3 Reasons to Fix Social Security Now!

[jonny5]

Pop the cap on the taxable limit.
Freeze benefit levels for ten years.

Mission accomplished.

I can imagine both sides being upset at that, which means it probably has merit. What happens after ten years?

 

[jonny5]

GW Bush advocated that and was mocked for it. A few years later the private markets had a serious collapse and those mocking his idea of allowing privatization berated him further. I'd definitely like to see them create a 50/50 program whereby the individual could control at least 1/2 of their deposits themselves and be responsible for them.

But had you invested your payroll tax in the market at the time Bush was proposing it, your investment would be up 50% today.

 

[jonny5]

The article is flawed, and ironically enough understates the problem. It is factually wrong to say "It already takes in less than it pays out, and is cashing in bonds from the Treasury, which is also taking in less than it pays out". The UI research deals with a very narrow segment of America - and doesn't begin to support the "virtually all" said in the article. The UI research greatly overstates the economic returns of the system for younger workers.

If you look at the UI research, you will find that Social Security for people just entering the system is not terribly different from spending a quarter to buy a dime. If we increase taxes, that return will get worse. As it is today, the vast majority of Americans put their largest expense in retirement planning in a system that loses money - and you wonder why we have poverty in the elderly?

Social Security has been means tested since 1984.

You can't let people opt-out, or everyone would. At which point you would be unable to pay benefits to existing retirees.

Privatization does not help at all. Every dollar that is diverted to a private account is a dollar that can't pay benefits to existing retirees. A private account will only help younger workers to extent that we bail on the promises of the past.

Show me how what I said was factually wrong.

 

[CalGun]

So it's not 30 years it's 75? We take in close to $900 billion a year now and the shortfall is less than $125 billion a year for 75 years? It's inflammatory to toss out $10 trillion like its due tomorrow - its not.

I am not sure what you mean by inflammatory. It is data from the Social Security Trustees 2013 Report. The solvency shortfall is roughly 10 trillion in 2012 dollars. The overall shortfall is about 23 trillion - that is more than the system has collected in all forms since inception.

10 trillion is a present value number. That is the amount you would have to add today in order for Social Security to meet its obligations for the next 75 years. It represents the gap between the expected inflow and expected outflow less the Trust Fund assets.



The question is whether you would like to fund Social Security by contribution or by taxes. FDR made it clear that he didn't want to fund it through taxes. You can read his whole No Damn Politician quote. If people contribute based on investments, then they will get larger checks in the future. More money without completely rewriting system does nothing. You first have to say that you are the damn politician, and FDR was wrong.

Life isn't fair. And your case in Social Security is less fair than others because long-career workers subsidize shorter career workers. If that bothers you send a larger check, but you can't tell other people about fairness when you don't feel guilty enough to send the amount that is in your mind fair.

 

[JoeTheEconomist]

Show me how what I said was factually wrong.

Sorry cut and paste problem. "People think of Social Security as a retirement account, but it yields a terrible rate of return. Researchers at the liberal Urban Institute estimate that virtually all people retiring in 2010 or later will receive far less in benefits than they paid into the system via payroll taxes. Nobody would stand for that in a voluntary "

The problem with the statement is that it says "virtually all people" and then links you to data that is about a very narrow slice of America. The data is about people who work 45 years, where as people tend to have time off because of unemployment, babies, or early retirement.

 

[JoeTheEconomist]

So it's not 30 years it's 75? We take in close to $900 billion a year now and the shortfall is less than $125 billion a year for 75 years? It's inflammatory to toss out $10 trillion like its due tomorrow - its not.

You aren't reading the sentence correctly. The shortfall is a present value number. 10 trillion is a present value number. That is the amount you would have to add today in order for Social Security to meet its obligations for the next 75 years. It represents the gap between the expected inflow and expected outflow less the Trust Fund assets.

It isn't like you can wait 75 years and put $10 trillion in over 75 years.

 

[haymarket]

I can imagine both sides being upset at that, which means it probably has merit. What happens after ten years?

Make an assessment at that time. If necessary, freeze again.

 

[jonny5]

Make an assessment at that time. If necessary, freeze again.

So basically tax the rich and reduce benefits. I think its a bad idea, but at least it hurts everyone equally. It doesnt seem like a sustainable solution though as youll be forever freezing benefits while inflation increases leading to it not paying out enough for the poor to survive on.

