Social Security: Let's be honest here

[BeatlesSteve]

When I graduated college about 45 years ago, and started my first job, I heard the �conservatives� claim that I would never see a cent of my Social Security money.

I am happily collecting it now.

"Liberalism" - ideas so great they have to be mandatory.

[Long Island Bob]

When I graduated college about 45 years ago, and started my first job, I heard the “conservatives” claim that I would never see a cent of my Social Security money.

I am happily collecting it now.

Yeah, fortunately Ronald Reagan raised the payroll tax and saved the SS system.

At the time (heck even now 30-some years later) liberals point to that tax increase as "proof" that supply-side economics doesn't work. they never bothered to point out the difference between (regressive) FICA taxes and progressive income taxes, but oh well, facts don't matter as long as some not-to-be-named president save social security by making taxes less progressive.

[Long Island Bob]

Hmm the actual Trustees report page 2:

The Trustees project that the assets of the OASI Trust Fund and of the combined OASI and DI Trust Funds will be adequate over the next 10 years under the intermediate assumptions. However, the projected assets of the DI Trust Fund decline steadily, fall below 100 percent of annual cost by the beginning of 2013, and continue to decline until the trust fund is exhausted in 2016.
http://www.ssa.gov/oact/tr/2012/tr2012.pdf

What could that mean?

Must be some talk radio conspiracy to take over the SS trust fund.


Oh gee here is page 3:

The Trustees project that annual cost will exceed non-interest income
throughout the long-range period under the intermediate assumptions. The
dollar level of the combined trust funds declines beginning in 2021 until
assets are exhausted in 2033.

Umm professor, what does "funds are completely exhausted" mean? Please tell me because I'll blindly believe anything my professor says.

[Long Island Bob]

hey the good news is:
Obama said he was going to put us onto a "PayGo" system.
He didn't actually do it with income taxes and budgets and stuff, but he did do it with Social Security so if that's the change you were hoping for, congratulations.

If Mitt Romney had done that with his companies's retirement plans he would have been arrested, (but of course America was founded on the idea that government officials should be above the laws that apply to the rest of us.)





Look, just read the report. Read the first three pages if that's all you can do.

[7426k]

Hmm the actual Trustees report page 2:

The Trustees project that the assets of the OASI Trust Fund and of the combined OASI and DI Trust Funds will be adequate over the next 10 years under the intermediate assumptions. However, the projected assets of the DI Trust Fund decline steadily, fall below 100 percent of annual cost by the beginning of 2013, and continue to decline until the trust fund is exhausted in 2016.
http://www.ssa.gov/oact/tr/2012/tr2012.pdf

What could that mean?

Must be some talk radio conspiracy to take over the SS trust fund.


Oh gee here is page 3:

The Trustees project that annual cost will exceed non-interest income
throughout the long-range period under the intermediate assumptions. The
dollar level of the combined trust funds declines beginning in 2021 until
assets are exhausted in 2033.

Umm professor, what does "funds are completely exhausted" mean? Please tell me because I'll blindly believe anything my professor says.

Howdy, LIB (it still cracks me up that your screen name is abbreviated LIB. But anyway....)

I think it's safe to there's enough hyperbole from both sides of the aisle to ensure that nothing constructive ever gets done to fix this problem. However, I also believe the extent of the problem is grossly overstated - by both sides. People hear huge numbers (35T in future debt!) and can't put the numbers in realistic context.

I seem to recall that the projected gap over the next 70 years averages 1% of expected GDP. 1% of GDP that we either need to achieve through increased revenues or reduction in benefits, or some combination thereof. In 2013 that will be a 150B or so - by 2063, of course, it's probably more like 1T, but the economy will be that much larger.

The only problem with the above is that it assume the general fund will honor the special treasuries it currently holds - a rather expensive proposition.

Well, that's not the ONLY problem with it. It's just the one that comes to mind first.... Anyway, imho people over-estimate the extent of the problem and therefore think the solutions need to be far more drastic than what is really needed.

imho.

[Long Island Bob]

Howdy, LIB (it still cracks me up that your screen name is abbreviated LIB. But anyway....)

I think it's safe to there's enough hyperbole from both sides of the aisle to ensure that nothing constructive ever gets done to fix this problem. However, I also believe the extent of the problem is grossly overstated - by both sides. People hear huge numbers (35T in future debt!) and can't put the numbers in realistic context.

