This sounds credible to me. What they’re not mentioning is that FICA is no longer the cash cow for the rest of the government it became in the 1980’s. Once FICA goes back to just funding SS, I worry a lot of pols will want to chuck both.
If true, this explodes one of the main assumptions of those who would defund SS/Medicare. It doesn’t directly address the actual usual argument, that there are specific demographic peculiarities deriving from the Baby Boom that will create problems. But if SS was workable in 1955, before the Boomers entered the workforce, it could be workable today.
I agree with lifting the cap on FICA, certainly. No reason that pensions should only be funded by the poor-to-median households.
I did not know that.
Er…what? This sounds blithe & simplistic. Casts doubt on the rest of the page.
There are cites on the site, I cut out the footnote markers.
It’s kind of a circular argument. The SS trust fund isn’t full of IOU’s, it’s full of Treasury bonds. Okay. What is a bond? It’s an IOU. The Treasury doesn’t have enough money to pay all its debts (bonds wthat mature) so it borrows money from SS. Then when the bonds it sold to SS come due, the Treasury has to borrow money from somewhere else to pay them. Thanks to the miracle of accounting, SS stays solvent while the Treasury has the debt on its books.
If I have ten dollars in one pocket, I put it in another pocket, and promise to pay myself back, that doesn’t magically give me 20 dollars.
One of the biggest myths about social security is that we are living far far longer and because of that we need to change SS, which isn’t true. People are confusing life expectancy at birth with life expectancy at 60/70, which is something different. Even Alan Simpson talked about this, and if he doesn’t know the difference that is terrible.
Life expectancy for white men at 60 was 15 years in 1940. By 2004 it was 21 years. White women gained 7 years from 17 to 24. The rates for non-whites are about the same, 4 years for men and 6 years for women.
People aren’t living very much longer. Much of the gain comes from decreases in childhood mortality. I have no idea what the gains are at age 62, 65 or 67, but I’m sure they are even smaller.
Also life expectancy gains change with income. The lower half of the income ladder gained 2 years from 1972-2001, the top half gained 6 years.
When you consider that SS is a regressive tax, they are asking people to add extra years to retirement w/o the growth in life expectancy at the bottom rungs of the economic ladder.
Full retirement has gone from 65 to 67, now people are pushing for 70 as the new age. But life expectancy hasn’t gone up by 5 years for the bottom half of income, it has only gone up by 2 years. in the last 3 decades.
As far as them saying SS is seperate from the rest of the budget by law, you have to wonder how the gov. managed to spend several trillion in SS surpluses then.
The concept that SS isn’t broke is something I agree with. I think raising the tax from 12.4% to 14.2% and lifting the cap to 95% of income rather than 90% would keep it solvent until the 2080s (can’t remember where I read that though). Much of the push to ‘fix’ social security seems to come from those who are opposed to it for ideological reasons and either want to destroy it or privatize it.
If six and 7 years greater life expectancy don’t meet your definition of “people are living much longer in retirement,” I’m really not sure what to say. At the current 67 year retirement age, that’s a 42% increase (from 8 years to 14) in retirement years for men and a 41% increase (from 10 to 17) for women.
You must be using that definition of “myth” that means “completely true,” or else your own post is self contradictory. We’re talking about more than a 40% increase in payments based on life expectancy increases alone, using your own numbers.
A cash cow is a product which contributes a big stream of profits to the rest of the business. SS is not a cash cow, since it is loaning money to the government. You don’t call your mortgage company a cash cow now, do you?
As Wesley noted, this is not quite true, since life expectancy is not the way to measure this. However I disagree with him that the increase is trivial. His numbers show a 50% increase in expected years of life left, which is rather significant in considering how much money is paid out. Someone dying at 64 is a big win to the system, since they have paid into the system all their lives and get nothing out (except survivor benefits.) If you look at your SS statement, you’ll see that this is considered both by raising the age in which you get full benefits and giving an incentive to delay receiving benefits.
If a 65 year old has 5 more years of life than he could be expected to have 20 years ago, asking him to work another year is not that unreasonable.
Definitely. A good bit of the year I don’t pay into the system at all. It wouldn’t kill me to pay a bit more, it would hurt someone who makes real money even less.