 

[haymarket]

So basically tax the rich and reduce benefits. I think its a bad idea, but at least it hurts everyone equally. It doesnt seem like a sustainable solution though as youll be forever freezing benefits while inflation increases leading to it not paying out enough for the poor to survive on.

Actually what I am proposing is taxing the income earnings of all people at an equal rate for FICA purposes with a cap on benefits.

I would be happy to look at projections if you feel it is not sustainable. Social Security has undergone multiple adjustments over the years and there is no reason to believe that future adjustments will also not be necessary. And that is as it should be.

 

[CRUE CAB]

First thing to do with SS is give an opt out for anyone that would rather invest on their own.

 

[CalGun]

Monumental failure. Your own post even says the actual figure is $23 trillion. $10 trillion is not needed right now because there is no demand for a pay out of $10 trillion "right now" it over time. These figures estimate what is going to be collected and paid. ESTIMATE based on the past. Modifications in pay outs, what age, what is paid in, etc all dramatically change those estimates.

In 75 years the program needs an average of $305 billion a year. That could be as little as $25 billion next year and a trillion in year 75. Why do you expect this generation to pay for the next? Silliness!

You aren't reading the sentence correctly. The shortfall is a present value number. 10 trillion is a present value number. That is the amount you would have to add today in order for Social Security to meet its obligations for the next 75 years. It represents the gap between the expected inflow and expected outflow less the Trust Fund assets.

It isn't like you can wait 75 years and put $10 trillion in over 75 years.

 

[WhyNotWhyNot]

Actually what I am proposing is taxing the income earnings of all people at an equal rate for FICA purposes with a cap on benefits.

I would be happy to look at projections if you feel it is not sustainable. Social Security has undergone multiple adjustments over the years and there is no reason to believe that future adjustments will also not be necessary. And that is as it should be.

A little over a year ago I published a collection of essays about 13 big subjects facing America that would receive no mention in the Presidential campaign. One of the essay titles was "Third Rails - Part A". It looked at Social Security from a problem solving / social system design perspective. ("Third Rails - Part B" looked at Medicare). I began the essay with the following quotation

The Social Security program plays an important part in providing for families, children, and older persons in times of stress. But it cannot remain static. Changes in our population, in our working habits, and in our standard of living require constant revision – President Kennedy

The first paragraph was

We cannot achieve financial balance without balancing our largest programs, Social Security and Medicare. This is common sense and it was a conclusion of both the bipartisan commissions that were charged with recommending comprehensive federal budget balancing strategic plans. It is time for sobering national honesty. The policy of “out of sight, out of mind” that our elected officials choose because they either fear, or cater to, the very large block of old age voters has to end. No more “Say it ain’t so Joe”. We must be honest with ourselves and accept that budget balancing action is essential and it cannot be achieved without adjusting the Social Security and Medicare Programs. - from The Wind of Hope

The essay proceeds to examine the questions "What was the intended purpose of the Social Security Act of 1935? How has the program exploded from that purpose? How can we return to that core focus and thereby become sustainable?"

The title “Social Security Act” means exactly what it says: provide financial security for those whose income earning ability is diminished by infirmity or other factors outside their control. Old age was considered to be a type of infirmity. Passage of the Social Security Act was national acceptance of the principle that the Federal Government should provide a safety net for those who participate in our competitive capitalism, so that those who fall out of the economy don’t free fall to oblivion, but rather are held up by an income floor that meets very basic needs. - from The Wind of Hope

Social security was never intended to be a long term retirement program - and it wasn't designed for that which is why we find the following statement by the Social Security Administration

“The financial conditions of the Social Security and Medicare programs remain challenging. Projected long-run program costs for both Medicare and Social Security are not sustainable under currently scheduled financing, and will require legislative modifications if disruptive consequences for beneficiaries and taxpayers are to be avoided…… the Social Security Administrator's 2011 Annual Report

 

[jonny5]

Actually what I am proposing is taxing the income earnings of all people at an equal rate for FICA purposes with a cap on benefits.

I would be happy to look at projections if you feel it is not sustainable. Social Security has undergone multiple adjustments over the years and there is no reason to believe that future adjustments will also not be necessary. And that is as it should be.

Right, the effect would be wealth redistribution. The rich would pay more for the same benefit. The reason I say its unsustainable is that the rich will avoid the tax, so you still have very few people paying for a large amount of people who dont contribute as much.

 

[haymarket]

Right, the effect would be wealth redistribution. The rich would pay more for the same benefit. The reason I say its unsustainable is that the rich will avoid the tax, so you still have very few people paying for a large amount of people who dont contribute as much.

