SAVING SOCIAL SECURITY SIMPLIFIED
by Dale Coberly
SAVING SOCIAL SECURITY SIMPLIFIED
The Trustees Report came out again this week.
And all the newspeople told us again that we are doomed. Doomed.
"Social Security is running out of money!"
Except it isn't.
And all the Professional Defenders of Social Security rushed out to
tell us, "We can save Social Security: just make the rich pay for it!"
Except they won't.
And they really shouldn't. And we shouldn't want them to. Most
workers understand that Their Social Security is Their money. They
paid for it. They need to know that IT'S NOT WELFARE.
But all the paid experts and politicians, and all the high end
newssources can only think in terms of welfare. So the Bad Cop says
we got to cut it. And the Good Cop says we got to make the rich pay
for it.
But actually all we really need to do is just pay for it ourselves...
as we always have.
It wont cost much. An additional 40 cents per week each year will
pay for the whole "shortfall."
You don't have to take my word for it. The Congressional Budget
Office says the same thing. A CBO Study: Social Security Policy
Options, July 2010, Option 2 (page 17) says "Increase the Payroll
Tax Rate by 2 Percentage Points Over 20 years... this option would
raise the combined payroll tax rate gradually, by 0.1 percentage
point (0.05 percentage points each for employers and employees) every
year from 2012 to 2031... This option would extend the trust fund
exhaustion date to 2083."
Please note that while the tax would be increasing at one tenth of
one percent per year... combined... wages would be increasing over
one full percent per year. So in today's terms the tax for the
employee would increase by 40 cents per week (and another 40 cents
for the employer), while wages are going up eight dollars per week
each year.
CBO Option 3 would Increase the Payroll Tax Rate by 3 Percentage
Points Over 60 years. This would be a twenty cents per week increase
in the tax each year for the employee and the employer.
With both of these Options it is likely that a similar increase would
need to be enacted at the end of the twenty, or sixty, year period.
This is unlikely to be a problem after people have seen that a
gradual increase is not a "burden." In fact it is unlikely they will
even notice it. Nor will the increases continue forever. The
Trustees Projection is that the need for increases will flatten and
fall to essentially zero after life expectancies stabilize between
2050 and 2070 or so.
Remember it is not a tax going into a government black hole. It is
You saving your own money, protected by "pay as you go with wage
indexing," so that if all else fails you can retire when you need
to. You get your money back with interest in an annuity that will
last the rest of your life. No matter what.
Now here is the hard part for you.
You need to think about this and make sure you understand it. Then I
am going to ask you to sign a petition. Yes, I hate petitions too.
But it's the only way I can think of to spread the word to the people
that they can save their own Social Security for pennies per week.
And not have to turn it into welfare by "raising the cap," or make
it worthless as retirement insurance by cutting benefits, means
testing, or raising the retirement age.
The petition calls for enactment of CBO Option 2 or 3. It is not so
important exactly which of these is enacted, or some variation. What
is important is that people learn how cheap it would be for them to
save their own Social Security. They won't learn it from the media,
the politicians, or the experts.
Please visit http://signon.org/sign/fix-social-security-with?
source=s.em.cp&r_by=4120788 and sign the petition. Then, and I know
this is an imposition, ask your friends to read this and talk about
it, and sign the petition.
Thanks!
http://economistsview.typepad.com/economistsview/2012/04/lets-beef-up-social-security-benefits.html
In this political climate it is hard to gain consensus, and ‘saving’ unfortunately the slogan. Comments are also worth reading. But I am in the SS is doing fine and maybe a just a tweak camp as well. In that the voters allow the health care issues to remain off the radar is serious error for them, and to limit the discussion to medicare even when it is discussed a shame.
