Then put your money in T-Bills. That’s what you’re doing now. You see? It’s easy. Problem solved.
You’re creating false strawmen by attacking the messenger. You’re not really addressing the issue. The issue is what to do with your own money, to create or store value over time in accordance with your own risk/reward profile.
If you want to follow the government’s script to the letter, go ahead. Buy T-Bills. Some other people may choose, or not choose, to follow that path. They will bear the risks and rewards of their actions.
That’s it. That’s all there is to it. It’s not any more complicated than that. Why is this so hard to understand?
For the past 40+ years they’ve had 15% of their earnings (up to the FICA cap) extracted from them, against their will, by the government. Who then promises to pay them back at a government-decided rate-of-return when they become eligible for SS.
Why not let them keep that money? That’s the whole point, isn’t it? They can keep that money and use that for retirement?
What ‘risk’ are you talking about? What ‘risk’ can’t I afford to take?
If people are destitute, let’s put them on welfare and provide a social safety net. I’m cool with that. But it sounds like you’re mixing apples and oranges here, or somehow buying the line that SS is a sound ‘investment’. Or maybe it’s neither. It’s hard to tell from your post.
I like the first line. A lot. I’m going to use it from now on, if you don’t mind.
If future generations don’t want the things that were bought with the money, then by definition, that money did not create wealth. It destroyed wealth. If it was borrowed from foreign entities, of which about 50% of our debt now is, and they aren’t interested in lending us any more, then we’re really hosed.
Then our fiat money will be worth substantially less than the citizens thought it was when the gubmint first printed it and the citizens put it in their wallets. Those guys over in Saudi Arabia who use to take 40 little pieces of paper for a barrel of oil will now want 100, or 150, or 200 little pieces of paper for the same barrel. Ditto for the lumber we import from Canada, the manufactured goods we import from Mexico, and everything else we import.
People will refuse to sock away those little pieces of paper or lend them to someone else for investment or job creation, because when they get them back later with ‘interest’ (more little pieces of paper), they will have lost confidence that the purchasing power of the little pieces of paper will be the same as when they first invested. So they stop investing, and instead convert the paper to assets that hold value (gold, oil, foreign currencies) decreasing the velocity of money coursing through the American financial system.
Then, since the government can’t convince anybody to buy it’s little pieces of paper which are rapidly losing value, interest rates will skyrocket to try and lure lenders back into the market.
Viola! Then it will be the 1970s all over again. Or worse. I can’t wait.
But to provide that welfare we’re still going to have to extract 15% from current earners, leaving that current earner no surplus money to invest.
You’re perfectly free today to invest money for your retirement–after the government takes 15% to pay for today’s social security payments.
Social Security is not an investment, it is not savings. The money I pay today doesn’t go into an a bank account, it goes to pay my grandma’s social security check. It isn’t a ponzi scheme, it’s a welfare scheme.
The only problem is that lots of people somehow don’t understand that today’s social security payments pay for today’s social security payouts. They think their money is being “invested” somehow, which is nonsense.
First off, it’s not 15% for people who earn over $100,000. per year. It’s less and less the more you earn.
Second, it’s all good and well to have people invest it themselves…but what happens when there’s and illness, carwreck, or downturn in the economy and people find themselves unemployed? They usually scramble for any money they can find, be it the equity in their house, their savings, run up credit cards…whatever. These things happen a lot…and for people already living on ‘the edge’ it can mean no money whatsoever in their “golden” years.
I’m curious to learn about Ponzi schemes in history which clearly documented the actual way the scheme worked. I’d also like to hear about ones in which contributions were increased to keep the money flowing out, and systems in which excess money coming in is invested - and T-bills are investments, no matter what people think.
Maybe Social Security got sold as an investment, but given that some people started getting benefits right after it started, I’d love to see an investment plan that had a similar payout. The very name “Social Security” is a fairly good description of its purpose, actually.
A T-bill is an investment, but it surely isn’t an investment if the United States Government buys one. If you buy a T-bill you get your money back plus interest, and the US government pays the interest. If the US government buys a T-bill, the US government gets the principle but has to pay itself the principle plus the interest.
The US government cannot invest in T-bills any more than I can invest in Lemur-bills. YOU can invest in Lemur-bills, but I can’t. If you pay me $100 for a Lemur-bill, and I agree to pay you $105 in one year, you have an investment. If I take $100 and buy a Lemur-bill and agree to pay myself $105 in one year, I’ve got an accounting trick. Especially if I think I can spend that $100 I just gave myself on hookers and blow, and at the end of the year when I owe myself $105 I just buy a slightly larger Lemur-bill to pay myself back.
When Social Security buys T-bills, it is one part of the government, with separate books, buying bonds from another part. Nothing odd about that. I work for a computer company, and when my department buys computers, from our company, we still use real budget to do so. We don’t get them for free. These kinds of transfers happen all the time in big organizations.
The reason for SSA to buy T-bills is that they are the world’s safest investment - still. I think the underlying problem here is that some people are convinced that there won’t be money to pay them off in the future. That may be true, since nothing is 100% safe, but if it is I can’t imaging another investment that would be in better shape. We’ll probably be living in caves at that point.