We could deal with that to make sure such things were fought and the proper tax collected.

 

[specklebang]

Seems like you are asking an honest question so I'll answer that question but only in regard to myself. I can't speak for other employers.

Early on in my business career, I did not provide health care. Of course, I paid the Medicare fees as required by law. I never had health care myself (until I was 55) and of course, health care used to be affordable, so I paid very high wages and bonuses without considering that cost. By the early 90s, I took on a partner, and he was appalled at the "excessive wages" but he was just as appalled at my failure to provide health care. So, we "made a deal" and I kept the high wages but we also got cheap health care HMO style and split it 50/50 with the employees.

I'm open minded enough to know that some businesses are low margin and employee cost can make or break them. I've never done business like that so I don't want to be unsympathetic to them. I've always hired a few less people and paid them more instead of more people, less wages.

So, probably you aree right in the sense that employers care only for their incomes and aren't up for sharing that income with their employees. From what I see lately, eliminating payroll taxes wouldn't go to the employee, it would go to the owners. So, no doubt it's my naivete speaking here.

I have to ask Do you ignore the cost of healthcare as well? Do you not factor your contributions to retirement accounts when you are making wage decisions? I can assure that you the cost of employment is in the minds of your competitors. So, the market wage will reflect the cost of employment. In short, if there were no payroll taxes, yes wages would rise.

 

[rabbitcaebannog]

The problem is that raising the cap no longer makes Social Security solvent, much less fixed. That approach would however make it much less possible to raise taxes on the rich to pay for controlling the debt.

It will virtually eliminate funding shortfalls for the next 75 years until it will need to be tweaked again.

 

[rabbitcaebannog]

Actually they're not promises of the past. They're unearned handouts that nobody should really be entitled to, but it's a pyramaid scheme and a great vote buying tool.

No, they are earned.

 

[JoeTheEconomist]

So basically tax the rich and reduce benefits. I think its a bad idea, but at least it hurts everyone equally. It doesnt seem like a sustainable solution though as youll be forever freezing benefits while inflation increases leading to it not paying out enough for the poor to survive on.

It doesn't hurt everyone much less everyone equally. It hurts high-wage earners. It hurts retirees. There is a massive gap in between.

You have to be able to explain why you would raise taxes for Social Security when we are cutting funding for Head Start Programs for lack of funding. To those who think this is a solution, they will tell you that is a completely separate issue as though raising payroll taxes has no impact on the ability of the nation to raise income taxes. It is bunk - how you collect taxes does not increase your ability to collect taxes or we would simply create new names for taxes every day.

 

[JoeTheEconomist]

It will virtually eliminate funding shortfalls for the next 75 years until it will need to be tweaked again.

The Social Security Administration says that you are wrong. It doesn't make it 'virtually solvent' for 50 years much less 75.

Solvent is not fixed. These concepts are 14 trillion dollars apart. Fixed means you have no problem. Solvent means that we have made our problem a problem for our children. So in 40 years when today's 25 year-old reaches 65, the system will have even larger shortfalls than we have today. The youth will be saying that they will not collect anything, leaving parents to tell their children just pay more and get less and your benefits will be safe. That's what happened in 1983. That is what you are suggesting to do today.

 

[rabbitcaebannog]

The Social Security Administration says that you are wrong. It doesn't make it 'virtually solvent' for 50 years much less 75.

Solvent is not fixed. These concepts are 14 trillion dollars apart. Fixed means you have no problem. Solvent means that we have made our problem a problem for our children. So in 40 years when today's 25 year-old reaches 65, the system will have even larger shortfalls than we have today. The youth will be saying that they will not collect anything, leaving parents to tell their children just pay more and get less and your benefits will be safe. That's what happened in 1983. That is what you are suggesting to do today.

Proof please.

 

[JoeTheEconomist]

Seems like you are asking an honest question so I'll answer that question but only in regard to myself. I can't speak for other employers.

Early on in my business career, I did not provide health care. Of course, I paid the Medicare fees as required by law. I never had health care myself (until I was 55) and of course, health care used to be affordable, so I paid very high wages and bonuses without considering that cost. By the early 90s, I took on a partner, and he was appalled at the "excessive wages" but he was just as appalled at my failure to provide health care. So, we "made a deal" and I kept the high wages but we also got cheap health care HMO style and split it 50/50 with the employees.

