The Secret Language Of The Social Security Debate

[JoeTheEconomist]

With Bear Stearns, the people had an incredibly profitable (for themselves) reason to believe that things would just keep on going as they had. There's an old saying about convincing someone of something when their paycheck depends on believing the opposite.

You do not find this same problem in near retirees who don't want to pay higher taxes nor take any cuts in benefits. Someone 64 or younger expects to outlive full benefits.

 

[sangha]

I think that there is a theoretical basis for the Trustees work. It looks at the system projected into the future with economic inputs. I use the material because the material provided by the Trustees say that Social Security is horribly broken. My gut tells me that the situation is much worse than they protray. The assumptions that they use are overly optimistic. If you look at the real interest rate assumptions they aren't even possible. It is no different than Coke saying that they will sell 50 billion cases in year X.

I don't know anything about medicare other than it is heading for insolvency, and when that happens Congress will have three choices : (a) pull payroll tax base away from Social Security (b) pull general taxbase away from debt control (c) redefine medicare benefits.

I'm no economist, or expert, on the matter, but my understanding was that the assumptions are pessimistic in many ways. for one thing, it doesn't count the contributions of illegal immigrants, whose paychecks have FICA deducted but don't get to collect on it. Also, its' assumptions of economic growth are conservative (there are three assumption concerning this, right?).

WRT Medicare, I agree that is a matter of serious concern and a far more complicated matter.

 

[sangha]

You do not find this same problem in near retirees who don't want to pay higher taxes nor take any cuts in benefits. Someone 64 or younger expects to outlive full benefits.

I do not believe the situation is as simple as "I don't want to pay higher taxes, so I'm going to stop working" when such a decision not only lowers their tax bill, it lowers their income.

 

[JoeTheEconomist]

I'm no economist, or expert, on the matter, but my understanding was that the assumptions are pessimistic in many ways. for one thing, it doesn't count the contributions of illegal immigrants, whose paychecks have FICA deducted but don't get to collect on it. Also, its' assumptions of economic growth are conservative (there are three assumption concerning this, right?).

WRT Medicare, I agree that is a matter of serious concern and a far more complicated matter.

Actually I think that is one of the optimistic assumptions. The projections assume that they will continue to contribution without ever collecting. My guess is that they will collect at some point. The assumptions come in three flavors high-cost, medium cost, and low cost. If you look at real interest rate assumptions we are using the same assumptions that pre-date the financial crisis. Out of curiousity, why would you suggest that any of the economic assumptions are conservative - can you give me an example.

Fertility is way off.

 

[sangha]

Actually I think that is one of the optimistic assumptions. The projections assume that they will continue to contribution without ever collecting. My guess is that they will collect at some point. The assumptions come in three flavors high-cost, medium cost, and low cost. If you look at real interest rate assumptions we are using the same assumptions that pre-date the financial crisis. Out of curiousity, why would you suggest that any of the economic assumptions are conservative - can you give me an example.

Fertility is way off.

Re: immigrants, my understanding is that they don't project any contributions from immigrants. I may be wrong about that though

As far as the economic growth assumptions go, my understanding is that they are low compared to our experience.

 

[JoeTheEconomist]

Re: immigrants, my understanding is that they don't project any contributions from immigrants. I may be wrong about that though

As far as the economic growth assumptions go, my understanding is that they are low compared to our experience.

