Can you debunk these claims about Social Security?

[suranyi]

@davidw

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?

The SS tax is capped because the benefits are capped. The benefits are based on a complicated formula that depends on your earnings through a certain period of your life – the higher your earnings, the higher your benefits. But there is a maximum benefit. No matter how high your earnings, you can’t get benefits beyond that maximum. Because of that, the SS system was created with a maximum tax as well.

That is the history of it. Whether it is is good idea to keep the tax cap is a matter of politics.

[Simplicio]

@Ruminator

@Snowboarder_Bo

But debt is an asset, I thought.

It’s not an asset if you owe it to yourself.

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.

Sort of true, but the gov’t isn’t really as simple as an individual. The SS tax is funded by one group of tax payers, while the general fund is paid for by another overlapping group of tax payers. With the SS fund, the upper-middle class and the rich have spent the last 30 years paying fewer taxes then they would have had to otherwise, and the middle and lower middle class have paid more taxes then they otherwise would have. The supposed deal is that the situation will reverses once the boomers retire, the General Fund will have to run a surplus to pay off the deficit in the SS system.

So while your right that the IOU doesn’t affect the overall solvency of the gov’t, it does represent money moving from one group of people to another. And for that reason I feel pretty confident that it will get paid off, the demographic of middle class baby-boomers is too large and politically active to tell that they aren’t going to get their money back.

[Frank]

@Stratocaster

SSA’s own website projects insolvency. Not the Dems, not the Repubs, the SSA itself.

I have the same problem with the link that Snowboarder Bo did.

I’ll also note that I am not presently concerned with the sustainability of Social Security for retirees who are not even born yet. The details of Social Security have been changed a number of times since 1935, and they will be changed again a number of times by 2085.

[davidw]

Okay, thanks for the history lesson, Ruminator and suranyi. I appreciate it.

To go back to my other question, does anyone here oppose raising the cap?

[Damuri_Ajashi]

We are living longer and not merely because of child mortality. Life expectancy at 60 is higher, life expectancy at every age is higher. What really helped social security was that more people died in their 40’s and 50’s before they hit social security age and paid into a system that they got little out of. Now almost everyone is expected to collect from social security.

[Damuri_Ajashi]

Whats the difference between an IOU and bond?

Social security may not be going broke right now but it is projected to emtpy out the trust fund in the next 30 years or so.

[Wesley_Clark]

@TimeWinder

@Wesley_Clark

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.

…

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.

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.

It doesn’t meet my definition, and no you don’t know what to say.

I have heard many many people say things like ‘back in the 40s life expectancy was only 60, now it is 80’ which is absurd, since that is life expectancy at birth. Life expectancy at retirement goes up barely a year a decade. Many people, when talking about SS, talk about life expectancy at birth to give the illusion people are living 20-30 years longer than they did a few decades ago.
http://www.intlisec.com/downloads/ssaPAYTAX.gif

Back in the 50 people paid 2% split between employer/employee into SS. That steadily grew and topped out at 12.4% around 1990.
Also, those numbers are for life expectancy at 60, which is different than life expectancy at 62, 65 or 67. The growth in life expectancy at 65 is probably closer to 5-6 years. And like I said, it varies by income.

So people are paying 6x more in SS taxes and getting an extra 3-6 years (about 25% longer) out of it. Now they want to raise the age to 70.

In 1940 a white man at 70 could expect another 9.4 years. Now he can expect about 13.7. An extra 30% on a retirement that people are paying 6x more in taxes on shouldn’t break the bank.

Raise the cap, and that’ll fix everything.

[TimeWinder]

@Wesley_Clark

@TimeWinder

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.

It doesn’t meet my definition, and no you don’t know what to say.

I have heard many many people say things like ‘back in the 40s life expectancy was only 60, now it is 80’ which is absurd, since that is life expectancy at birth. Life expectancy at retirement goes up barely a year a decade. Many people, when talking about SS, talk about life expectancy at birth to give the illusion people are living 20-30 years longer than they did a few decades ago.

Ah, the strawman. Thanks, that clears it up.

