Ed Brayton is a journalist, commentator and speaker. He is the co-founder and president of 
2010 may prove to be a major turning point for the United States. AP explains why:
For more than two decades, Social Security collected more money in payroll taxes than it paid out in benefits -- billions more each year.Not anymore. This year, for the first time since the 1980s, when Congress last overhauled Social Security, the retirement program is projected to pay out more in benefits than it collects in taxes -- nearly $29 billion more.
The surplus that was supposed to be building up for the last 23 years, to the tune of several trillion dollars, was supposed to be invested so it would increase until this year, when it would begin to be drawn down to pay for the retirement of the baby boomer generation. Unfortunately, that has not happened because social security is an on-budget item and the money was used every year to make the deficit look smaller than it actually was.
In essence, we have written $2.5 trillion in IOUs to ourselves for the past 23 years. Not only did we not save that $2.5 trillion, we had to sell treasury bonds for that much to finance the deficit spending. And now we're going to begin needing part of that money, with more needed every year from here on in. Which means:
Now the government will have to borrow even more money, much of it abroad, to start paying back the IOUs, and the timing couldn't be worse. The government is projected to post a record $1.5 trillion budget deficit this year, followed by trillion dollar deficits for years to come.
So what to do?
Social Security's shortfall will not affect current benefits. As long as the IOUs last, benefits will keep flowing. But experts say it is a warning sign that the program's finances are deteriorating. Social Security is projected to drain its trust funds by 2037 unless Congress acts, and there's concern that the looming crisis will lead to reduced benefits.
And therein lies the problem. There are few solutions that are politically palatable or possible. With the ratio of workers to retirees going up substantially, we only really have two options: decrease social security benefits for retirees -- which they have counted on as part of their retirement -- or increase the payroll taxes that pay for social security and have fewer workers pay much higher taxes to keep the benefits where they were expected. Both are political poison.
If we do cut benefits, the only feasible way to do it is through means-testing -- only cut the benefits of those who can afford it the most, those with large private retirement funds aside from social security. Those people are the least likely to need or to have relied upon social security in planning for their retirement. But the AARP is a powerful lobby and they'll scream holy hell over any such plan.
Politics
Comments
This year, for the first time since the 1980s, when Congress last overhauled Social Security, the retirement program is projected to pay out more in benefits than it collects in taxes -- nearly $29 billion more.
Wow. I thought this wasn't supposed to happen until around 2019.
Posted by: Tommykey | March 18, 2010 12:18 PM
so.. the people who saved their money and invested it and lived within their means and didn't spend it all... these people will have their benefits cut?
so that people who did't save anything can get theirs?
Once SS is means-tested it will be the kiss of death and it will be considered "welfare" and it will be cut completely.
Let's get back our money from the billionaires.. it won't solve the whole problem but its a start. and don't tell me that SS Notes aren't real actual bonds that the US had better honor...
Posted by: Kevin (NYC) | March 18, 2010 12:22 PM
Excerpt from article appearing in "Dissident Voice," 3/18/10
by Allen W. Smith, Ph.D.
It has been clear for quite some time that the trust fund contained no real assets. David Walker, Comptroller General of the GAO, stated on January 21, 2005, “There are no stocks or bonds or real estate in the trust fund. It has nothing of real value to draw down.” On April 5, 2005, President George W. Bush finally acknowledged the empty trust fund by saying, “There is no trust fund, just IOUs that I saw firsthand that future generations will pay—will pay for either in higher taxes, or reduced benefits, or cuts to other critical government programs.”
If there was any doubt remaining, with regard to whether or not the trust fund contains any real assets, that doubt should have been removed by the following words in the 2009 Social Security Trustees Report:
“Neither the redemption of trust fund bonds, nor interest paid on those bonds, provides any new net income to the Treasury, which must finance redemptions and interest payments through some combination of increased taxation, reductions in other government spending, or additional borrowing from the public.”
There is nothing ambiguous about the above words. They make it clear that the government does not receive any cash income from the alleged interest payments on the trust fund IOUs. The interest payments are made in the form of additional worthless IOUs. The government cannot sell the IOUs because they are not marketable and have no cash value. The IOUs simply represent a debt of one branch of the government (the Treasury Department) to another branch of government (Social Security). They cancel each other out.
The Social Security surplus revenue should have been saved and invested in public-issue, marketable Treasury bonds. These bonds are “good as gold” and default-proof. They are the kind of U.S. Treasury bonds that are owned by China and Japan, Bill Gates, pension funds, and every other serious investor that owns Treasuries. If the Social Security surplus had been invested in public-issue marketable Treasury bonds, as it could have been, and should have been, Barbara Kennelly would be correct in saying that the Social Security holdings are “as solid as what we owe China and Japan.” Unfortunately not a single dollar of the surplus Social Security revenue was saved or invested in anything. It was all spent, and, once money is spent, there is nothing left to invest.
The government cannot and will not ever default on any of its public issue, marketable Treasury bonds because of the panic it would create in world markets and the damage it would do to the nation’s worldwide credibility. But Congress has the legal authority to default on its debt to Social Security, and, if it should do so, the outside world would probably view it primarily as an internal matter between the United States Government and its citizens. One of the least known facts about Social Security is that, although the government does have a moral obligation to pay Social Security benefits to those who have earned them, the government does not have a legal obligation to do so.
In a 1960 ruling by the United States Supreme Court, the court ruled that nobody has a “contractual earned right“ to Social Security benefits. Section 1104 of the 1935 Social Security Act specifically states, “The right to alter, amend, or repeal any provision of this Act is hereby reserved to the Congress.” According to the above strong language, Congress could do whatever it wanted to do with regard to changing or even eliminating Social Security. Early on, some did not take the language seriously because they thought it was probably unconstitutional. However, in 1960, in the case of Fleming v. Nestor, the Supreme Court upheld the denial of benefits to Nestor, even though he had contributed to the program for 19 years and was already receiving benefits In its ruling, the Supreme Court established the principle that entitlement to Social Security benefits “is not a contractual right.” As a result of the 1960 Supreme Court ruling, the future of Social Security is totally in the hands of Congress and the President. They have the legal authority to amend any and all parts of the Social Security Act, as well as the authority to either increase or decrease Social Security benefits.
Allen W. Smith, is Professor of Economics, Emeritus, Eastern Illinois University. The author of seven books, Smith has been researching and writing about Social Security financing for the past ten years. Visit his website at www.thebiglie.net.
Posted by: Allen W. Smith, Ph.D. | March 18, 2010 12:37 PM
The Social Security Scam
I have been trying to expose the Social Security scam for more than a decade, but nobody would listen. I appeared on CNN Today, with anchor Lou Waters, on September 27, 2000 to discuss my then newly published book, “The Alleged Budget Surplus, Social Security, and Voodoo Economics.” I tried to convince Waters that the government was spending Social Security money on other government programs. He just looked at me in disbelief and asked, “Are you a voice crying in the wilderness?” As it turned out I was a voice crying in the wilderness in 2000, and I have continued to be such a voice ever since. During that ten-year period, I have published four books on Social Security, the latest being “THE BIG LIE: How Our Government Hoodwinked the Public, Emptied the Social Security Trust Fund, and caused The Great Economic Collapse.” In addition, I have appeared on The Dolans (CNNfn), on CNBC, and on more than 170 radio talk shows in my crusade to expose the scam. I made extensive efforts in 2000 to persuade Al Gore to break ranks with Bill Clinton and pledge to end the raiding of the trust fund.
I have been outraged ever since I stumbled onto the scam more than ten years ago, and I have wanted to tell the whole world so everybody would be outraged. The fact that our government has “borrowed,” “embezzled,” or “stolen” $2.5 trillion of workers’ contributions to Social Security has to be “the greatest fraud ever perpetrated on the American people by their government.” Like Harry Markopolis, who unsuccessfully tried to expose Bernie Madoff for nine years, I have been trying to expose the Social Security scam for more than a decade, but nobody would believe me. I urge everyone who cares about the future of Social Security to visit my website at www.thebiglie.net and learn the rest of the story.
Allen W. Smith, Ph.D.
Professor of Economics Emeritus
Eastern Illinois University
Posted by: Allen W. Smith, Ph.D. | March 18, 2010 12:39 PM
The solution is simple, though it does require some political will:
1: Yes, some level of means-testing will be needed. This should target the top tier only, in order to keep it politically palatable, but even that would provide some degree of sanity.
2: Slowly, but steadily, increase the retirement ages. My personal belief is that the law should be passed this year to raise the "full benefits" age by one year (to 66) in 2012, and then again every two years after that, until it reaches 75 in 2030. Meanwhile, the minimum retirement age should be increased by one year for every two years the full-benefits age is increased (so it would be 67 by the time we got to 2030). The savings here would be huge, and the time-frame should be enough to allow people to adjust their retirement plans accordingly.
Posted by: Freemage | March 18, 2010 12:53 PM
Seriously, did anyone still expect to get money out of Social Security? My parents are Baby Boomers, and I've always known that once their generation hits the system, it's done for.
Posted by: DerelictHat | March 18, 2010 12:53 PM
Before the program is means tested, they should remove the income maximum on the tax calculations and apply the tax to 100% of income, regardless of level. Right now income above $106,800 is not subject to SS taxes. I'm not sure what the impact would be, but it would be a sensible start.