You didn’t? This was the Big Lie of the 2004 -2005 debate, during which Bush and friends tried to make government bonds sound like a worthless investment. I must admit they did their best to destroy the economy and their value through soaring deficits and mismanagement, but even today the world if flocking to buy them. As for IOUs - what is a savings account but an IOU?
They are absolutely correct. Now, it is possible that 40 years from now some stupid Congress will refuse to increase the cash inflow and/or decrease the outflow and have to pay out of the budget - but they’d have to change the law to do so. At the moment (except for this year) SS has a surplus. Even the shortfall this year, a result of unemployment and thus a decrease in revenue, is cutting into the stockpile of money, not affecting the deficit.
The argument here is usually that without this easy source of borrowing, Congress would all of a sudden stop spending money. if all the deficit came from SS, this might even be plausible, but it obviously does not. So this argument is nonsense also.
SS is nowhere near the trouble it was in during the 1980s. Back then Reagan chartered the team which fixed it. If we only had Republicans as fiscally responsible as him (hardly too much to ask for!) we could have a bipartisan law to fix it in no time.
The projection depends strongly on the strength of the economy during that period, and they have usually been relatively conservative in their projections, as they should be. Longer life after retirement obviously has an impact, and is a good reason to further delay benefits. Now, if the immortality people come through, SS is screwed. On the other hand, if global warming kills us off, SS will be loaded when they go.
Is your point that we will have to make changes to reflect the change in demographics, or that we should throw up our hands and trash a working system because some things might change?
There seems to be a problem with that. When I click it, I get some bizarre message that
And btw, it’s not “the report in the link” it’s a report that is linked to on the page that you linked to. I was expecting to find the text you quoted from, but that was another link away.
Anyway, the page you linked to talks about 2 trust funds that the SSA is in charge of, the Disability Insurance fund and the Old Age and Survivors fund.
Does anyone disagree with lifting the cap on taxable income? Even if that doesn’t take care of the whole problem (and I don’t know if it would or not), this seems like a good place to start to me. Why did they cap it to begin with?
No, this is just an obfuscation. In its most basic iteration, a savings account is money under the mattress or gold in a safe. It is a real asset that exists in the real world. It’s true that in our modern world we give our money to a bank, who issues us an IOU, but that IOU is backed up by real (i.e. existing) assets.
On the other hand, a loan or IOU to yourself is a fictional creation of accounting sheets. There is no gold in a safe or cash under a mattress. All of SSs saved wealth is really nothing more than ink on paper saying that one part of the US govt will pay back another part of the US govt.
Let’s say Snowboarder Bo writes a note to himself (e.g. a contract, a bond, an IOU, a pledge, etc) saying that Snowboarder Bo will pay Snowboarder Bo $1,000,000,000 in 2 years, does that mean your net worth has actually increased by $2 billion dollars?
Hopefully, the above paragraph will sound absurd. Well, that’s what the government self-issued IOUs are.
I think the thought process is that taxing the very wealthy at a higher rate means they are paying for numerous other’s SS benefits, thus it’s socialism.
Mind you, I don’t necessarily agree, I’m just explaining.
You’ll want to read some history of how Social Security was successfully passed in the first place.
The way to sell it in Congress was to emphasize that it was a quasi-pension-quasi-insurance plan and not a wealth transfer program.
Therefore, it would have been logical to put a cap on taxable earnings since wealthy people don’t need the quasi pension plan. If you remove the income cap, the folks against it would’ve opposed its passage because they’d see it as a wealth-transfer disguised as a quasi-pension program.
It’s only now that we’ve had 2+ generations removed from the debate context and passage of SS that we’ve forgotten the original merits of the program. Therefore, those ignorant of SS history think the income cap doesn’t make any sense.
Having said that, I can also see a different perspective: yes, we can acknowledge the historical roots of SS but have come to realize that SS benefits are too valuable for us to cling mindlessly to its original tenets as if there’s some type of nirvana in maintaining historical purity.
Oh, I know you’re just explaining it. And I appreciate the explanation, because I honestly don’t understand.
Would it be at a higher rate on the very wealthy? When I think of lifting the cap, I’m assuming it just means applying the same rate to the rest of their income.