Yeah, I don’t think that that means social security is guaranteed.
It doesn’t mean benefits are guaranteed. It means the debt instruments that compose the Trust Fund are constitutionally guaranteed, just like all other lawfully issued debt of the United States.
This confused mind-set always intrigues me. How do you think the SocSec Trust Fund should have maintained its huge surplus? Debt issued by some other country or corporation? Precious metals? One Doper actually suggested that the money should be kept as Benjamins (under a mattress?) since cash is ‘real money’ compared with U.S. Treasury bonds. (Betting on the stock market would be a popular choice, but we’ll want a new thread to pursue that tangent.)
Well, I don’t think anyone is disputing that. In the context of the conversation, when people say “the trust fund is empty,” they’re worried about their benefits.
I think that we should lift the cap on FICA taxes, make them bracketed using the same brackets that we use for income tax (different rates) and cap the social security trust fund at some reasonable reserve rate. Right now we could stop collecting social security taxes, and still pay benefits for at least 2 years. Having a 200% reserve is dumb. It should be closer to 25%.
And as far as using the trust fund goes. It’s a debt. The government pays off debts, and creates new debt every single day. If we need to honor debt to the public that is held in the social security trust fund, we just sell more bonds to other people. The net result on the national debt is zero dollars. And the debts we sell, are at a much lower interest rate than the debt held by social security. And we always, always, always, find buyers for our debt. We don;t even have to try. As soon as we put debt on the market, even if we are offering interest less than inflation, someone buys our debt.
If a private company had access to that kind of credit, they would borrow all the money and use it to invest in the company, knowing that the investment would expand at a rate higher than the negative interest they were paying.
But that’s factually incorrect. The Trust Fund is not “empty” or anything like it because “Congress raided it.” If “Congress had not raided it” (which is also factually incorrect but I’ll play along for the moment) and the Trust Fund was comprised of 100% cold hard cash, the risk to benefits would be exactly the same. That’s because the threat to benefits is that assets of the Trust Fund – whether bonds, cash, gold, cocaine, whatever – are being drawn down faster than deposits are coming in. That’s because of the current tax rates and the growing payments to retirees. It has literally nothing to do with what form the assets are in.
But the Trust Fund isn’t being drawn down. Go to the website and you will see surplus after surplus since 1983 or so. The Trust Fund keeps getting bigger.
The threat to benefits is Congress deciding that we are not entitled to them. It is a political threat, not an accounting threat.
You waive away any consequences of public debt as if there is nothing to be concerned with. Interest on the debt in FY20 is now projected at 10%, up from the 9% in FY19. And this is in a time when we borrow money for essentially free. God forbid that the cost of borrow money goes up and we’ll see that skyrocket. At some point it will push other things that we’d like to do out of the budget. And the items that we’d like to fund, college debt, increase Medicare, infrastructure? They won’t be funded because we can’t afford it.
Just borrowing money and don’t worry about it because you can always borrow more tomorrow isn’t a good plan for your own finances, and it isn’t good for our public finances either.
You say we need to honor our debt to the public. That sounds great. But it’s a promise or entitlement that you’re talking about. And at some point, when the money runs out, you just won’t be able to write the check.
One or two of you is conflating the SocSec and Medicare obligations to the public, with the U.S. Treasury debt held by the Trust Fund. The two are related only in the sense that overall increases in federal financial obligations may become a problem in future(*).
One way to decrease federal deficits is to institute new taxes. Higher taxes on the payrolls paid to high earners have been proposed in this thread, though I would prefer more general hikes on earned, capital gains, and inherited income. However in OP I recommended specifically a tax on carbon (and gasoline). If this doesn’t meet with support, then you’all are just not serious about deficit reduction.
- Offtopic: The dollar and dollar-based assets remain safe-haven investments especially with lack of vigor in other economies. We are engaged in a real-world experiment to see if this prestige status can be maintained if the U.S. Government becomes increasingly irrational.
The Trust Fund WILL be drawn down. Except for the high employment figures right now, there’d be no question that we would be drawing it down today. You’ll notice in those same statistics that annual growth of the Trust Fund has slowed to 1% or less. For 2019, the Trust Fund is projected to grow by one tenth of one percent.
If you think it’s going to keep growing for the foreseeable future, you are literally alone in that view.
I’m 45 years old, and an accountant. I’ve been hearing dire predictions about social security my whole life. The last year reported had an increase of $45 Billion. The trusts fund is 3 times what it was 20 years ago. I will believe it when it happens not before. The 75 year structural deficit is less than 3%. And if SSA could actually predict what the economy is going to look like in 75 years they would be wizard time-travelers.