One thing that people forget is the future generations SHOULD foot the bill for a lot of what the governement does on purely practical terms. If you guild a bridge that is meant to last 50 years, then it should be paid for by people over a 50 year time span. I am not saying that everything the govenrment spends money on is like this, but there is a goodly portion.
Sure, the SSA can buy T-bills, and call that an “investment”. Another way to think of it is that the general fund is borrowing money from the SSA. All that means is that current social security payments are funding current general spending.
And all that means is that we’re paying more in social security taxes today than we pay out in social security benefits, and the extra revenue gathered through social security taxes goes to the general fund. In the future when social security revenues are smaller and payouts larger, we’ll have to repay the SSA with higher general taxes.
This is like me saving for my kid’s college education by taking the money in their college fund and purchasing Lemur-bills, then paying for my daily expenses with the money I gave myself. I can fund current expenditures without needing to work so hard, and all I have to do is agree to work harder twenty years from now to generate the money to pay myself back.
I don’t mean to say that the current situation is as nonsensical as the example I gave of me borrowing money from myself.
The real situation is that the government collects $X in taxes. Some of those taxes are labeled “social security taxes”, and some are labeled “income taxes”. Then the government spends money, some of that money is for social security and some is for other purposes. Right now the amount collected labeled “social security” is higher than the amount we spend on social security, and the amount we collect labeled “income taxes” is lower than the amount we spend on other purposes. And we say that we’re borrowing money from social security, or that social security is investing in t-bills.
But it doesn’t mean anything, what matters is the total amount collected and the total amount spent. Today we collect extra money from social security tax and less money from income tax, years from now we’ll collect less money from social security tax and more money from income tax. What matters is how much money we collect.
A more honest way would be to fine-tune the amount collected by social security tax so that every year social security tax revenue matches social security payouts. To do this we’d reduce the social security tax a bit and increase income tax a bit. But for some reason high social security taxes are more easily swallowed than high income taxes, despite (or perhaps because of) the fact that social security is less progressive than income tax.
Anyway, it doesn’t really matter, it’s just the nitpicker in me that denies that we can “invest” social security tax revenue in t-bills. It’s just an accounting trick. When future social security payouts increase in the future, future taxpayers are going to have to pay higher taxes to pay for it, whether we call those taxes social security taxes or income taxes.
In exactly the same way that selling T-bills to the general market is funding current general spending.
Your implication here is that the surplus from SS is going to the general fund without an offsetting obligation. That isn’t the case. an example of where this is the case is when the California state government takes Lottery money, intended for education, and puts it in the fund without giving the schools bonds in return.
In X years the government will have to pay back the T-bills from general revenue, true. But if the bills had been sold on the open market, they’d have to pay the same amount. The real issue here is the deficit, and this fear that the government won’t be able to make good on its obligations sometime in the future.
There are two stages when outgo outstrips current revenue. The first is that the surplus gets reduced. It is possible that the interest rates on the bonds will increase with the loss of one big customer, but that will happen gradually as the surplus decreases. Aside for that, no problem. The second stage would be that there is no surplus left and SS would really have to be funded from general revenue. That would be bad, but it is uncertain to happen at all (forecasts saying it will come from very conservative assumptions) and even if it is a danger it would be easy to prevent with an increase in the cap or increase in retirement age. True, if the birth rate crashes and immigration decreases, we might also have a problem. But it is not a big deal.
I think the real opposition was from people who noted that the rate of return on T-bills was lower than that of stocks. They were still in the mindset that the market will always go up, while those of us opposed were more cautious. Guess who turned out to be right?
This is like me saving for my kid’s college education by taking the money in their college fund and purchasing Lemur-bills, then paying for my daily expenses with the money I gave myself. I can fund current expenditures without needing to work so hard, and all I have to do is agree to work harder twenty years from now to generate the money to pay myself back.
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This would be an excellent solution - provided that the demographics of society doesn’t change. But if that were true, we’d be seeing surpluses as far as the eye could see. I’m a baby boomer, and it is perfectly appropriate for me and those in my age group to pay a bit more so that it will be there when we retire. Otherwise, our kids will be forced to pay higher SS taxes to cover the relatively larger number of people needing payments.
I think Social Security is easier to swallow because we will get it back in cash (more or less) unlike income taxes.
SS and general revenue are in different buckets. In a company you’d sum up total profit and loss, but the government doesn’t need to do that. I wonder if the industrial parts of GE borrow from the financial part - but if they did, they’d pay interest just like external clients, and GE capital would make money off the bonds, just as SS does.
The market probably WILL always go up ( until our present system goes away at least ) - but only as a whole over time. There’s always ups and downs, and retirement income is a time dependant problem. The fact that the market will probably be higher than it was sometime in the indefinite future doesn’t do any good for someone who needs to pay the rent now.
The market worshipers tend to ignore practical problems like that though.
But this is exactly my point. Of course we won’t have surpluses forever, because demographics will change and we’ll have more retirees, and those retirees will need more money. Yeah, you’re paying higher SS taxes now so that when all the baby boomers retire your kids won’t have to pay higher SS taxes. Sounds wonderful.