I seem to recall that the projected gap over the next 70 years averages 1% of expected GDP. 1% of GDP that we either need to achieve through increased revenues or reduction in benefits, or some combination thereof. In 2013 that will be a 150B or so - by 2063, of course, it's probably more like 1T, but the economy will be that much larger.

The only problem with the above is that it assume the general fund will honor the special treasuries it currently holds - a rather expensive proposition.

Well, that's not the ONLY problem with it. It's just the one that comes to mind first.... Anyway, imho people over-estimate the extent of the problem and therefore think the solutions need to be far more drastic than what is really needed.

imho.

Hey 7462K,
I still get kind of a chuckle out of your screen name too.

If grapha is correct then some time in the next 2 decades or so we are going to have to cut SS benefits by 20% or increase payments into the system by 20%. Of course the SS Trustees say he is being overly optimistic, but maybe he is right and they are wrong. IRONICALLY IN THIS CONVERSATION GRAPHA IS THE OPTIMIST.

Some people don't see that as problem.
I do.
In the corporate world your retirement system is not allowed to be "paygo." It is simply against the law. SS going "paygo" of course does not mean "total US economic meltdown," but the point is, the US gov't is doing things (well, is about to do things) that would be illegal if a private corporation did them. We are kicking the can down the road.

The Dems seem to be saying "the 20% thing won't be a problem," and the GOP is saying "it will be the end of the world as we know it." So yes, both sides are politicizing the question and the Dems are making hay off the fact that GOP doesn't have the guts to propose a solution that will actually close the impending 20% or so gap. "Put up or shut up," they can say. Sad political reality is sooner or later we're gonna have to "put up."

Given mathematical law, we are better off "putting up" now than "putting up" later.

btw:
20% may be optimistic. Last I checked, the SS Trustees based their assumption on interest rates higher than Ben Bernanke has ever allowed in his entire tenure.

2016 (the year the DI trust fund goes bust) is an election year isn't it?

[7426k]

It's far too late to give a reasoned response to your comments, Bob. I'll take it up again when I have some time over the next couple days. It's a good discussion.

7

[Long Island Bob]

It's far too late to give a reasoned response to your comments, Bob. I'll take it up again when I have some time over the next couple days. It's a good discussion.

7

I have always enjoyed our discussions.

~Bob

[busy-bee]

Let’s be honest here. My son just turned 45. I firmly believe that no matter who is President and no matter what party controls the House of Representatives and the Senate, he will not see a penny from Social Security. I agree that something needs to be done. The only solution that I have heard from the Republican Party is to turn Social Security over to the private sector and to competition. I am sorry, but I remain unconvinced that privatization and competition will work in the long run. It may work for a while, but that is it. There may be several insurance companies to offer some kind policy for the elderly and the disabled in the beginning. This may work for a while. However I firmly believe that within five years almost all of these insurance companies will be out of business. Within five years there will be only two such companies left. What happens to your competition then? It is almost non-existent. Please convince me that I am wrong. I want to be wrong. I don’t think I am.

I understand the fear.
But in your example there is something which does not add up: you are asking where is the competition in a couple years or so..... where is the competition now? with the one and only SS? which is broke in not so many years...then there is nothing.

[Long Island Bob]

It's far too late to give a reasoned response to your comments, Bob. I'll take it up again when I have some time over the next couple days. It's a good discussion.

7

day 1.

(btw is that a picture of you in your sig?)

[Long Island Bob]

Well I guess 7 is on vacation for now. He’s a good guy, best lib on these forums, so I’m not accusing him of running or anything I just wanted to bring this up again.

1.
Medicare hasn’t paid for itself in a very long time (if ever.) It has for a very long time (perhaps always) been supported by tax and deficit dollars from the general revenue fund.

It wasn’t the end of the world. It wasn’t the end of the economy. The medicare trust fund “going bust” if it ever ran in the black) simply meant that medicare which was “suppose to be” funded by a flat or even regressive tax would now become a small anchor around the neck of the general revenue fund (funded largely by progressive taxes.)

2.
According to the SS trustees, SS’s disability trust fund will go bankrupt in 4 years.
(see page 43 here: http://www.ssa.gov/oact/tr/2012/tr2012.pdf )

But ya know, the disability part of SS is relatively small, so it’s not big deal. We’ll just make up the difference out of the general revenue fund.

