Editore"s Note
Tilting at Windmills

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November 28, 2007
By: Kevin Drum

SOCIAL SECURITY AGAIN....Why are Ruth Marcus and the Washington Post so obsessed with demanding that we all address Social Security's long-term problems right this instant? It's a mystery. Truly a mystery.

Here's what they need to think about. The most common solutions to Social Security's eventual shortfall are (a) a small tax increase, (b) a small reduction in the rate of growth of benefits, and (c) a small increase in the retirement age. Question: are there any advantages to implementing any of these solutions right now, rather than, say, ten years from now?

I'd say no. The advantage to waiting is obvious: projections of Social Security's solvency are uncertain, and waiting gives us more data. Why try to project 40 years in the future if you don't have to? Better to wait and see what direction the economy actually heads.

Balanced against that, there really aren't any advantages to acting sooner. Social Security is currently running a surplus, so increasing payroll taxes today does nothing except increase the size of the trust fund — a meaningless exercise at best, and a positively harmful one at worst. We might need to raise taxes in the future once Social Security starts running a deficit, but raising them now does nothing at all to change either Social Security's future obligations or the source of its future funding.

As for ideas (b) and (c), what's the point of locking ourselves into them now? If we wait ten years, not only will we know more about the real shape of the future funding problem, but we'll still have 25 years or more to gradually introduce any changes we think we need. Do we really need to give beneficiaries more than 25 years notice that they might have to retire one year later than they think? Or that after they retire their benefits are going to increase at a slightly slower rate than the law currently requires? I don't see the point. 25 years is plenty of warning for changes as small as the ones we're talking about.

Bottom line: 2017 is a better time to deal with Social Security than 2007. Raising taxes now doesn't accomplish anything, and if it turns out that we need to reduce benefits we can do it in 2017 just as well as we can do it today. For now, we should put Social Security on the back burner and instead spend time worrying about healthcare costs, nuclear proliferation, and global warming. Those are problems that really do need to be addressed right away.

Kevin Drum 1:08 AM Permalink | Trackbacks | Comments (74)

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Comments

Good comment, Kevin. You should send it to Marcus.

Posted by: nepeta on November 28, 2007 at 1:23 AM | PERMALINK

There is also another way to think about this.

To the extent that that the Social Security funding shortfall is due to a transient demographic abnormality (the baby boom), the government could address it the same way it adresses other transient abnormalities (like the Iraq War): It could borrow.

Why is it such a sacrosanct requirement that a retirement plan should be fully funded at all times? Why can it not be pay-as-you-go, i.e. a government obligation with shortfalls being covered the same way as all other contingencies -- like wars?

Posted by: JS on November 28, 2007 at 1:35 AM | PERMALINK

IMHO, the Post can see that there is something out there (a big budget problem in our future -- for which SS is a minor contributor) but either: a) can't figure out what exactly it is, or b) don't want to be honest about the problem.

Posted by: Dan on November 28, 2007 at 1:39 AM | PERMALINK

Marcus and WP pursue their idiocy because they are obsessed with the Republican/Oligarchy project of destroying the Social Security system. They want to borrow more money from the SS trust fund, reduce income taxes, and then throw up their hands and say the country can't afford to pay SS back. This isn't a mystery. It's just an evil conspiracy. This is the long plotted revenge of Alan Greenspan, Ronald Reagan, and the rest of the Ayn Randian nutocracy.

But we should stop running the government on money borrowed from the SS trust fund.

Posted by: capitalistimperialistpig on November 28, 2007 at 1:40 AM | PERMALINK

JS: Well, it's not really transient. SS currently consumes about 4% of GDP, and this will go up to 6% of GDP over the next few decades and then stay there. In the long run, then, we really do need a permanent funding source that generates about 6% of GDP.

This isn't hard to do, but it won't be a temporary thing, so borrowing won't help.

Posted by: Kevin Drum on November 28, 2007 at 1:52 AM | PERMALINK

Well, OT, but the Iraq occupation is not a transient activity.

So if we can borrow for the occupation, why not for the seniors if we have to?

Posted by: gregor on November 28, 2007 at 1:58 AM | PERMALINK

Isn't the retirement of the baby boomers the immediate issue?

In any case, the main point is: If we determine the long-term funding needs of the program, can't these be met from general obligations -- rather than ear-marked funds? And if there are demographic oscillations, can't these be covered the same way as other transients?

We don't keep separate fully-funded accounts for different obligations (health, military, etc) -- why do it for pensions?

Posted by: JS on November 28, 2007 at 2:06 AM | PERMALINK

Ruth, you ignorant slut!

More seriously, Kevin, you forgot Peak Oil in your list of really important topics. Remember, LA gets hit first in Peak Oil!

JS, without the mythical "lockbox," of course we should fund Social Security (and Medicare) from general funds. Let's get rid of the FICA tax while we're at it and get a truly progressive income tax -- including a progressive corporate income tax. You crazy idealist, you!

Posted by: SocraticGadfly on November 28, 2007 at 2:19 AM | PERMALINK

Under our government's crazy accounting, SS is counted under receipts. Thus a rise in SS taxes is going to diminish the deficit. Thus a Democratic President is going to be able to spend more on social programs without the perception of fiscal imprudence.

Slightly dishonest? Sure. But wouldn't it be nice to say we got you universal health care AND a balanced budget?

Posted by: Wagster on November 28, 2007 at 2:36 AM | PERMALINK

It's a way to get the Democrats.

Everyone thinks the WP is a liberal newspaper, but just about everything it has done since the late 90s says otherwise.

Force the Democratic candidates into the corner, make them pledge to do something about Social Security. As Obama has found, that means pledging a tax rise.

Let the Republicans hammer them in the election campaign on it. The Republican solution will be 'free markets' hand wave, vague description.

