So, IS there a fix for Social Security?

Great Debates
21

I don’t get excited about the Administration flunkies predictions of SSS difficulty requiring immediate fixing.

I also remember that the same Administration had its flunkies (remember St. Colin at the UN?) babbling about imminent danger, maybe even disaster, if Saddam’s weapons of mass destruction weren’t found and put under lock and key toot damned sweet.

Notice that the “fixing” would mean increased profits for brokers and a lot of inexperienced people in a market that requires sophisticated knowledge. I would rather take the word of calmer voices who aren’t trying to help their Wall Street friends.

22

The problem with [5] is that the current SS revenues are invested in special high-interest federal bonds. They support the long term structural debt of the government. They have no risk whatsoever beyond the total insolvency or destruction of the federal government. They earn 7.5% per year. I’ll be damned if there’s any better return out there. If I could buy these bonds, I’d mortgage myself to the top of my hair to do so. The return on those bonds since 1940 is two tenths of a percent higher than the overall stock market - in a period of unprecedented prosperity and growth that may not be exceeded in a long time.

23

I went to a few presentations on this issue in my university days. Once you strip away the political arguments, the issue becomes fairly broad.

The economy is the sum production of all goods and services. These goods and services are used to support all the people, build capital improvements for the future and fund a government. The goods and services in the economy are produced by the people working in the economy. The more people working, the larger the economy and the easier it is to support all the needs.

As children spend more time getting educations and less time working, the workers must produce more to support all the needs. Hopefully, this investment in education pays off in the future.

As people retire and live long lives without work, the remaining people must produce the goods and services they consume. There is no investment here. There is no economic pay off in the future.

At the individual level, it makes sense to save and invest for retirement. You put money in the bank today and withdraw it in ten years. It does not work that way on a macro basis. The savings of today are invested to boost productivity tomorrow. This boost in productivity is used to support more people with less workers. For the worker, it will seem unfair. Either the employer will take take large profits to pay pension funds or the government will take large taxes to pay social security. Either way, the worker receives far less than the value he is producing.

At the societal level, we need to decide how the people who do not work are supported. I’m not sure this has been debated and have trouble invisioning the debate in congress.

24

kimstu: there’d definitely be a revenue hit to general revenues. Personally, I have no problem with that since, when you strip out Social Security, Medicare, and the various trust funds, what you’re left with is mostly defense, veterans-related expenditures, and the national debt. So, once they’re done squirming, the reactionaries now in charge would have to cut defense: payments to the national debt are obligations, after all, and once they start trying to take a knife to veterans’ benefits they’ll find out those are mostly obligations too, and rightly so.
They might even have to think about using it to just, you know, defend the actual country, instead of running around conquering hither and yon. Oh well.

25

Several posters have taken the “it ain’t broke, so don’t fix it” line, and many others have referred to the projected date when SS goes “bankrupt.” Yes, the date currently projected for that is 2053, and yes, that date has been pushed back over the years. But “bankruptcy” isn’t the real issue for SS.

“Bankruptcy” means that the Social Security system will no longer have legal authority to pay the benefits promised under current law because all of the SS tax revenues and interest that have been credited to the SS trust funds over the years will have been “spent” on benefits, and all that will remain for SS to spend is however much it takes in in revenue in a given year. The system is very unlikely to reach that pass because lawmakers will change the rules that govern taxes and benefits before that date draws near.

HOWEVER (much as I hate to agree with the current Administration about anything), that does not mean there’s nothing to worry about with SS. For the past umpteen years, yearly revenues from SS taxes have exceeded yearly spending for SS benefits. In simple terms, all federal revenue (from taxes, customs duties, etc.) flows into the Treasury, and all federal spending flows out. Actual revenue doesn’t go into different “pots” in the Treasury, although on paper some revenues are credited to specific “trust funds” (accounting mechanisms designed to keep track of particular revenue streams). The difference between annual SS tax revenues and SS spending is credited to the SS trust funds and then, like all federal revenues, used for general government spending. Thus, in the 1990s, that extra revenue helped increase the federal budget surplus, and in recent years, it has helped to decrease the budget deficit.

According to current prejections from the Congressional Budget Office, that situation will change in 2019 (just 15 years from now). At that point, unless current tax or benefit rules change, SS will need to spend more than it is projected to take in. The difference will have to come from other federal revenues. Which means that the government will have to spend less on other things or raise taxes or borrow more. And of course, SS is not the only thing whose demand for spending is on the rise. The big federal health programs (Medicare and Medicaid) are growing faster than the economy, as is spending for defense and some other parts of the budget.