(See the pattern developing?)
.
.
.
In that context I want you all to consider the following:
3.
The SS trustees have declared that given “moderate” assumptions about Ben Bernanke raising interest rates and economic growth etc., (and I personally consider those to be optimistic, but that’s just me) the SS Trust Funds assets will be 100% exhausted in 21 years.
(See pages 1-3 same link.)

The point I want you to notice is that only a few years ago the R’s and the D’s, the L’s and the C’s all would have called that a great catastrophe. They politicized it. They did nothing except point fingers at each other, but they all agreed it would be a catastrophe.

Right now, while the rest of us argue about NFL ref’s,
lefty economists and pundits are devising plans and talking points to handle that eventuality. They no longer consider it a bad thing. They are now (as the OP so aptly illustrates) preparing to tell us that, given certain assumption it will “only” require a 20% across the board cut in benefits. See? it's not so bad afterall.

Politics involves a lot of long term planning and short-term memories. In a few short years, the argument will change from “SS is going bankrupt” to “Is SS’s impending bankruptcy a bad thing?”

I do hereby officially stale my reputation on it. (Miss ya Spinach)

[Long Island Bob]

hey what was that turtle spinach used to imitate?

[Amused Observer]

Well I guess 7 is on vacation for now. He’s a good guy, best lib on these forums, so I’m not accusing him of running or anything I just wanted to bring this up again.

I hope you two have a deep discussion here on SS. It's clear you both have a great deal of knowledge on the topic, and true learning experiences are pretty rare on this forum - not to mention that I have a pretty sizable personal stake in how SS shakes out.

[JimmyC123]

hey what was that turtle spinach used to imitate?

You don't mean Pogo the Possum, do you?

pogo.jpg

[7426k]

Hey 7462K,
I still get kind of a chuckle out of your screen name too.

If grapha is correct then some time in the next 2 decades or so we are going to have to cut SS benefits by 20% or increase payments into the system by 20%. Of course the SS Trustees say he is being overly optimistic, but maybe he is right and they are wrong. IRONICALLY IN THIS CONVERSATION GRAPHA IS THE OPTIMIST.

Some people don't see that as problem.
I do.
In the corporate world your retirement system is not allowed to be "paygo." It is simply against the law. SS going "paygo" of course does not mean "total US economic meltdown," but the point is, the US gov't is doing things (well, is about to do things) that would be illegal if a private corporation did them. We are kicking the can down the road.

The Dems seem to be saying "the 20% thing won't be a problem," and the GOP is saying "it will be the end of the world as we know it." So yes, both sides are politicizing the question and the Dems are making hay off the fact that GOP doesn't have the guts to propose a solution that will actually close the impending 20% or so gap. "Put up or shut up," they can say. Sad political reality is sooner or later we're gonna have to "put up."

Given mathematical law, we are better off "putting up" now than "putting up" later.

btw:
20% may be optimistic. Last I checked, the SS Trustees based their assumption on interest rates higher than Ben Bernanke has ever allowed in his entire tenure.

2016 (the year the DI trust fund goes bust) is an election year isn't it?

I kept meaning to return to this discussion the next time I had my thinking cap with me. Despite having no such cap today, I'll take a stab:

I tried to do some very rough back-of-the-napkin calculations and I think we agree about the extent of the problem. 20% of future liabilities seems to also correlate to ~1% of GDP. Clearly, both parties are more interested in demonizing one another than actually addressing that 20% total / 1% of GDP gap.

In current dollars, that gap is approximately 150B per year. Big number, but not the end of the world. If we decide we'd also like to be able to pay the trust fund's surplus without severely limiting other programs, we might need 250B per year, 1.5%ish of current GDP.

I don't have the thinking cap to calculate the exact balance changes from the following, but I suspect these would solve the problem:

1) index benefits to inflation instead of wages AND
2) gradually increase the retirement age by a year or two

OR
3) abolish the contribution cap. This either makes the SS tax flat or leads to the collapse of the modern world, depending on who you ask

I hear a lot of talk about how we could means test it and save, but I honestly don't see means testing being a workable solution. How do you means test retired people? Base it on total liquid assets? Total assets overall? Balance in their retirement account? In each case, you create one hell of a moral hazard for people attempting to plan their retirement. No, I think you simply need a cap on the size of benefits (as we do now), knowing that some will use it to survive while others will use it to supplement their European Vacation fund. C'est la vie.