It's very good Republican politics.

Posted by: Valuethinker on November 28, 2007 at 4:00 AM | PERMALINK

Shorter Ruth Marcos:
"You mean that I can't just set a course and speed and expect to get to London from New York? This ship is clearly defective. Get me a new one".

Posted by: wrolston on November 28, 2007 at 4:13 AM | PERMALINK

(1) Repeating a quote from James Madison University econ professor J. Barkley Rosser ("Student Ignorance About Social Security", http://cob.jmu.edu/rosserjb/ ) that I printed on the Andrew Sullivan/Social Security thread below: "Future benefits are to rise with the growth of real wages, reaching a level in 2042 a bit over 160% of what the current retirees receive. If the system then goes 'bankrupt,' those benefits would suddenly decline by about 28%, leaving the benefits paid to retirees (today's students soon thereafter) at around 120% of the level current retirees receive. If this is a 'crisis' requiring drastic action now, then I am the Brooklyn Bridge."

(2) Take a look at the Congressional Budget Office's new report on healthcare costs -- and particularly at its cover graph of projected cost rises through the remainder of the century, and the (minute) fraction of that rise that will actually be due to the increase in the elderly fraction of the population: http://www.cbo.gov/ftpdocs/87xx/doc8758/11-13-LT-Health.pdf . Then draw the obvious analogy between that small fraction and the similarly small size of the Social Security "crisis". That particular picture really is worth a thousand words, I assure you.

Posted by: Bruce Moomaw on November 28, 2007 at 4:58 AM | PERMALINK

"increasing payroll taxes today does nothing except increase the size of the trust fund"

Unless the extra funds are required by law to be used for debt reduction. Even with the extra payouts later that taxing more income now would require, the single best thing we can do to ensure the health of Social Security is stop deficit spending and pay down our debt.

Posted by: folkbum on November 28, 2007 at 5:49 AM | PERMALINK

For now, we should put Social Security on the back burner and instead spend time worrying about healthcare costs, nuclear proliferation, and global warming. Those are problems that really do need to be addressed right away.

Exactly - it's a question of priorities.

It isn't that Social Security isn't a potential problem - it's that there are much bigger ones that need to be dealt with soon, and Social Security is a comparatively smaller one that can wait for a decade or so.

This seems like a good time to bring up the WaPo's awful "Ideas Primary" series of unsigned editorials.

(Brad DeLong's already boosted a comment of mine about this on his blog, but this allows me to include the link to the editorials, since the comments over there are an HTML-free zone.)

There are 16 editorials in the series so far. Five of them so far have been on the Social Security noncrisis - more than global warming (1), healthcare (2), Iraq (0), terrorism (1), and nuclear proliferation (0) combined.

The series discusses what the candidates have to say about the issues, and this tells us which issues the candidates are discussing that the WaPo thinks is important.

Great priorities, huh?

Posted by: low-tech cyclist on November 28, 2007 at 6:04 AM | PERMALINK

Amen, Kevin. Not much to add. My sense of why conservatives are so obsessed with "privatizing" (read, destroying) Social Security is that it represents a vestigial remnant of FDR's New Deal, which they all see as the beginnings of communism in America. Which it really wasn't at all...

Posted by: The Conservative Deflator on November 28, 2007 at 6:05 AM | PERMALINK

The best way to tell if a dishonest hack is discussing Social Security is if they refer to it as "social security-medicare'. They lump the recurring problems medicare has with inflation in with social security, to make both appear to be in crisis. This works to some degree because the two payroll taxes are linked in people's minds.

Posted by: Xenos on November 28, 2007 at 6:13 AM | PERMALINK

Good post and I totally agree with the main point. However I think calling increasing the size of the trust fund a "meaningless excercise at best" plays right into the whole GOP "there is no trust fund" meme.

Posted by: chaboard on November 28, 2007 at 6:49 AM | PERMALINK

Actually we do need to do something about SS right now.

We need to repeal the 1983 law, and return to the previous levels of SS taxation.

For a quarter of a century we have been taxing working people at a high rate, generating hundreds of billions dollars each year in excess of the amounts needed to cover current outgo.

Those excess dollars were supposed to be put into a "trust fund" to be used to tide SS over the period when baby-boomers retire.

But Republicans now say that the "trust fund" is a fiction, or has disappeared into thin air, or something; and that any funds it was supposed to have contained will not be available for use by the SS system in future.

If that is the case, we must stop pouring hundreds of billions of working people's hard-earned into this rathole IMMEDIATELY.

In fact, to be fair, we should refund to those who have overpaid into the system all monies thus collected, over and above those necessary to keep SS in balance for the past 25 years.

Then we must balance the budget and pay down the national debt, to prepare ourselves fiscally for the time when SS receipts will not cover benefits.

This will have to be done by increasing income taxes.

Stick that in your pipe, Republicans.

Posted by: Nancy Irving on November 28, 2007 at 7:10 AM | PERMALINK

"Why are Ruth Marcus and the Washington Post so obsessed with demanding that we all address Social Security's long-term problems right this instant? It's a mystery. Truly a mystery."

No mystery. Social Security is paid for by a regressive tax. Hence it must be addressed first via increased regressive taxes. Then that surplus can be used to pay for Medicare, defence, more progressive tax cuts etc. Then Social Security will be back in crisis requiring.....


Posted by: NYT on November 28, 2007 at 7:50 AM | PERMALINK

Actually I somewhat disagree, at least with the phrasing of your argument, Kevin. There is nothing at all wrong with planning ahead. Yes, we should work on shoring up social security now.

