• This is a political forum that is non-biased/non-partisan and treats every person's position on topics equally. This debate forum is not aligned to any political party. In today's politics, many ideas are split between and even within all the political parties. Often we find ourselves agreeing on one platform but some topics break our mold. We are here to discuss them in a civil political debate. If this is your first visit to our political forums, be sure to check out the RULES. Registering for debate politics is necessary before posting. Register today to participate - it's free!
  • Welcome to our archives. No new posts are allowed here.

Surprising Jump in Tax Revenues Is Curbing Deficit

Iriemon said:
Still don't understand what is legacy debt. If you mean future benefits owed to current SS participants, it is *far* more than $4 trillion.

If you mean current debt, there is no current debt SS owes. In fact, it is supposed to have a $2 trillion surplus of funds.

Diamond and Orzag explain it better than I do. Yes, SS has a surplus now, but it has an unfunded liability of $4 billion due to its scheduled payments.

There is no "agreement" to pay you interest in SS. The benefit is currently defined based upon a benefit level that is indexed to wage increases (something I agree with Bush should be modified to inflation).

There is an agreement to pay a certain amount in the future, considering that you can calculate your expected future benefit. That promise cannot be met past 2041 in our system.

Why couldn't you just lower the benefit to meet expected tax receitps or alternatively increase tax receipts?

Nobody wants to lower the benefit, and I think that having 12.4% of your income be taxed as it is for a program that originally took only 1% is quite enough. And you still have the problem of a paygo system.


The idea is that you take everyone in the current SS system, put them in a private plan where 5/6th of their contributions go into the new private plan, and 1/6th is used to pay the "legacy debt."

1. Again, you have to define "legacy debt". What is it and how do you figure it is $4 trillion. Is it the amount of benefits owing to current SS beneficiaries only?

Legacy debt is that which is scheduled to be paid to people which is not covered by receipts. That total, SS's unfunded liability, is $4 billion.

2. If I am 64 year's old right now, do I get SS? If not this sucks, I don't have the time to build up substitute savings.

Yes. Any proposed plan would have a transition period of a decade or more where those over 55 would get their scheduled benefits and those above a certain age but below 55 would have a phased transition.

Depending upon how it is administered.

They're currently handling $150 billion and keeping costs at 0.06%. That's pretty darn good.

The expected SS benefit 48 years from now is projected to be $13,000 per year? No way.

You are taking an investment in the stock market at current investment amounts, projecting that over 48 years, and comparing the annuity of that figure with what SS pays today. You cannot compare a future value with a present value, especially over 48 years.

I misspoke, but the point remains. I'm using today's dollars for both of them. In today's dollars, the benefits in the privatized plan as specified would be $41k. In today's dollars, the benefits under current SS would be $13k.



SS is not indexed to COLA but wages, I believe.

SS has its own COLAs, which yea, is indexed to the CPI.

But the amount of periodic payment is fixed.

Yea, but it still allows for that significantly higher payment as per above, with your money continuing to earn 5-7% even after you retire.

If I die, my family gets about $2k a month until the kids reach majority, and then my wife gets 1/2 that. It's not nothing. If I died in the first 10 years of my savings, the portfolio would be maybe $60k, not enough to cover even a portion of that. I'll prefer SS in that case.

I'm not sure how old you are/how much you've contributed, but I would venture to guess that you've been in the workforce for some time to build up that type of benefit.

And as a side point, is that what SS is supposed to be doing? I doubt that if the creators of the plan travelled 70 years into the future that they'd even recognize it now.


The 2.9% is not funding SS but medicare. If you use the 2.9% to cover SS disability and death benefits, what funds medicare?

If you take the 2.9% out, you are left with 0.4%, which is supposed to fund disability, death benefits, and cover all the folks who outlive their savings?

I'm sorry, I haven't looked at most of this stuff in almost a year so I'm flipping through old papers to brush up on it and consequently making a lot of mistakes.

No, the funding for disability/death would come out of the 2.4% difference between the 10% that goes into investment funds and the 12.4% that is taxed. For the first 10 years, it would be supplemented by a raising of the wage cap to $350,000.

Is that based on current SS plan or assuming changes to the plan? Source for this data?

This is based on the current plan.

General Accounting Office: Issues in Comparing Rates of Return with Market Investments. Washington, D.C: U.S. GPO, August, 1999. http://www.gao.gov/archive/1999/he99110.pdf

President’s Commission to Strengthen Social Security: Report of the President’s Commission. Washington, D.C: U.S. GPO, December 12, 2001. http://www.csss.gov/reports/Final_report.pdf

And how can you calculate a "return" on SS insurance? If I am permanently disabled after working three years my "return" is fabulous. If I live to 110 my return is great also, I come out way ahead of what I put in. If I live to 68 and die, my return sucks, it will be well in the negative.

SS is not an investment, it is insurance. It is like trying to calculate a return on a life insurance policy.

Yea, but it's become much more than insurance. The original plan was to make it so senior citizens wouldn't starve to death. Nowadays, the plan has to cover healthcare, provide disability, and ensure a "standard of living" for all people. Not to mention that it was originally voluntary. If it was only about "insurance," then why would millionaires be forced to participate? Because it's become just another tax and spend system, albeit one with a social insurance tilt.