The comments in Thoma’s blog item are interesting because the writers seem detached from the significfance of SS in the domestic economy. Just imagine this country with 700 billion dollars less to circulate every year. That’s a big bite out of our gross domestic product. Increasing SS benefits pumps up the amount of money circulating at the Main Street level. True, no one is publically talking about abolishing SS. But, the kind of nickel and dime cuts in revenues will destroy the system slowly but surely. So, it’s a good idea for voters to advertize their thinking. This is one time that the politicians are wrong and the people are right. NancyO
a glimmer of hope?
CHICAGO (Reuters) – It’s rare to see a federal official publicly beg reporters to get a story right, but the commissioner of the Social Security Administration seemed ready to get down on his hands and knees at a Monday press briefing. Michael Astrue was cautioning journalists not to scare the public about the meaning of the word “exhaustion.”
“Please, please remember that exhaustion is an actuarial term of art and it does not mean there will be no money left to pay any benefits” he warned in issuing the trustees’ annual report on the financial health of the Social Security program.
“After 2033, even if Congress does nothing, there will still be sufficient assets (from payroll taxes) to pay about 75 percent of benefits. That’s not acceptable, but it’s still a fact that there will still be substantial assets there,” Astrue insisted.
This year’s report shows some acceleration of the drawdown of Social Security’s vast trust fund reserves. Absent Congressional action, the trust funds of the retirement and disability programs are expected to be exhausted in 2033 as baby-boomer retirements accelerate – three years sooner than projected a year ago.
But Astrue went out of his way to emphasize that the program is far from broke. Social Security took in $69 billion more than it spent last year, according to the report, when you include tax receipts and interest on bonds held in the Social Security Trust Fund (SSTF). The SSTF had reserves of $2.7 trillion last year.
Yet the press plowed right ahead with stories warning that the Social Security retirement program is running out of money. “There won’t be much money left for you” after 2033, warned a public radio reporter – a line that pretty well summed up the coverage and nearly forced me to run my car into a ditch.
Americans need to get this right, because Social Security is the primary source of retirement security for most Americans — and it will be even more important in the future as we continue to dig our way out of the rubble of the Great Recession.
So, what’s really going on with Social Security?
1. Social Security isn’t running out of money.
The long-range actuarial shortfall is projected to be 2.67 percent of taxable payroll – in other words, 2.67 percent of all the earnings subject to Social Security contributions. That’s a modest shortfall – and it fluctuates over time due to economic cycles and changes in assumptions about growth in taxable earnings. For example, the projected year of SSTF exhaustion was as far off as 2042 in 2003 in the wake of the dot-com bubble; it was as close as 2029 in 1994 due to changed expectations about real wage gains.
2. Yes Virginia, there is a Trust Fund.
Social Security’s critics love to argue that the SSTF is a myth, but it’s not. Although Social Security was designed as a pay-as-you-go program, every penny it receives is credited to the SSTF, which has been building enormous reserves following benefit cuts enacted in 1983.
The Trustee report confirms – again – that the surplus funds are invested in “special issue Treasury bonds” and that they are “full faith and credit” obligations of the government to Social Security. Since Social Security can’t borrow money by law, it uses those reserves to pay benefits whenever cash on hand runs short.
3. This year’s news is not about our aging […]
dont know how anyone thinks the elderly would survive without it; via krugman: If you look at Table 9B6 you’ll see (left column) that 55 percent of the elderly get more than half their income from Social Security; 33 percent get more than 80 percent of their income from that source. And if you look at Table 10.5 you see that the elderly in the middle of the income distribution get 66 percent of their income from Social Security, versus 9 percent from private pensions and just 5 percent from assets.
Add to all that that two other factors should be included in the discussion of the Trust Fund’s asset source. Of course that source is the excess receipts from FICA after all benefits are paid out. So how does one energize the source. First, redouble efforts to reduce unemployment to not more than 5%. Second, raise the minimum wage to something that resembles a living wage. That’s has got to be not less than $12.00/hour. If more people work and low paid people are paid more what happens to FICA receipts? It’s not rocket sience people. It’s simple arithmetic. Lower unemployment + higher levels of pay for the lowest paid = a significant increase in FICA revenues.