That may pre-date the financial crisis. Here is material from Bruce Krasting. He is just another blogger, but one that writes well and accurately on the issue :

On the 2013 Social Security Report to Congress - Bruce Krasting

 

[sangha]

That may pre-date the financial crisis. Here is material from Bruce Krasting. He is just another blogger, but one that writes well and accurately on the issue :

On the 2013 Social Security Report to Congress - Bruce Krasting

Thans for posting that. Though it didn't address my point about immigrants it did have a lot of useful info

It did raise a question for me. It states that the report had a set of varying % rates for GDP growth over the years. I thought the report was supposed to use three different fixed #'s for GDP growth (ie the high-cost, medium cost, and low cost options we spoke of earlier)

 

[JoeTheEconomist]

Thans for posting that. Though it didn't address my point about immigrants it did have a lot of useful info

It did raise a question for me. It states that the report had a set of varying % rates for GDP growth over the years. I thought the report was supposed to use three different fixed #'s for GDP growth (ie the high-cost, medium cost, and low cost options we spoke of earlier)

According to SSA, undocumented workers contribute about 15 billion a year under SSNs from which they can't collect. The projections of the Trustees are based on things like wage growth, unemployment, interest rates, mortality, and the like. I do not see how the actuaries can pull out illegals from legal workers. They have a revenue stream today that includes illegals. How would they pull those people out of the projections?

I can send the question to SSA. They have been responsive in the past, but it takes weeks to hear back.

 

[sangha]

According to SSA, undocumented workers contribute about 15 billion a year under SSNs from which they can't collect. The projections of the Trustees are based on things like wage growth, unemployment, interest rates, mortality, and the like. I do not see how the actuaries can pull out illegals from legal workers. They have a revenue stream today that includes illegals. How would they pull those people out of the projections?

I can send the question to SSA. They have been responsive in the past, but it takes weeks to hear back.

They would do that by making population growth projections based on the birth rate of the current population without including population growth from illegal immigration.

 

[cpwill]

You left one out:

"unfunded liability" = money you don't owe and may never owe but which some people think you should have on hand anyway

Is it your theory that all the baby boomers are going to suddenly die out for no particular reason?

 

[JoeTheEconomist]

They would do that by making population growth projections based on the birth rate of the current population without including population growth from illegal immigration.

I am familiar with the process, but not at that level of detail. I use the Trustees data because it is a credible independent source that says that the system is broken. I have only looked into the assumptions on a cursory basis because no one wants to debate the merits of assumptions. So I have looked at a few particularly the interest rate assumptions which are easy to evaluate. I looked at fertility which is easy to look at. These are terribly wrong - so my needs are filled.

I do not know how population growth is plugged into the equations, but I don't see how you would separate US worker populations from illegal worker populations. Is it essentially your point that the immigration assumptions are wrong rather than population growth. I suspect that is possible.

 

[Hard Truth]

I suspect we have a paid poster in this thread.

 

[Samhain]

You left one out:

"unfunded liability" = money you don't owe and may never owe but which some people think you should have on hand anyway

Unfunded Liability = The amount, at any given time, by which future payment obligations exceed the present value of funds available to pay them. For example, a pension plan's payment obligations, including all income, death and termination benefits owed, are compared to the plan's present investment experience, and if the total plan obligations exceed the projected plan assets at any point in time, the plan has an unfunded liability.

Unfunded Liability reporting is required for all businesses, and of last year, is a requirement for all state and local governments as well.

In the terms of SS, the only way to reduce this risk is to reduce the likelihood of persons reaching full benefit age or increase present funds while not increasing future benefits.

 

[Hard Truth]

It is easy to throw around the word lie when you don't have to back up your words. Social Security isn't counted in the deficit. The revenue collected and the expense paid is not part of the budget. That doesn't mean that the system doesn't add to the budget deficit. It is a tax on wages. That will make goods and services more expensive, and is a factor in offshoring work. The high cost of payroll taxes require a direct subsidy in the form of the EITC. That cost the general taxpayer about 60 billion in 2011. The cost of the payroll tax holiday was roughly 250 billion. It is easy to throw around lie when you don't have to back it up.

You aren't very clear about why you think that they are the same thing. Here is another article on policymic which says that it not only adds to the deficit, but will become a much larger contributor.

Think Social Security is Unaffordable Now? Just You Wait

The statement "Social Security does not contribute to the deficit", they really mean "Social Security is not counted toward the deficit". These are vastly different things" is intentionally deceitful.