That is another issue. Many folks are terrified of the stock market and wouldn't invest their own funds in it. Are you going to force them to invest in the stock market? If they invest in save Govt securities their returns are maybe 3-4%, now not much better than what you are saying it is for SS.

As I said in a previous post, no, there's the option to just keep it in a gov security that is guaranteed the same interest as the current plan.
 
RightatNYU said:
Diamond and Orzag explain it better than I do. Yes, SS has a surplus now, but it has an unfunded liability of $4 billion due to its scheduled payments.

Defined as: The benefits paid to almost all current and past cohorts of beneficiaries exceeded what could have been financed with the revenue they contributed, including interest. This history imposes a "legacy debt" on the Social Security system. That is, if earlier cohorts had received only the benefits that could be financed by their contributions plus interest, the trust fund's assets would be much greater today. If those expanded assets existed, they would be earning interest that could contribute to benefits. A reasonable estimate of the program's legacy that needs to be financed by those younger than 55 years old is $11.5 trillion. This legacy debt is not a debt in the traditional sense of that word, but the term crystallizes the need to allocate the cost of the assets that are not there across future cohorts.

This term, as used by these authors, is differnent that the way you describe it: "Legacy debt is that which is scheduled to be paid to people which is not covered by receipts. That total, SS's unfunded liability, is $4 billion."

Now, as you describe it, under current revenue and benefit payments, there is a $4 trillion shortfall. That is if *all* 12% of revenues are applied to pay benefits. Yet you propose that only 1/6 of that amount will pay the legacy debt. It if facially illogical and inconsistent. If 6/6 is not sufficient, 1/6 surely will not be!

Unless what you are proposing is that the current SS tax remain in place, and a new 12% payroll tax added for the new private accountson top of the existing one, is , and 1/6 of that is paid toward the SS "legacy debt." Is that your proposal?

There is an agreement to pay a certain amount in the future, considering that you can calculate your expected future benefit. That promise cannot be met past 2041 in our system.

Where can I find this agreement? I am aware of no agreement.

Nobody wants to lower the benefit, and I think that having 12.4% of your income be taxed as it is for a program that originally took only 1% is quite enough. And you still have the problem of a paygo system.

True, on the other hand, one or the other has to happen. And will. How painfully depends upon whether we keep running up debt and how soon the adjustments are made.

I misspoke, but the point remains. I'm using today's dollars for both of them. In today's dollars, the benefits in the privatized plan as specified would be $41k. In today's dollars, the benefits under current SS would be $13k.

How is the $41k in today's dollars? You didn't take the lump sum and recalculation it to present value. In your "worst case" scenario, the couple ends up with $495k, 48 years from now. In present value, with a discount rate of 3%, that is equivalent to about $125k. Now your annuity gets a little over $10k a year, worse than SS, and isn't adjusted for inflation/wages.

Even if you don't drop the extra 1/3 and use 742k, PV is $185k, giving you an annuity of $15k (or less if you get a lifetime annuity). Slightly better than SS, but over the remainding years of your life, the $15k annuity stays fixed and SS goes up with inflation/wages. Plus you get disability and death insurance under SS. SS is the better deal in this scenario.

SS has its own COLAs, which yea, is indexed to the CPI.

Source?

I believe SS increases are currently and have been indexed to wages, not inflation.

http://www.ssa.gov/OACT/COLA/AWI.html

I'm not sure how old you are/how much you've contributed, but I would venture to guess that you've been in the workforce for some time to build up that type of benefit.

About 20 years

And as a side point, is that what SS is supposed to be doing? I doubt that if the creators of the plan travelled 70 years into the future that they'd even recognize it now.

I don't know. I think so. It is social "security".

I'm sorry, I haven't looked at most of this stuff in almost a year so I'm flipping through old papers to brush up on it and consequently making a lot of mistakes.

No, the funding for disability/death would come out of the 2.4% difference between the 10% that goes into investment funds and the 12.4% that is taxed. For the first 10 years, it would be supplemented by a raising of the wage cap to $350,000.

Wait a minute RightNY, first you said the that 2% is for paying off the "legacy debt". Now you are saying it pays disability, death benefits, and pension shortfalls (you sure 2.4% is enough?).

Do you mean that 2% goes to "legacy", 2.4% to disability/death/pension, and then 8% goes into savings?

Now, instead of saving $3600 a year, the amount saved is 2400 a year, in a bad 30 year cycle you end up with $523k -- PV is $130k, an 18 year annuity gets you a little short of $11k a year. Or less for a lifetime annuity. Less than SS, and not indexed for future inflation/wages.

I'll keep SS as a bedrock rather than take that risk, thank you.

if you are raising the cap on SS as a tax increase, why not just eliminate it?

This is based on the current plan.

General Accounting Office: Issues in Comparing Rates of Return with Market Investments. Washington, D.C: U.S. GPO, August, 1999. http://www.gao.gov/archive/1999/he99110.pdf

President’s Commission to Strengthen Social Security: Report of the President’s Commission. Washington, D.C: U.S. GPO, December 12, 2001. http://www.csss.gov/reports/Final_report.pdf

Yes, as those sources point out, your "return" from SS can vary significantly based upon a wide range of variable, primarily when you die.