One thing that irks me about this kind of opposition to Social Security is that the problem of changing demographics is not a problem of Social Security per se, it is a problem for our society. Eliminating Social Security would not solve the problem. People who say that the problem is threatening the existence of Social Security are simply opponents of Social Security who are trying to scare people into thinking that it will disappear. If people believe that, it will be easier for the opponents to destroy it or diminish it. The most important thing is to counter the fear mongering and call it what it is.
Once the fear is dispelled, then we can talk about what to do about the perceived problem of the aging of our society. Maybe we should alter Social Security, maybe we should do something else, maybe we should do a combination of things. Moi, one thing that I think will happen, anyway, is an increase in immigration that will alter the age distribution. I think that we should encourage that. After all, we are a nation of immigrants. 🙂
Min
we “could” alter Social Security if we ever get to where “aging” is a real problem with a real solution. but altering Social Security now because there “might be” a problem fifty years from now is insanity. and it is insanity promoted by evil people.
and as i never get tired of telling people, according to the Official Projections… remarkably stable projections for the last twenty years that i am aware of… the Projected “aging of the population” can be paid for by raising the “tax” of those people who will need the benefits by one half of one tenth of one percent per year. not a “huge expense” but just a way we can pay for our own future needs, the same way our grandparents paid for theirs: by saving our money. safest way to save “at least enough” is through Social Security pay as you go with wage indexing.
please note “raising the tax one half of one tenth of one percent” now is NOT “altering Social Security. It is simply paying for expected costs the way SS has always paid for them…. matching the tax rate to the expected need.
if it turns out that the raise is too much, it can always be lowered, or if it is not enough, it could be raised more. It is almost impossible that it would ever need to be raised “too much.” But should that situation arise, we can deal with it then. One more time: changing it “now” because of a prediction about “over the infinite horizon” is deep down stupid.
We “might” be invaded by evil creatures from outer space, so we should all just kill ourselves now.
Dale,
Thanks for the continuous effort to educate the masses. I signed the petition and posted to my FB page. Hope it does some good. I have a lot of FB friends that are beyond reachable. I’m hoping that continuing to bang the drum will pay off eventually. What about the argument in favor of raising the cap with regard to the added percentage of income/wage growth that has shifted to the top 1% of incomes? I’m not in favor of overtaxing the wealthy. It just seems that some of that wage above the threshold should pay some “additional” contribution. Maybe an indexed percentage?
nanute
I am all in favor of taxing the rich and finding a way for workers to get a better share of the wealth in this country. But i do not think raising the cap at this time is very smart politics. The argument of the bad guys has always been “it’s going to be a huge burden.” and by that they mean “burden on US, the rich.”
The strength of Social Security has always been that the workers pay for it themselves. If you want to tax the rich… and i do… raise their taxes to “pay for the deficit.” Even raise their taxes to pay for welfare… to pay for programs for the poor, and the poor elderly who do not get enough Social Security. But don’t make Social Security carry the burden for every good thing that needs to be done. It’s hard enough getting people to pay for it… for their own needs… as it is.
This should access the CBO Report pdf.
http://www.cbo.gov/sites/default/files/cbofiles/ftpdocs/115xx/doc11580/07-01-ssoptions_forweb.pdf
If you read this, read it carefully, it is not designed to make the solution obvious. For example, where it says this will raise taxes 15%, that’s 15% of a 6% tax… or about 1% of wages. And that’s over 20 years. In fact it’s the AVERAGE increase over 40 years.
That’s a big bite out of our gross domestic product. Increasing SS benefits pumps up the amount of money circulating at the Main Street level.
I was making the same point recently when talking about Japan’s upcoming pension burden (which, by the way, is only around half as bad as ours — we’re going to move from 50M to 80M (+60%) pensioners by 2030, they’re going to move from ~30M now to ~40M (+30%) by 2030.)