Saying that it is "not counted toward the deficit" suggests that someone is playing games and excluding SS from deficit numbers, That is not the case. Just because SS has an impact on the economy does not mean that it has a direct impact on the federal deficit. You also failed to include the consumer spending made possible by SS and the cost of other types of aid to the poor that eliminating SS would require. In addition, without SS, families would have to pay for their older relatives support, another economic impact neglected by SS opponents.

The fact is that the issue of SS's future solvency issues is constantly being misrepresented by those who oppose SS because of their political philosophically, partisanship and/or an interest in profiting from a privatization scheme.

The SS issue needs to be addressed, but there is every reason to distrust the intentions of those who primarily focus on the Social Security issue. There is a hidden agenda (and big money) driving this issue, and it is definitely not about making things better for the general public

 

[Samhain]

The statement "Social Security does not contribute to the deficit", they really mean "Social Security is not counted toward the deficit". These are vastly different things" is intentionally deceitful.

Saying that it is "not counted toward the deficit" suggests that someone is playing games and excluding SS from deficit numbers, That is not the case. Just because SS has an impact on the economy does not mean that it has a direct impact on the federal deficit. You also failed to include the consumer spending made possible by SS and the cost of other types of aid the poor that eliminating SS would require. In addition, without SS, families would have to pay for their older relatives support, another economic impact neglected by SS opponents.

The fact is that the issue of SS's future solvency issues is constantly being misrepresented by those who oppose SS because of their political philosophically, partisanship and/or an interest in profiting from a privatization scheme.

This is incorrect. If one was to increase FICA contribution rates in an attempt to shore up the SS books, you would directly reduce the amount of income the federal government can tax, thus reducing federal revenue, which impacts the federal deficit.

 

[jaeger19]

Not according to the Social Security Administration. I have posted links to their analysis. Do you have a better source than SSA?

No.. I like the SSA ..From their analysis:

This policy brief analyzes the effects on taxpayers and Social Security beneficiaries of either eliminating the taxable maximum (tax max) for Social Security or raising it to a level so that 90 percent of all Old-Age, Survivors, and Disability Insurance (OASDI)–covered earnings would be subject to the payroll tax. Under both scenarios it is possible to either calculate benefits based on the current-law tax max (no max and max 90) or to credit the new taxable amounts toward benefits (no max plus benefits and max 90 plus benefits).1

The distributional results presented herein are from the Modeling Income in the Near Term (MINT) microsimulation model.2 The four options are assumed to take effect in 2008, consistent with the latest start date used by Social Security's Office of the Chief Actuary (OCACT) in its solvency projections for these options using the 2005 Trustees Report. The results focus on those aged 62 or older in 2070 to determine the effects of these changes on individuals spending most or all of their working careers under the policy options discussed here. The outcomes associated with each of the policy options are compared with current law. In addition, the immediate tax rate increase required to completely close the 75-year solvency gap (1.92 percentage points) is used as a reference point for comparing these options with a solvent baseline.3 The major findings are as follows:
•According to OCACT, all of the options would improve Social Security's long-term financial outlook, but not to the same extent. The largest positive change would be under the no max option, which would improve the long-range actuarial balance by an estimated 2.21 percent of taxable payroll.4
•The majority of individuals would not be affected by any of these provisions. Seventy-seven percent of persons aged 62 or older in 2070 are projected to never earn over the scheduled tax max from 2008 forward.
•All of the options would result in higher lifetime earners paying more in taxes, on average

.

A little more from the same analysis:

All of the Options Would Improve Solvency, but Not to the Same Degree

When comparing all of these policy options it is important to emphasize that they do not improve solvency equally. Using the assumptions in the 2005 Trustees Report, the no max option is the only option projected to fully close the long-range actuarial imbalance

Link:

Distributional Effects of Raising the Social Security Taxable Maximum

 

[jaeger19]

If you lower wages (ie increase taxes) people will work less. You can call that a lie, or like the rest of us you can call it Economics 101.