Sorry for the long discourse, but the bottom line is that, bankruptcy aside, SS will start having a negative impact on the federal budget in just 15 years. So some sense of urgency is requisite, because (as many posters have noted) fairness requires phasing in changes to SS slowly so people have time to adjust to them.

Lastly, I feel the need to rebut the contention that when you strip away SS and federal health programs, all that’s left in the budget is defense spending, veterans’ benefits, and interest payments on federal debt. There’s also funding for national parks, highways, scientific and medical research, student loans, the school lunch program, preschool education for poor children, aid to developing countries, the space program, low-income housing, grants for local police and fire departments, and myriad things that affect everyone in the United States. It’s those millions of small things that are likely to feel the squeeze when the financial pressures from SS start to kick in at the end of the next decade.

Source: Congressional Budget Office, The Outlook for Social Security, June 2004 (available at www.cbo.gov).

26

Owlett: According to current prejections from the Congressional Budget Office, that situation will change in 2019 (just 15 years from now). At that point, unless current tax or benefit rules change, SS will need to spend more than it is projected to take in.

Yes, but that extra money is supposed to be allocated (for the next few decades, at least) from the surplus that excess SS benefits have accumulated over the years (the “trust fund”). You are right that this surplus has been, in practice, borrowed to set against other federal spending. But that is not, in itself, a problem with Social Security, it’s a problem with the rest of the budget.

The SS trust fund has been accumulated over the years, out of higher-than-immediately-necessary payroll taxes, precisely in order to soften the impact of the transition to needing to pay out more in benefits than is paid in in contributions. If politicians have been unable to resist sticking their fingers into this pie in order to solve other funding problems, that’s not Social Security’s fault. The trust fund money is still owed to Social Security by the rest of the government’s revenue.

How we will meet that debt, in addition to meeting all our other budget debts, is a serious problem, I agree. But we should not blame Social Security per se just for ceasing to be a cash cow that we can milk of its assets to fuel our other spending habits.

27

Social Security will start being a drag on the federal budget because we have to pay back what we’ve raided? Well, what a crappy program. Better scrap it.

28

We could pay for it easily if we eliminated the $87,500 cap above which one doesn’t have to pay more social security taxes.

29

That just puts off the problem – in order to maintain the notion that “you’re getting back what you paid in” (which isn’t exactly true, but is politically necessary to assert) the benefits of those affected would also have to go up.

30

As a matter of simple personal prudence, anyone under 40 or so ought to act on the assumption that they’ll see Elvis before they see a Social Security check.

If the system is somehow saved, great, but you shouldn’t bet your life on it.

31

It depends on your circumstances. If you aren’t planning to retire for 20+ years, stocks are your best bet. As retirement draws close enough that short-term fluctuations are more important than long-term trends, you’ll be wise to start shifting funds to more stable (albeit perhaps less lucrative) investments.

32

Unless they live in Vegas, this assumption is as erroneous as the sequined jumpsuit was gaudy. This despite what Chickenhawk Little might try to scare you into believing.

33

There is a problem with Social Security. The problem is that SS has been bringing in a surplus every year, and the federal government steals that money to pay for federal expenses because federal taxes don’t take enough revenue to cover.

An additional problem with SS is that the surplus is growing smaller and the government can’t steal as much every year. And someday relatively soon, SS will need that money back from the government, and the government won’t be able to pay, without incurring massive debts, as long as we keep electing Republican presidents and legislators who refuse to balance a budget.

My solution is to stop pretending that Social Security and the federal budget are different entities. Combine them. Eliminate the Social Security Tax and payroll tax, and raise federal taxes enough to collect that lost revenue. This would eliminate the regressiveness of the SS Tax.

Also, as people live longer and are healthier at older ages, correspondingly adjust the Retirement Age. People, being healthier, will be able to work for more years, and they will still have more years to enjoy their retirement.

I would also like to see a Balanced Budget Amendment, but although it relates to the topic, it’s a seperate discussion.

34

SMB: As a matter of simple personal prudence, anyone under 40 or so ought to act on the assumption that they’ll see Elvis before they see a Social Security check.

Sorry, but this is ridiculous. The most pessimistic estimates from the SS Trustees themselves, who are notoriously pessimistic about their forecasts for economic growth and the consequent solvency of Social Security, are predicting that the system is going to be able to go on paying full benefits for at least another 35–40 years, after which—even if no changes are made to the current funding system—it will be able to pay about 75% of promised benefits for another few decades.

