My understanding was the the CPI measured the increase in prices over time. I could be wrong, but I thought that prices increase as wealth increases. Not necessarily at the same rate or due to the same forces. But over decades the change in wealth and the change in prices should have the same direction. That was my understanding. As I look into it, I realize the this understanding was something of an assumptiion on my part. I could very easily be wrong.
Yeah, I think your understanding is incorrect. Here is a FAQ on the consumer price index, but admittedly it doesn’t really get quite at the philosophical point in question. Here is another link talking about this issue of the CPI overstating inflation somewhat which gets more at what the consumer price index is supposed to measure (while noting the ways in which it is imperfect in doing so):
Here’s what I think is a good analogy of what the consumer price index is supposed to do: Let’s say you own a banana market and use the scale to weigh customer’s purchases and also to keep track of the total amount of bananas you sell. But, let’s say that this scale has a spring in it that weakens over time so that “one pound” measured back in November 2003 is not the same as “one pound” measured on that scale last month. And, let’s say that you sold 100 “pounds” of bananas in Nov. 2003 and 112 “pounds” in Nov. 2003. You want to know how your business is doing but the problem is that this 12% increase in your apparent banana sales isn’t all real…Some of it is attributable to the fact that your measurement of a “pound” changes. In this case, you could keep a one pound lead weight in the store and you could weigh it last year and this year. If it’s apparent weight has increased by 7% then you would know that you really sold ~5% more bananas this year, not 12% more.
So, the CPI is an attempt to provide that sort of “lead weight” that allows you to separate out the change in pounds due to the change in your measurement apparatus (which in the case of the economy is a “dollar”) from the change that is actually due to your banana sales going up (which could be then be anything from your real wages going up to the real GDP of your economy going up).
Of course, the problem with the CPI, as those links explain, that measuring the change in the apparatus that is a “dollar” is more challenging than doing it for a simple scale (and, in fact, it’s as if you have a store with lots of different items and you weigh each on a different scale and the scales mainly tend to have springs that weaken with time but not equally and some springs actually get stronger with time, …), but the purpose is the same…To separate out “real” effects from effects simply due to changes in the scale(s).
Here is a link from the Bank of England. It suggests that inflation is caused by economic forces.
“However, it demonstrates a key feature of inflation - that it relates to the amount of demand in the economy.” It certainly goes on about other causes, and it definately mentions that this particular effect is only reliable over time.
I understand your point that the CPI is used to level comparisons of economic factors accross time. Wages from one time period must be adjusted for inflation before they can be compared with those at another time period.
But that does not mean that the same sort of mechanisms which change wages might not also be changing the CPI. If we take another look at your analogy, for instance, we might notice that the change in the scale is due to wear and tear on the springs. That is, the rate at which the “pounds” change may be influenced by the amount of bannanas sold.
I’m not trying to say that the CPI is a good measure of the wealth in the country. Or that it is proportional to it or anything like that. I’m just suggesting that over a long time increases in the CPI should indicate increases in wealth. Otherwise, the rise in prices could not be sustained. No?
On another note, the CPI (or something like it) might be a better way to calculate benifits if they are intended to prevent poverty. Isn’t poverty in America calcualted by a similar (basket of goods) method?
I don’t know the answer to the OP question. However I do know that there is concern that Social Security taxes won’t be able to pay the costs at some point in the future and borrowing would be required to keep the system solvent.
So GW wants to “reform Social Security” but he won’t raise the tax so the reform will require borrowing. Don’t you just love him?
Actually, yes. The plan he has put forward requires much less borrowing now instead of much more borrowing later. We’ve gone over this in great detail. There certainly is some uncertainty in longe term projections. But we can either use the Social Security along with some borowing now in order to transition to a new system. Or we can wait and increase our taxes slowly over the next few decades and then increase them massively when the trust fund runs out.
It’s funny that you thought of this interaction with the wear of the spring and how much use it gets because it had occurred to me too. And, yes, it may be true that there will tend to be some correlation between increase in wealth and rises in the CPI. However, this correlation will not be that straightforward. As your link notes, inflation is related to supply as well as demand.