Yea, but it's become much more than insurance. The original plan was to make it so senior citizens wouldn't starve to death. Nowadays, the plan has to cover healthcare, provide disability, and ensure a "standard of living" for all people.

SS does not cover healthcare, it does not ensure a "standard of living" for all people. It provides disability, death, and pension benefits. I'm not sure when the disability and death benefits were added if they have not always been a part of the system.

Not to mention that it was originally voluntary. If it was only about "insurance," then why would millionaires be forced to participate? Because it's become just another tax and spend system, albeit one with a social insurance tilt.

It is "social" security - insurance. Millionaires are forced to participate because in experience a voluntary tax system doesn't work so well. We have this social insurance because most of us don't want to see hordes of old cripples begging at street corners -- and realizing with a bit of bad luck, that will be us there one day.

As I said in a previous post, no, there's the option to just keep it in a gov security that is guaranteed the same interest as the current plan.

I agree. Though how badly "broken" it is depends upon the accuracy of assumptions in long term forecasts. And it can be "fixed" fairly easily with minor modifications without wholesale surgery. I like president bush's proposal of indexing top benefits to inflation, not wages. SS should provide a basic, not luxurious living. The Govt doesn't need to pay SS to the likes of Warren Buffet. We could increase the age limit a couple years to reflect longer lives.

SS provides (or should provide) basic social insurance. We don't need a system of private savings -- we already have things like the thrift savings plan you tout -- we have 401ks and IRAs. People should save in the markets thru those vehicles, but if all else fails, SS should be there to keep old folks off the street.
 
Last edited:
Iriemon said:
This term, as used by these authors, is differnent that the way you describe it: "Legacy debt is that which is scheduled to be paid to people which is not covered by receipts. That total, SS's unfunded liability, is $4 billion."

Not really, as D&O point out, people early on in the system were given more money than they should have been. This has resulted in the money that should have been in the system earning interest instead being gone, thus lowering the amount that is available to pay out. This results in there being a greater amount that is supposed to be paid out than there is in the system, a gap of $4 trillion (i said billion by accident) if you go by Ferrara and Tanner's numbers or $11.5 trillion if you go by D&O's.

Now, as you describe it, under current revenue and benefit payments, there is a $4 trillion shortfall. That is if *all* 12% of revenues are applied to pay benefits. Yet you propose that only 1/6 of that amount will pay the legacy debt. It if facially illogical and inconsistent. If 6/6 is not sufficient, 1/6 surely will not be!

No, that $4 trillion shortfall exists if the interest rate remains the same as it does now. In a system where it is privatized, the gap can be closed with even less assets.

Here's an example.

You have a savings account in which you deposit $100 each year. In 20 years, you need to have $2500 to pay out. In the current system you deposit your $100 each year, earn low interest, and would only end up with, say, $2200 by year 20. That means that you've made $200 on your investment and still have a gap of $300.

But, there's another option, one in which you continue to only collect $100 each year, but invest $80 of it in one type of higher interest fund and invest the other $20 in another type of high interest fund. Say that by year 20, the $1600 you've collected into that one fund has earned enough interest that it now is up to $2200. Therefore, you've met the same threshold of savings as you did under the other plan, but without a small portion of your annual deposit. That extra $400 you invested in the other plan? Now it's worth $600, which means you can meet that $300 shortfall.

The proposed system is like that. Each person would get to choose where to invest their $80, between a number of closely managed funds. The government would take their $20 (for 10 years), and invest it in a fund of their choosing. Statistically, even with only having 5/6th of the amount being added to their capital for the first 10 years people would end up with more in savings than they could have expected under the old system. And the government has now skimmed 1/6th off the top and invested it to help make up the gap.

Sure, benefits might be lower for the first ten years than they would be later (albeit still higher than the current system), but it's all part of this belt tightening and biting the bullet that you've argued for.

Where can I find this agreement? I am aware of no agreement.

That's part of the problem. There's no law guaranteeing anyone SS benefits. The gov could stop tomorrow and nobody would have recourse. But the fact remains that it's such a powerful issue that the implicit agreement will be treated as a de facto contract.

True, on the other hand, one or the other has to happen. And will. How painfully depends upon whether we keep running up debt and how soon the adjustments are made.

Under nearly all systems (this one is no exception), benefits would be decreased in theory. Despite the fact that people are living significantly longer than they used to, people still want to retire at 65. Considering the average time that someone draws from SS has skyrocketed, any program is going to have to adjust to cover that by increasing retirement age or lowering benefits.
How is the $41k in today's dollars? You didn't take the lump sum and recalculation it to present value. In your "worst case" scenario, the couple ends up with $495k, 48 years from now. In present value, with a discount rate of 3%, that is equivalent to about $125k. Now your annuity gets a little over $10k a year, worse than SS, and isn't adjusted for inflation/wages.
Even if you don't drop the extra 1/3 and use 742k, PV is $185k, giving you an annuity of $15k (or less if you get a lifetime annuity). Slightly better than SS, but over the remainding years of your life, the $15k annuity stays fixed and SS goes up with inflation/wages. Plus you get disability and death insurance under SS. SS is the better deal in this scenario.