Posted by: Science Avenger | March 18, 2010 12:59 PM
two words:
Logan's Run
Posted by: rob | March 18, 2010 1:12 PM
I get annoyed when the SS trust fund is referred to as "IOUs". The surplus funds actually do exist as IOUs for a short period of time, but they're quickly converted to interest-bearing bonds that the government is legally obligated to pay back, just as they are with any other type of bond.
Certain people (and I don't mean Ed) like to refer to them as IOUs so as to imply that it's not real money, or that Congress doesn't actually have to make good on it. This of course is untrue; failure to pay back the bonds would place the government in default. But people of a certain ideological bent would love to see that anyway, because it amounts to stealing from workers.
The switch from SS running surpluses to running deficits is not some unexpected tragedy, but was part of a plan put in place back in the 1980s. SS by design is a pay-as-you-go system and isn't supposed to run surpluses, but temporary surpluses were engineered into the system so as to cover the deficits that would be incurred when the Baby Boom generation retired.
After the trust fund runs out (at which point SS will have paid out exactly as much money as it's taken in, and not a penny more), it will still be able to fully fund benefits at something like 80% forever. The numbers change every few years as the economy does, but either way it doesn't amount to a "collapse" of the system or anything remotely like it. It can be dealt with by a little tinkering.
The real problem is, and always has been, the general budget. Social Security is a red herring. The usual suspects like to blame it for our budget woes because it's more convenient than pointing fingers at actual culprits like tax cuts and defense spending.
Posted by: Steve Reuland | March 18, 2010 1:17 PM
Freemage-
The problem with your second idea -- though obviously with people living longer, it makes sense -- is that it will drive up the unemployment rate. We don't have enough jobs for the people under 65 in our country now. If we push up the minimum retirement age, there will be more people competing for fewer jobs. It still may be necessary, of course, but that is one drawback.
Posted by: Ed Brayton | March 18, 2010 1:17 PM
So this began in 1987 under Reagan, and continued under the Bushes, and Clinton? They bear a heavy burden of responsibility. Has Obama had any opportunity to invest a surplus, or was there nothing to invest by his election?
Posted by: JuliaL | March 18, 2010 1:19 PM
"so that people who did't save anything can get theirs?"
You may not be acquainted with the real world, but many people have nothing left over to save after necessities. Or their savings got wiped out through no fault of their own.
But hey, I'm sure life is good in Monopoly-Land. Are you the car or the hat or the little dog?
Posted by: Jon H | March 18, 2010 1:20 PM
Steve-
Regardless of whether you call them IOUs or not, the reality is the same - the money that should have been invested to bear interest all this time has not been. The point is not that it's "it's not real money, or that Congress doesn't actually have to make good on it" - the point is that Congress DOES have to make good on it, and that means WE have to make good on it through taxes or we have to reduce benefits. Or both.
Posted by: Ed Brayton | March 18, 2010 1:24 PM
Julia,
I haven't seen solid, definitive numbers on the Social Security surplus for 2009. It was projected to be roughly $200 billion, but that was prior to the economy taking a nosedive, etc. At one point (late '08 I believe) CBO predicted that it would drop to $80 billion and then in March '09 predicted $16 billion with '10 roughly at $3 billion. Realistically Obama can't be blamed for this one, by the time he took office, the surplus had evaporated.
Posted by: dogmeatib | March 18, 2010 1:27 PM
JuliaL wrote:
It has nothing to do with Obama at all. Congress would have to change the law they put in place in the late 60s. Every president since then has had the same situation.
Posted by: Ed Brayton | March 18, 2010 1:27 PM
Posted by: Deen | March 18, 2010 1:35 PM
Steve,
That somewhat simplifies the situation. The rates on bonds, bills, notes, while safe, is generally rather low. The 30-year is currently at 4.57%. Shorter terms are less than 3%. That means, if social security is (effectively) required to purchase these low interest yielding bonds, it ends up earning perhaps 1% interest post inflation (or losing money some years) when, were it able to utilize other investment strategies (still safe strategies) it could have potentially doubled or tripled the interest it gained on that $2.5 trillion.
Posted by: dogmeatib | March 18, 2010 1:39 PM
Ed writes:
"Regardless of whether you call them IOUs or not, the reality is the same - the money that should have been invested to bear interest all this time has not been."
This is not true. The money has been invested in government bonds, which pay interest.
The fact that it's one branch of government paying interest to another is irrelevant. If the government doesn't borrow money from the SS trust fund, then it must borrow it from somewhere else. This would mean interest payments going to China or private investors instead of the SS trust fund, which means less money in the total budget. So the gains are every bit as real as if the trust fund had invested in corporate bonds or stocks that pay an equal return.
Posted by: Steve Reuland | March 18, 2010 1:42 PM
I hate to be that guy.. But if the SS surplus has been spent on other gov't programs, maybe that is proof of the gov't size requirement: The point at which the gov't can meet a SS obligation, and the gov't can be no larger than that.
The concept of gov't revenue stream is to support gov't function for the purpose of providing various gov't services, but at the point where the gov't is no longer providing full SS benefit (which I think is one communism function of the gov't that should stand) is the point at which the operating services of the gov't should be pared down to keep that particular benefit afloat.
Of course, given our slowly inverting non-hispanic population this may lead to a too-rapid shrinking of gov't.. Bah, why didn't they just reinvest the surplus all along, and why weren't we smart enough to make sure that was mandated.
Posted by: Buffoon | March 18, 2010 1:45 PM
Several years ago there was an actuary website that allowed you create your own modifications and then check to see whether it funded Social Security and when your plan stopped creating a surplus.
I was easily able to solve this dilemma, my solution obviously lacks political will in the GOP but shouldn't in the Democratic party though I provide a compelling reason for the GOP to support my plan (see below).
You do not need to make the system means-tested though I support that to reduce the need to raise taxes. It does provide rhetorical ammunition to conservatives to attack Social Security but I think it's insane it's not means-tested for reasons too lengthy to go into here. I also disagree with cutting benefits and raising the age and didn't factor such in to my plan either; especially since most older folks are not capable of working in many environments which had gone through decades of lay-offs and realized significant productivity increases at the expense of much more harried workers. In fact I view Social Security as a huge success and would be hesitant to tweak with how it effects retirees' lives; the failure is our inability to be a serious people who pay our own way when it comes to matching revenues to liabilities where increases would not harm the economy.
All I did was raise the threshold on income that is taxed; that got me out of 2075. I forgot my revised cap, it might not have had a cap. Personally I'd prefer this revenue stream come from a consumption/VAT tax where we also eradicate income and wealth taxes. I realize the political will for that is near nil so I don't advocate it here.
However, consistent with other tax reform efforts I support (no taxes on business income or wealth gains or personal income and wealth but instead a VAT/consumption tax); I would argue the following also take place. When raising the limit which maintains the status quo of benefits, increase visibility to individuals regarding the amount they're really paying in taxes as well (nearly all people are clue-less and think it's far less than it really is). Do this by:
1) Transfering the employer portion paid to Social Security to the employee where the employee's original after-tax income doesn't change for a certain period of time. Therefore, employees would see a higher gross by getting a "raise" but also realize their taxable rate for Social Security doubling (from 7.75% to 15.5% IIRC). Their after-tax income would therefore remain the same. We need to get out of the business of employers paying for things for employees that are not job related, like their taxes and their health insurance. Obviously the net paid in wages and take-home pay stays the same, but this would have long term ramifications regarding what have long been stagnant wages and increased burdens on businesses, both of which also cause a less liquid labor market (though mostly from employer health insurance).
I would think my advocacy that employers stop paying for half of Social Security would be an incentive to encourage conservatives to consider playing along given the long-term ratifications of such a move by getting employers one step further from paying their employees taxes and benefits. While most liberals view the advantage to business, they should also think about the benefits of having better visibility into what their actual wages are rather than merely their after-tax take-home pay.
Posted by: Michael Heath | March 18, 2010 1:45 PM
Re: Freemage @ 5, Point of Information:
Been there, done that, in that Social Security Commission which I think Moynihan headed (but look it up, don't trust me). Anyway, unless you were born sometime before the early 1940's, your full-benefits retirement age already is 66 or higher. (Mine is 66.) Tough on the coal-miners.
At one time I heard that Social Security taxes on 100% of income, without the upper limit, would do the trick, as another commenter mentioned. (I don't know if that still works out.) That makes sense to me. I know good school teachers who have spent their whole lives paying FICA on 100% of their income. I've probably averaged 90% over my career. There should be a website where you could figure it out and print a button to wear ("I paid Social Security Taxes on X% of my lifetime income"), and make everybody who testifies on SS in Congress or pontificates about it on talk shows wear one.
Posted by: JimV | March 18, 2010 1:46 PM
@Freemage in #5: The Netherlands has been talking about raising the retirement age to 67 for a while now. It doesn't look like it's going anywhere. They talk about it, and they seem to all agree it'll be necessary before the babyboomers will all retire. But when they almost seem to agree how to implement it, it'll election season again and they all decide to postpone it again.
@Ed in #10: since the increase of retirement age by a few years should still mostly coincide with a large number of people retiring, it shouldn't have too much of an impact on the unemployment rate. And however you're going to solve the shortage, reducing unemployment and creating jobs is going to have to be a part of the solution anyway.
