Update, PBS: How the Government Is Fooling Us About the Solvency of Social Security

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    Oct 30, 2011 11:20 PM GMT
    Entitlement spending as drivers of deficits is about to get far worse before it gets better. Possibly one of the more disturbing quotes that shows how irresponsible some politicians have been - “Let’s worry about Social Security when it’s a problem. Today, it is not a problem,” Reid said to applause.

    The debt fallout: How Social Security went ‘cash negative’ earlier than expected

    http://www.washingtonpost.com/business/economy/the-debt-fallout-how-social-security-went-cash-negative-earlier-than-expected/2011/10/27/gIQACm1QTM_story.html?wpisrc=nl_headlines

    Last year, as a debate over the runaway national debt gathered steam in Washington, Social Security passed a treacherous milestone. It went “cash negative.”

    For most of its 75-year history, the program had paid its own way through a dedicated stream of payroll taxes, even generating huge surpluses for the past two decades. But in 2010, under the strain of a recession that caused tax revenue to plummet, the cost of benefits outstripped tax collections for the first time since the early 1980s.

    Now, Social Security is sucking money out of the Treasury. This year, it will add a projected $46 billion to the nation’s budget problems, according to projections by system trustees. Replacing cash lost to a one-year payroll tax holiday will require an additional $105 billion. If the payroll tax break is expanded next year, as President Obama has proposed, Social Security will need an extra $267 billion to pay promised benefits.

    But while talk about fixing the nation’s finances has grown more urgent, fixing Social Security has largely vanished from the conversation.

    Lawmakers in both parties are ducking the issue, wary of agitating older voters and their advocates in Washington, who have long targeted politicians who try to tamper with federal retirement benefits. Democrats lost control of the House last year in part because seniors abandoned them in protest over Medicare cuts in Obama’s much-contested health-care act, and no one in Washington has forgotten that lesson.

    In his February budget request, Obama ignored the Social Security blueprint put forth by his own bipartisan panel on debt reduction. During this summer’s debt-limit showdown, he endorsed the panel’s proposal to tie future benefits to a less-generous inflation index. But Obama took that idea off the table in September when he submitted recommendations to a special debt-reduction “supercommittee” now at work on Capitol Hill. Until recently, members of the supercommittee said, Social Security had rarely come up in their closed deliberations.

    Social Security is hardly the biggest drain on the budget. But unless Congress acts, its finances will continue to deteriorate as the rising tide of baby boomers begins claiming benefits. The $2.6 trillion Social Security trust fund will provide little relief. The government has borrowed every cent and now must raise taxes, cut spending or borrow more heavily from outside investors to keep benefit checks flowing.

    Many Democrats have largely chosen to ignore the shortfall, insisting the program is flush, citing the existence of the trust fund. They argue that fixing Social Security can wait, perhaps for years.

    Senate Majority Leader Harry M. Reid (D-Nev.), who is fighting to maintain control of the Senate, has been particularly outspoken. In March, as a bipartisan group of six senators was gaining attention for a push to draft a debt-reduction plan that included a Social Security fix, Reid summoned hundreds of activists to a rally on Capitol Hill. Fresh off a tough reelection campaign that turned in his favor after he accused his tea party opponent of wanting to “wipe out” Social Security, Reid exhorted policymakers to “leave Social Security alone.”
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    Jun 19, 2013 11:31 PM GMT
    How the Government Is Fooling Us About the Solvency of Social Security

    http://www.pbs.org/newshour/businessdesk/2013/06/how-the-government-is-fooling.html

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    Jun 19, 2013 11:36 PM GMT
    riddler78 saidHow the Government Is Fooling Us About the Solvency of Social Security

    I wasn't aware you Canadians received Social Security. Is that a real problem us there?
  • carew28

    Posts: 660

    Jun 19, 2013 11:53 PM GMT
    The Social Security deduction from annual wages stops at $113,700. (As recently as ten years ago, the cap was $87,000.) Thus for any income above that, no Social Security is presently deducted. If there was no cap, and Social Security deductions were taken out of all wages in their entirety, it would extend the solvency time for many more years into the forseeable future. They should have done this a long, long time ago.