However, there is a much more important fact, which is that regardless of whether there is a correlation between increases in wealth and rises in the CPI, that does not mean that indexing payouts to the CPI means you will be capturing some of this increase in wealth in your payouts. Back to the scale analogy - Yes, I’ll grant you that the fact that the spring has weakened may be due to the fact that your business is doing well and so you are weighing lots of bananas. However, that has no bearing on the argument of how you should correct the scale. You wouldn’t say, “Well, since the spring weakening is due to weighing bananas, I can simply assume my scale is measuring that fine and say I increased my banana sales by 12% between Nov. 2003 and Nov. 2004.” Rather, you would still use the lead weight to figure out how much the spring weakening had changed what the scale reads and correct for it to get the ~5% increase in sales that I computed.
Of course, this is still modulo the issue of the CPI being a good measure of inflation…But, that’s another issue.
But two caveats here:
(1) While it may be true that the predictions of the fiscal future of social security under the current plan are not as prone to error as one might imagine (because both benefit payouts and revenues are tied to the rate of growth of the economy), the fact remains that if you look at that graph in the CBO cite that you provided, you can see that there is still considerable uncertainty and included in the 80% certainty range they show is the case where the gap is very modest between the revenue and payouts…such that it is only 0.5% by the end of the century. In fact, it isn’t clear from the graph that under that scenario the shortfalls through the end of the century wouldn’t be covered by the buildup in the trustfund that is occurring now. (Maybe we can find out if this is true somewhere in the text or tables.) Now, admittedly, this is the rosy scenario…But, still, it doesn’t seem to me that this whole picture makes the case for draconian changes in S.S. to be made very soon, although as I have noted, it does make the case for changes to be made in the rest of the budget so that the government is weaned off of living on the trust fund surplusses and is prepared to start paying them back.
(2) As I noted, the Plan 2 from the commission is structured such that by the CBO’s own predictions, even the cohort born between 2000 and 2009 will accrue more benefits under the current system than under the new plan…even under the assumption that once the trust fund is exhausted under the current plan, benefits will be cut so that they are only paid at the level of the year-to-year revenues into S.S. So, it is kind of a strange trade-off that is being made…basically one where the best estimate is that even those born right now will be better off allowing the “disaster” everyone talks about around 2050 to actually occur rather than switching to the new plan!
At least that’s the projection of the same team that said the earlier tax cuts would make the economy zoom.
I know, I know. The in-crowd response will be that the economy is zooming. It’s just that I can’t see it but if I were in the upper 0.5% income stratum I could.
Sounds like a Chicken Little response. The only real reason your fears become more of a realization plus even worse, is a total freefall of the economy and a decline in wages to name a few. But since wages have outpaced price inflation, to which I’m sure your your formula probably did not take into account, the “tweak” I suggest will not be as high as you imply.
Another useful observation by Kevin Drum at www.washingtonmonthly.com:
Perhaps this time we can dismiss Chicken Little.
The Dubya Rule of Thumb: If George W. Bush is in favor of it, it’s probably a terrible idea that only benefits the rich.
And more support for Hentor’s “chicken little” comes from this Sunday’s Los Angeles Times:
But then, keeping social security intact would mean denying billions of dollars from being poured into investment bankers and other snake-oil men selling retire-rich schemes, now wouldn’t it? We can’t have that now, can we?
I’m not so sure. If we measure the change in the spring (by placing a known weight on the scale each day) couldn’s we measure the change over time and make an assumption about how many bannanas had been sold? That is, wouldn’t we know something about both things? The change in the scale and the amount of bananas weighed?
No, but that is not what we are trying to do. We are trying to make sure that the pound of bananas we gave to Joe 20 years ago is the same amount we are giving to Tom this year. So, we measure the change in the scale with the known weight and find that we have to give Tom 4 bananas in order to give him the same weight we gave Joe. The fact that Tom is used to eating 20 bananas while Tom was used to eating 8 doesn’t change this.
I hope I am not carring the analogy too far. 
Quite.
Entirely.
True enough. But they give the same chance that the gap will be over 4% too.
Well, both have to happen. We have to do something to SS so that if there ever is a shortfall it will not be a disaster. You can’t take 1/3rd of current revenues away and add a few percentages of GDP in new expenses and not see a big problem. Even if it cannot happen until 40 years from now.
I agree that there is no need to “panic” right now. I just don’t think that the proposed changes are really all that draconian. I really don’t think it represents a panic of any sort.