First, this was an absolute worst case, where the market was at its worst ever, the person was earning just above poverty level their entire life, and they lived significantly past their life expectency. And STILL, even in that scenario, without the 1/3 fictitious drop at the end, they come out better. What if instead of living to 85, this person lives to 78 like the average person?

Over $23,000 per year.

And why do you think the death benefits for SS are better? Under current SS, lets say the husband dies at 73 and the wife lives to 80. She gets 100% of his benefit. The exact same thing would happen under a privatized system. They still get every penny.

Furthermore, the inheritability is much better. Under our first scenario, that poverty level single gentleman barely earned enough to survive for his entire life. He was broke, never had any money to invest, and was left with nothing but his SS upon retirement. Under traditional SS, if he dies at 69, that's the end of that. His descendents get nothing. Under the privatized system, his children would inherit $185,000. That sounds much better to me.

Source?

I believe SS increases are currently and have been indexed to wages, not inflation.

http://www.ssa.gov/OACT/COLA/AWI.html

I think we're talking about the same thing:
The Social Security Act specifies a formula for determining the COLA. In general, the COLA is equal to the percentage increase in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) from the third quarter of one year to the third quarter of the next.

It's the CPI-W, not the CPI, my mistake.

I don't know. I think so. It is social "security".

SS was envisioned as a voluntary program by which people would give the government 1% of their salary in exchange for the knowledge that it would give them back that 1% with interest for the few years they survived past their retirement. It was supposed to serve the same purpose as the social benefit clubs of this time, where people paid their dues and if a member fell ill or died, the family would recieve money from the pool.

Of course, in those days, people would usually take care of their older relatives as well.

Now, SS has become a dependent source of income. What was once supposed to serve as a supplement is now 2/3 of the income of the average 65 year old, and for 1 in 3 retirees, serves as greater than 90% of their annual income.

Wait a minute RightNY, first you said the that 2% is for paying off the "legacy debt". Now you are saying it pays disability, death benefits, and pension shortfalls (you sure 2.4% is enough?).

Do you mean that 2% goes to "legacy", 2.4% to disability/death/pension, and then 8% goes into savings?

No, for the first 10 years, 2% goes to legacy, 10% goes to savings, and .4% goes towards SSI. During this 10 year period, the wage cap would be temporarily raised to $350,000 which would raise enough revenue to cover the gap between revenues and the $$ needed to pay out SSI.

After the first 10 years (the hardest part), 10% goes to savings, 2.4% goes to SSI.

And yes, 2.4% should be sufficient. Chile currently collects the same percentages, 10% for savings and 2.4% for disability.

Of course, its also possible that as part and parcel with this program taxes could be raised slightly, the ratio between savings::disability could be shifted one way or the other, or any one of many other adjustments necessary to maintain solvency.

It's impossible to predict exactly how things will work out, but this is a basic framework that can, if it is implemented correctly, work.

Now, instead of saving $3600 a year, the amount saved is 2400 a year, in a bad 30 year cycle you end up with $523k -- PV is $130k, an 18 year annuity gets you a little short of $11k a year. Or less for a lifetime annuity. Less than SS, and not indexed for future inflation/wages.

I'll keep SS as a bedrock rather than take that risk, thank you.

Like I said before, that's in the absolute utter worst case scenario...something that I honestly wager would never happen. I mean come on...earning 30k a year, worst stock market in history, THEN a 1/3 crash, and THEN living 7 years past expectancy? And, that's assuming 8% into savings, which as I just pointed out wouldn't be the case.

if you are raising the cap on SS as a tax increase, why not just eliminate it?

Because it's pointless to do that. Taxing Bill Gates 12.4% on 2 or 3 billion a year would mean that he would be getting SS checks in the range of a couple hundred million a year. Raising the cap does in fact raise revenue, but the returns diminish as you raise it.
 
SS does not cover healthcare, it does not ensure a "standard of living" for all people. It provides disability, death, and pension benefits. I'm not sure when the disability and death benefits were added if they have not always been a part of the system.


Disability and survivors benefit were added a few years after the program was first implemented, but back then, the criteria and payouts were significantly diminished. People simply didn't live long enough to collect much, and there were many many many more people paying in than there were withdrawing. It originally paid little enough that people did not rely on it and focused on other methods of supplemental income.

Nowadays, not by law but by common practice, SS IS expected to provide a standard of living. The widow eating cat food is a meme that the public abhors, along with the thought of a widow having to move out of her house, etc, because her SS payment isnt big enough.

It is "social" security - insurance. Millionaires are forced to participate because in experience a voluntary tax system doesn't work so well. We have this social insurance because most of us don't want to see hordes of old cripples begging at street corners -- and realizing with a bit of bad luck, that will be us there one day.

And if the system continues to remain broken, that is what we will see. (Side note...under current SS plan, 4% of the nations workers are exempt from the program. The new privatized plan would encompass them, thus making it truly mandatory.)

I agree. Though how badly "broken" it is depends upon the accuracy of assumptions in long term forecasts. And it can be "fixed" fairly easily with minor modifications without wholesale surgery. I like president bush's proposal of indexing top benefits to inflation, not wages. SS should provide a basic, not luxurious living. The Govt doesn't need to pay SS to the likes of Warren Buffet. We could increase the age limit a couple years to reflect longer lives.