Except those kids won’t have to pay higher SS taxes because instead of paying higher SS taxes they’ll pay higher income taxes to pay back SS for the money SS “invested” in T-bills. Saying that SS invests in T-bills is exactly equivalent to saying that the general fund borrowed the money from SS. Since the general fund borrowed the money today it will have to pay the money back tomorrow. And that repayment will have to be done by collecting taxes in the future. Any time we issue T-bills we are borrowing money today that taxpayers of the future will have to pay back, plus interest. So the more money SS “invests” in T-bills, the more money we borrow on the other side, and that borrowing must repaid.
So yeah, your kids won’t pay higher social security taxes in the future. They’ll just pay higher income taxes. But it doesn’t matter so much whether we call those taxes SS taxes or income taxes, it’s still taxes.
If the economy grows faster than our SS obligations, then it’s no problem since even though future workers will be paying higher absolute taxes they’ll be paying a smaller percentage of their income. But if our obligations grow faster than the economy then future workers will have to pay higher and higher percentages of their income to support more and more retirees. Either that or future retirees will have to get smaller and smaller payments. One method would be to explicitly reduce payments to future retirees, another method would be to inflate the currency so that although the dollar amounts are the same each dollar is worth less.
One of your options requires being brutally honest about the state of the nation’s balance sheet, and the tradeoffs required. The other can be partially achieved through stealth.
I’m optimistic enough to believe that our economy will grow faster than our obligation to pay off social security.
And since future social security payouts will actually be paid via income taxes we’ll have a more progressive tax system than our current scheme where regressive social security taxes pay for general spending.
Of course it is wonderful. As a baby boomer, at peak earnings potential, I’m paying the full load now (and I agree with you that I should be paying more to make it more progressive.) My kids are paying a greater percentage than me, but less absolute money. If we reduced taxes now, I’d be paying less, and would be paying nothing when I retire. My kids would be paying slightly less now, but would be taking a double hit in the future as they pay both for their reduced contributions and my lost ones.
You were doing great up to the end. You somehow seem to assume that the money SS invests in T-bills somehow increases the amount of borrowing the government does. That’s not true. The total borrowing is the same, the amount that has to be borrowed from elsewhere decreases. If for some reason the government didn’t want to issue any debt but they had to because SS had to buy T-bills, then you would be correct, but that scenario ain’t going to happen in our lifetimes.
Nope - the same taxes, assuming SS doesn’t run out of money and has to be funded from the general fund, that is.
The level of economic growth is built into the projections. Since the obligation stretches over such a long period, it is easy to adjust. As I said, it is conservative, and historically the actually case is better than what was predicted. If it looks like it won’t be, then the time to fix the problem is now. That might consist of an increase in retirement age, benefit reductions, or higher taxes, or more likely a combination of all 3. It might be almost painless. If you look at the yearly statement SSA sends you, you will see there is a big adder for delaying getting payments. Playing with those numbers will save money, and make the level of benefits you get somewhat voluntary.
The bipartisan committee to save SS that Reagan started was brutally honest, and fixed the system. The so called problem now is very minor compared to the problem back then. Today no doubt the Republicans would rant about no new taxes and call Ron a socialist.
But if we reduced social security taxes now (to match social security payouts now), we’d have to increase income taxes now, to match the amount of money we are no longer collecting through social security.
Why?
Because every dollar collected through SS tax that isn’t spent on SS payments is “invested” in T-bills, which is another way of saying that it is spent on general spending and taxpayers today agree that taxpayers of the future will pay higher taxes to fund social security.
Of course the money SS “invests” in T-bills decreases the amount that has to be borrowed from elsewhere. The excess SS money borrowed by the general fund is used to fund general spending. Therefore any money collected through SS taxes doesn’t have to be collected through income taxes or other borrowing.
But that money doesn’t come from nowhere. It’s still taxes. It doesn’t matter that the money is labeled SS taxes, or that we’re keeping a careful record of how much money we’ve borrowed from SS and agreed to pay back in the future.
Every dollar we borrow from SS is a dollar that doesn’t have to be collected via income tax or other borrowing (or other taxes, but other taxes are very small relative to income tax and SS tax and we’re not going to go back to funding the Federal government through tarriffs). I understand that.
But what happens twenty years from now when the baby boomers have to retire? No problem, SS just cashes in those safe T-bill investments. But can’t you see what that means on the other side? It means that as SS draws money from it’s “investment”, the people who borrowed the money–the US taxpayers–are going to have to repay the loan. And the only way to do that is through more taxes, or more borrowing. You can’t get something for nothing. You can’t borrow money from your kids college fund and deposit it into your checking account unless you either someday repay the money from your checking account to the college fund or tell the kids that they can’t go to college.
As a baby boomer, at peak earnings potential, I’m paying the full load now (and I agree with you that I should be paying more to make it more progressive.) My kids are paying a greater percentage than me, but less absolute money. If we reduced taxes now, I’d be paying less, and would be paying nothing when I retire. My kids would be paying slightly less now, but would be taking a double hit in the future as they pay both for their reduced contributions and my lost ones.