[QUOTE[(2) As I noted, the Plan 2 from the commission is structured such that by the CBO’s own predictions, even the cohort born between 2000 and 2009 will accrue more benefits under the current system than under the new plan…even under the assumption that once the trust fund is exhausted under the current plan, benefits will be cut so that they are only paid at the level of the year-to-year revenues into S.S. So, it is kind of a strange trade-off that is being made…basically one where the best estimate is that even those born right now will be better off allowing the “disaster” everyone talks about around 2050 to actually occur rather than switching to the new plan![/QUOTE]
Yes, it reduces benifits in an attempt to spread this “disaster” out over a longer period and more people. Is that really so strange? Especially given that it turns the direction of the funding imbalance towards the end of the century around.
rjung It is very interesting that you cite makes so much of the fact that price indexing benifits would leave them intact. That is the largest change that Bush is proposing. That we price index benifits. He’s simply suggesting that we do it over a longer time span and not that we actually drop benifits 25% from one day in the future to the next.
I’m not at all sure why you say this. I am not assuming any sort of economic disaster as a prerequisite for fiscal problems surrounding social security.
Right now we finance the current retirees with taxes paid by current workers. In fact, current workers pay more taxes than are necessary to pay current retirees. However, this will change in about 10 years. Not because of some odd assumption about GDP growth, but because of relatively predictable demographics changes. Unless we get a massive influx of foriegn workers in the next 10 years, social security will have to start taking back some of the extra money workers have been paying into it.
The first problem is that we have been using that extra money to pay for lots of the functions of government. Something like 10% to 15% of government. So, over the next 10 years, that source of money will dry up. We will have to raise income and other taxes to cover it.
The second problem is that all of that extra money was invested in treasury bonds which have to be paid back with interest. Again, we will have to raise taxes in order to pay the social security system back with interest.
The third problem is that even after all of this the social security system will still run out of enough money to pay for retirees starting around 2042.
So, we have more taxes to allow social security to keep more of its own revenue. More taxes to allow social security to draw some of its invested money. And finally, more taxes to allow benifits to remain at the level prescribed by the current law.
All of these predictions are based on assumptions about GDP growth, but they are not reliant on some unusually low growth. The increases I am talking about are all a function of a percentage of GDP. That is each revenue enhancement (to use the 80s phrase) is an enhancement as a percentage of GDP. You can predict larger GPD growth, but if you do, you will have to plug in larger benifits as well.
Finally, I will repeat what I told rjung. The plan we have been discussion does indeed take the difference between wage growth and price growth into account. In fact, President Bush’s plan counts on this. The greatest amount of savings comes from indexing benifits to prices instead of wages.
Can we all get behind this portion of the plan? Indexing benifits to prices instead of wages seems like a good idea to most of you?
If so, how would you sell this to the next couple of generations of workers? Will you ask them to accept significantly lower benifits than current law requires and simply say “trust me, the money will be there and it will be enough for you”? Mighten you offer to allow them to keep a small portion of their contributions? Just as a sort of good faith demonstration that the money they pay will in fact be their for them specifically? Is it really that much to offer?
Look, this seems like an irrelevant tangent at this point. Whether or not one might be able to indirectly infer something about the wealth of a nation from the CPI (at least vaguely) is completely unrelated to the issue at hand which is what you are doing when you index benefits by the CPI. And, what you are doing if the CPI is calculated correctly as a measure of inflation is simply keeping the benefits the same in terms of their buying power and thus not incorporating any benefits from the increase in wealth of the society.
But, it does it in a way that everyone (or essentially everyone) born through at least 2009 is, by the CBO’s estimate, worse off than if the “disaster” is allowed to occur. I don’t see that as very good disaster aversion. Usually, the aversion of a disaster is supposed to make some people better off than if the disaster occurred. (Admittedly, it does deal with the funding imbalance over the very long term…So, there presumably may be people born after 2009 who will be better off than if we allow the disaster to occur. But, that is really long-range planning with all the uncertainties that this entails.)
But, I think rjung’s cite’s point was really the same one that I was making above from the CBO data, which is that even the “disaster” that is contemplated in 2042 or 2052 (or whenever) would simply amount to having to reduce the benefits to a point where they would have been if indexed by prices rather than wages. So, it is another way of seeing that the “disaster” is actually no worse…and better for some…than the cure.