Posted by: Deen | March 18, 2010 1:48 PM
One of the big selling points used by democrats for the current health care bill is how great the government is at running these kind of programs. The two big examples are Medicare and Social Security.
I've tried to point out how the Social Security example is really an example of how poorly such an entitlement program can be run, but just end up being told that I must not want to take care of the elderly or the poor. Seems it is hard to get past the first layer of talking points to how fiscal policy actually works--much too boring a topic for most to care about.
Posted by: Rich | March 18, 2010 1:49 PM
dogmeatlib writes:
Current returns are low but they were pretty good in the 1980s when the surpluses began. It's certainly true that there are investments that pay more, but whether they are "safe" is debatable. The market has driven the returns on Treasuries to such low levels precisely because people don't regard other investments as all that safe.
I don't doubt that the SS trust fund could have juiced its returns by investing some portion of its money into stock indices or corporate bond funds, but there are good reasons not to do this. One is of course volatility. Another is the possibility of some bureaucrat screwing it up. A third is the potential for politicizing the economy when the government controls that much of the private sector.
Posted by: Steve Reuland | March 18, 2010 1:53 PM
Instead of putting the money in government bonds, the government should have put the money in a secure place.
I like to call it a "lock box." ::finger quotes::
Posted by: Chris Bell | March 18, 2010 2:05 PM
A couple of points:
1. This year's shortfall really has to do with the recession, which has caused a huge hit to projected revenues. That is not to say there isn't a long term issue, but if the economy had even been flat in 2009, Social Security would still be in surplus.
2. A big issue is that a substantial protion of income is exempt from Social Security and Medicare taxes (FICA). Most unjustly this is primarily income that largely goes to the wealthiest, namely interest, dividends and capital gains. The famous example is Warren Buffett and his secretary. Warren pays himself a modest salary and gets the vast majority of his income from capital gains and dividends on his stock holdings, not a dime of which is taxed for FICA (and which gets a favorable rate for income tax as well). His secretary gets almost her entire income from salary, all of which is taxed for FICA. Before we talk about anything else, this needs to be addressed in a more equitable fashion. And I say this as someone who benefits from this loophole to some extent (though unfortunately less than Warren does).
Posted by: JusticeLeague | March 18, 2010 2:07 PM
Anybody still feel like making fun of Al Gore for "Lock Box"?
Posted by: george.w | March 18, 2010 2:13 PM
Have you ever considered how poorly these programs are run by private companies? This isn't about pretending that the government is perfect, but about realizing that private-run programs sometimes fail in worse ways than government-run programs, at least in some areas.
If you think that making a great profit is a sign of private success, even at the expense of people dying unnecessarily or these companies not holding up their side of the deal, then maybe that is why others assume you don't care about elderly and poor citizens.
Posted by: catgirl | March 18, 2010 2:30 PM
I don't know if anyone else mentioned it but another option is to eliminate the SS salary cap which is $106k this year.
Social Security is easy to fix. Its medicare that isn't.
Posted by: yoshi | March 18, 2010 2:30 PM
This is quite possibly the worst post Ed has ever written on this blog. Ed, everything you wrote here is complete nonsense, and it is obvious that you don't have the bare minimum knowledge to fathom what questions to ask. Instead, you have eaten the Republican bullshit talking points and are now spewing them uncontrollably. This is a disgrace.
You don't understand what was "supposed" to be done with the surpluses and are completely wrong in your assertion that what was done was anything other than what was supposed to be done. You also show how clueless you are when you say that Social Security is "on budget" (it is not) and when you argue that it somehow matters for its financial position (it does not).
Your response to Freemage is also complete nonsense. In this case you seem to have swallowed the shit of European socialists and social democrats of the 1970s - it is those people at that time who believed that you can reduce unemployment by having people retire early. The results of such policies were dismal, but at least people across the political spectrum have since learned that those arguments are wrong. (They are wrong mainly because old and young workers are much more often complements than substitutes for each other.) You, however, are stuck in the ignorant past.
So it looks like you have taken the combined stupidest positions of the right and the left.
For the love of reason, stop writing about anything related to economics for at least a year and start reading at least some economics blogs - Paul Krugman, Brad DeLong, Mark Thoma, and the blogs listed in the blogroll on Thoma's blog (Economist's View). After a while, maybe you'll realize that you need to read a few decent books, and eventually you'll start understanding something.
Posted by: bullfighter | March 18, 2010 2:53 PM
declare USA bankruptcy?
pay bondholders 72 cents on the dollar.
shoulda done this with "too big to fail" banks in 2008.
we ignored this problem for years.
we got to deal with it.
72% of what uncle sammie "promised" you is a good deal at this point.
suck it up, take the loss and move on.
Posted by: datruth | March 18, 2010 3:07 PM
Actually, there is a third solution. Restore progressive taxation levels to where they were before Ronald Reagan cut them (amazingly enough, there were rich people before 1981 even though they had to pay higher taxes) and eliminate the cap on payroll taxes so that people pay Social Security and Medicare taxes on all of their income, not just the first $90,000. Then we can start paying down the deficit/debt and putting back the money borrowed from the Social Security trust fund. Cue Libertarian pearl-clutching.
Posted by: Dean Austin | March 18, 2010 3:11 PM
Don't you see people? If we had just listened to George W., we could've had our SS money invested in the private market right now! That would have TOTALLY solved this problem (by getting rid of ALL the money, not just some of it). That's a solution right?
Posted by: Rob Monkey | March 18, 2010 3:34 PM
Kevin @2: You are mostly correct, except that there is nothing to "get back" from billionaires that would have any relevance to Social Security.
Allen Smith (@3&4) is a kook.
Freemage @5: If you count a flatter benefit as "means testing", then any proposal that includes the so-called "progressive price indexing" (or the name Pozen) would do that. But true means testing (based on assets at the time benefits are received) would be counterproductive. Oh, and the Normal Retirement Age is now 66 and is scheduled to increase to 67. Your proposal to push it to 75 is both crazy and totally unnecessary. But a long-run indexing to longevity (which would increase it perhaps to 70 in 50-60 years) is likely to be part of any eventual solution.
ScienceAvenger @7, JimV @21, yoshi @29, Dean Austin @30: If you eliminate the tax cap, do you also eliminate the benefit cap? You'd save either way, but if you keep the benefits as they are, high earners will intensify their political fight against Social Security, and if you uncap benefits, a lot of people will be outraged at the benefits paid to top earners. Some increase in the taxable maximum would be a good idea, but for practical/political reasons I'd be reluctant to advocate going further than restoring the situation from the 1980s, when 90% of earnings were subject to tax (now it is more like 83%).
Posted by: bullfighter | March 18, 2010 3:41 PM
Would you please explain that further? How is a seventy-year-old tax accountant a "complement" to a thirty-year-old tax accountant, rather than competition for the same work? Or English literature teachers of ages 70 and 30, or short-order cooks of ages 70 and 30? Or are you maybe saying that younger workers should all be doing physical labor, while the desk jobs all go to older people? Or what? I don't get it.
Posted by: JuliaL | March 18, 2010 3:46 PM
@JuliaL: He did say "often", not "always". In my profession (magazine editor), I've found that young and old often do compliment each other quite well.
Posted by: Captain Mike | March 18, 2010 3:56 PM
Er...complement each other. Me fail English? Unpossible!
Posted by: Captain Mike | March 18, 2010 3:58 PM
If the government takes the second option, they'll just have to take the first option one generation later. (Except, of course, that no intelligent young person today could seriously expect that they'll be getting any social security benefits anyway.)
Dean Austin @ 32: "Restore progressive taxation levels to where they were before Ronald Reagan cut them [in 1981]"
This is not a real solution due to the "Laffer curve" phenomenon (as a mathematician, I prefer to just call it Rolle's Theorem). Total government intakes from the personal income tax (in billions) starting in 1975 and going one year at a time up to 1990 were: 122, 131, 158, 181, 218, 244, 286 (this is 1981-the year of the change), 298, 289, 298, 335, 349, 393, 401, 446, 468 (source: GPO*). Tax revenues didn't really go down, did they? In fact, they went up (and faster than inflation + GDP growth too). I agree that the rich (defined as top 1%) get a larger portion of the benefits (close to 100%) than is fair considering the portion of the taxes they pay (close to 40%), but increasing taxes on the rich isn't the unlimited spigot that uninformed Progressives seem to assume that it is (this is one reason why Progressive leaders tell you that it is when they want your votes but never seem to act on it).
Rather, since 99% of the benefits of 99% of all of the government programs accrue to the rich anyway, why don't we just cut down on the services that the government provides to them? That should free up much more money than increasing taxes ever could.
* The Tax Reform Act of 1986 changed how these numbers were reported. Decide for yourself whether the data after 1986 is comparable or not; since we're interested in the switch at 1981 right now, I don't consider it especially relevant. Also, these numbers are not inflation adjusted--that is, the year n numbers are in year n dollars. Data from: http://www.gpoaccess.gov/usbudget/fy10/sheets/hist02z1.xls
Posted by: Miko | March 18, 2010 3:58 PM
Steve Reuland: You are right, but too mild in criticism. In particular, Dogmeatlib's points needed much stronger rebuttals than you offered.