Small fixes like that won't resolve the staggering long term liability. Even a combination of many small fixes would still require significant cuts in benefits.

And while I agree that in theory, Warren Buffet shouldn't receive SS, if we force him to pay into it and then give him nothing back, how is it any different from any other tax? A big part of the reason that SS is the most popular federal program in history is because everyone gets it. It's seen as inherently "fair" (in comparison to most gov programs). While it makes sense to cut top earners payments, it will be difficult politically to pull that off.

SS provides (or should provide) basic social insurance. We don't need a system of private savings -- we already have things like the thrift savings plan you tout -- we have 401ks and IRAs. People should save in the markets thru those vehicles, but if all else fails, SS should be there to keep old folks off the street.

I believe that if we really want to focus on making sure there are no "hordes of old panhandlers," we should be especially concerned with the people who don't have the disposable income to invest in 401k's or IRA's and find themselves retired at 67, living on $13,000 a year for a couple. These are the people who don't get to share in the market growth, and that sucks.
 
RightatNYU said:
Yes, SS has a surplus now, but it has an unfunded liability of $4 billion due to its scheduled payments.

Ah, that's about 1 week in Iraq... Hardly a big problem.
 
RightatNYU said:
You have a savings account in which you deposit $100 each year. In 20 years, you need to have $2500 to pay out. In the current system you deposit your $100 each year, earn low interest, and would only end up with, say, $2200 by year 20. That means that you've made $200 on your investment and still have a gap of $300.

But, there's another option, one in which you continue to only collect $100 each year, but invest $80 of it in one type of higher interest fund and invest the other $20 in another type of high interest fund. Say that by year 20, the $1600 you've collected into that one fund has earned enough interest that it now is up to $2200. Therefore, you've met the same threshold of savings as you did under the other plan, but without a small portion of your annual deposit. That extra $400 you invested in the other plan? Now it's worth $600, which means you can meet that $300 shortfall.

The proposed system is like that. Each person would get to choose where to invest their $80, between a number of closely managed funds. The government would take their $20 (for 10 years), and invest it in a fund of their choosing. Statistically, even with only having 5/6th of the amount being added to their capital for the first 10 years people would end up with more in savings than they could have expected under the old system. And the government has now skimmed 1/6th off the top and invested it to help make up the gap.

Sure, benefits might be lower for the first ten years than they would be later (albeit still higher than the current system), but it's all part of this belt tightening and biting the bullet that you've argued for.

You are still comparing SS which is insurance to a investment, which it is not.

That's part of the problem. There's no law guaranteeing anyone SS benefits. The gov could stop tomorrow and nobody would have recourse. But the fact remains that it's such a powerful issue that the implicit agreement will be treated as a de facto contract.

Right. There is no "agreement".

Under nearly all systems (this one is no exception), benefits would be decreased in theory. Despite the fact that people are living significantly longer than they used to, people still want to retire at 65. Considering the average time that someone draws from SS has skyrocketed, any program is going to have to adjust to cover that by increasing retirement age or lowering benefits.

True.

First, this was an absolute worst case, where the market was at its worst ever, the person was earning just above poverty level their entire life, and they lived significantly past their life expectency. And STILL, even in that scenario, without the 1/3 fictitious drop at the end, they come out better.

False. Under SS, as I showed, they come out better.

What if instead of living to 85, this person lives to 78 like the average person?

Over $23,000 per year.

Sure. SS insurance pays for someone who lives longer with funds saved for someone who lives less long.

Your system does not provide for what happens to someone who outlives their savings.

And why do you think the death benefits for SS are better? Under current SS, lets say the husband dies at 73 and the wife lives to 80. She gets 100% of his benefit. The exact same thing would happen under a privatized system. They still get every penny.

The difference is SS insurance provides a benefit even if you live to 105. A private plan does not.

Furthermore, the inheritability is much better. Under our first scenario, that poverty level single gentleman barely earned enough to survive for his entire life. He was broke, never had any money to invest, and was left with nothing but his SS upon retirement. Under traditional SS, if he dies at 69, that's the end of that. His descendents get nothing. Under the privatized system, his children would inherit $185,000. That sounds much better to me.

That's what private investments are for. SS is insurance.

SS was envisioned as a voluntary program by which people would give the government 1% of their salary in exchange for the knowledge that it would give them back that 1% with interest for the few years they survived past their retirement.

I don't believe SS was ever voluntary.

It was supposed to serve the same purpose as the social benefit clubs of this time, where people paid their dues and if a member fell ill or died, the family would recieve money from the pool.

Of course, in those days, people would usually take care of their older relatives as well.

These programs were inadequate.

Now, SS has become a dependent source of income. What was once supposed to serve as a supplement is now 2/3 of the income of the average 65 year old, and for 1 in 3 retirees, serves as greater than 90% of their annual income.

I agree the benefits can be too rich, especially for folks that have substantial wealth who don't need it. For some without any other pension, $1000 a month SS is not too rich.

No, for the first 10 years, 2% goes to legacy, 10% goes to savings, and .4% goes towards SSI. During this 10 year period, the wage cap would be temporarily raised to $350,000 which would raise enough revenue to cover the gap between revenues and the $$ needed to pay out SSI.