But the fact is, there IS no difference between the health of social security and the health of the broader economy. We can afford what we can afford. And for the life of me, I cannot understand why the Washington Post seemingly cares nothing about improving the health of the broader economy. The Post has been at best mute during much of this administration's spending and tax cutting (for some) spree. But the Post is truly obsessed with fiscal discipline in terms of social security.

Essentially, the Post would have us cut benefits for the elderly and raise taxes for workers, to balance tax cuts for the wealthy and spending sprees on other things.

The best way to prepare for the aging baby boomers is to reduce the deficit and keep spending in check, invest in infrastructure etc. We did that. It was called the Clinton administration.

Posted by: cornfields on November 28, 2007 at 8:06 AM | PERMALINK

There is one answer to the baby boomer hit on Social Security that no one ever seems to mention: Soylent Green.

Posted by: Dano on November 28, 2007 at 8:18 AM | PERMALINK

You are wrong about the retirement age.

Rasing the age now gives people more years to plan.

You are born in 1960 so you know that you retire at 67. You are born in 1954 so you know you retire at 66.

I think we should tell people now that if you are born in 1980(???) that you will retire at 68 and if you are born in 1986 then you will retire at 69.

We can change those dates in the future but our best guess now has a chance of actually being correct and has a very good chance of being more accurate than telling those people they can retire at 67 and then, when they are 65, tell them that we made a mistake and all their planning has to wait an extra year before they can retire

Posted by: neil wilson on November 28, 2007 at 8:58 AM | PERMALINK

Excellent post Kevin, I'd just add that almost every word could be applied with more justice to the Global Warming freak-out you posted yesterday... if it is a real problem that doesn't solve itself hysterical fixes made just for the sake of doing something aren't going to help, and will probably do harm.

Posted by: mr insesnsitive on November 28, 2007 at 9:10 AM | PERMALINK

Kevin,

I suppose you can be excused from thinking that when people talk about the "Social Security crisis" they are actually talking about Social Security.

But they're not talking about Social Security. Not really.

What they ARE talking about is the (legally obligatory) repayment of the monies borrowed from the trust fund. Those funds have been used to pay for a generation of tax cuts, with particular generosity to the most affluent Americans. When Social Security finally calls those borrowed funds home, those artificially low income tax rates (on the rich especially) will have to go up. But the Washington Establishment says that we can NEVER raise income taxes on ANYONE, EVER. The result? The problem is passed off as a Social Security "crisis."

We do not have a Social Security problem. We have an upper-class tax problem. That should be repeated over and over.

Posted by: ppp on November 28, 2007 at 9:17 AM | PERMALINK

The WaPO is trying to knock the legs out from under a good Democratic Platform point- protecting SS from elimination schemes. Democrats should be beating the GOP over the head about SS in 2008. The WaPO is trying to change the subject. SS becomes an issue about "fixing it" rather than who was there to "protect" it. The general public doesn't read the WaPO and Dems are crazy if they don't make protecting SS an issue.

Posted by: bakho on November 28, 2007 at 9:22 AM | PERMALINK

The only reason that action might be required as early as 2017, as I understand it, would be that the United States government would default on its debt obligations. The United States government has never done this, to do it would amount to a declaration of bankruptcy, and, unless the Washinton Post and the Republican Party have their way, it will never do it.

Posted by: David in NY on November 28, 2007 at 9:38 AM | PERMALINK

Oh, and ppp above very elegantly states why the Wahington Post and the Republican Party want the US government to default on its obligation -- the rich might have to pay some taxes.

Posted by: David in NY on November 28, 2007 at 9:40 AM | PERMALINK

When a Republican is president, it is time for stimulative tax cuts (whatever the actual state of the economy), and for the press to respect the Jacksonian wisdom of the people who elected him.

When a Democrat is president, it is time to address every fiscal issue, however distant on the infinite horizon, and for an aggressive press to speak truth to power.

Every Republican presidency is Mardi Gras, and every Dem presidency is Ash Wednesday, in the village.

Posted by: kth on November 28, 2007 at 9:46 AM | PERMALINK

Nine Trillion Dollars of Debt.

Posted by: Gore/Edwards 08 on November 28, 2007 at 9:46 AM | PERMALINK

One important factor that is rarely acknowledged is that in addition to improving the lives of seniors, social security gave much-needed freedom to millions of middle-aged women.

It used to be that after raising the kids, many women had at best a few years before they had to take in elderly parents or in-laws.

If it were not for social security, my sisters and I would have to take in my mother, and while I love her dearly, it would be a real strain to live with her for months at a time, or on a permanent basis.

So killing social security has the added "benefit" to the right wing of scaling back women's rights and stuffing it to all those uppity women-folk who want to lead independent lives.

Posted by: ESaund on November 28, 2007 at 9:52 AM | PERMALINK

We do not have a Social Security problem. We have an upper-class tax problem. That should be repeated over and over.

Oh, that's a load of crap!

Social Security is using my tax dollars to send someone's dingbat grandmother to the Indian gaming casino for a night of slots and harvey wallbangers. They have special buses for that, you know. And special cashier's cages that will take the checks or give them a revolving line of credit that they can access. There are even special payday loans so that grandma can leverage her next check for an extra couple of hundred bucks to feed into the one-armed bandit.

Thanks, America! Thanks for confiscating my hard-earned dollars so you can hand it out to a high-rolling bluehair who has to use the machine with the pushbutton arm because her arthritis won't let her use a slot machine with a manual pull arm. Thank you very much!

When are you people going to wake up and realize--not only are entitlements going to bankrupt us all, they're the work of liberals who don't care about the real Americans, who are the people who create wealth and opportunity for all?

Posted by: Norman Rogers on November 28, 2007 at 10:17 AM | PERMALINK

I'd say no. The advantage to waiting is obvious: projections of Social Security's solvency are uncertain, and waiting gives us more data. Why try to project 40 years in the future if you don't have to? Better to wait and see what direction the economy actually heads.