First, using the current market yield is wrong. Social Security trust funds invest in special-issue bonds that pay the average interest rate of outstanding government securities in a certain range of maturities. In 2008, the trust funds earned a little over 5% in interest. And, BTW, that was the year when all those "real" investments that are not "worthless IOUs" lost double-digit percentages.
Second, low compared to what? Treasuries pay low returns because they are safe. Risk has its market price. If you want higher expected returns, you must take risks. It is interesting that people who advocate investing Social Security surpluses in private markets don't also advocate that the general fund borrow more and invest in the stock market. If the former is good, the latter must be, too.
Finally, government investing in the private market is equivalent to a tax on income from capital. No wealth is created, just transferred.
Posted by: bullfighter | March 18, 2010 4:01 PM
Rob Monkey @ 33: "If we had just listened to George W., we could've had our SS money invested in the private market right now! That would have TOTALLY solved this problem (by getting rid of ALL the money, not just some of it)."
Since I've just gotten through defending one politician whom I find despicable (Reagan), I suppose I may as well come to the defense of an even more despicable one. Bush's plan, terrible as it was, never suggested putting more than a small portion of SS money into markets, so we wouldn't have lost all of it even if the markets had dropped to zero. (Plus, the markets didn't drop to zero. My portfolio today is significantly higher than it was before the "crash.") And in any event, I think that the future will show that retirees would have been better off if they had had some of their money in stocks than they will be with all of their money in IOUs.
Posted by: Miko | March 18, 2010 4:04 PM
This is a big problem, but a temporary one. Once the baby boomers die out, we'll be fine. It's only the unusual size of that generation that's creating real problems. Two solutions, besides raising retirement age and cutting benefits or using means testing are:
1. Kill off lots of baby boomers.
2. Increase immigration even more, so we have a larger proportion of workers to retirees.
Of increasing the retirement age (and applicable to my method 2,) Ed wrote:
Sorry, fail on econ 101. The number of jobs in a society is not a fixed pool. Common economic myth, but not the case.Posted by: James Hanley | March 18, 2010 4:05 PM
This is one proposal that really bugs the shit out of me.
I mean, it sounds pretty good -- after all, look at the Justices of the Supreme Court or the Senate: you don't see them retiring at 65, or even at 70. They prove it can be done, right?
Now look at some coal miner in West Virginia.
The "raise retirement age proposal" is one of the less obvious instances of classism going around, but it's an ugly one. Yes, we'd save a boatload of money telling the roofers and bricklayers and miners that they have to wait another five years before they get Medicare or a pension -- because indeed a lot of them will die first. Meanwhile I'll be cranking away at the same desk job that I love, with benefits, and it's all good.
Ball you, Jack, I'm all right.
Posted by: D. C. Sessions | March 18, 2010 4:12 PM
Parties looking for secret biases should note that, under certain expansive definitions of "baby boom generation," this would include all of James's annoying older siblings, but not himself. ;-)
Regarding the Laffer Curve and increased tax revenues, though, wouldn't much of that be accounted for by the extra economic activity stimulated by unsustainable borrowing practices? I.e., not improving the bottom line, but more like boosting revenues by paying people to shop in your establishment?
Posted by: Scott Hanley | March 18, 2010 4:19 PM
I remember hearing this on the radio when I got out of bed one morning and trying hard not to let my head explode. IOUs? That seems like a rather flippant, contemptuous, and generally stupid way for a sitting President to refer to government bonds like the ones his government was issuing to pay for tax cuts and war. Of course, then I realized what the context was: Let's blame Social Security for our general budget woes. Then, while not fixing our general budget problems, we can privatize Social Security.
Brilliant.
dogmeatlib:
That generally makes sense (although definitions of "safe" vary), but there are macroeconomic issues at work as well. Every dollar we invested in low-yield government bonds was a dollar that didn't come out of the pockets of taxpayers who otherwise spent and invested that money privately. The net result isn't all that different, with one exception: It essentially amounts to working people loaning money to the higher income people who would have paid those extra taxes at the margin. That's a transfer effect, though, not really a question of solvency as long as we have the will to tax back those benefits when it comes time to keep the program running.
The real question is once we start paying that money back out of tax receipts, will the people who originally benefited from the arrangement be the ones who see the tax hike to pay back the loan?
Posted by: Troublesome Frog | March 18, 2010 4:22 PM
Did my comment crash because it had too many links in it?
Posted by: Enough4All | March 18, 2010 4:31 PM
Michael Heath @20:
Several years ago there was an actuary website...
There still is. Go to actuaries.org and find Social Security Game. However, it is too simplistic. There is work under way to at least add some more explanations, so it wouldn't mislead people.
I think it's insane it's not means-tested for reasons too lengthy to go into here
Consider that a means-tested system would effectively be a tax on savings. You'd find very few economists who wouldn't tell you that's a bad idea for long-run economic growth.
I also disagree with cutting benefits and raising the age
Fair enough, but consider the facts: if we do nothing, and the benefits get cut by 28% in 2037 because that would be all that then-current taxes can pay, the 2037 average benefit would still be, in real terms, higher than the 2010 benefit. The purpose of any benefit cut in a Social Security fix would be to make the drop less abrupt and less deep eventually. So it would be a cut from the current schedule, but not a cut relative to today's payments and (averaged over the long run) not a cut relative to benefits payable under current law.
All I did was raise the threshold on income that is taxed; that got me out of 2075.
The problem is, you solve nothing by increasing Social Security taxes now - unless you prevent the rest of the government from running a higher deficit than it otherwise would - and there is no way you could prevent that. In reality, all you do by raising Social Security taxes is a transfer from wage earners (who pay payroll taxes) to capital earners (who only pay income taxes).
When raising the limit which maintains the status quo of benefits, increase visibility to individuals regarding the amount they're really paying in taxes as well (nearly all people are clue-less and think it's far less than it really is).
What's the point of that? All you would accomplish is make Social Security less popular among the young - and the results would go against your previously stated goal of maintaining promised benefits.
Transfering the employer portion paid to Social Security to the employee where the employee's original after-tax income doesn't change for a certain period of time. Therefore, employees would see a higher gross by getting a "raise" but also realize their taxable rate for Social Security doubling (from 7.75% to 15.5% IIRC). Their after-tax income would therefore remain the same.
Minor point: Tax is now 6.2% and would go to 12.4%. Major point: How exactly would you force the after-tax income to remain the same? The government would have to micro-manage private businesses' compensation policies.
We need to get out of the business of employers paying for things for employees that are not job related, like their taxes and their health insurance.
Bad comparison. Social Security tax is job-related. It is an ad valorem tax on wages. The benefit is earned by working and earning wages. It is not at all like health insurance.
Obviously the net paid in wages and take-home pay stays the same, but this would have long term ramifications regarding what have long been stagnant wages and increased burdens on businesses
This is ridiculously self-contradictory. If the net take-home pay stays the same (which is not at all obvious, but I'm taking your assumption, arguendo) and total taxes stay the same (just with the employee seeing the whole thing), then the cost of labor is exactly the same. How does that change anything with stagnant wages or burdens on business?
Posted by: bullfighter | March 18, 2010 4:35 PM
Evidently so.
Here it is again, broken into bits so it doesn't get rejected.
Here's why Jon H is full of hot air:
He says, "You may not be acquainted with the real world, but many people have nothing left over to save after necessities. Or their savings got wiped out through no fault of their own."
Sorry, Jon H, in the real, real world, every person who is capable of earning money (and I know there is a small percentage of people who are not, which I will address later) is capable of having savings. Everything I talk about applies to the good ole USA
Food: There is NO food shortage in the USA. In fact, there is so much food that fields are fallow and we throw away hundreds of thousands of pounds in the US every day. http://www.endhunger.org/food_waste.htm
Additionally, right here at scienceblogs, is a blog by Sharon Astyk, “Casaubon’s Book” dedicated to personal food security.
Ultimately, if someone really wants to live off the land in the city and country, then they need to read the expert treatise on the subject called, appropriately enough, Live off the Land in the City and Country by “Ragnar Benson.” http://www.paladin-press.com/product/812/Wilderness_Survival
continued...
Posted by: Enough4All | March 18, 2010 4:35 PM
Shelter: To save money on housing, get a roommate or two. We have 3 renters who basically pay our mortgage. It’s not really that difficult to find trustworthy people to share housing costs with. Even so, before starting, it’s critically important to set up rules and agreements to deal with problems before they arise. http://www.huffingtonpost.com/lisa-mirza-grotts/roommate-etiquette-how-to_b_455535.html
If a family is having trouble paying their mortgage, go for a loan modification. DO NOT use a pay-for-hire service. There are lots of non-profit agencies who help people through the loan modification process, such as ACORN and the government, makinghomeaffordable.gov.
Our loan was reduced by $600 per month through modification. Do you think that would help our savings plan?
continued...
Posted by: Enough4All | March 18, 2010 4:38 PM
I can't help finding this a bit ironic.....people often say that the younger people don't keep up on politics and policy and that is a large part of the problem with how the political spectrum leans towards the desires of the older crowd....and there is no doubt there is a lot of truth in that. However, as far back as I can remember, any conversation with my peers that were even vaguely aware of political issues have pretty much unanimously agreed, NOBODY has ever expected SSI to still be available by the time we hit retirement age.