But doesn’t this analysis limit us to only looking at benifits? We still have an ever increasing deficit from 2052 on. And, it does not take into account the ledge effect. That one day people are getting a certain benifit, and the next day they are getting 75 to 80 percent of that benifit. If instead, they had been warned long before they retired that they would only get this 80 percent benifit, do you really not see this as an improvement? Even if the actual benifit is reduces below this 80% value?
Really I think all this is even secondary to the main point. The real question is whether or not indexing benifits this way will reduce elderly poverty enough to say that Social Security is still a success. Just as a back of the napkin thought, it seems that it will. If the poverty level is still indexed the same way that benifits are, then the benifits should provide the same sort of boost. Or am I missing someting? I still think that there is some complexity of this price indexing thing that I am missing.
But that’s EXACTLY how bush is selling the plan. He’s pushing the idea that SS is going broke, plus he says he doesn’t want to leave the “problem” of SS to future presidents. Huh? He’s leaving a bigger problem with his deficits. Ask any potential presidential candidate whether they would rather have the (imagined) “problem” of SS or a deficit that is choking the country to deal with and they’d be all over SS.
Just to expand on his imagined SS going belly up, if this holds any water is based on a prediction that the economy will do significantly worse in the future than it has in the past. If this is right, then the stock market will do worse, too, and solve nothing.
By the same token, there is absolutely no guarantee the market will do gangbusters to surpass SS benefits by any significant margin. (taking into account one’s life span, assorted fees and so forth). If you insist on that guarantee, this discussion should be moot to you, as you obviously have made billions off the market already with amazing an ability to predict the market.
Because, you insisted on this huge tax increase. As I said, I’m working with wages/price growth numbers. Your retort seemed to dismiss that equalizing factor allowing any tax increase to be significantly smaller than you suggest. But I see later on you say this is taken in consideration.
See above.
Taking from the SS cookie jar has been going on longer than I can remember. And yet, we are still talking nearly 40 years of 100% benefits being paid out.
Which is an ongoing thing. It doesn’t happen all at once.
Once again, it will not “run out of money.” Left alone, it will be short, but as I said before, a mild adjustment and–ta da!–all fixed.
The answers are: Same as before. No, probably won’t have to and yes. No, because that tends to weaken the purpose of it. I have no faith in a person who basically failed at every business venture he entered. Yes it is, can you accept that?
Before we go down this road on yet another issue, can we get a cite for this sort of thing?
Here is a statement by President Bush released by the White House on 2003.
“As in last year’s report, the Trustees confirmed that benefits for today’s seniors are safe and secure. Promises made can and will be kept. The Trustees also once again have delivered a sobering message – Social Security, in its present form, is unsustainable for the long term. I share the Trustees’ view that we need to explore new ways to ensure that Social Security remains strong and financially secure for America’s children and grandchildren.”
Not a panic. Not a call for draconian changes. Just a recognition of a problem that needs to be addressed.
Again, you have not read or even looked at any of the proposals (or it seems any of the posts in this thread). The predictions are based more on demographics than on any doomsday economic growth. You can predict greater economic growth if you want. But when you do, you will notice that wages tend to grow with the GDP. The current law bases benifits on those wages. So, yes, a faster growing economy would mean more revenue. It would also mean, however, a greater liability. The Social Security deficits which are coming are based on the much more predictable demographic changes America is undergoing. Unless you can postulate a massive influx of middle and upper class immigrants they are not nearly as unlikely as you would like to think.
Additionally, the majority of the savings (from President Bush’s plan) are not from expected stock growth. They are from changing the benifit formula to keep benifits at the levels they are at today (adjusted for inflation) rather than basing them on future wages. There is no contradictory expectation of slow growth under current law and expansive growth under the new plan.
Can we at least put that cannard to bed?
I really have no idea whatsoever what you are talking about here. No one is sugesting that there is a guarantee of anything. As jshore rightly pointed out, the CBO analysis includes a measure of the possibility that things will not be nearly as dire as the most likely scenario. About the only thing they “guarantee” (and I use that term in the looses possible sense, the CBO does not guarantee anything in the future) is that there will be significant deficits between Social Security’s revenue and liabilities in the future. These deficits are not accounted for in the current law. That is the current law simply requires that benifits be cut. And these deficits are most likely to grow as time goes on.