Not to troll, but this is essentially the same argument as Bjorn Lomborg's pet project.

Posted by: Kolohe on November 28, 2007 at 10:25 AM | PERMALINK

Once again thank god for Norman'S existence. If we didn't have him bloviating his tired 19th century rhetoric we wouldn't know what an idiot is.

Posted by: Gandalf on November 28, 2007 at 10:27 AM | PERMALINK

I like Kevin's comment: SS currently consumes about 4% of GDP, and this will go up to 6% of GDP over the next few decades and then stay there. In the long run, then, we really do need a permanent funding source that generates about 6% of GDP.

It should be noted that the ratio could go well above 6% if our GDP growth slows down or if longevity increases (as we all hope it will) or if the number of workers grows more slowly.

Unlike Xenos, I think its correct to lump Medicare with Social Security. In fact, I'd put the budget deficit in the same pot. The US government is living beyond its means. The federal government will have to cut expenditures and/or increase its income, or, at some point, there will be economic disaster.

So, why deal with SS now, rather than later? If you read the Trustees' Report, you will see that SS and Medicare have enormous unfunded liabilties, in the trillions. The unfunded liability doesn't seem important, since it's not in the budget. But, its ecomonic impact is there, nevertheless. Waiting to fix SS means increasing the unfunded liability, which is not desirable.

Posted by: ex-liberal on November 28, 2007 at 10:47 AM | PERMALINK

Once again thank god for Norman'S existence. If we didn't have him bloviating his tired 19th century rhetoric we wouldn't know what an idiot is.

Hey, I'm fine--thanks for asking.

Could you kindly explain why I'm wrong? You know, with facts and figures and your own analysis and thought? Because that would be so refreshing to read, as opposed to your clumsy attempts at making an informed comment. And it may be 19th Century rhetoric to you, but in actuality it is 18th Century thought that I ascribe to--Adam Smith, Wealth of Nations.

If you weren't such a drooling, step-on-your-own-dick moron, you'd know this. Pardon me while I roll my eyes.

Posted by: Norman Rogers on November 28, 2007 at 10:49 AM | PERMALINK

i wasn't really going to comment, but then the stupidities of ex-liberal got to me.

Social security does not have a penny of unfunded liabilities: it takes an extreme moron to claim otherwise.

Social security has a dedicated tax, and benefits are legally adjusted to the funds available. It could be - as was pointed out up above in the quote from barkley rosser - that benefits will be slightly less in the future than they are projected to be, but that's not an unfunded liability.

Indeed, social security has nothing to do with any fiscal imbalances at all except insofar as the social security surplus is being used to mask said imbalances.

honest to goodness, ex-liberal, if you can't be bothered to know even the most basic facts, why bother to expose your ignorance?

Posted by: howard on November 28, 2007 at 10:53 AM | PERMALINK
The most common solutions to Social Security's eventual shortfall are (a) a small tax increase, (b) a small reduction in the rate of growth of benefits, and (c) a small increase in the retirement age. Question: are there any advantages to implementing any of these solutions right now, rather than, say, ten years from now?

That is the wrong question. It presumes that the "most common" proposed solutions are the right proposed solutions. And it describes the common proposed solution at such an abstract level (necessary, no doubt, in order to oversimplify the description to list three "most common" proposals) as to make it impossible to do any useful analysis of the answer, anyhow, since whether or not any of them are better performed now than 10 years from now depends entirely at implementation details that are abstracted away in the high-level descriptions of the proposals.

Balanced against that, there really aren't any advantages to acting sooner. Social Security is currently running a surplus, so increasing payroll taxes today does nothing except increase the size of the trust fund — a meaningless exercise at best, and a positively harmful one at worst. We might need to raise taxes in the future once Social Security starts running a deficit, but raising them now does nothing at all to change either Social Security's future obligations or the source of its future funding.

Okay, so Kevin buys the Republican "imaginary trust fund" argument. But there is no need to debate that here, since there are means of instituting FICA tax policy changes that would have a small current effect that don't fall prey to that problem: for instance, indexing social security tax rates to some function of the worker:beneficiary ratio with the current ratio and tax rates as the baseline.

Or instead of increasing tax rates, expanding the scope of income exposed to the tax, either by raising the cap, or by applying the tax (and benefits eligibility) to all income (including capital income) rather than merely "earned" income (the first is, in aggregate, a modest increase now, the second is more substantial, so probably outside of the "common solution" of a small current tax increase, but its an option nonetheless.) Sure, either of these increases the trust fund that you apparently despise now, but they also shift the structural balance between rewards to capital (in the latter case) and high-end labor (in the former) and those to the bulk of labor. By doing so, they shift the reward structure of the tax system so that companies get (compared to the status quo) more bang for the buck with compensation given to mainstream labor rather than (depending on which of the two changes is made) capital or the super-elite segment of "labor". Thus, in addition to the increased revenue, they ease the pressures on the system by changing behavior in the economy, but these changes will take years after the policy is in place to fully manifest as participants in the economy adjust to the changed reward structure. Such change, then, must be made (in order to be most effective) before a crisis is imminent. And either might require fine tuning, so lead time is good.

As for ideas (b) and (c), what's the point of locking ourselves into them now?

Well, (b) is simply, in almost any imaginable implementation, a bad idea in any case, so there is probably no benefit to choosing it now or ever. (c), OTOH, might be possible to be done well if hashed out without a pressing immediate crisis, but if implemented simplistically (simply pushing back a set number of years), as it would almost certainly be handled if the threat were immediate, is likely to be very bad all around.

On the third hand, though, I'm not convinced that, even so, there is a need to do (c), and I'd rather discuss options of how that might work out if it was needed now than implement any kind of policy around it now.