Facially inadequate and interally inconsistent. You cannot pay current beneficiaries with 1/6 of payroll taxes when 6/6 is not enough. This is obvious, is it not?

Af
ter the first 10 years (the hardest part), 10% goes to savings, 2.4% goes to SSI.

What about the millions still relying on SS? Throw them in the street?

It's impossible to predict exactly how things will work out, but this is a basic framework that can, if it is implemented correctly, work.

Your framework is totally unworkable. It does not come even close to funding current beneficiaries.

Like I said before, that's in the absolute utter worst case scenario...something that I honestly wager would never happen. I mean come on...earning 30k a year, worst stock market in history, THEN a 1/3 crash, and THEN living 7 years past expectancy? And, that's assuming 8% into savings, which as I just pointed out wouldn't be the case.

It will never happen? Didn't you base the numbers on something that did actually happen? As I showed, even without the 1/3 crash, your proposal is much worse than SS.

Because it's pointless to do that. Taxing Bill Gates 12.4% on 2 or 3 billion a year would mean that he would be getting SS checks in the range of a couple hundred million a year. Raising the cap does in fact raise revenue, but the returns diminish as you raise it.

Only if you are looking at SS as an investment that has to give returns. It is not an investment.
 
Last edited:
RightatNYU said:
Disability and survivors benefit were added a few years after the program was first implemented, but back then, the criteria and payouts were significantly diminished. People simply didn't live long enough to collect much, and there were many many many more people paying in than there were withdrawing. It originally paid little enough that people did not rely on it and focused on other methods of supplemental income.

Nowadays, not by law but by common practice, SS IS expected to provide a standard of living. The widow eating cat food is a meme that the public abhors, along with the thought of a widow having to move out of her house, etc, because her SS payment isnt big enough.

OK -- for the aged, not all society.

Small fixes like that won't resolve the staggering long term liability. Even a combination of many small fixes would still require significant cuts in benefits.

Depends on the fixes. Making it means tested and increasing the age a couple years would probably do the trick.

And while I agree that in theory, Warren Buffet shouldn't receive SS, if we force him to pay into it and then give him nothing back, how is it any different from any other tax? A big part of the reason that SS is the most popular federal program in history is because everyone gets it. It's seen as inherently "fair" (in comparison to most gov programs). While it makes sense to cut top earners payments, it will be difficult politically to pull that off.

SS is not an investment. It is social insurance. I agree the politics are problematic, because most the rich folks will be screaming about their "entitlements".

I believe that if we really want to focus on making sure there are no "hordes of old panhandlers," we should be especially concerned with the people who don't have the disposable income to invest in 401k's or IRA's and find themselves retired at 67, living on $13,000 a year for a couple. These are the people who don't get to share in the market growth, and that sucks.

Better than them being on the street.

But that is the real problem, isn't it? Instead of having real assets in the SS fund that could be invested with better returns, the SS fund has been and is being stolen to finance the Republican deficits.
 
Iriemon said:
Depends on the fixes. Making it means tested and increasing the age a couple years would probably do the trick.

So there goes the contract, the agreement, the promise the government gave me.

SS is not an investment. It is social insurance. I agree the politics are problematic, because most the rich folks will be screaming about their "entitlements".

Not if we do what you want to do. It will be a tax and welfare program.

But that is the real problem, isn't it? Instead of having real assets in the SS fund that could be invested with better returns,

In "risky schemes"? If we do that then put the money in the persons name and make them the owner of it.

the SS fund has been and is being stolen to finance the Republican deficits.

And the Democrat debts too. The debt is not partisan. But then what would you do with the money? Invest it in what? And remember no risky schemes.
 
Stinger said:
So there goes the contract, the agreement, the promise the government gave me.

What contract, agreement or promise do you have? I don't have any.

Not if we do what you want to do. It will be a tax and welfare program.

There is some truth to that. We cannot afford to pay benefits to folks who don't need it, especially in light of the fact the Govt has a huge and growing debt that has to be fed.

On the other hand, it is still a type of insurance, paid for out of your payroll taxes, that in the worst case scenario, provides you security that you won't end up on the street. Like many other types of insurance ("whole-life" type policies aside), you don't necessarily get the benefit you are paying for.

In "risky schemes"? If we do that then put the money in the persons name and make them the owner of it.

Why is that necessary? If it is safe enough for individuals isn't it safe enough for the Govt?

And the Democrat debts too. The debt is not partisan. But then what would you do with the money? Invest it in what? And remember no risky schemes.

Oh, I think we know who is responsible for the great bulk of the debt. I'll post the numbers again if you want.

What is a "risky scheme"? Any investment that provides a better return like RightNY is talking about represents more risk. I think he was talking about broad market index types of investments.
 
Last edited:
hipsterdufus said:
Ah, that's about 1 week in Iraq... Hardly a big problem.


B should have been a T.

That's a big problem. And I'm operating under a minimized debt scenario.
 
Iriemon said:
You are still comparing SS which is insurance to a investment, which it is not.

Should the government be in the business of taking 1/8 of all income (in addition to the 20-60% of all other income that it takes through taxes) in order to force us to buy insurance that many will never need? If they're going to force us to do that, shouldn't we desire to at least earn a respectable investment on it?