I’m sorry. I did not see anything above this line in your post which addressed the idea that social security’s problems are not due to dire economic predictions. I saw no attempt to address the demographic aspects of the problem. Perhaps I missed them?
This may be because you are not very old. The “trust fund” was indeed pretty small in the late 70s and early 80s. The payroll taxes were increased to increase it. This has worked (at the current law tax level and benifit level) because of demographic realities in the labor force. That is, there were sufficient workers paying into the system to cover the current benificiaries as well as continue to increase the “trust fund”. This demographic reality is changing. Just because we’ve been taking from the cookie jar for a long time does not mean that we can continue to do so forever. Also, just for the record, the ability to pay for benifits for the next 40 years assumes that we stop taking from the cookie jar and pay for other parts of government in some other way.
That’s the problem I mentioned before which starts in 10 years. Again. as jshore points out, it is not entirely fair to “blame” social security for this particular problem. It is, however, a significant government finance problem and it does relate to social security.
That’s right. It begins about 10 years from now and gets increasingly worse. Remember, that over the next 10 years we will have to raise taxes, borrow, or decrease government to make up for an ever decreasing supply of “cookies”.
Well, I missed where you said this before. But if you did, then you were wrong then and your still wrong. There is no small fix then or now which will fix this problem. The shortfalls could be as much as 4% of GDP. Do you understand that this would require a 20% tax hike to pay for? And that it will not even solve the problem. The deficit will continue to grow!
Remember, this is only after we raise taxes to make up for less and less borrowing fromt he trust fund and for paying back the money we borrowed.
Well, since the first question was not a yes or no sort of thing, I am confused as to which answer belongs to which question. But let me try.
So, you are saying that no deficits will occur at all? Ever? Your saying that people who worry that Social Security will be able to help them when they retire are just stupid? That argument did not serve democrats very well during the election. Are you sure you want to stick with it?
Well, even the most rosy predictions include significant deficits. Your proposal of doing nothing will almost certainly lead to significant benifits shortages.
I do not understand. The purpose I have been led to link with Social Security has to do with alleviating elderly poverty. How would restructuring the funds change this? If elderly people are still kept out of poverty, how is the purpose weakened?
Well, never miss a chance to bash Bush. But I was not talking about having any faith in anyone in particular. I was talking about showing good faith as society to those who we will ask to pay for Social Security. You have offered to say “trust me” to them. Care to offer any other good faith? Anything?
No, I really can’t. I simply do not understand why this is. If we structure a plan where you are free to give all of your FICA payments to the government while I am free to invest a portion of mine what exactly have we done which is so objectionable. I understand the issues of increaed risks. I understand the fear that the non private portion of the porgram would suffer. But assuming that I am willing to take on the risk, assuming that the non private portion of the program will still keep the elderly out of poverty, what exactly is the objection? What is the emotional attachment to the large government aspect of this program? Why is any small step toward privatization so vicerally objected to?
Look. I understand the viceral hatred of Bush. Really, trust me, I do. I even sympathize with it. I’m not asking that we put it aside and trust him in any way. I’m simply asking that we look at the proposal with a semblance of reason. We certainly don’t want to take Bush’s word for anything. But we don’t have to attack the plan from unfounded rumors either.
To wit:
-
The predictions of Social Security deficits over the next century do not rely on very slow economic growth. They are based on much more predictable demographic changes. There is no GDP growth scenario which will make these deficits disapear. There are some scenarios which could reduce them, but even then they would still be systemic, increasing, and significant.
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The proposed plan does not rely on miraculous stock growth to save Social Security. This part of the plan is more like an attempt to give the next few generations of workers an equity stake in Social Security.
Perhaps one of my basic assumptions is wrong. I have been assuming that “Alleviating elderly poverty” was the primary purpose of Social Security. It seems to be the jewel in the crown whenever people want to show that it works. But maybe I’m over stating this purpose? Would anyone care to provide another one?