I short, though, I think its impossible to reasonably discuss when changes should be made to the Social Security system without discussing what changes should be made in far more detail than your three options. Whether the effects on solvency, or other benefits, of any changes make them more desirable now than later depends on the rather important details that your three-word summaries of broad approaches to Social Security omit entirely.

It may be that the best way to avoid the kind of Social Security-weakening "reform" that the Right has pushed in the past, is pushing now, and will continue to push in the future is to get a good, progressive reform that strengthens Social Security implemented sooner than later, removing the rhetorical basis for their proposals and establishing the issue as "solved" in the public mind as well as in fact.

Posted by: cmdicely on November 28, 2007 at 10:58 AM | PERMALINK

Today, Social Security retirement costs 4% of GDP. By around 2050 that should grow to 6-7% of GDP and remain there ad infinitum -- at which point average income should have doubled.

IOW, if you make $50,000 a year, your equivalently employed grandchild should make $100,000 in 2050. You now pay 12.6% FICA (divided w/employer); your grandchild may have to pay 20% FICA (w/employer): leaving you with $44,000 to pay for everything else; leaving your grandchild with $80,000 to pay for everything else (adjusted for inflation -- which adjustment wont, for good reasons, even take into account 3DTV for the same $600 price tag). Sound like a monumental crisis?

Today, we use excess FICA inflow to pay for "government owned" bonds that go into a so-called "Trust Fund" which supposedly insures Social Security when today's (arbitrarily frozen-for-all-time?) FICA tax is no longer enough to cover the multiplying baby boomers -- on or around 2017. At which 2017 point we are to gradually raise the income tax -- instead -- to cash the otherwise meaningless Trust Fund bonds. Without such "advance planning" for our retirees futures we would be forced to raise the FICA tax a whole 1/10 of 1% a year -- as average income rises 1 1/2% a year -- an unexplained taboo.

Actually, in the vicinity of 2017, we wont be forced to raise the income tax to cash the bonds, after all -- we could, instead, run up the national debt by selling bonds to cash Trust fund bonds instead (only if politicians are less than responsible): raising the specter of our great-great-great-great grandchildren paying for the retirement benefits of their long-long dead grandparents.

Today we pay for on budget items (army, farm subsidies) through a combination of short falling income tax and excess FICA receipts. By 2047, or whenever the Trust Fund bonds run out, we will no longer pay out Social Security with a combination of excess income tax (or bond sales?) and short falling (25% short) FICA.

At which whenever point we are scheduled to begin paying for Social Security retirement exclusively through FICA (after a big one-jump increase) -- and begin paying for on budget items exclusively through income tax (after a proportionate cut). What a unique in all the world retirement system -- could only have been hacked out by some easily confused politicians.

Posted by: Denis Drew on November 28, 2007 at 11:06 AM | PERMALINK

You and Paul Krugman seem to be the only sane people on the topic of Social Security. However, one change that should be made now is ending the income cap. Why shouldn't a millionaire pay the Social Security tax on his or her entire salary?

Posted by: Evan on November 28, 2007 at 11:10 AM | PERMALINK

honest to goodness, ex-liberal, if you can't be bothered to know even the most basic facts, why bother to expose your ignorance?

howard, "ex-liberal" does not post here in good faith. He's just a troll who delights in insulting this forum by posting his bullshit, sometime in a faux-reasonable tone, other times with more overt sneering, over and over and over and over and over, no matter how many times he's corrected. Indeed, he's delighted you noticed how false his post is; the more obvious the lie, the more insulting it is. He's simply daring Kevin's moderator(s) to find his pissing on the floor in here "sufficiently annoying." So far, though...

Posted by: Gregory on November 28, 2007 at 11:10 AM | PERMALINK

There is one answer to the baby boomer hit on Social Security that no one ever seems to mention: Soylent Green.

No, that's just a response to high land prices (which make both food and graveyards expensive). The solution to the Social Security problem is Carousel.

Posted by: ajay on November 28, 2007 at 11:19 AM | PERMALINK

...Soylent Green

I can see Assisted Suicide Centers™ coming in a decade or two. Given the global energy crunch I don't think they will waste the bodies on crackers, they will recycle them into methane.

Posted by: Doc at the Radar Station on November 28, 2007 at 11:31 AM | PERMALINK

Norman,

In my opinion you are better when you write about your family, especially your children - Itsy and Bitsy are their names, right?

Anywho I thought SS was sending Granny to the supermarket for lobster? Wait, maybe that is food stamps.

It is hard to keep track of all the pennies we give the poor so they can live extravagant lifestyles. Besides, rather than complaining aren't we, as good entrepreneurs, supposed to instead find our own way of ripping Granny off so we can buy that second home in Hawaii I see talked about on TV?

Posted by: Tripp on November 28, 2007 at 11:33 AM | PERMALINK

Raising SS taxes now would be counter productive. Today there is excess SS revenue that is used to fund the general budget. The leaves a future debt and as SS requires more and more of its annual tax revenue for benefits, the squeeze is on the general fund to raise taxes of see greater deficits. What about when SS demands more money annually than is taken in, then we need to repay the debt that is accumulating to the SS fund, wow, then the general fund will be in big trouble.

The issue is not the SS system, but rather funding of other government activities properly. But, of course, the government does not want to hold the excess SS funds as cash (investments) becuase then the government becomes a major investor.

Posted by: George on November 28, 2007 at 11:34 AM | PERMALINK

Why does the WaPo continue to press the SS issue?

It think it's precisely because it's supposedly a problem that demonstrates the need for bipartisanship. The notion is that Republicans and Democrats must come together to solve this "problem". Republicans resist the right solution because they don't want to raise taxes; Democrats resist the right solution because they don't want to reduce benefits. Both sides are wrong. And from the standpoint of the WaPo editorial board, no statement a person can utter is more satisfying than "both sides are wrong".