I have no doubt some solution will be found, and its going to shit all over the people that are far from retiring any time soon. I try to be an optimist most of the time, but I don't see any reason to be optimistic on this front.
Posted by: Uncle Bob | March 18, 2010 4:40 PM
Captain Mike,
Say more about that, please. The point that was made is that decreasing retirement age doesn't lower unemployment because older workers complement the younger worker rather than substitute for them. I get how a tax accountant (regardless of age) complements, rather than substitutes for, a magazine editor, but I don't get how a young magazine editor complements rather than substitutes for an older magazine editor. To do that, wouldn't having two editors for each position, one young and one old, have to add so much value that the magazine actually increases its income enough to have two people when one person (of some age or other) can do the actual work involved?
If there are five editor positions (or five thousand or five million) available in the entire United States, and ten qualified applicants (or ten thousand or ten million to keep things proportionate) of a range of ages, wouldn't retiring the two oldest applicants reduce the unemployment rate after five applicants are chosen to fill the five positions? Just hiring three young people and two old ones for the editor positions isn't going to lower the resulting unemployment, surely?
I've heard this "young and old complement each other, not substitute for each other, so lowering the retirement age wouldn't reduce unemployment" comment before, but I've never heard it explained.
Posted by: JuliaL | March 18, 2010 4:42 PM
Finances: Dave Ramsey has one of the best programs for the average American to master their finances. Ignore the Xtian stuff if it bothers you - it has no effect on the value of his advice.
Work: There is NO SHOTRTAGE OF WORK!eleventyone!! Don’t believe me? Read this:
http://www.noshortageofwork.com/pages/160
Each of those links took me about 5 seconds to find. That means there is no reason for a person to remain in ignorance about how to control their money and make it work for them, save and invest properly and have a worthwhile retirement.
As for the tiny percentage of people in the USA who are not capable of working at all, each of us has the exact same choices regarding that problem that we have when it comes to all problems:
1. Ignore it.
2. Whine that others are not doing enough to take care of it.
3. Take care of it.
Are you a 1 (conservative), 2 (liberal), or 3 (responsible human)?
Posted by: Enough4All | March 18, 2010 4:42 PM
Ed, adding more people to the workforce can increase the supply of jobs. Consider for example that some of the additional people may create jobs through entrepreneurship.
Posted by: TheDude | March 18, 2010 4:59 PM
JusticeLeague @26: Recession - yes. Investment income - hardly worth debating, as essentially no country taxes anything other than wages to finance retirement.
george.w @27: I like Al Gore, but "lock box" was pretty stupid. You can't do something like that.
JuliaL @35: Experienced workers generally perform different tasks than inexperienced workers. They do not usually compete for the same jobs. Sometimes, sure. But in aggregate, if you force older workers to retire, you are likely to kill at least as many entry-level jobs as you'll open up.
Miko @38: "Laffer curve" phenomenon (as a mathematician, I prefer to just call it Rolle's Theorem)
As a mathematician, you don't understand economics. The "phenomenon" you are talking about has never been observed in the real world. Your purported evidence is complete bullshit - you forgot inflation, GDP growth, etc.
99% of the benefits of 99% of all of the government programs accrue to the rich
Jesus Fucking Christ...
James Hanley @41: This is a big problem, but a temporary one. Once the baby boomers die out, we'll be fine. It's only the unusual size of that generation that's creating real problems.
That is completely untrue. The trust fund takes care of the Baby Boom demographic wave. The problem is that, after that, the revenues are projected to cover only about 72% of scheduled benefits. That gap never closes, in fact it keeps widening over time (although only slightly).
D.C.Sessions @42: Raising the retirement age is basically one way of cutting benefits across the board. (And that's cutting scheduled benefits, which can't be paid under current law anyway, so they are somewhat fictional.) It isn't painless, but it would make sense to many people, and it can be tied to actual longevity trends.
Posted by: bullfighter | March 18, 2010 5:03 PM
JimV@21 is correct; the social security retirement ages to obtain full benefits were nudged up back in 1983. However, the maximum (for those born in 1960 or later) is still only 67. You can still retire at age 62 and collect some benefits, no matter what year you were born, but the percentage of the maximum you'll get if you do keeps dropping as birth years get later and later.
To check the numbers, hop on over to
http://www.ssa.gov/pubs/ageincrease.htm
Posted by: DaveD | March 18, 2010 5:08 PM
Social Security is a Ponzi scheme that would make Bernie Madoff blush.
I've always thought that allowing more immigration would reduce the pressure on social security because it would increase the amount of payroll taxes coming in.
Posted by: David C. Brayton | March 18, 2010 5:28 PM
#55 "Social Security is a Ponzi scheme that would make Bernie Madoff blush."
by that rationale, life insurance is a ponzi scheme.
Don't let the phrase become so ambiguous it becomes meaningless.
Posted by: Uncle Bob | March 18, 2010 5:45 PM
Uncle Bob,
Life insurance is not really the same as SS because the premiums from life insurance are invested in all kinds of conservative instruments, including government paper. Life insurance companies do not rely on yesterday's premims to pay tommorrow's benefits. It's the growth that pays the benefits. Life insurance companies have an advantage in that they can buy investments at a discount because they have so much money to invest.
If there were a group of private companies run as well as many life insurance companies that a person could put money in and gaurantee payments after they hit a determined age, we'd all be better off.
Oh, yeah: Annuities.
Posted by: Enough4All | March 18, 2010 5:59 PM
According to my most recent SS statements, I do not get maximum benefits unless I work all the way through to the age of 72. By almost double vs the benefits if I retire now. And that is assuming I continue to make at least my current salary. When (if? Let's be realistic here, I'm 62) ageism kicks in and I can no longer get my kind of work, that benefit level just starts dropping. Right now my health is good, my genetic ancestry is promising (grandmother made it to 103), I may have a chance of actually staying healthy enough to work another 10 years if the jobs are there. Maybe. But even then, the benefits would barely cover renting a single room + food + energy + medications, or if I can swing it property taxes on a modular somewhere tacky (based on todays prices, not factoring in inflation).
I'm not particularly looking forward to it. I am one of a large number of boomers who thought they could make it in the dot com on our own money. Not. Kids, if faced with giving up your dream or living off credit cards and your 401K, drop the dream and get a job. At least you'll continue to have a life.
Posted by: Gray Gaffer | March 18, 2010 6:03 PM
#57 "Life insurance is not really the same as SS because the premiums from life insurance are invested in all kinds of conservative instruments, including government paper."
You are splitting hairs. Both are investing premiums, in theory (if the money wasn't being stolen out of the trust funds where they were collecting interest anyway). We can argue how effective those investments are at keeping up with variations in pay outs, but that is irrelevant to the overall paradigm that is being used.
Posted by: Uncle Bob | March 18, 2010 6:24 PM
That "Social Security Lock-box" doesn't sound so silly now, does it? I blame Saturday Night Live and stupid people everywhere.
Another good solution to this would be, hmm, fixing the job market? More workers=more SS payments. Lets get Krugman into the fed and start depreciating the dollar already!
Posted by: Julian | March 18, 2010 6:39 PM
Well, duh. Why would the Treasury receive interest and principal on government bonds. The Treasury pays interest and principal on government bonds. In Social Security's case, to itself.
Posted by: Ginger Yellow | March 18, 2010 6:52 PM
bullfighter #53
"Investment income - hardly worth debating, as essentially no country taxes anything other than wages to finance retirement."
I'm not sure that is true and even if it is, so what? I understand that the current HCR bill will apply the Medicare tax to investment income for high earners. A really broad-based SS tax that taxed all income, without ceilings, would result in a significantly lower rate for everyone and render the system solvent into the future. Increasing the maximum benefits for the well-off (though they would be taxed on them) would be a reasonable compromise.
How do you justify an effective tax rate that is lower for Warren Buffett than for his secretary, which is what we have today?
Posted by: JusticeLeague | March 18, 2010 7:00 PM
catgirl @28,
My comment said nothing about privatizing SS. Or cancelling it. Rather, when implementing huge new permanent entitlement programs, we should consider implementing them in a way that demonstrates a semblance of good fiscal policy. Something like not depending on a period of favorable demographics or revenues to validate the long term viablity. Put another way, almost all government spending follows the upward curve of revenues during good times and even bubbles, guaranteeing bad results once the economy tops out and regresses to the mean.
So using SS as a main basis for how to manage health care spending shows us how badly things can be done rather than pointing to a good way forward.
Posted by: Rich | March 18, 2010 7:08 PM
Captain Mike "In my profession (magazine editor), I've found that young and old often do complement each other quite well."
I would just like to point out that in my profession, exotic dancing, that doesn't work at all.
Uncle Bob "Don't let the phrase become so ambiguous it becomes meaningless."
A phrase that becomes so ambiguous it becomes meaningless...is a Ponzi scheme that would make Bernie Madoff blush.
Enough4All "If there were a group of private companies run as well as many life insurance companies that a person could put money in and gaurantee payments after they hit a determined age, we'd all be better off."
I don't see how. Isn't the "determined age" in life insurance generally "death"? Sure, it would work fine, but you'd have a heck of a time spending the money.
Posted by: Modusoperandi | March 18, 2010 7:13 PM
Rich @63
"almost all government spending follows the upward curve of revenues during good times and even bubbles"
The private sector does exactly the same. In 2004 and 2005 the demand for houses in Florida and Las Vegas and inland California was believed by every property developer to be literally limitless. It's called human nature.