I do think pensions are very good stimulus. Old people on a pension can’t be fired, so they don’t have the same need to “save” the money for later exigencies.
““special issue Treasury bonds” and that they are “full faith and credit” obligations of the government to Social Security.”
Republicans can’t have it both ways on this. Either the $2.6T is real debt of the Treasury, or it isn’t countable in the statutory debt limit and thus we’re $3T away from the limit now.
Who am I kidding tho.
I fail to see how more immigrants here will increase the work we have.
The whole ‘lump of labor fallacy’ thing is BS AFAICT. We just need to raise taxes in this country, and let the chips fall. Part of the reason real estate and rents are so expensive is thanks to our low tax rates. The Germans pay 20%+ in social insurance (pension, UE, healthcare).
I strongly believe that whatever the taxman doesn’t take the landlord will. Just raise the taxes and pay out the social benefits to match.
Germany pays $4000 per capita less for health care than us. That goes to show how much higher their pension contributions are.
“if it turns out that the raise is too much, it can always be lowered,”
nothing wrong with paying more benefits, eh
the job-creators can pay their share back by shouldering the $2.7T payback burden they owe the SSTF, starting around now.
Over 30 years, that’s going to be a lot of money each year, about what the Bush tax cuts “gave” them.
“I fail to see how more immigrants here will increase the work we have.”
If the problem is the aging of society, then immigration is a real way to change that.
I am not the one making the claim that the aging of society is a problem, but I suppose that the idea is that there will be too few workers to support the retirees. I.e., sometime in the future there will be a demand for work that will not be met. Then why wouldn’t immigrants move here to meet that demand?
Troy
nothing wrong with paying more benefits… but if i try to consider every possiblity at some point i will go crazy. people… if they were sane… could look at how much the benefits are, how much they cost, who pays, and who gets the benefits and come to some kind of agreement… or at least election .. but in this country we don’t talk about the facts, we argue about complete nonsense.
troy
exactly. but since they invested the money from the tax cuts they have twice as much now to pay it back with.
Min
you are right, but i guess i need to say i can’t see how there will be too few workers to create the “product” that will support retirees as well as the workers and their kids. we are not a poor country. a reduction in the supply of surplus labor should drive up wages, and this WILL help SS.
pretty much everything you hear about “the trouble we’re in” is a lie.
Coberly, did you look at the 2012 report from SS?
The intermediate forecast for the cash flow shortfall at SS is:
2012 (53.1B)
2013 (66.9B)
2014 (63.1B)
2015 (67.9B)
2016 (67.9B)
Total cash shortfall = 319B over the next five years. After 2016 it just goes off the map with deficits.
The Coberly plan does not address this. I know that the folks at AB don’t care at all about these annual shortfalls. But the rest of the world does. I might add that there is ZERO chance of a tax increase of any kind to plug this gap.
Rather than pushing for an idea that has no chance of succeeding (and would not work if adopted) The AB supporters should come up with plan B.
Just a question, do you have a plan B? Or are you just going to push for something that will never happen, and then complain about it?
Krasting
You fail to understand that the Trust Fund was created exactly to cover shortfalls like those you see predicted. Apparently that Trust Fund is big enough to cover all predicted shortfalls until 2033.
A tiny increase in the payroll tax will enable Social Security to pay all scheduled benefits for the next seventy five years, and an additional similar tax increase in another fifty years or so would enable it to pay for all scheduled benefits over the infinite horizon.
The “idea” will work… according to CBO and to the Chief Actuary. As for getting it passed into law, my belief is that if the current Congress won’t pass it, we need a new Congress more than a new idea.
Better to push for something that will “never happen” than to push for something evil and stupid.
by the way
the “plan” you see here is NOT the Coberly plan. it is the Congressional Budget Office plan. The Coberly plan is plan A, the CBO plans are plans B and C. There are any number of other plans that might work. But the CBO plans have the best chance of being enacted. Hence the petition.
and yes, it is apparent Krasting can’t even read what is in front of him, much less actually understand the Trustees Report, so it is not surprising that he is always confused about Social Security, and an easy fool for the Peterson propaganda.