I see the WaPo editorial board as being driven basically and broadly by its perceived need to defend its approach to journalism. On that approach, the single most important principle is that objectivity consists in finding a middle ground between two conflicting sides. They simply can't give that notion up; it's the most basic statement of their identity and their history. David Broder, of course, exemplifies that proposition to an absurdity.

I see all this as the rear guard action of a group of mostly old men to try to preserve a tradition that has long since served its purpose -- if it ever had one.

Posted by: frankly0 on November 28, 2007 at 11:36 AM | PERMALINK

I can see Assisted Suicide Centers™

Doc,

I have suggested that when we cut SS benefits we should give Seniors legalized drugs. It would keep them quiet and we do not need their productivity anymore. Imagine nursing homes having a 'weed' smell.

Yeah, this is tongue in cheek but when my work stopped giving raises they loosened the dress code to take some of the sting out of it. This would be in the same vein so to speak.

Posted by: Tripp on November 28, 2007 at 11:38 AM | PERMALINK

Why shouldn't a millionaire pay the Social Security tax on his or her entire salary?

Oh, sure. Blame the millionaires for everything.

Hating rich people gets you no where, people.

If you cut taxes, you increase the number of people that are in the employ or benefit economically from the millionaire and his efforts to create wealth--that adds MORE people to the working pool of contributors to pay for Social Security benefits that old people don't need.

See how that works? Good. Now, hush.

Posted by: Norman Rogers on November 28, 2007 at 11:47 AM | PERMALINK

God all you SS batshit crazies and your ideas to fix SS.One more time There is no problem with SS it will work just fine.The only problem it has is the money the fed uses to fund gov.The part that lets higer earners not pay there share on gov. operations.Bush sat right there and told you all that the IOU are worth nothing.So if anything we need to cut back on contibutions to SS and raise taxes to pay for Gov. it really is that simple.

Posted by: john john on November 28, 2007 at 12:25 PM | PERMALINK

"Why are Ruth Marcus and the Washington Post so obsessed with demanding that we all address Social Security's long-term problems right this instant? It's a mystery."

Not a mystery. Do you think that Bush, Cheney and the editorial writers of the WSJ are really concerned with what happens in 40 years to people who will depend on SS? They have very real ulterior motives, mostly about privatization, which is the real main objective:

1) Small-government ideology;

2) Wall Street wants to get its hands on the money;

3) Increasing SS tax income now will help to hide the size of deficits, and make it easier to make or sustain tax cuts for the rich (of course SS tax income comes disproportionately from lower-income people). The size of deficits is underreported because SS tax income going into the Trust Fund is counted as general revenue. Actually this effect may have kicked in with the first Reagan tax cuts which were about contemporaneous with the establishment of the TF surplus for the Baby Boomers (I haven't checked how the deficit was actually reported at that time);

4) Focusing on SS takes attention away from real problems that the administration does not want to address, such as cost of health care, the effects of tax cuts and war spending on deficits, etc. Unless the cap is extended upwards, SS is a no-lose issue for rich people in general.

5) People who own stocks will get an immediate windfall profit as soon as a privatization bill passes (or even when passage becomes certain). Note that the usual suspects here include corporate executives who typically get much of their compensation in stock options, and who control a great deal of money for political contributions and lobbying which they do not own.

Posted by: skeptonomist on November 28, 2007 at 12:26 PM | PERMALINK

All "fixing" Social Security does now is allow for further fiscal irresponsibility in the rest of the federal budget. No fixes now, no fixes in 2017 either. The only fix necessary is to allow Bush's 2001 tax cuts to expire.

Posted by: David W. on November 28, 2007 at 12:37 PM | PERMALINK

SS = Ronny Raygun raising taxes without raising taxes.

Posted by: john john on November 28, 2007 at 12:42 PM | PERMALINK

Kevin,
You better get Inkblot dressed - he needs to take a trip out to Norman's place to re-adjust his med dosage once again.
Make certain Inkie wears his hat and scarf, it's cold out now.

Posted by: optical weenie on November 28, 2007 at 1:50 PM | PERMALINK

However, one change that should be made now is ending the income cap. Why shouldn't a millionaire pay the Social Security tax on his or her entire salary?

I think the salary cap on the taxing end has something to do with a benefits cap on the receiving end. In any event, eliminating the salary cap would be a good idea, but only if the overall tax rate was correspondingly reduced to make it essentially revenue-neutral, since we already take in more money than is needed to pay current benefits in order to build up the surplus (which some right-wing crooks and liars claim doesn't really exist).

Posted by: AJ on November 28, 2007 at 1:56 PM | PERMALINK

Estimates of the Social Security shortfall over the next 75 years are between 2 and 3.7 $trillion.

By comparison, estimates of the cost of the Iraq war are between 1.7 and 2.5 $trillion. No Republicans have claimed yet that the war will cause a major dent in the US budget, but they find the SS shortfall (of similar size but over 75 years) to be a major crisis.

Posted by: JS on November 28, 2007 at 2:37 PM | PERMALINK

The reason the washiongton Post and others keep jabbering on about social security is that starting in 2017, we may have to raise income taxes to redeem the bonds held by the social security trust fund. This is anathama to the rich who pauy the vast majority of income taxes. These same rich are the main market for the Washington Post asnd other pundits.

They wish to let the working class pay increased social security taxes and avoid an increase in the income tax.

Posted by: udthum on November 28, 2007 at 2:41 PM | PERMALINK

"Estimates of the Social Security shortfall over the next 75 years are between 2 and 3.7 $trillion."