[gonzomax]

http://voices.washingtonpost.com/ezra-klein/2009/05/guest_graph_henry_aaron_on_soc.html Social security has been a big help for the country. it is a program we can be proud of. It looks great at least for another 3 decades and can be easily tweaked to last for another half century.
We bleat about the post war baby boom, but it is not permanent. They are dying now. They will die faster as time goes on and then, they will be all gone. Then, there goes this horrible insurmountable problem.

[Voyager]

@treis

@Voyager

As for IOUs - what is a savings account but an IOU?

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.

So, you think the money you put in the bank is in a vault? Some of it is backed by bad mortgages, and the whole thing didn’t collapse (the way it did before FDR took office) because the good old government guarantees your money. So, your money backed by the loan to that house with the weedy lawn, or the safest debt on Earth. You decide.

[Voyager]

@Ruminator

@Snowboarder_Bo

But debt is an asset, I thought.

It’s not an asset if you owe it to yourself.

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.

Ever worked for a company where you had to buy equipment for one part of the company from another part? The buying entity spends real money from their budget doing it. I work for a company that makes computers, and I’ve had the same damn one on my desk for five years. It was a great day when I got a decent display, which we also make.
You think there wouldn’t be a shitstorm if the government defaults on Social Security assets?

[Stratocaster]

@Voyager

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?

I am relaying the SSA’s own assessment of its solvency. If there’s a point, it’s theirs. The changes I see suggested are an enormous reduction in benefits or an enormous increase in deductions. Those are the changes I see in reaction to this house of cards collapsing of its own weight if we do nothing.

[DirkGntly]

@davidw

Okay, thanks for the history lesson, Ruminator and suranyi. I appreciate it.

To go back to my other question, does anyone here oppose raising the cap?

I do.
Unless you are also going to raise the benefits level. At the present time, the “rich” don’t get SS benefits…ostensibly because they don’t need them (as originally laid out when SS was first approved in the 30s). Asking the “rich” to pay more, without also later being able to claim the benefits for which they have paid, is by very definition “wealth transfer,” which is just a very, very fancy name for “theft.”
(No, taxes in general are not “theft” because they pay for goods/services from the government. If you pay in and can never get anything back, that’s theft.)

[Bill_Door]

@DirkGntly

@davidw

Okay, thanks for the history lesson, Ruminator and suranyi. I appreciate it.

To go back to my other question, does anyone here oppose raising the cap?

I do.
Unless you are also going to raise the benefits level. At the present time, the “rich” don’t get SS benefits…ostensibly because they don’t need them (as originally laid out when SS was first approved in the 30s). Asking the “rich” to pay more, without also later being able to claim the benefits for which they have paid, is by very definition “wealth transfer,” which is just a very, very fancy name for “theft.”
(No, taxes in general are not “theft” because they pay for goods/services from the government. If you pay in and can never get anything back, that’s theft.)

The rich don’t get benefits? Could I get a cite on that?

[DirkGntly]

Bill,

@suranyi

@davidw

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?

The SS tax is capped because the benefits are capped. The benefits are based on a complicated formula that depends on your earnings through a certain period of your life – the higher your earnings, the higher your benefits. But there is a maximum benefit. No matter how high your earnings, you can’t get benefits beyond that maximum. Because of that, the SS system was created with a maximum tax as well.

That is the history of it. Whether it is is good idea to keep the tax cap is a matter of politics.

I over-simplified; they get benefits, but only up to a maximum. If you want to lift the maximum benefit, then yes, by all means, lift the maximum contribution cap, which was actually my point. If there is a maximum benefit, with no corresponding maximum contribution point, then it is still theft.
My understanding is as suyrani described, but I can’t seem to Google the appropriate documentation. Anyone else want to give a stab at it?
(I also support repealing the practice of transfering SS cash for Treasuries…this was an action made possible by legislation in the 80’s, when the pols saw a big ol’ pile-o’-cash™ and couldn’t keep their grubby mitts off of it…)

[davidw]

@DirkGntly

(I also support repealing the practice of transfering SS cash for Treasuries…this was an action made possible by legislation in the 80’s, when the pols saw a big ol’ pile-o’-cash™ and couldn’t keep their grubby mitts off of it…)

Is that what Al Gore meant when he talked about creating a “lock box” for Soc. Sec.?