Thanks for the edits of the nasy comments…
bk
krasting
they are not good for either of us. i don’t mean to be nasty. i wish there was a nice, and effective, way to tell you your analysis seems to miss important features of the problem.
It is not clear to me from the postings about the Trustee’s report, here and otherwise, that the projections take into account changes in the dynamics of our economy and especially the financial condition of the 90% (those with incomes just below the SS cut off and lower). If not why take such projections seriously at all. Do we make changes to a system that coexists within an economic structure that is defined by its dynamism? That’s nuts, to put it nicely. Current projections of the more rapid pace of depletion of the TF over the past several years need not have been sanctified by inclusion into a Trustee’s statement. It’s a bit obvious that if wages are stagnating and fewer workers are working (and those working are earning less) then a fund dependent upon the wages of the 90% is going to bleed more rapidly.
Fix the economy stupid, not the SS structure!!! Apparently a broken economy has been working out pretty well for the upper limits of the 5% and especially the One Percent. Approaching the depletion issue with band aids isn’t a solution. The sub-system we know as SS (including FICA revenues, benefits payments and the Trust Fund) functions within the structure an economy that has been faltering. The only correction is to repair the dysfunction to that economy by focusing on jobs and the income of the 90%. The sub-system will then be taken care of without tinkering. They tinkered in 1984(?) when the Greenspan Commission made its recommendations. It took more taxes out of worker’s pockets without correctiing the sources of that money, jobs and wages. Fix the core not the overlay.
Jack
you are correct that a better economy and a better distribution of income are possibly more important i themselves, and certainly important for the “wealth” of Social Security… but not necessarily the “health” of Social Security.
Social Security is designed to do its job… insurance for retirement… whatever happens to the economy, short of nuclear devastation.
Meanwhile the Trustees Report is the official projection of the finances of Social Security. The Trustees do take into consideration their guesses about future incomes and income distribution. I am not sure they are entirely honest about it… if what I heard about future workers “wanting more leisure” was given as an excuse for cutting Social Security… but that is the Projection we have to work with. It is the one the bad guys use to create hysteria. And while we may each have different ideas about this, the only coherent way to respond the bad guys is to try to show the people that even the Trustees Report that they claim spells doom, spells no such thing.
Of course, getting the people to understand that, or that WHATEVER HAPPENS they can always pay for their own Social Security themselves… but yes, paying for themselves means paying for their mother and their father, as well as for their children.
But that seems even harder for them to understand.
I have no disagreement with all that you say. Emphasizing the dishonesty of the interpretations of the Trustee’s report is a necessary inclusion in any discussion of the Trustees’ projections. I think it is becoming increasingly important not to dissociate these closely related aspects of working class financial well being. Adjustments to the FICA deductaions must be seen only as one of the several important approaches to responding to the potential reality of those projections. The other of the approaches being wages and jobs availability. In fact it would be best to address the interactive effect of jobs, wages and the acceleration of the pace of the projected depletion.
Jack
find a willing economist…
and someone who will publicize his analysis.
@coberly
Right. We are not a poor country. It’s just that some people want to make us into a banana republic, and one way to achieve that goal is to pretend that we are one already –, or soon will be.
I think that raising the cap now would be good politics. Why? First, because of all the Tea Partiers in Congress. The Tea Party is against taxes, with a few exceptions, one of which is to “save” Social Security by taxing the rich. So even with a Republican Congress it would have a reasonable chance of passing. Once it passed, when the opponents of Social Security tried to claim that we could not afford it, we could tell them to Shut The F### Up! 🙂
“I might add that there is ZERO chance of a tax increase of any kind to plug this gap.“
There is no gap.
Looking at cash shortfall is deceptive since SSA does earn interest on its $2.7T balance, just like China & Japan does with their respective $1T+ holdings of UST.
