is wrong. legally and factually Social Security has never borrowed from anyone, not the government, not “the public.” Every dime that SS pays to beneficiaries (and for it’s own administration) came from the payroll “tax” which is workers paying in advance for their own retirement.
Eric
you need your sensors readjusted. Coberly is inching nowhere. The problem is that you don’t understnd the problem. nor do you understand what I wrote about it. The “surtax” would be to pay down the Federal Deficit to remove it as an excuse to lie about Social Security and other needs of the country.
It..the surtax proposal…has nothing to do with the need to raise the payroll tax so workers can continue to pay for their future needs in retirement. Pay in advance is what happens EVEN if the cash for present needs comes from present workers paying for their own future needs. It is the way normal finance…savings, borrowing and lending, works.
There is a way in which SS has something to do with deficits in that it highlight the inconstancy in how people choose to “define” the deficit. The number of years that are claimed for Clinton’s surpluses depends on what you include as “government” revenue. I conclude any SS surplus should not be considered to change the deficit because it simply changes to whom the government sells bonds, but even getting people to use the same definition every time seems to be impossible.
I would also note that the trust fund is required to buy special Treasuries. If there were no debt, it would actually be a problem. Greenspan’s allusion to that fact was used by Bush to defend his tax cuts, but Clinton’s surpluses weren’t sustainable even without tax cuts.
Everything is related such that saying “nothing to do with” can be an overstatement. I prefer to stick with the understanding that SS cannot run a deficit and nothing about SS has any control over deficits outside of SS.
Arne
you are sort of right but your way of framing it makes it impossible for people to understand the reality behind the words. i say “nothing to do with” because that is easier to say as well as the absolute truth as far as reality is concerned. if i take a paragraph or a whole book to try to explain that Social Security has “something to do” with the deficit because it lends money TO the government, and because if there was no deficit Social Security would have no one to lend it’s money TO…except the private market… it would be making the trivial equivalent to the essential. i would be thrilled if i could get people to understand the essential. i don’t have time to join in all their reindeer word games.
as a matter of language, there is ALWAYS inconstancy in how people define words. whole books have been written about this.
I comment here because even though there are many comments that show people probably did not even read much less understand before commenting, there are also many readers who do understand subtle concepts.
I do not see that the framing “SS does not impact deficits outside SS” is particularly difficult.
I think that fact that the SS trust fund depends on someone borrowing can be subtle, but it is important. It is inextricably linked to the fact that the $2.8T TF of today will actually have to grow if it is to meet “short-range financial adequacy” in 2033. Or to put it another way, we have already reached the point where if we spend down the dollar amount we have today, it will be insufficient in less than 10 years.
The solution is as simple as Dale says, but it still needs some people who are willing to understand the subtle parts before Congress can be forced to act.
Arne:
Can I put up your seven questions?
I have been updating stuff so it lasts longer. It takes me a while to do it. I do not touch the wording. I do other things to it to make it similar to what we ae doing today with posts. I ran across that post and Biggs answers.
Arne
you may be right, but i am not that subtle, and frankly I have yet to meet someone who is.
and anyway SS does not depend on the Trust Fund. (watch out for the subtlety:) It is in the firat place “merely” a buffer to smooth out the daily (monthly) variations in money in and money out. In the second place it is an emergency reserve (a big buffer) to enable SS to bridge a long term downturn in taxes collected (because of a recession). With a “normal recession” a trust fund reserve about 100% of the next years expected payout for benefits (TFR 100) would last for several years because the shortfall in collections would likely not be more than about 10% or so. The TFR over 100 was built up after the 1983 “reform”raised the payroll tax enough to allow the large Boomer generation to pay for it’s own benefits like every other generation when pay as you go would not work because of the smaller size of the following (and preceding) generation. This has been denied as “the reason” but the fact is that is how it has worked and how it was intended to work whatever the people who were there say about it. If the TF disappeard today, SS could continue without it just by raising (or lowering) the payroll tax every year to meed the expected needs of the next year. Strangely enough that raising would be about one tenth of one percent of payroll.
Congress can only be forced to act by people who understand the unsubtle truth that SS does not contribute to the Federal Deficit, and the workers can and should pay for the horrible huge twenty trillion dollar actuarial deficit with a one tenth of one percent per year increase in the payroll tax over the next twenty years while real wages are going up over one full percent per year. Unless the people make it clear they will lose their jobs the congress will not raise the tax the needed dollar per week per year because they are too stupid or too dishonest.
that’s about as subtle as it gets.
Arne
sorry if my language seems rough to you. we are in a war against damned liars. the fairest, safest, and cheapest way to prevent extreme poverty in old age is under deadly attack.
i don’t think “patience” or worrying about meaningless “subtlety” is called for at this time.
anyway, i don’t have it.