[septimus]

@kunilou

It’s kind of a circular argument. … 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.

This all reminds me of a well-known puzzle:

Three guests check into a hotel room. The clerk says the bill is $30, so each guest pays $10. Later the clerk realizes the bill should only be $25. To rectify this, he gives the bellhop $5 to return to the guests. On the way to the room, the bellhop realizes that he cannot divide the money equally. As the guests didn’t know the total of the revised bill, the bellhop decides to just give each guest $1 and keep $2 for himself.

Now that each of the guests has been given $1 back, each has paid $9, bringing the total paid to $27. The bellhop has $2. If the guests originally handed over $30, what happened to the remaining $1?

The confused accounting here bears much resemblance to the gibberish Republicans delight in when spreading disinformation about Social Security. The main difference is that instead of lying about $1, they’re lying about $2.5 trillion. Even I have tried to explain this over and over just on this very message board. Rather than repeating the obvious yet one more time let me ask those worried about S.S. Trust Fund not being repaid what safer investment they would prefer for Social Security to invest its surplus? Stock in Fannie Mae? Uzbekistanian Development Bonds? Moldy banknotes under a mattress? Gold bullion perhaps (though since we can’t trust the Evil Feds, S.S. Fund would need to build its own vaults, I guess).

Executive summary for non-economists: If Tea-partiers or Republicans say it, it’s just gibberish.

[IdahoMauleMan]

[quote=“septimus, post:37, topic:549193”]

@kunilou

Rather than repeating the obvious yet one more time let me ask those worried about S.S. Trust Fund not being repaid what safer investment they would prefer for Social Security to invest its surplus? Stock in Fannie Mae? Uzbekistanian Development Bonds? Moldy banknotes under a mattress? Gold bullion perhaps (though since we can’t trust the Evil Feds, S.S. Fund would need to build its own vaults, I guess).
.

Why are you worried about it? Why not let us workers keep our FICA contributions for ourselves over our working lifetimes, invest in whatever we want, and be done with it? What difference does it make?

The government has invested in nothing. There are no assets anywhere that have been purchased with my FICA contributions. It has already been spent.

[treis]

@Snowboarder_Bo

But debt is an asset, I thought.

Right, but if the debt is to yourself it is wiped out by the liability of the loan. In other words, say a man takes a $150,000 loan from his 401k and buys a house.

Net worth before:

Assets           Liabilities
$150,000 (401k)             0

After:

Assets                                       Liabilities
$150,000 (House)                             -$150,000
$150,000 (Value of loan repayment)

The point is that there are no assets being represented by this savings. If I saved $100 at a bank, and they said fuck you we’re not giving it back, they would be $100. If the US govt says fuck you to SS, we’re not paying, they won’t end up with a couple trillion. That money is gone, and that’s the important point.

[Ravenman]

@IdahoMauleMan

Why are you worried about it? Why not let us workers keep our FICA contributions for ourselves over our working lifetimes, invest in whatever we want, and be done with it? What difference does it make?

We have tried it your way. It led to starving old people. Libertarians and some conservatives may feel fine in washing their hands of this suffering, but most people don’t.

As kunilou pointed out, it makes no sense whatsoever when people criticize the SS Trust Fund as being filled with IOUs. Do people really expect that SS surpluses simply be kept as cash in a large bank account, earning no interest? Buying government bonds is such an amazingly obvious thing to do with large amounts of money that ought to earn interest at the least possible risk, its almost foolish to suggest anything else be done with the money.

Now, the issue isn’t whether whether Social Security funds should be used to buy bonds. Of course they should. The issue is that the government that is selling the bonds has fiscal problems so that coming up with the cash to pay for the bonds that have been sold over the years is going to require some tough choices at some point.

Basically, that’s why we need to balance the government budget and start paying down the debt, and also encourage more immigrants to work in the US so they can pay into the system, and not draw benefits.