Posted by: JusticeLeague | March 18, 2010 7:13 PM
bullfighter,
You've moved the goalposts. Experienced/inexperienced is not the same as younger/older. For example, when I was forty, a fifty-year-old woman was hired in my department. A former stay-at-home mom, she had just gotten her graduate degree, and it was her first job in college teaching. So at ten years younger, I had twenty more years experience than she did.
Why? I keep hearing claims, but no explanations or evidence.
Even assuming that the older the employee, the more experience advantage he/she has over a younger employee (which is certainly less true in a socially mobile society like ours than it might be in a rigid society), surely if a 65-year-old experienced employee retires, someone else moves up to carry on, leaving another opening, etc. Why would that process kill entry-level jobs? And what does any of that have to do with the unemployment rate? If a person retires, there is at least a reasonable possibility that someone at some age and some level of experience will be hired to fill in whatever gap opens up as job reassignments at that company level themselves back out.
I began by thinking that I must be misunderstanding something, but I'm gradually concluding that it must just not be so that raising the retirement age fails to increase unemployment.
Posted by: JuliaL | March 18, 2010 7:23 PM
JuliaL-I think it is a mistake to regard the number of jobs as fixed in some type of zero-sym fashion. Retired people generally spend considerably less money than likely increase effective demand for goods and services and thus increase jobs. I think the bottome line is that the effect of increasing or decreasing the retirement age on unemployment is probably not very significant. The same is true also of immigration. Immigrants take jobs, but they also spend money, start busineses, etc. and thus also create jobs.
Posted by: JusticeLeague | March 18, 2010 7:32 PM
For those of us debating the arrangement of deck chairs, please recall that the details of funding don't change the Macroeconomic Big Picture: a whole bunch of people are going to be leaving productive work and continue to consume resources -- and that's not counting Winebagos. The "whole bunch of people" are still quite a few when considered relative to the remaining workforce.
As long as the expected lifestyles and timing of "parasitic" existence aren't changed, all of the "how do we pay for it" details are second-order effects at best.
And I still find it profoundly offensive that the dude putting a new roof on my house in a Phoenix July is going to have to keep doing it until he's seventy, just so I and others like me can draw a Government check to supplement our savings and pensions.
Posted by: D. C. Sessions | March 18, 2010 7:38 PM
RE: Means testing.
In acknowledge that I will never see a dime of my SS benefits when I am a geezer. The same 'tards that allowed it to get this way are the same 'tards who allowed my heavily diversified 401K to take it in the ass through weak regulation.
But means testing? No. I paid-in, I want my pay-out. I know there are people who cannot save, who live at the poverty line while working full time. That is irrelevant. I have had my money taken from my pay check. I get a statement every year telling me my benefit should I retire at age X or Y or should I get hit by a bus and live. I want my money.
I guess that makes me selfish. So what. Maybe our government should get off it's in-fighting ass and fix the budget for real. Get it balanced. Let the 'tards in Petrobombistan go at it, quite spending money abroad for "foreign aid" and "nation building," stop building domestic boondogles so some 'tard senator can have a corn museum named after him.
We're fucked folks. We're gonna be like Greece in a few years.
Posted by: Ian | March 18, 2010 7:46 PM
"And I still find it profoundly offensive that the dude putting a new roof on my house in a Phoenix July is going to have to keep doing it until he's seventy,..."
Then pay him more.
Posted by: Enough4All | March 18, 2010 7:52 PM
I haven't seen this brought up before (but my eyes aren't that good and I might have missed it, if so, sorry), but there is another way to look at Social Security. Not as any kind of investment or annuity or insurance, but as current working generations paying to support the generations who are too old to work, so they won't fall through the poverty line and have to live on dog food in their old age.
Wasn't that the rationale under which it started, under FDR? He didn't have it kick in only after people who had paid into it started to retire. It began immediately - or so I was taught, because old people were starving. Of course, going through the Great Depression didn't give that generation much of a chance to build retirement savings, so maybe we need to look at it differently now.
But I still think we owe something to those old teachers who taught us when we were young, those old nurses, the old construction workers who built the highways we use, the people who protected us in the armed forces, in general the preceding generations who bequeathed us a civilized society. Okay, I'm getting maudlin here, but that's how I prefer to think of my SS tax money being used. And the extra amount that goes into the general fund that pays soldiers' salaries and NSF grants and other things - that's okay too.
I'm glad old-timers aren't starving on my watch. If you youngsters want to let me starve (if my 401k stays in the tank, and my private-company pension of about 35% of my former salary gets eaten up by inflation), that's your decision--but I doubt if you will.
(I don't plan to apply for SS until I need it, probably around age 70.)
Posted by: JimV | March 18, 2010 8:08 PM
Here's a link to the social security game I referenced in an earlier post. I'm disappointed they haven't added more choices that are more nuanced.
Posted by: Michael Heath | March 18, 2010 8:15 PM
Michael Heath #72: I don't know how accyrate the game is, but raising the tax from 6.2 to 6.7 % and raising the cap by 25% make the system 100% solvent. Would that destroy the economy? I doubt it. If you make $ 80,000/year you'd pay $400 more to assure that Social Security is there when you need it. Seems like a good deal to me.
JimV #71- Without Social security, most 40 year olds would be preparing to have Mom and Dad move in with them. Avoiding that has to be worth something, no?
Posted by: JusticeLeague | March 18, 2010 8:32 PM
Hey, there's always the "death panels" to solve the problem of senior citizens living longer, right?
SS and pensions were a good idea when there were lots of people reproducing and people didn't live for long after they retired.
It's a lousy idea now.
The gov't needs to get rid of Social Security. Not all at once, obviously, but to start phasing it out, along with pensions and pension guarantees. A good start would also be raising the retirement age, although that also brings problems (as Ed mentioned).
Make it easier for people to get and keep health insurance and to open 401Ks or other retirement funds instead. Really raise the pre-tax limits for contributions.
Posted by: Adrienne | March 18, 2010 8:33 PM
David C. Brayton @55: Social Security is a Ponzi scheme that would make Bernie Madoff blush.
You are an inane buffoon who would make Pauli Shore blush.
Enough4All @57: Life insurance is not really the same as SS because the premiums from life insurance are invested in all kinds of conservative instruments, including government paper. Life insurance companies do not rely on yesterday's premims to pay tommorrow's benefits.
WTF!? Soc. Sec. is also invested in conservative instruments, check. Soc. Sec. also* doesn't rely on yesterday's premiums, check.
Social Security is indeed different from life insurance in many ways, but you picked the two in which they are alike. (* Actually not, because life insurance, unlike Soc. Sec., does rely on past premiums to pay future benefits.)
Life insurance companies have an advantage in that they can buy investments at a discount because they have so much money to invest.
WTFF?!?!? LI companies can't buy investments at a discount, what are you smoking? And your reasoning is backwards - if they had a glut of cash to invest, it would be harder for them to invest it profitably.
If there were a group of private companies run as well as many life insurance companies that a person could put money in and gaurantee payments after they hit a determined age, we'd all be better off.
Oh, yeah: Annuities.
Wrong again. There are no private annuities that guarantee real payments the way Social Security does. Besides, Social Security also provides disability and survivors' benefits.
Gray Gaffer @58: According to my most recent SS statements, I do not get maximum benefits unless I work all the way through to the age of 72.
You got something wrong. For a given income, your benefit doesn't increase beyond age 70, and you have to start receiving it at that age. (If you keep working beyond 70, you can get your benefit recomputed each year, so if you are earning more - beyond general wage inflation - than in some of the previous 35 years, then your benefit will increase. But that's not an apples-to-apples comparison.)
When (if? Let's be realistic here, I'm 62) ageism kicks in and I can no longer get my kind of work, that benefit level just starts dropping.
No, your benefit would not drop. You cannot get a lower benefit by delaying retirement, even if you don't have any earnings at all in the meantime.
I am one of a large number of boomers who thought they could make it in the dot com on our own money.
You took a risk. Sorry it didn't work out, but don't blame Social Security for your bad luck (or, perhaps, lack of exceptional luck).
Julian @60: Lets get Krugman into the fed
Krugman would be the first to tell you it's not a good idea.
JusticeLeague @53: so what?
So it doesn't seem politically promising. Not because the US is some tribe of conservative cavemen. It's not done anywhere.
I understand that the current HCR bill will apply the Medicare tax to investment income for high earners.
Nope.
How do you justify an effective tax rate that is lower for Warren Buffett than for his secretary, which is what we have today?
That really has nothing to do with Social Security. I would favor a more progressive income tax, but that is off-topic.
Rich @63: almost all government spending follows the upward curve of revenues during good times
Totally false. You just pulled that out of your ass. Flush please.
Posted by: bullfighter | March 18, 2010 8:36 PM
Bullfighter @75:
You are incorrect. The reconciliation HCR bill does in fact apply the Medicare tax to investment income for joint filers over $250,000 AGI and single filers over $200,000.
http://www.opencongress.org/articles/view/1738-Summary-of-the-HCR-Reconciliation-Bill-
See Sec 1402 about halfway down.
As far as the effective tax rate on Buffett vs his secretary, Social Security tax is a big part of that. Hers is 6.2%, his is essentially 0.