In his conference, he used the word problem over a dozen times to paint his picture of SS. Don’t play me like a fool. You may blindly let that go in one ear out the other, but his intent is obvious. Say it enough times…
Wow…in a matter of a few posts it went from 10% to 20%. I imagine it’s only a matter of time that you’ll be declaring 100% of our income will go to fix SS.
Actually, I’ll be eligible to collect much sooner than you and knowing how many lies are being dispensed by this administration, I see major cuts in my benefits.
Can you prove this wrong? If not, it’s not a bash, it’s what we call a fact. Facts don’t bash.
Now it seems you are the one not reading. Recall the word, “tweak.” I never said these people are stupid, well actually, in terms of the election, they are…so in general, the people who insist SS won’t be there for them, then yes, they are stupid. Remember, never admitting that you are wrong does not make you right, nor smarter.
The selling point that bush is using is potential for disaster in SS. Recall that magic word he uses… “problem,” over and over again. The fact of the matter, it’s not a problem, at least not in the major de facto kind. Your stand, if I recall correctly, is you want to have that money for yourself to do what you want with, hopefully having more than what SS promises.
This is actually available to you now. You have such options to use your present income for such use. Only difference is the SS money is waiting in the wings for when you retire as additional income. It’s basically a similar concept to not putting all your eggs in one basket. I understand your need to want what’s yours, but SS is working and will be there if not tampered with.
As I mentioned earlier in this thread, I suffered major setbacks in my funds. One is still hurting to make it make to my initial outlay, while the others lost much of its gains.
I don’t see that as a working formula. To be honest, I can’t see exactly why at the moment, but there seems to be a flaw in that idea. Something like if only partial participation is involved, total failure is imminent.
Why do you think this plan will work here when it hasn’t worked elsewhere?
The issue, as I see it, why fix something that isn’t broken on a hope that something else might be better?
I think the estimate is more like 14 years before we have to start paying back the trust fund, but be that as it may, saying that it is not entirely fair to blame social security for this problem is a bit of an understatement, don’t you think? That’s like saying that it is not entirely fair to blame your rich uncle for your financial predicament when he’s been bankrolling you for the last 20 years but is going to wean you off in the next 15 and is then going to ask you to start repaying some of the money that you’ve borrowed from him.
You’re right. I was guesstimating from memory. The expected date is now 2019 according to the CBO.
Well, no, I don’t think that analogy holds. There is no third party. If you make the analogy about an uncle who has been loaning money to a second account of his you’d have a better one. My point is that the decisions to take the money, spend the money, and even to account for it in the way it has been have all been done by the same body. Generally speaking, us.
I agree that you cannot call the financial cruch we are about to find ourselves in* stricltly due to social security. But given that a great deal of the money we spent over the years (and are required to spend of the next several years) is due to the current social security laws, it does seem fair to say that social security is a factor.
As I said before, you cannot treat these programs as philosophically seperate from the rest of government when you want to preserve them but consider them as part of government when you want to say that FICA payments are taxes too.
*I just heard on the news that this year is the first year that Social Security, Midicare and Medicaid combined will not be contributing to the general fund. They are drawing from it instead. So, the financial crunch (counting those programs as well) is already upon us.
Well, okay, so social security is responsible for the large part of the spending; however, it is not responsible for a large part of the deficit if you of the opinion that social security taxes are supposed to go to pay social security. In fact, it is responsible for a substantial surplus that has been borrowed from over the years but will eventually have to be paid back.
Of course, if you believe that the point of the payroll tax is simply to raise revenues to be used to throw into the general pot and fund all of government, then you are welcome to that opinion but you may find it a kind of lonely one.
And, for the record, when we have talked about the regressivity or progressivity of taxes, I admittedly have mentioned the fact that social security revenues have been used to fund the rest of government over these past several years. **However, I think that I have only mentioned that in the context of saying that this is a significant concern if we just continue to do things that way, i.e., make no plans to change this. If we pay them all back, then I agree that this is not really an important point regarding these revenues over the long run because everything will even out.
Unfortunately, I don’t really see ourselves setting upon that course particularly when we have people (and I am not including you in this) who are running around and claiming the sky-is-falling in regards to social security when they are citing as a reason for this what amounts to the fact that we are going to have to stop borrowing from it to fund the rest of government and, heaven forbid, even start paying it back! That’s extremely disingenuous in my view.