    Of course, the benefits would have to remain capped, at some reasonable level. But this is only fair, in order to ensure a fair retirement income for everyone. That's not asking too much.
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    Jun 20, 2013 12:03 AM GMT
    carew28 saidThe Social Security deduction from annual wages stops at $113,700. Thus for any income above that, no Social Security is presently deducted. If there was no cap, and Social Security deductions were taken out of all wages in their entirety, it would extend the solvency time for many more years into the forseeable future. They should have done this a long, long time ago.

    Of course, the benefits would have to remain capped, at some reasonable level. But this is only fair, in order to ensure a fair retirement income for everyone. That's not asking too much.


    Then it would be an admission that it's not an insurance scheme - and in fact just another entitlement program.
  • carew28

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    Jun 20, 2013 12:09 AM GMT
    riddler78 said
    carew28 saidThe Social Security deduction from annual wages stops at $113,700. Thus for any income above that, no Social Security is presently deducted. If there was no cap, and Social Security deductions were taken out of all wages in their entirety, it would extend the solvency time for many more years into the forseeable future. They should have done this a long, long time ago.

    Of course, the benefits would have to remain capped, at some reasonable level. But this is only fair, in order to ensure a fair retirement income for everyone. That's not asking too much.


    Then it would be an admission that it's not an insurance scheme - and in fact just another entitlement program.


    That's probably true. There's nothing wrong with that.If someone has worked and paid into Social Security for 45 or 50 years, they are entitled to a retirement income. Veteran's retirement and disability benefits are also considered entitlements.
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    Jun 20, 2013 12:19 AM GMT


    http://news.yahoo.com/entitlement-dirty-word-142000136.html

    http://shelbycourtland.wordpress.com/2013/02/22/two-dirty-wordsliberal-entitlements/

    http://www.npr.org/blogs/ombudsman/2011/08/11/139557647/is-entitlements-a-dirty-word


    Speaking of entitlements, corporations up here now pay about 16% taxes. Individuals making over 132k a year pay 29%.

  • maxferguson

    Posts: 321

    Jun 20, 2013 12:31 AM GMT
    meninlove said

    http://news.yahoo.com/entitlement-dirty-word-142000136.html

    http://shelbycourtland.wordpress.com/2013/02/22/two-dirty-wordsliberal-entitlements/

    http://www.npr.org/blogs/ombudsman/2011/08/11/139557647/is-entitlements-a-dirty-word


    Speaking of entitlements, corporations up here now pay about 16% taxes. Individuals making over 132k a year pay 29%.




    Yes, but the tax incidence is what matters. If you want full control of the tax system, take corporate taxes to 0%, but tax dividends and capital gains at the normal rate.
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    Jun 20, 2013 12:40 AM GMT


    That's interesting Max. My Uncle and I have talked about this, but at the moment I'm addressing the word 'entitlement'.

    Now Ms Rand thought it meant something that someone got who didn't deserve it. Apparently a lot of people didn't deserve it, in fact she figured no one did, or should.

    ..then, she collected hers when she needed it.


    One day at one of my jobs, the boss gave me a raise and I was a little surprised as there had been talk of tightening belts.

    "You're entitled to it", he said, "you earned it."

    Same with vacation when he found out I'd been working from home on my days off. icon_wink.gif


  • maxferguson

    Posts: 321

    Jun 20, 2013 1:23 AM GMT
    Yes, but if your implication is that a lower marginal tax rate for corporations equates to an entitlement, then tax incidence is all that's relevant.

    As for the articles, I don't disagree; if one pays into the system, one should receive from it, but not an amount greater than what they put into it (with respect to generations, not individuals). In principal, I have no objection to it. But, in the U.S., a major demographic problem throws a wrench into the whole works. Here's a post I made in another forum about this:

    "Another interesting point that is related to Obama's (and in this case, the Republicans too) longer-term economic policy is the sequester. There were three things that were MIA in the sequester: medicare, medicaid and social security (at least to the extent they relate to seniors). In 1960, these transfer payments comprised 28% of federal government outlays. In 1994, they were 50%. Today, they are 68% of government outlays.