Right. There is no "agreement".

Except for the unstated one which is going to be essentially impossible to break due to political factors.

False. Under SS, as I showed, they come out better.

In some scenarios, close to the absolute worst possible.

Sure. SS insurance pays for someone who lives longer with funds saved for someone who lives less long.

Your system does not provide for what happens to someone who outlives their savings.

The difference is SS insurance provides a benefit even if you live to 105. A private plan does not.

Like I said, mandatory lifetime annuities and this entire problem is solved.

That's what private investments are for. SS is insurance.

And I'm saying that we can operate SS more like private investment.

Some government bureaucracies are incredibly inefficient in comparison to private industry. Should we make the effort to streamline them, to make them more like private industry and more effective, or should we simply say "Private business is efficient. This is the government, lets leave it alone"?
I don't believe SS was ever voluntary.

A limited form of the Social Security program began as a measure to implement "social insurance" during the Great Depression of the 1930s, when poverty rates among senior citizens exceeded 50% [4].

Social Security was controversial when enacted and remains so today. Several provisions were introduced to sway public opinion for the passage of the law. President Franklin Delano Roosevelt promised that participation in the program would be completely voluntary and that participants would only have to pay 1% of the first $1,400 of their annual incomes into the Program. That is, the money the participants elected to put into the Program would be deductible from their income for tax purposes each year. The money the participants put into the independent "Trust Fund" rather than into the General operating fund were to be used to fund the Social Security Retirement Program and no other Government program. The annuity payments to the retirees were never to be taxed as income.

From wikipedia, but it's accurate. I can find another source if you'd prefer.

The only reason SS even survived being thrown out by the SC was because Roosevelt used fascist tactics to strongarm the court into doing what he pleased.

These programs were inadequate.

But they didn't run $4 trillion debts either.

I agree the benefits can be too rich, especially for folks that have substantial wealth who don't need it. For some without any other pension, $1000 a month SS is not too rich.

I'm not saying the benefits themselves are too rich, I'm saying people have gotten too used to the idea of SS as a retirement fund, and as a result, become complacent about saving other money.

You and I have been discussing SS as an insurance program, but if you ask 9 out of 10 seniors how they view SS, they will say they view it as a pension system. Hence, the absurd number of people relying solely on it. This is one of the biggest obstacles to change.

Facially inadequate and interally inconsistent. You cannot pay current beneficiaries with 1/6 of payroll taxes when 6/6 is not enough. This is obvious, is it not?

What about the millions still relying on SS? Throw them in the street

Where do you get that we're paying those beneficiaries with 1/6 of the taxes. The other 5/6 are still being taken in by the system, except they'll be earning a higher rate, allowing some of the debt to be paid back.

And nobody stops getting SS, all benefits that are implicitly promised would be paid.

Your framework is totally unworkable. It does not come even close to funding current beneficiaries.

That's factually untrue. There have been numerous studies done on similar types of proposals which have detailed its feasibility.

It will never happen? Didn't you base the numbers on something that did actually happen? As I showed, even without the 1/3 crash, your proposal is much worse than SS.

I based those worst case numbers on the worst period of the market ever, AND then assuming that it would drop another 1/3, which has never happened (because that would imply a lower rate over that time period). And no, you never showed that. You were assuming that no lifetime annuity would be bought, and that the person would live for much longer than expectency.
 
Iriemon said:
Depends on the fixes. Making it means tested and increasing the age a couple years would probably do the trick.

Not at all. I don't have the #'s in front of me, but I spent a lot of time going over the various incremental proposals, and its a lot more drastic than most people think. If you poke around into the proposals made by most leading incrementalists, (Diamond and orzag are a good start), even they concede that their plans require serious changes within the current framework.

SS is not an investment. It is social insurance. I agree the politics are problematic, because most the rich folks will be screaming about their "entitlements".

And because the poor/middle class folks will be angry that their "pensions" are being tampered with.

Better than them being on the street.

But still not as good as having real investments.

But that is the real problem, isn't it? Instead of having real assets in the SS fund that could be invested with better returns, the SS fund has been and is being stolen to finance the Republican deficits.

Spending the SS treasury is not solely a Republican endeavor, and you know it.
 
RightatNYU said:
Should the government be in the business of taking 1/8 of all income (in addition to the 20-60% of all other income that it takes through taxes) in order to force us to buy insurance that many will never need? If they're going to force us to do that, shouldn't we desire to at least earn a respectable investment on it?

The govt should do it only if there is a consensus in the country we don't want hordes of homeless old folks.

I have stated several times I agree it would be better for the Govt to have invested the SS funds instead of squandering them on the Republican deficits. Having said that, again, it is in the nature of insurance. Do you expect to get a respectable return on your life insurance policy? And you can earn a respectable return. Die young with dependants, or live to 110, and you will have a fabulous return.

Except for the unstated one which is going to be essentially impossible to break due to political factors.

Politics is always an issue. But it has been changed in the past, for example the age was increased from 65 to 67. Under the current political climate, compromise seems unlikely, as both sides dig in at any issue and there appears to be little spirit of compromise.

In some scenarios, close to the absolute worst possible.