I'm open minded enough to know that some businesses are low margin and employee cost can make or break them. I've never done business like that so I don't want to be unsympathetic to them. I've always hired a few less people and paid them more instead of more people, less wages.

So, probably you aree right in the sense that employers care only for their incomes and aren't up for sharing that income with their employees. From what I see lately, eliminating payroll taxes wouldn't go to the employee, it would go to the owners. So, no doubt it's my naivete speaking here.

There are too few business people like you who see the big picture, and too many like your partner who only see the short-term. If you don't give the lower cost to the employee, someone like your partner will see that your wages are too low, and pick off your best employees. Wages are set by productivity, not the judgment of employers. Those with weak judgment are simply removed from the business pool.

 

[JoeTheEconomist]

A little over a year ago I published a collection of essays about 13 big subjects facing America that would receive no mention in the Presidential campaign. One of the essay titles was "Third Rails - Part A". It looked at Social Security from a problem solving / social system design perspective. ("Third Rails - Part B" looked at Medicare). I began the essay with the following quotation



The first paragraph was



The essay proceeds to examine the questions "What was the intended purpose of the Social Security Act of 1935? How has the program exploded from that purpose? How can we return to that core focus and thereby become sustainable?"



Social security was never intended to be a long term retirement program - and it wasn't designed for that which is why we find the following statement by the Social Security Administration

"Social security was never intended to be a long term retirement program". Social Security is not a retirement program, long short or otherwise. Social Security works like old-age insurance, where the insurer is insolvent. Insurance manages risk - oldage in this case. A retirement program builds wealth on which someone can retire. You buy auto-insurance, but it is not a wreck-savings program. It is an expense that you have in owning a car. Old-age insurance helps you manage the risk of outliving your savings by giving you supplemental income so that you can protect your savings.

Haymarket is simply wrong to describe it as a safety-net, millions of the poor were excluded. Millions of Americans today aren't even eligible. He wants it to be a safety-net so that govt can give and take as it pleases under the guise of humanity.

Feel free to send me a link to your work, and I will look at putting it on our site.

 

[JoeTheEconomist]

In 75 years the program needs an average of $305 billion a year. That could be as little as $25 billion next year and a trillion in year 75. Why do you expect this generation to pay for the next? Silliness!

You don't understand the numbers that you are quoting. Again, $10 trillion is a present value number which enables Social Security to be solvent. $23 trillion is a present value number which enables Social Security to be fixed. Fixed means that you have no problem. Solvent is the cost to make your problem a problem for your children.

If you go to page 66 of the 2013 Trustee Report, they spell it out for you. There are two reasons that the 75 year shortfall rose by nearly a trillion dollars in 2012. Shifting years changes the window of time of solvency, and you have 1 fewer years to discount. This problem isn't 75 years away. It is not a problem expressed over 75 years. It is the cost today necessary to address the financing gap in the system.

 

[JoeTheEconomist]

Long Range Solvency Provisions

This table is a year out of date. As I explained to Cal, the definition of solvency changes every year - for the worse. In 2012, the system's cost to maintain solvency rose by roughly a trillion dollars.

In terms of the 23 trillion dollar shortfall, it is found on page 16 of the Trustees report. Or search for infinite shortfall. The best page for the solvency shortfall is on page 66 which explains why the shortfall continues to rise.

 

[CalGun]

You don't understand the numbers that you are quoting. Again, $10 trillion is a present value number which enables Social Security to be solvent. $23 trillion is a present value number which enables Social Security to be fixed. Fixed means that you have no problem. Solvent is the cost to make your problem a problem for your children.

If you go to page 66 of the 2013 Trustee Report, they spell it out for you. There are two reasons that the 75 year shortfall rose by nearly a trillion dollars in 2012. Shifting years changes the window of time of solvency, and you have 1 fewer years to discount. This problem isn't 75 years away. It is not a problem expressed over 75 years. It is the cost today necessary to address the financing gap in the system.

It is not the COST TODAY. Plain and simple that much money is not due tomorrow so it is NOT THE COST TODAY it is the cost over time. And your estimates on what SS will take in and spend over that time are in fact estimates - nothing else. You have NO idea what recessions, expansions, depressions, etc we might go through in 75 years so the "estimate" can be way off. For example we just went through a serious recession; and so if the numbers are based permances over the last 3 years I can see them being stupid elevated. To say we have a $10, or $23 trillion short fall TODAY is emphatically WRONG.