    Here's the scary part: The demographic shifts between 1960-present haven't justified the long-term increasing trend in transfer payments as a % of outlays over that time period. However, they will justify an increase of similar scale within the next 40 years or so. Today there are about 4.5 workers for every retiree (i.e, for every 4.5 people paying into the system, the system is paying out to 1 person). Actuarial consensus is for 2.4 workers per retiree by 2050. So, if not demographic shifts, what drove that trend over the last 50 years? A powerful seniors lobby - the real weight they get to throw around is an aging population over time, resulting in an increasing proportion of the electorate. Actual seniors lobby groups use this as leverage to fan the flames of short-term politics. "Take away our plan D, and we'll support the other guy. Be careful, we have a lot of votes." Another driver is inflation in healthcare costs relative to CPI (ex healthcare related items); neither of these drivers are going away any time soon. That's where the problem will manifest itself. The U.S. is now at 68%, and that lobby groups are representing an increasingly larger pool of votes, and that the demographic expectations *do* justify a major increase in the % of outlays set aside for such transfers. There simply isn't room in any possible future budget for this trend to continue. As long as the % outlays going to these transfers is increasing faster than tax revenue, we know that it cannot continue for long; one generation will almost certainly be benefiting at the expense of the next. Chances are that this will be a major, major problem (politically, financially, economically and socially) long before 2050."
  • maxferguson

    Posts: 321

    Jun 20, 2013 1:26 AM GMT
    To clarify, the issue the U.S. is facing is less about the principal of entitlements and more about the long-term economic feasibility of the programs they've already embarked on.
  • maxferguson

    Posts: 321

    Jun 20, 2013 1:29 AM GMT
    And an addition to my second last post (which I originally posted in another thread):

    The hardest part about all of this is not so much the staggering unfunded status of those policies. That is actually a simple fix: cancel the benefits or move the retirement age up into the early 70s (see math below). Implementing the fix, in my opinion, will be the single hardest thing any politician does between today and whenever markets decide it's too late. Adding pressure to the matter is that nobody knows when markets will react to this (and they will if nothing is done about it). It is fairly certain that when markets are fed up with giving spineless politicians more roadlength, it will taken away very quickly and with insufficient warning to do anything about.

    This is where whichever unlucky bench of politicians happens to be in office at the time needs to acknowledge that the scale of this problem (if nothing is done about it) is possibly much bigger than the housing crisis in 2008/2009. To be successful, they would not only have to relinquish whatever could be gained by exploiting short-term political opportunities, but they would have to go one step further and collectively become the persona non grata. The snare on this trap is nothing more than the proclivities of the borrowers. The moment the bond market realizes that enough of them have reservations about stepping up to that, it's over anyway.

    The reason I think it comes down to being the persona non grata is that I can't come up with a politically viable way to tell the fastest growing segment of the population that they can no longer have this awesome benefit that they've gotten very used to now.

    Re: Retirement age: All else equal, the longer you delay eligibility for these benefits (and therefore payment), the lower the present value of the total liability. If you consider a couple where both individuals are 50 years old today, actuarially, at least one of them is expected to live to be 93. Using the rough arithmetic behind pensions, you typically work ~2 years for every year you're expected to be living after retiring. If you start at 18, the retirement age needs to 68. If you factor in that more of the population is going to school and starting later, you're looking into the early 70s for a base retirement age. According to this site (http://www.ssa.gov/retire2/agereduction.htm), you can start collecting benefits at 62. To give you an idea of how pissed people get when you increase the retirement age even just a little, go look at videos of the protests in France
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    Jun 20, 2013 1:46 AM GMT
    I'm surprised SS has lasted this long.

    The fact that it's still in the dwindling phase is more of a surprise.
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    Jun 20, 2013 2:04 AM GMT
    The problem is no one will do anything about it until it becomes an immediate crisis. Anything proposed earlier will be met with hysterical cries from white haired old ladies yelling "don't touch my social security!".
  • foig

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    Jun 25, 2013 3:35 AM GMT
    How long is it going to last? Heard it was going to completely run out in the next 20 years
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    Jun 25, 2013 2:39 PM GMT
    foig saidHow long is it going to last? Heard it was going to completely run out in the next 20 years


    Social Security has already gone cash flow negative. A lot earlier than was anticipated.

    http://articles.washingtonpost.com/2011-10-29/business/35279895_1_social-security-payroll-tax-benefits