Believe it or not high-wage workers have alternatives to work, particularly older ones who may prefer to spend more time with family.

Well, that's the differences between the real world.. and learning something in Econ 101. And if you doubt that.. just go back and look at what all the academic economists were saying about the economy and what to do about it from 1998 to 2009. A whole slough of them got it wrong then.. and you have it wrong now.

When people make less..they don't work less... they WORK MORE...
Decrease an employees salary, or work hours.. and invariably, they try to pick up extra shifts from someone else, or they go to find work at other facilities (which means you can lose them)

That's because if the amount you bring home matters at all? if 1.35% matters to you? It matters because you have debts and bills and things that you want to do with that money.

And there is no way.. NO WAY.. that if you have that going on.. are you going to say no to a 120,000 thousand dollar a year salary... because you don't want to pay an extra 1600 a year.

And anyone who chooses to work when they don't have to for fiscal reasons? They aren't going to be concerned about 1620 in taxes either.. because they don't care about the 120,000.

I suggest that you tell whomever you have been listening to.. that's telling you that folks will decide to give up 120,000 dollars because they don't want to pay 1600 in taxes... you need to tell them to put down the crack pipe and go get a job and realize what happens in real world economics

 

[JoeTheEconomist]

No.. I like the SSA ..From their analysis:

.

A little more from the same analysis:


Link:

Distributional Effects of Raising the Social Security Taxable Maximum

The link I gave you was from 2013. Yours is from 2009.

 

[jaeger19]

Social Security is not counted in the deficit. So there is no deficit magic in cutting benefits.

If we raise taxes (however they are collected) we have the ability to use the money to reduce the deficit or outstanding debt. We can eliminate the cap, and raise taxes. The question is how the money is used. Putting fresh tax base into Social Security while we continue to run up the debt on future generations is exactly like putting your 401K contribution on your child's credit card.

Social Security has no debt according to the Supreme Court. Benefits are whatever Congress says that they are. In 1983, the entire workforce found out that benefits are not guaranteed and there is nothing you can do about it.

Number one.. that's always been part of the problem.. Social security is part of the deficit.. (or shall we say.. the government bonds that the trust fund buys) when it suits the politicians purpose .. so that we can say.. "look how we balanced the budget"... but then its counted as the evil.. entitlement spending... when it doesn't suit the purpose.

Yes.. the question is HOW that money should be used. Should we eliminate or decrease social security benefits in the future.. which means that millions upon millions of individuals in this country will have reduced income and reduced buying power..and that greater burden will be placed on their children thus crippling our economy.

Or should we shore up those benefits and shore up that safety net so that the economy doesn't fall into the ditch down the road?

The irony of your statement is that you think putting fresh tax base NOW is putting debt on our children. That's false because it take debt AWAY from children. The more that baby boomers and gen xers put in NOW.. means that we will have money later..which means that I and my children won't be having to suddenly pay more in tax or spend more money to take care of the generation before us.

Lets say we do what you think...

Okay.. we say screw social security. So the baby boomer generation will continue to pay less tax, and so will my generation, and my kids will eventually have to pay the FICA tax... and then.. the baby boomers use it up because they weren't putting as much in.,, and now.. ,maybe the baby boomers don't have the money, or gen x ers don't have the money for retirement. So what happens then? They just starve? You think that's going to happen? No way.. so suddenly, the current generation will have to kick up more in taxes, take dad in, take mom in, have them go on welfare (more taxes) Medicaid, (more taxes)...

And so the next generation foots the bill.

Of course that's fine with the baby boomers.. because the leading edge and the middle will get theirs... AND they will not have had to pay increased especially the very wealthiest AND because any tax increases go toward the deficit NOW.. they won't have to make the dramatic spending cuts, because look at all the new money we have NOW... and screw the next generation.

What you are proposing is that instead of putting into our 401k... we should rob the 401k money so that we can continue to make the payments on our bright and shiny new car, and that we can feel better about it.