75 years out, GDP should do about 100 trillion a year (in today's money): 4 times the GDP per person (GDP per person doubles every 40 years); 2 times the number of persons (population doubles every 80 years) -- today, 12.5 trillion dollars.

75 years out the GDP may GROW between 2 and 3.7 trillion dollars every year or so!
************************
Social Security is taxed regressively and paid out progressively. Does that make it a flat tax? Someone pointed out to me that the top still subsidizes the bottom, so I guess it's a flatter tax.

Right now the top 1% of incomes have been raking in the lions share of all economic growth for over three decades.

Top 1% incomes took 7.6% of overall income in 1972 (just before the race to the wage and benefit bottom began* -- in America, not in Europe where sector-wide labor agreements prevent same*), by 2001 the top 1% took in 17.6% , by 2005 they took 21.5%: very possibly on their way to 27.6% within a short timeline.

Until the race to the bottom is dealt with on this side of the pond, removing the FICA cap might be a good idea, like anything else that partially rebalanced some income misdistribution -- just because it rebalanced it some.

* http://ontodayspage.blogspot.com/2007/11/had-adam-smith-lived-to-see-1800s.html

Posted by: Denis Drew on November 28, 2007 at 3:16 PM | PERMALINK

"We do not have a Social Security problem. We have an upper-class tax problem. That should be repeated over and over."

I'm just repeating this because it's true and it gets Norman Rogers's blood pressure up about how Social Security (beloved of the vast majority of Americans) is confiscating his hard-earned(?) wealth. Poppycock, Norman.


Posted by: David in NY on November 28, 2007 at 4:50 PM | PERMALINK

"Hating rich people gets you no where, people."

Correct, Norman. Which is why we prefer just to tax their marginal income at reasonable levels. "Where the money is," you know?

Posted by: David in NY on November 28, 2007 at 4:54 PM | PERMALINK

Plus, if we wait a few years, incoming brown people from the southern hemisphere will all pay Social Security taxes, thereby supporting a growing number of old folks. Lou Dobbs will shit.

Posted by: Rula Lenska on November 28, 2007 at 5:02 PM | PERMALINK

Why shouldn't a millionaire pay the Social Security tax on his or her entire salary?
Because we'd be obligated to pay him or her back at a proportional rate upon retirement. We can adjust the benefits schedule to minimize this to an extent, but every additional dollar we take in the present creates an additional obligation to future retirees.

However, judicious use of increased taxes (raising the cap, changing the definition of "income" to include more than just wages) to pay down the national debt now reduces our future obligations in ways that could more than compensate for the additional benefits we will owe millionaire (an billionaire) retirees.

Posted by: folkbum on November 28, 2007 at 5:19 PM | PERMALINK

Rula, the illegals are paying into SS now, they got a SS # to work. Several billion $s go in and won't come out.

Why does the WaPo care so much? First, because the "problem" is easily curable, unlike the Medicare/Medicaid problem which is an excess cost growth problem and can't be so easily fixed. It lets them seem "serious" and, as someone noted above, bipartisan.
Secondly, and more importantly, HRC has said there is no problem with SS, and can be shown therefore to be less than serious. Fiscal sanity, i.e. fixing the gross mismatch between spending and revenue would require their friends on the party circuit to make substantially less and pay higher taxes. They (Fred, Ruth, David B. et al.) would all pay higher taxes. Why would you possibly think they would advocate that?

Posted by: TJM on November 28, 2007 at 6:47 PM | PERMALINK

"Why shouldn't a millionaire pay the Social Security tax on his or her entire salary?
Because we'd be obligated to pay him or her back at a proportional rate upon retirement."

No we would not. Social Security does not work that way now.

Higher income people are paid back at a lower proportion to what they paid in than lower income people.

We could simply extend that system up to infinity with smaller and smaller proportions.

As social security doesn't need significantly more money we really probably ought to eliminate the cap and cut the rate. From what I have read the cap is excluding about 20% of wage income now, so the rate could be dropped from 12.4% to 9.92%... call it 10% and use the .08 to pay the added benefits for high income people.

Add in investment income and it will get even better. We might well get that rate down to 9%.

Posted by: jefff on November 28, 2007 at 8:07 PM | PERMALINK

Social Security should remain a separate entity with its own designated system for collecting taxes. Should SS benefits be paid out of general revenue we would have these "crises" every time someone starts whining about their tax bill (Be quiet, Norman!).
When SS is looked at again (2015?), something should be done about including FICA on non-earned income. Possibly by setting increments, first 5 thousand - no taxes; second 5 (or part) X%; and so on up to whatever the cap is. Something such as that perhaps. An increasing number of people are getting greater portions of their income from invetments and there is no guarantee that those investments will always pay out.

Posted by: Doug on November 28, 2007 at 8:32 PM | PERMALINK

Kevin goes too far.

"Balanced against that, there really aren't any advantages to acting sooner. Social Security is currently running a surplus, so increasing payroll taxes today does nothing except increase the size of the trust fund — a meaningless exercise at best, and a positively harmful one at worst."

No. Not meaningless. Increasing payroll taxes, while holding other taxes constant, would have the effect of raising the national savings rate. Increasing national investment now is prudent preparation for the coming demographic deluge.

Similarly, lowering social security benefits might encourage greater savings, via adjustments to the financial industry's touted retirement planning models.

------------------------
Though, Josh Marshall and others have pointed out relevant political economy considerations: increasing the social security surpluses can in practice underwrite budget deficits in the general account, mostly by permitting Republican-sponsored tax cuts and giveaways.

Still, there's a case to be made for tweaking social security now. It's just not as strong as the one for national health care reform.

Posted by: Measure for Measure on November 28, 2007 at 8:50 PM | PERMALINK

Here's why "c) raise the retirement age" should be part of the solution. Right now there are 3.3 workers paying into the system for every retiree drawing benefits ("Covered workers per OASDI beneficiary", see http://www.ssa.gov/OACT/TR/TR07/IV_LRest.html#wp295447).