I certainly agree that when the market performs well or even average, you are better off with market securities. That is why you should invest your private accounts in the market. On the other hand, the reason you have insurance is to deal with the bad scenarios.

Like I said, mandatory lifetime annuities and this entire problem is solved.

From what I understand, annuities in general and lifetime annuities in particular generally provide for a lousy "investment" if that is the way you want to look at it.

Do you know anywhere we could find rates charged for such things?

And I'm saying that we can operate SS more like private investment.

OK. As long as it still provides for social insurance, and provided that there is some rational explanation of how we pay for folks are already depending on SS.

Some government bureaucracies are incredibly inefficient in comparison to private industry. Should we make the effort to streamline them, to make them more like private industry and more effective, or should we simply say "Private business is efficient. This is the government, lets leave it alone"?

Some private industry is inefficient compared to the Govt. Example given, your thrift savings plan, which appears to operate incredibily efficient compared to private managers, based on fee costs.

From what I have read, SS is administered very cost efficiently. The problem with "returns" on the investments isn't the management of SS, but the fact that the Govt has stole the funds because of the deficits.

A limited form of the Social Security program began as a measure to implement "social insurance" during the Great Depression of the 1930s, when poverty rates among senior citizens exceeded 50% [4].

Yes, it has been quite effective at reducing poverty among seniors. Too effective, IMO. Seniors asset-wise are the richest group of Americans. They get Govt $$ paid for by the poorest groups of Americans.

From wikipedia, but it's accurate. I can find another source if you'd prefer.

OK. As enacted was it ever voluntary? Not for long, I wouldn't think.

The only reason SS even survived being thrown out by the SC was because Roosevelt used fascist tactics to strongarm the court into doing what he pleased.

The Republicans have had decades to correct that outrage.

But they didn't run $4 trillion debts either.

True. There is a balance to be had however without scrapping the program.

I'm not saying the benefits themselves are too rich, I'm saying people have gotten too used to the idea of SS as a retirement fund, and as a result, become complacent about saving other money.

The benefits IMO are too rich when they are paid out to people who don't need them. I agree Americans are complacent about saving money, I'm not sure how much this is due to SS or other factors. Even with SS, Americans save way to little. Without SS, I doubt many would save the difference.

You and I have been discussing SS as an insurance program, but if you ask 9 out of 10 seniors how they view SS, they will say they view it as a pension system. Hence, the absurd number of people relying solely on it. This is one of the biggest obstacles to change.

It provides a pension benefit, sure. The fact that an absurd number rely on it underscore its importance, unless we want to go back to the 50% poverty days.

Where do you get that we're paying those beneficiaries with 1/6 of the taxes. The other 5/6 are still being taken in by the system, except they'll be earning a higher rate, allowing some of the debt to be paid back.

Aren't the other 5/6 going into private accounts? These funds will not be available to pay SS benefits for folks depending upon them.

Unless I misunderstand you, your proposal is to take 5/6 of the 12% payroll tax and put it in the new private account system. 1/6 will be used to pay for current SS beneficiaries and those over 55.

If 6/6 of payroll taxes is not enough to pay these benefits, how in the world can you argue that 1/6 is going to be sufficient?

And nobody stops getting SS, all benefits that are implicitly promised would be paid.

From 1/6 of current payroll taxes????? That won't cover 3 months.

That's factually untrue. There have been numerous studies done on similar types of proposals which have detailed its feasibility.

What I understand you are proposing is inherently illogical and unfeasible. I have never seen a private account plan which comes close to resolving the funding issue, in fact they involve either substantial new taxes or many trillions more debt.

If you have a proposal I can look at that you feel adequately addresses these issues, I'll take a look at it.

I based those worst case numbers on the worst period of the market ever, AND then assuming that it would drop another 1/3, which has never happened (because that would imply a lower rate over that time period). And no, you never showed that. You were assuming that no lifetime annuity would be bought, and that the person would live for much longer than expectency.

Repaste: Even if you don't drop the extra 1/3 and use 742k, PV is $185k, giving you an annuity of $15k (or less if you get a lifetime annuity). Slightly better than SS, but over the remainding years of your life, the $15k annuity stays fixed and SS goes up with inflation/wages. Plus you get disability and death insurance under SS. SS is the better deal in this scenario.
 
RightatNYU said:
Not at all. I don't have the #'s in front of me, but I spent a lot of time going over the various incremental proposals, and its a lot more drastic than most people think. If you poke around into the proposals made by most leading incrementalists, (Diamond and orzag are a good start), even they concede that their plans require serious changes within the current framework.

I thought Diamond and Orzag had some interesting thoughts and proposals, but I don't believe they are proposing a privatization system.

And because the poor/middle class folks will be angry that their "pensions" are being tampered with.

Sure, everyone gets angry when you mess with their spending. But I don't think poor/middle class folks are the ones whose benefits should be cut. They need that $$ to survive. Warren's benefits should be cut. Warren doesn't need SS checks from the Govt.

But still not as good as having real investments.

Certainly not for asset growth. I encourage everyone to save in 401ks or IRAs.

Spending the SS treasury is not solely a Republican endeavor, and you know it.

OK. However, it has been stolen because of the deficits, which IMO are fair to call a Republican endeavor. You've seen the deficit figures.
 
Back
Top Bottom