 

[jaeger19]

The link I gave you was from 2013. Yours is from 2009.

Is this the link you are talking about? On the 2013 Social Security Report to Congress - Bruce Krasting

Because MINE was actually an SSA analysis... yours is not.. its a critique of the analysis by some else.

Look at the headline:

On the 2013 Social Security Report to Congress




The Social Security Trust Fund has come out with its annual report.

Some have looked at it and concluded that the relatively stable conditions at SS the past year is evidence that all is well. There are many headlines like this these:

[/QUOTE]

The article you linked to is an opinion piece and not the actual SSA report.

 

[jaeger19]

The statement "Social Security does not contribute to the deficit", they really mean "Social Security is not counted toward the deficit". These are vastly different things" is intentionally deceitful.

Saying that it is "not counted toward the deficit" suggests that someone is playing games and excluding SS from deficit numbers, That is not the case. Just because SS has an impact on the economy does not mean that it has a direct impact on the federal deficit. You also failed to include the consumer spending made possible by SS and the cost of other types of aid to the poor that eliminating SS would require. In addition, without SS, families would have to pay for their older relatives support, another economic impact neglected by SS opponents.

The fact is that the issue of SS's future solvency issues is constantly being misrepresented by those who oppose SS because of their political philosophically, partisanship and/or an interest in profiting from a privatization scheme.

The SS issue needs to be addressed, but there is every reason to distrust the intentions of those who primarily focus on the Social Security issue. There is a hidden agenda (and big money) driving this issue, and it is definitely not about making things better for the general public

You know.. this "like" function is pretty cool...

Well said..

 

[JoeTheEconomist]

Is this the link you are talking about? On the 2013 Social Security Report to Congress - Bruce Krasting

Because MINE was actually an SSA analysis... yours is not.. its a critique of the analysis by some else.

Look at the headline:

The article you linked to is an opinion piece and not the actual SSA report.[/QUOTE]


I am referring to the link that I posted earlier, Long Range Solvency Provisions. Earlier I also posted that on page 66 of the 2013 Trustees Report you will find that sovlency solutions do not work from year to year.

 

[JoeTheEconomist]

The statement "Social Security does not contribute to the deficit", they really mean "Social Security is not counted toward the deficit". These are vastly different things" is intentionally deceitful.

Saying that it is "not counted toward the deficit" suggests that someone is playing games and excluding SS from deficit numbers, That is not the case. Just because SS has an impact on the economy does not mean that it has a direct impact on the federal deficit. You also failed to include the consumer spending made possible by SS and the cost of other types of aid to the poor that eliminating SS would require. In addition, without SS, families would have to pay for their older relatives support, another economic impact neglected by SS opponents.

Saying Social Security is "not counted toward the deficit" is accurate. The revenue and the expense of Social Security is not counted in calculating the budget deficit. Originally, it didn't matter whether Social Security was on or off budget because it was a paygo system which did not generate excess cash. That changed in 1983. Including excess cash in the government's budget would have created a significant distortion on the government's finances. I think that including Social Security in the budget process would have given Bill Clinton 3 or 4 balanced budgets rather than just 1.

If you think that the govt can spend 500 billion without creating a deficit, then someone is playing games with the numbers. Ironically enough, after saying that Social Security doesn't have a direct impact on the federal deficit, you list a number of ways in which the system might lower the deficit.

 

[JoeTheEconomist]

I suspect we have a paid poster in this thread.

Reform is usually a code word for eliminate, reduce and/or privatize.

You have a lot of cliche here. I haven't mentioned privatizing Social Security, but that cliche is one with which you are comfortable. You want to shift the focus away from the dicussion at hand because you can't really dispute what the Trustees have said.