Posted by: JusticeLeague | March 18, 2010 8:48 PM
JuliaL @66: You've moved the goalposts. Experienced/inexperienced is not the same as younger/older. For example, when I was forty...
I didn't move any goalposts. You don't seem to understand the difference between anecdotal and statistical evidence. Yes, you can find plenty of individual examples for your claim (that they are substitutes), but economy-wide, that isn't so. Or how would you explain why European countries that forced or encouraged people in their early 60s to retire in the 1970s and early 1980s failed to lower their unemployment rate?
Other people have also given you good answers.
Ian @69: In acknowledge that I will never see a dime of my SS benefits when I am a geezer.
You don't deserve to see it (because you are clucking inanities like Chicken Little), but you will.
JusticeLeague @73: I don't know how accyrate the game is, but raising the tax from 6.2 to 6.7 % and raising the cap by 25% make the system 100% solvent. Would that destroy the economy? I doubt it.
As I wrote before in response to Michael Heath, the tax increase would not help with the fiscal health of the whole government. We don't need to accumulate more in the trust funds. They are serving their purpose quite well - we can ride the wave of Baby Boomer retirement without big fluctuations in payroll tax rates. What we need it to get the system in balance after 2037 or so. Of course, we can increase the tax then, but it will take a larger increase.
Adrienne @74: The gov't needs to get rid of Social Security.
Fair enough, if you are a reincarnation of Ayn Rand and prefer a dog-eat-dog world, you have a right to that opinion. However, you also wrote...
Make it easier for people to (...) open 401Ks or other retirement funds instead. Really raise the pre-tax limits for contributions.
So you would use taxpayers' money to help the high earners get richer. It's not Social Security or retirement plans per se that you dislike. You just want to replace the current, moderately progressive scheme with a strongly regressive one.
But then, I guess, Ayn Rand incarnate would probably agree...
Posted by: bullfighter | March 18, 2010 9:03 PM
JusticeLeague @76: Medicare tax, I stand corrected. I was not aware it was in the Reconciliation bill, and I thought you were referring to the Senate bill.
Effective tax rate - by far the biggest part there is that Buffet's income is mostly capital gains, which are subject to a lower tax rate, and are not taxable at all until the assets are sold. But again, that's off-topic.
Posted by: bullfighter | March 18, 2010 9:16 PM
@63
Government spending only follows the direction of the business cycle when it's up. When it's down they're suddenly Keynesians.
Posted by: TheDude | March 18, 2010 11:01 PM
Good discussion here.
I noodled with a means test. There are 7.5mm millionaires that are retirement age. Multiply that by $18k (average benefit) and you get $135b in savings for SS.
Put another way it would mean that if one had ~$100k of taxable income they would not get SS benefits for that year.
So that is a number to toss around. If that was the "means" test level would it be such a bad thing? I don't think so.
I think it would be unfair to cut everyone's benefits by 25% (that is my guess as to how big the cuts must be if cuts alone are chosen). That would hurt a lot of people. I don't think that is how our country should respond to this.
But a means test comes very close to confiscation. We don't do that either. I have a suggestion.
Say a person is well off (>100k income) and does not get benefits. During their life they give up $200k. Then they die and the estate has to pay inheritance tax. How about we give the estate a credit on the future estate tax that will be owed of the $200k? That would eliminate the confiscation issue.
What would that accomplish? It would be a reverse intergeneration tax. EVERYTHING that we do creates an expense today and and IOU for the next generation. SS is just part of that. That has to stop. We can't keep passing the buck. This idea of a means test with a death tax credit reverses that. The next generation will get more as a result. For once.
AARP will not complain against this idea. There are far more members of AARP that make less than $100k per year than do. They will bow to the numbers. This proposal saves the majority of the retired population from dramatic cuts in benefits. It's good for the AARP.
At the extreme this is the Bill Gates question. Should he get benefits even though he paid into the system? I don't think so, Neither would Bill or Warren Buffett. But they are both getting checks.
If the obvious answer to the Bill Gates question is no. Then I ask you how rich do have to be before it is no longer fair? Is $100 of taxable income as the means test level reasonable?
bk
Posted by: Bruce Krasting | March 18, 2010 11:09 PM
Gore had a lock box. But winning an election wasn't to be.
Posted by: MarkusR | March 18, 2010 11:13 PM
Means testing is the right approach and the AARP is powerful but Congress could show some guts for a change and do the inevitable (decrease benefits) for those who do not need them.
Posted by: Paul Williamson | March 18, 2010 11:57 PM
JusticeLeague is the only person who has mentioned a very important point here: In most societies throughout time, elders eventually ended up living with their children. We have moved away from that model, but it was there for a reason it existed. There's no guarantee that by the time you're too old to work, you'll have amassed enough savings to take care of yourself forver. That probability goes up in a wealthy country like ours, but it's by no means certain.
Social security is us working as a society to take care of our elders the way the family unit used to. It's a good system because it allows us to make the transition that we seem to want to make toward elder independence, and it allows us
to distribute the risk far better than we could if we were each just taking care of our own parents. The notion that it's just a government equivalent of a 401(k) is misguided. It's no more a Ponzi scheme than the notion that working adults would take care of their parents was.
Posted by: Troublesome Frog | March 19, 2010 12:17 AM
No one has mentioned that the percent we pay into SS and Medicare DOUBLED in the 80's during Reagan's presidency to stave off the problem we are running into now. Anyone care to guess who came up with that plan?
Alan Greenspan
Since then, all that extra money has essentially been spent and masked the deficits caused by giant tax cuts, voodoo economics and profligate spending.
We'll definitely need to raise the level of income that's taxed for SS and probably need to phase in means testing to some level.
Did anyone mention adjusting the COLA for SS? I'm not an economist, but I've read there is some question that the formula currently in use may be too generous. Shaving a few 10th's of a percent off would reap huge savings over the long term and allow time for people to plan for retirement.
There is a good argument to be made to make good on the promises made for SS, but equally worth considering is the culpability of prior generations for essentially voting themselves these benefits at the expense of future generations.
At least no one in the future will have to worry about being put out on an ice floe...
Posted by: The Gregarious Misanthrope | March 19, 2010 2:03 AM
bullfighter...
Rich @63: almost all government spending follows the upward curve of revenues during good times...
"Totally false. You just pulled that out of your ass. Flush please."
Sorry, I pulled it out of here:
http://www.gao.gov/financial/citizensguide2008.pdf
And of course, since this assesment things have gotten worse. Government spending in the United States has steadily increased from seven percent of GDP in 1902 to 40 percent today.
Entitlement spending specifically has risen steadily. during good economic times the spending vs. revenue numbers pan out, during mild or worse downturns the projections get killed. I stand by my statment.
Posted by: Rich | March 19, 2010 2:54 AM
The Gregarious Misanthrope "At least no one in the future will have to worry about being put out on an ice floe..."
You haven't been to Canada. Sadly, with the receding ice, it's gone from "The Great Canadian Annual Goodbye to the Elders" to, simply, "Drowning Grandpa".
Posted by: Modusoperandi | March 19, 2010 2:55 AM
Gregarious Misanthrope:
Reducing COLA by 1/2 percent funds a little more than 40% of the shortfall according to the American Academy of Actuaries' Social Security Game linked to @ 72.
I see no reason to consider compromising the program merely because conservatives are attempting to condition the collective psyche that taxes are already too punitively high. They are not and conservatives have no moral or functional authority to establish either the framework or the priorities. I'd prefer exploring fixing Social Security without cutting benefits and if we can't without doing unacceptable damage to economic growth, then consider other options such as this offering.
Social Security has been a successful endeavor, let's not compound the errors of our predecessors.
I also believe like two others mentioned that we don't do enough to attract more professional immigrants. They help solve the looming demographic problem, they tend to start more businesses, they help increase business between their country of origin and ours, and they have higher demands and expectations regarding the quality of education. When I worked in corporate America I lived this intimately, mostly in the 90s. I could neither find enough home-grown talent while also being stymied importing professionals from other countries (we did, but not at the rate we desired). The end result was that we were forced to set-up more off-shore resources reducing the need here, that's America's loss since those people could be here paying taxes, spending their money, and investing in American companies.
Posted by: Michael Heath | March 19, 2010 7:30 AM
If your point is that it would cause a incentive to not bother saving, I have to disagree with you. As long as the reduction in benefits is less than the amount people save, most people will not be stupid enough that they choose to have less overall so that they can get more from one particular source.
Posted by: catgirl | March 19, 2010 9:10 AM
I think everyone in this discussion has lost perspective on the 2.5 trillion that it has taken 27 years to accumulate from SS taxes.
The "fiscal conservative" Republicans and Democrats alike put all of us American tax payers on the hook for anywhere between 14 and 24 trillion dollars in a matter of days during the end of the Bush presidency, also known as "the bailout"
That is like 140 to over 200 years of taxes at that level of GDP and employment of the 80s and 90s. INSANEI think one very unpopular, with the rich, solution would be to bring a prog tier system to capital gains income. As for means testing I know personally some families who live off savings and stocks and use their SS income to pay a granddaughter's rent with almost no thought as to where that comparatively small amount goes, and others who must count every penny of it to be able to eat every month.