By 2025, that ratio is projected to drop to 2.3. By 2050, it drops to 2.0. By 2070, it drops to 1.9 and remains there until the end of the projection in 2085. How many contributors per retiree does the system need over the long haul? I don't know, but I'm pretty sure it's more than 2.0 (and less than 3.0).

It's safe to say that the babyboom retirement will be completely over by say 2060, when the very youngest boomers will be in their mid-90's, yet the problem of too few workers per retiree will continue unabated. This is largely because lifespans are expected to increase, while the retirement age is not (beyond a small fixed increase already planned).

So why should we fix this now? Because it's not fair to change the rules on today's workers without lots of advance notice. Social Security is a contract between generations and we need to ensure that, as much as possible, that contract is honored. It is politically easier and fairer to make adjustments now than it will be in future decades.

Also, making realistic adjustments now will increase younger workers' confidence in the system.

The fix could take a couple of different forms. There could be an automatic adjustment that kicks in whenever the ratio of workers to beneficiaries falls below some specific floor.

Another idea that could go with this is to remove disincentives for retirees who want to work part time. Build a system that actively supports a model of gradual or partial retirement, rather than one that expects people to quit work cold turkey.

Posted by: JoeBob on November 28, 2007 at 8:52 PM | PERMALINK

Another idea that could go with this is to remove disincentives for retirees who want to work part time. Build a system that actively supports a model of gradual or partial retirement, rather than one that expects people to quit work cold turkey.

JoeBob, that's the best way. Let the folks with physical jobs retire at the usual times and remove all penalties for people with lesser-physically demanding jobs for wanting to continue to work. If we had single payer UHC that would help this problem out tremendously. That would also remove the disincentive to hire and maintain older workers either full-time or part-time. Also, if you have decent UHC, people might choose to work part-time instead of not at all.

Posted by: Doc at the Radar Station on November 28, 2007 at 9:55 PM | PERMALINK

It's a non-issue. As many people have said, just increase the earnings cap far beyond where it is today. Or eliminate the cap altogether. As things stand today, I literally pay more to Social Security, relative to my income, than Bill Gates. At the very least, this is regressive. If we're facing a potential shortfall in the Social Security trust fund, it's irresponsible in the extreme.

-Z

Posted by: zorro on November 28, 2007 at 10:36 PM | PERMALINK

Since current SS surpluses are spent on general obligations (thus making possible tax cuts), any paybacks by the government back to the SS system (when shortfalls begin) will have to come out of future income taxes.

At that future time (in another 10 years or so), there will have to be income taxes levied to pay the Social Security debt. Trying to increase the SS Trust Fund holdings now simply means (a) more tax cuts for the wealthy right away and (b) more income taxes in the future.

Posted by: JS on November 28, 2007 at 11:45 PM | PERMALINK

"By 2025, that ratio is projected to drop to 2.3. By 2050, it drops to 2.0. By 2070, it drops to 1.9 and remains there until the end of the projection in 2085. How many contributors per retiree does the system need over the long haul? I don't know, but I'm pretty sure it's more than 2.0 (and less than 3.0)."

By 2070, average income should be at least three (3) times today's average. Multiply 1.9 X 3 and you get 5.7 equivalent 2007 workers. Almost nobody in this country seems to pick up on to the impact of economic growth -- something everybody is going to have to learn to catch on to if we are ever going to have meaningful public discussions.

Posted by: Denis Drew on November 29, 2007 at 1:15 AM | PERMALINK

One thing we can do to increase intergenerational fairness is to let the housing bubble pop without doing anything to prop up housing prices.

The boomers will lose a lot of money in paper equity, but unless they were very foolish and drained their homes' equity, they will not lose their homes and will have a place to live in their retirement.

The next generation will be able to afford to buy a house, and this will make any future increase in taxes to pay for the boomers' SS benefits much easier for them to manage.

Posted by: Nancy Irving on November 29, 2007 at 7:57 AM | PERMALINK

Almost nobody in this country seems to pick up on to the impact of economic growth

Actually the SSA and CBO models for the future of Social Security are quite sophisticated and include many variables (including growth in real wages). They run them with three sets of assumptions: optimistic, passimistic, and one in-between. The shortfalls that are usually quoted are for the pessimistic (or "high cost") scenario. Under the others, I think that no shortfall ever appears precisely because economic growth fills the gap.

Posted by: JS on November 29, 2007 at 9:56 AM | PERMALINK
The shortfalls that are usually quoted are for the pessimistic (or "high cost") scenario.

The shortfalls that are most frequently quoted are, I believe, from the middle projection, though (despite the labelling which suggests that one should be most accurate), the low-cost projection has historically been the most accurate.


Posted by: cmdicely on November 29, 2007 at 12:01 PM | PERMALINK

cmdicely is correct. You do occasionally see criticisms that the model assumptions are "overly pessimistic" (for example, see first paragraph here), but it seems that what is referred to is a systematic pessimistic bias across all three tiers of optimism -- rather than focus on the most pessimistic tier.

Posted by: JS on November 29, 2007 at 4:55 PM | PERMALINK

"raising them now does nothing at all to change either Social Security's future obligations or the source of its future funding"
Bingo! "Fixing" things now only 1) futher obscures the fact that Congress is stealing the SS surplus to spend on other things 2) make the annual federal deficit look better than it really is in the process. THERE IS NO CURRENT CRISIS TO SOCIAL SECUITY. NOT WITH A SURPLUS IN 2007 OF ABOUT $200 BILLION!

Posted by: George Fulmore on November 29, 2007 at 6:41 PM | PERMALINK




 

 

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