Oddly enough, privatization is another example of Social Security's pseudo-code. Privatization means that we would get a private venture to provide exactly what Social Security provides. Instead privatization means that we will completely transform the system and its goals while perserving the name. Today Social Security works like insurance. Privatization would change the function to savings. Insurance manages risk. Savings accumulates wealth. These aren't even close to the same thing. If they were everyone would have a auto-wreck savings account or a hospital stay account. They don't because they buy insurance.

 

[Sisyphus]

The Social Security debate has its own private lexicon wherein words take on new meanings, which at times even contradict the meaning those words have in the English language. The consequence of the Social Security pseudo-code is a stalemate, because it is virtually impossible to build any consensus in a world where up means down and right means left.

There are simple translations. For example, when someone says "Social Security does not contribute to the deficit", they really mean "Social Security is not counted toward the deficit". These are vastly different things.

At other times, you need a decoder ring to understand what is really being saidFor example, the standard rebuttal to any call for reform is, "Social Security has funds in a worst-case scenario to pay full benefits for more than 20 years, and minor changes could easily fix the long-term funding problem."

The most abused word in the debate about Social Security is "fixed." Writers use the word "fixed" and "solvent" interchangeably, even though the concepts are 14 trillion dollars apart according to the Social Security Administration. "Fixed" means that we have no problem. "Solvent" means that we have made our problem a problem for our kids. These are not the same thing.

For millennials, "solvent" means that the nation will divert roughly $10 trillion away from deficit control so that in 35 years millennials can be in the exact same situation Boomers are today. As millennials approach retirement, the system would have massive solvency shortfalls. The working generation would be complaining about the cost of the system, doubting that they will collect anything. The nation will be right back where it was in 2013 and 1983 with millennials trying to convince their children that Social Security will provide them a safe retirement provided that they pay more and get less.

This problem comes in part because the word "funds," in a Social Security context, does not mean funds in the traditional sense of the word. Social Security is financed, not funded. Social Security collects payroll revenue in exchange for the promise of future benefits. This is no different from going to a bank to borrow money in exchange for the promise of future interest and principal payments. Social Security pays every dollar of benefits with borrowed money, where the next generation serves as a new bank.

Yes, the system holds $2.7 trillion in borrowed money in the trust funds. In building that reserve, the system issued more than $25 trillion of promises for which there are no funds in any true sense of the word.

Words of certainty in the Social Security debate also have no meaning. "Will" means "might," or at best "should." The Trustees of Social Security say that in a good economy Social Security might be able to pay full benefits until 2033. 2033 is not a prediction. It is a likely outcome. The projection is provided as a warning, not as a guarantee.

Even so, what would the word "guarantee" mean? On Dec. 20, 1977, President Carter said, "This legislation will guarantee that from 1980 to the year 2030, the social security funds will be sound." "Guarantee" meant that six years later the system was completely insolvent, requiring massive tax increases, benefit cuts, and the inclusion of millions of more workers.

Not only is 2033 not a guarantee, it is not even a "worst-case" scenario. The Trustees provide projections based on three different scenarios, ranging from low-cost to high-cost. On page 58 of the Trustees Report, the Trustees provide outcomes based on less favorable economic assumptions where the system pays degraded benefits in 2027. And while these assumptions are called "high-cost," they are far from a worst-case scenario.

Words of magnitude in the Social Security debate have no meaning. The opponents in the debate change the wording of $10 trillion so that it has no meaning. Ten trillion is expressed as a percentage of GPD. It is expressed as a percentage of wages. For example, Gail Buckner on Fox Business referred to the $10 trillion as "small" increase in the payroll tax rate of 1.3%. Another way to express her ideas is, "Raising Payroll Taxes to Save Social Security will Cost the Average Worker $73,000." Expressing the problem in fewer digits does not make the problem smaller —$10 trillion is still $10 trillion.

In a debate where words have no meaning, it is possible to say that Social Security's financing gap is easy to fix — whatever "easy" means.

I try to no over-think it and get mired in the minutia. I merely think it a vital program, and support it being fully-funded, in service of the vital need it serves.