The intermediate forecast shows the SSTF at over $3T by 2030. Yes, these are paper promises. But so is everything else in this economy.
Households have ~$60T of net worth, corporations another ~$25T. Them paying back the $3T they’re going to owe the SSTF is no big deal.
Once that starts getting paid back we can look at tax increases on wages to return the system to 75-year sustainability or whatever.
“I might add that there is ZERO chance of a tax increase of any kind to plug this gap.“
There is no gap.
Looking at cash shortfall is deceptive since SSA does earn interest on its $2.7T balance, just like China & Japan does with their respective $1T+ holdings of UST.
The intermediate forecast shows the SSTF at over $3T by 2017. Yes, these are paper promises. But so is everything else in this economy.
Households have ~$60T of net worth, corporations another ~$25T. Them paying back the $3T they’re going to owe the SSTF is no big deal.
Once that starts getting paid back we can look at tax increases on wages to return the system to 75-year sustainability or whatever.
There is not gap! 🙂
I do not take economic projections more than 5 years into the future seriously, and I do not take projections without error estimates seriously. That simplifies things considerably. :):):)
As previously noted, this ain’t rocket science. A simple deduction from the barest facts: Social Security revenues are dependent on two sources. One is the interest earned by the Special Treasuries. The other, and more important source, are FICA contributions from wages. In order to maintain FICA revenues and keep SS on a firm financial basis, and also indirectly increase interest earnings of the Trust Fund, one only need assure that earned income of workers is kept high and that unemployment be kept as low as possible. More people working and earniing a livable wage will easily maintain Social Security funding at a healthy level. It’s not more complex than that unless on e wants to obfuscate the issue. Complex schemes to “restore” SS to a “sound basis” or arguments over how to do so or arguments of the futility of even trying to maintain the system at all are all a part of the intention to confound a simple fact. More workers earning more money makes all other schemes unnecessary.
min
it simplifies things for you… and i agree with you…. but as long as the bad guys are whipping up hysteria about 20 years, 75 years, the infinite horizon… i have to talk about them.
the sensible solution to SS is just to raise or lower the tax whenever the ten year forecast shows either one year or less in the trust fund, or three years or more.
ten years rather than five, because it allows for a gentler raise… and plenty of time to adjust if the forecast turns out to be wrong.
jack
with all respect it’s not quite as simple as that..
economies have good times and bad times even when bad people are not running them badly. SS is designed to help people through the bad times as well as the good times.
you are right that the bad guys are lying about SS. they are also responsible for the bad times we are currently experiencing. … possibly as part of a plan to break the government’s ability to do anything … but that doesn’t mean we should stop talking about SS and instead talk only about “fixing the economy.”
this is ridiculous.
we have 20 years to prepare people for a cut in SS spending, so why not just tell people to get ready?
simply tell the public “in 20 years, the social security trust fund will be depleted, and we will have to pay out only what we take in. money given out will decrease. get ready. start preparing. you have 20 years.”
how about we just tell people to get off of their asses. my retirement plans don’t even include SS whatsoever. let’s just prepare the public. ignite them in preperation.
or we could just powder their little bottoms and whisper sweet nothings in their ear like we have been doing for the past 30 years, and tell them it’s not their fault that they didn’t save anything for retirement.
jason
you sound like the intelligent young man Social Security was invented for, and had to be made mandatory.
SS is insurance. it won’t make you rich. that’s why most people also invest and save for their retirement. but just in case their savings and investment go bad Social Security will help them at least be able to retire when they need to.
meanwhile an extra forty cents per week each year does not seem to me to be the sort of burden that we should just throw up our hands and say “we can’t afford it.”
the Trust Fund being depleted has not a damn thing to do with the future of Social Security, which can live off pay as you go forever, either with or without the tiny tax increase.
meanwhile thank you for your perceptive contribution.
I know what you mean, but we can not control this thing. Maybe next time we will see some improvements. lose weight fast