As for Medicare (and Medicaid, although I never thought of that as even supposed to be being paid for out of the payroll taxes…Am I wrong?), well yes, we agree that this is a more immediate problem. However, again, that is not social security’s fault. If Americans support a plan to, say, divert social security revenues to Medicare then that would be one thing…But, then it should be sold to them as such.
Ok, and I don’t see any “problem” with using that word. There is a significant financial problem looming in our future. You seem to think that closing our eyes to it is a feasable solution. I disagree.
Yes. We were talking about different aspects of the problem. Allow em to show my work.
1)We will be able to borrow decreasing amounts from Social Security over the next decade (or so). I had been under the impression (I limited the number to be sure) that this was about 10% of the federal budget. Roughly, I calculated that Social Security accounts for 30% of revenues, and that 30% of that is sent to the “trust fund”. Those are rough figures, but pretty close. And they leave us with 10% of the federal budget coming from borrowing from Social Security. Which means that we will have to make up for that with something like 10% higher taxes, less services, or borrowing. I think that breaks down to about 2% of GDP.
- Over the next few decades Social Security will have to withdraw monies from this “trust fund”. However, since they were never invested in anything but treasury bonds, this simply means an ever increasing expenditure from the general fund. Recall, for simplicity, that this general fund is made up of taxes. That means that we will have to raise taxes, cut expenses, or borrow in order to pay Social Security back for all of that “trust fund”.
3)Finally, in about 40 years, Social Security will not have enough money in revenue or its trust fund to pay for scheduled benifits. We will have to cut benifits for those already recieving them or raise taxes on everyone else to make up for the difference. Projections show that this deficit could be anywhere from .5% of GDP all the way up to 5% of GDP. That makes the necessary changes in taxes (relative to the current federal take of GDP of 20%) anything from 2.5% to 25%. In my last post I rounded that down to a maximum of 20%.
So, over the next decade or so we will have to rais taxes, cut expenses, or borrow about 2% of GDP. Over the following couple of decades we will have to do the same to the tune of up to 5% of GDP. The deficit in Social Security is expected to grow from there. I don’t know what threshold you’ve set for “problem”. But increasing the federal government’s burden on the GDP from 20% to 27% seems like a very big problem to me.
For reference:
Here is the CBO analysis of the Bush plan #2.
Here is the CBO analysis of the “Outlook for Social Security”.
Here is a CBO paper about the Impact of Social Security, Medicare, and Medicaid on the Federal Budget from 2002.
Here is a 125 year (1950-2075) analysis from 2002 of the Social Security system. It contains a good historical perspective.
Oh, Ok. Then you should know full well that your statement about surplusses as far as you can remember is simply not true.
Not to belabor the point, but yes, they do if they are totally irrelevant. I said nothign about “faith in Bush”. You added that entirely just to make a dig at his history.
Yes indeed. You might want to cogitate on that advice for a while.
I laid out the case that it is, in fact, a problem. There are uncertainties in the projections. Anything could concievable happen. but under some pretty fair assumptions the current law is taking us to a pretty bad place in regards to government finances.
Now I think you are confusing me with someone else. I don’t think I ever said this. My stand is that a) the social security problem has been overblown in the press and by some republicans; and b)that the nature of the solution proposed by Bush has also been overblown by the press and some democrats. I tend to favor the plan on an emotional level. But I’m not exactly sold on it either.
Yes. As one of the top earners in the country I can invest some of my money. Is it really such a bizarre departure from our goals that we extend this particular retirement tool to those who earn less? Really?
But this is not the case. We need to make some serious decisions or we will be faced with some very difficult ones in a few years. It seems supernaturally unfair to leave the decision about whose benifits to cut until those people are actually retired.
But the formula I laid out is not partial participation. I am not suggesting (and neither is anyone else that I know of) that we allow people to opt out of social security entirely.
There are certainly flaws and questions to be asked about the president’s plan for changing social security. But sticking our heads in the sand does not seem to be a reasonable course to me.
Do you have evidence that it has been tried anywhere else?
Because the thing is in fact broken. Even under the most generous assumptions, Social Security will face significant ever growing revenue shortfalls in the coming decades. Perhaps you are using “problem” and “broken” in some way that I am not familiar with. But that seems IMHO to be a serious problem with a fundamentally broken system.