This is the worst-case, utter-neglect projection (excluding doomsday scenarios like total collapse or insolvency of the US government, in which case I think we’ll have more pressing things to worry about than our retirement pensions). And you’re suggesting that it’s “simple prudence” to pretend that today’s 40-year-olds won’t get a nickel out of Social Security 25–30 years from now? That’s just batshit crazy.

On the other hand, perhaps all you’re trying to say is that people should make believe that Social Security won’t exist just as an incentive to work harder at accumulating private retirement savings. Kind of like how my drivers-ed teacher urged me to assume that every other driver on the road was stupid, distracted, and drunk, to encourage me to be extra alert and careful. In that sense, the imaginative exercise you’re recommending would be prudent, I guess, although it certainly isn’t realistic.

35

It ain’t broke.

In a nutshell, here’s why the Republicans are fear-mongering:

For years SS has been running a surplus. This surplus was intended to pay for the demographic bulge caused by the aging baby boomers.

Now the surplus isn’t just sitting around in a vault somewhere. The trust fund loaned its money to the federal government with the understanding that it would be paid back with interest down the line. It’s no different than China loaning the federal government money by buying government bonds. It’s an obligation that must be repayed.

Republicans don’t want to pay it back.

That’s because paying it back would require raising income taxes. And income taxes, unlike social security taxes are progressive. Paying it back means having the rich pay the poor and middle class back for all those extra social security taxes we’ve been paying for the last twenty years. Instead they want us working stiffs to write off the debt that the rich owe us.

And since they can’t come right out and say that, they make up lies about a “Social Security Crisis”.

For further reading: http://www.thereisnocrisis.com/.

36

Creating a new superflu that kills off 65% of the elderly would probably work, but it’d be unsavory to many people. Ditto for new laws within the next 1-5 years requiring couples to produce at least three children.

IICR from the last time I looked it up, when you add up the census figures(using 2000’s #s), people who’ll be at retirement age when the boomers are old enough to start collecting are just about even with the number of people who’ll be old enough to put into the system. Given that there’s always been more workers than retirees, I can’t see how the system will continue on after this next decade without taking huge precentages of wages from the young to suport the elderly…or unblance the ratio of elderly to workers.somehow

37

It would also cause a major economic recession. Suddenly depriving the economy of all the money retirees spend would cause a dislocation that would not be made up for by any lowering of FICA deductions from working peoples’ paychecks. The elderly might not produce anything, but they do something almost as important in a modern industrial economy: They consume! They provide a vast market for the goods and services of younger, working people.

38

I don’t think this has been said already but if so I apologize in advance. I heard on NPR, I’m sorry, I don’t remember on which show, that the shortfall can be solved by reducing future increases in retiree’s benefit payments to the amount of inflation.

39

elfkin, I don’t think you RC. Even the most pessimistic projections for the worker-to-retiree ratio that I’ve seen—and these are from SS privatization advocates, mind you, who are trying to make the “crisis” look as bad as possible—say only that by 2050 it will fall to 2:1 and remain at that level. (Note that the ratio has fallen from 5:1 in 1960 to 3:1 now, and at the current level SS is generating a fairly hefty surplus. So I am skeptical that we would need to take such drastic measures as killing off the old folks in order to keep SS solvent at the 2:1 ratio.)

40

Actually, as I understand, this is not the sole fix. In fact, it is almost none of the fix. The plan from the committee that Bush set up which has gotten the most scrutiny (e.g., from the Congressional Budget Office) and what I understand to be the sort of plan that the Administration plans to go with combines private accounts with a change in how future social security benefits (outside of the private accounts) are indexed. Right now, they are indexed to wages, which generally grow faster than inflation. That means that S.S. benefits tend to be some fixed fraction of people’s pre-retirement wages. The proposal is to change this indexing so that it is indexed to inflation instead. This means that the benefits from the (non-private part of) social security would become a smaller and smaller fraction of people’s pre-retirement wages as time goes on.

The CBO analysis shows that nearly all of the savings comes from this change in indexing. And, the analysis also shows that, while such a formula does lead to increasing solvency of S.S. over time (eventually probably leading to large surplusses again), it does so by making nearly everyone born before 2010 (which is as far as they go out) get less benefits than they would under the old social security plan. This is true even under the assumption that the old plan exhausts its trust fund in 2052 and so has to cut benefits after that…just paying out as much as it is getting in each year! Of course, such an analysis involves a certain amount of guesswork (e.g., regarding how much money people will reap through their private accounts), but it is rather interesting that those who are talking about how S.S. will go broke and be unable to pay full benefits after some time in the future are proposing a solution that, by best guess, will lead to lower benefits regardless of that fact!