Posted by: Willd | March 19, 2010 9:23 AM
Willd @ 89 - whatever assets the federal government took on also has inherent value. Merely pointing out your claimed value regarding liability without also pointing out the calculated range of valuation for the subject assets is misleading. Do you have a citation for that value?
I'm aware of the Fed currently holding about $1.2 trillion mortgage-backed securities so I'd be interested in seeing how your liability value is measured. It's sounds like a flawed extrapolation by a non-economist of the entire finance industry or an economist who was quotemined by a non-economist where his point was stripped of context.
In addition, taxing capital gains might make liberals or populists feel good, but its harmful to economic growth and is especially punitive to start-ups and smaller ventures with promising growth potential because high rates reduces the liquidity of capital. I do think Hedge Fund managers should get taxed on their their non-personal take-home pay as income so my objection is not about them, but instead with the general idea of taxing wealth when its transferred from one asset to another. We empirically know that stagnates economic growth. Personally I prefer taxing consumption rather than wealth and income in a manner that is not punitively regressive like Social Security currently is.
Posted by: Michael Heath | March 19, 2010 10:25 AM
Misanthrope @84: the percent we pay into SS and Medicare DOUBLED in the 80's during Reagan's presidency
Not true. During the 80s it went from 5.08% in 1980 to 6.2% in 1990 - increased by about a quarter - and almost all of that increase was scheduled in the 1977 Amendments. (It was accelerated a bit in 1983.)
www dot ssa dot gov/OACT/ProgData/taxRates dot html
(Trying to make it not look like an URL to prevent the comment from being automatically held for moderation.)
Did anyone mention adjusting the COLA for SS? I'm not an economist, but I've read there is some question that the formula currently in use may be too generous.
That's one opinion. It is not unreasonable, but neither is the opposite one - that the current formula understates inflation relevant to the elderly (who tend to be more reluctant to change their consumption patterns as technology and relative prices change). That's a debate that will never end.
Rich @85: Sorry, I pulled it out of here:
(URL)
Looked there, didn't find it, or anything that could lead you to that conclusion. I stand by my earlier "ass"essment.
Michael Heath @87: I also believe like two others mentioned that we don't do enough to attract more professional immigrants. They help solve the looming demographic problem...
I assume that by "professional" you mean "educated". If so, then you have it backwards. Educated immigrants have few children and thus don't generally help with the demographic "problem". (I think it's subjective whether it is a problem. It's a challenge for Social Security finances. But I think that, over all, low fertility is good for the future.) Uneducated immigrants are the ones that mitigate the Social Security's financial outlook.
catgirl @88: If your point is that it would cause a incentive to not bother saving, I have to disagree with you. As long as the reduction in benefits is less than the amount people save, most people will not be stupid enough that they choose to have less overall so that they can get more from one particular source.
You have to consider what happens on the margin. People who would qualify anyway, and those who won't qualify no matter what, will still have the same incentives. But those whose benefits are likely to depend on their saving behavior will, on average, adapt and save less. This is not controversial at all. You can't tell me that you would save the same at a 1% real return and at 5%. (And, if you would, it would be very irrational.)
Willd @89: The "fiscal conservative" Republicans and Democrats alike put all of us American tax payers on the hook for anywhere between 14 and 24 trillion dollars in a matter of days during the end of the Bush presidency, also known as "the bailout"
I think people who pull this kind of numbers must have some orifices I haven't even imagined in my wildest dreams.
Posted by: bullfighter | March 19, 2010 10:30 AM
Michael Heath @90: ...that is not punitively regressive like Social Security currently is.
Social Security is only regressive if you ignore benefits. (And of course, if you count the taxes and ignore benefits, Social Security sucks in every other way as well.) When you don't cherry-pick, it's progressive. Not hugely progressive, but enough that even the careful CBO says so without "on the other hand":
www dot cbo dot gov/ftpdocs/77xx/doc7705/12-15-Progressivity-SS.pdf
Posted by: bullfighter | March 19, 2010 10:37 AM
"You are mostly correct, except that there is nothing to "get back" from billionaires that would have any relevance to Social Security.'
Bull... Fighter... I like most of your comments. but there is something to get back.. the repubs used the SS surplus as a reason to push through large tax cuts for the richest portion of the country. Now that the bill is coming due on the SS bonds, well let's re-tax the highest earners to make up the shortfall..
NOT the same people who built up the reserves by paying all those FICA taxes. and NOT the current workers who have less money than almost anyone .. and don't cut MY benefits because YOU ran up the debt because you wanted to cut taxes for the rich and fight stupid wars for the defense industry. (not you, exactly, but you the system)
and making SS means tested is the kiss of death. It will gut the universal support of the middle class if it is seen as a) a handout to the poor, and b) to take away earned benefits because of 401k and other savings.
The first step to eliminating SS is to make it a welfare program.
Posted by: Kevin (NYC) | March 19, 2010 11:38 AM
bullfighter: Yeah, I know; that comment was more a joke than anything else. Given that he's an academic first and foremost with little policy experience, and that the fed, like most government bureaus, works more on personal relationship than policy sense, appointing someone like him or Baker to such a post would more likely make our problems worse through bureaucratic paralysis than better.
We really do need to depreciate the dollar though; like right now. If we don't start adding jobs soon, and lots of them, the next two decades aren't going to be pretty.
Posted by: Julian | March 19, 2010 11:54 AM
@94
"We really do need to depreciate the dollar though; like right now."
A good way to give us all a paycut.
Posted by: Rich | March 19, 2010 1:19 PM
Kevin @93: There are two parts to your story. I agree with one of them. Running SS surpluses has enabled lower income taxes (if we can assume that total spending and unified deficit are given, which is a bit much, but the main point remains at least qualitatively valid), which has primarily benefited the rich. So yes, now when the assets in the trust fund need to be redeemed - over the next 20-30 years - people should not complain that income taxes, particularly on the rich, need to go up.
However, I don't agree that the Bush tax cuts fit in this story. They were fiscally irresponsible regardless of the SS trust funds. And, while it is true that the surpluses of the last years of the last century were used as a pretext to sell the tax cuts, those surpluses were driven more by the booming economy and low unemployment than by the trust fund accumulation. I can't observe alternative universes, but I am pretty sure Bush cut taxes for the rich even in those where Social Security was financed purely on a pay as you go basis.
Posted by: bullfighter | March 19, 2010 1:43 PM
Julian @94: But how do you propose we depreciate the dollar? US interest rates can't go lower, and you don't want the Fed to start selling dollar assets too fast yet. Now listen to Krugman (even if he is not running the Fed): we need to put pressure on China to appreciate their currency. (And maybe on Germany as well, Martin Wolf might add.)
However, those are all short-term issues, which have little or no bearing on the long-run balance of Social Security.
Posted by: bullfighter | March 19, 2010 1:50 PM
and yet.. the two rounds of rich tax cuts Bush pushed through (using reconcilliation no yet) added at least a trillion (and maybe more) to the debt. on top of his other 4 or 5 that he racked up...
now the debt is so high everyone is running around yelling deficit reduction. how are we gonna get paid now? if we were back at a 5 trillion debt there would be some room to get over the hump of boomers by increasing the debt for a while... now? forget it. the deficit is out of control as it is and so even taxes on the rich won't save us... but its a start.
and I do think that the self-loan of 2.5 trillion helped cut taxes and provide conver for deficit spending. now that the bill is due, who is gonna pay? (hint: the people with no power = the people with not ehough money)
but you have good comments and a fair logical perspective.
Posted by: Kevin (NYC) | March 19, 2010 2:23 PM
But, Kevin, the current federal debt (about $13T gross, about $9T held by the public) isn't a big problem. Net interest the government is expected to pay this year is 1% of GDP. Even as the debt and interest rates are projected to increase, the interest payments in 2014 will be a lower % of GDP than in any of the years 1982-1998. This is not a terrible burden.
The big problem is that the debt would get out of control if health care costs continued to grow much faster than GDP, as they have been in the last 4-5 decades, and if we don't increase taxes. The problem is in the future, and Social Security is part of the long-term fiscal problem, but a relatively small (and relatively easy to solve) part.
Posted by: bullfighter | March 19, 2010 3:21 PM
@ NadiaL: Oops. That's what I get for jumping into conversations halfway through.
Posted by: Captain Mike | March 19, 2010 7:05 PM
How about we make our priorities as a society clear? Cut the ridiculously bloated military budget by 50% for a start and use that money to support useful things like social security, education, national infrastructure, health care, etc. It wouldn't solve all those issues, but it would be substantial help. Or, we could continue to piss it away on the DoD, whichever.
Posted by: paddington | March 20, 2010 5:40 PM
Bullfighter @75: no, not wrong, they quote 62, 65 and 72. Max at age 72. That is retirement age. Whatever age I stop working (i.e. stop paying into the system), that sets my benefits. I am not aware of any continuing COL adjustments to bring them back up again. Therefore the effective benefits decrease, not stay the same. Their text explicitly says "if I continue working at my present level until age 72".
I'm not blaming SS for missing the dot com bet. I know that was my risk, hence my comment to the younger set to not blow their 401K in risky businesses. Once blown it is almost impossible to restore. It was not clear to me back then that SS benefits were so small, or that inflation was so effective over the long term at making it even smaller - I did not start getting SS statements that showed me exactly how small until quite recently.
Posted by: Gray Gaffer | March 22, 2010 5:28 PM