The SocSec program is not a big financial problem. Escalating costs of Medicaid and Medicare are the financial albatross. This is part of a general U.S. problem with health care costs, but the evil-doers avoid solutions, hoping to get their hands on insurance company and pharmaceutical payola.
I’m not waiving away anything. The SSTF hold public debt, about $3T. If we stopped collection FICA taxes and just let the trust fund pay for obligations, we would need to come up with about $1T to cover them (lets say). Further, we decide that instead of raising taxes to cover that debt coming due, we sell $1T in bonds to private investors. How has the debt beenn impacted? We owed $3T at the beginning and $3T at the end. Zero debt impact. Plus, we pay less intresest to the new bonds than we do to the Social Security bonds. So we save money.
From the 2018 Trust Fund Report:
https://www.ssa.gov/OACT/TR/2018/tr2018.pdf (PDF), pages 2 & 5
Congress needs to bump up the insurance premiums, or find alternative funding. Probably the best way to do that is to raise the cap. However, raising the cap while moving up the lower threshold seems both unbalanced and foolhardy.
I’m actually having real trouble understanding the proposal in the OP. The way I’m reading it, someone with an annual wage of $20,000 is paying $1500 in social security tax, matched by their employer. This would be reduced to $500 each. The proposal seems poorly thought out, but I’m guessing your proposing an initial SS tax bracket of 2.5%. And everyone who pays in gets an automatic $2000 credit?
First off, why are you giving a break to employers? I can understand an alternative employer tax rate for the self-employed, but why are you giving a break to Walmart?
From the above document, “174 million people had earnings covered by Social Security and paid payroll taxes on those earnings.” An estimate for 2019 is 177 million taxpayers with 12 million earning above the 2018 maximum taxable earnings of $128,400. So 6.8% of earners will already be affected by an increased cap.
Unless an alternative tax, such as the carbon tax discussed in the OP is used, redistributing the social security tax burden puts a $354 billion tax burden on that 6.8% and their employers. Just looking at the individuals, that’s an average hit of $14,750 each. I’m not sure where the medians would fall as far as addition tax burden versus salary, but I’m guessing that’s going to be something like a 10% tax rise. And that’s before the shortfall in the future social security funding is addressed.
I can understand the desire to make social security tax more progressive, but the proposal in the OP comes across as a poorly thought out soak-the-rich scheme. And unless it was introduced gradually, the uncertain economic effects of shifting the tax burden foster a significant economic risk. Maybe there’s a germ of a good idea there, but the overall proposal is unconvincing.
You’re kidding me, right?
So you have a balloon mortgage. Next year among the balloon payments, increase in taxes and insurance, say you owe an additional $10,000. You could get a second job, or you could just get a second mortgage to pay for that. You view those two options being the same?
If you extrapolate that out, why don’t we just stop paying taxes altogether and just borrow all the money we need?
Do you think we should ever worry about the debt? Do you ever worry about your personal debt?
It’s still a projection. Those numbers have yet to be posted. Again, I’ll believe it when I see it.
The last time money was taken out of the Trust Fund was 1981. The Reagan Administraction increased FICA taxes to bump up the Trust Fund. The Trust Fund would then be able to cover benefits when the Baby Boomers retired.
The plan worked. The Trust Fund has increased in value every year between 1981 and 2017. Now that we might need the government to honor that debt, we are told that it can’t or won’t.
There are two ways the government can actually pilfer Social Security. They can take direct action to not honor the public debt, or they can convince us that the Social Security Trust Fund is 100% off limits. The Trust Fund can grow, but never shrink.
That is why we should cap the Trust Fund. Something along the lines of 25% of projected total obligations for the next fiscal year. Not an ever growing pile of debt that they won’t ever honor.
Medicare is a different problem and should be discussed separately.
I don’t know what you mean by “the government” and “honor that debt.”
We are the government. It’s not some foreign entity in Australia or something.
It’s up to us to fund or not, or implement the policy we collectively want or not. It’s not like we can just wag our fingers at it and tell it it’s not going to bed until it honors the debt and pays us for our social security out of thin air if it hasn’t been properly funded. We can create programs and call them entitlements. But that doesn’t mean that they will always magically be able to make those payments if the government isn’t solvent. If you think that’s the case look at some of the northeast state pension issues.
The same government that cuts me my tax refund. Or is that just me paying myself?
If you have to ask, I can’t help 'ya.
This is complete nonsense. IIRC the right-wing Doper S___ posted this view several years ago. Is this some right-wing meme?
The wrongness is shown by the following: SocSec is a giant transfer program; huge money must be taken in to pay the checks out. Yet your call appears to be for a reduction in the funds input to SocSec. Rather the opposite of what’s needed for fiscal health.