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August 22, 2008

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But, but. Worthless IOU's!! Ponzi scheme!! And so on.

As Krugman says every time this subject comes up, if there's a problem, it's not with Social Security. There's liable to be a problem with the general fund eventually, since we keep writing IOUs to the Social Security trust fund, which is why we need to start running surpluses instead of deficits, but unless the US is planning on defaulting on its debt, Social Security isn't going to collapse.

Interesting that the SS doomsday date so beloved of the GOP is receding at the rate of 18 months per year. Kind of like an 'aspirational time horizon' :-)

-- TP

"The point is not that we should keep on doing nothing forever."

hilzoy, please. This is simply begging those bent on destroying Social Security to come up with better arguments, as if you were not certain that they are bogus, discredited, false, erroneous, or just a pack of effing lies.

Currently, we have unfunded liabilities for defense spending amounting to hundreds of trillions of dollars if you discount it to infinity.

Please tell me this is a "manageable problem" that will allow me to sleep at night since we obviously will not "keep on doing nothing forever".

Otherwise, keep up the good work.

I blogged a link to a neat animated map from Mother Jones of the U.S. military presence around the world. Among the facts mentioned here:

[...] Nations round the world spend roughly $1.2 trillion on defense. Nearly half of the total is expended by the United States. The federal government spent $587 billion on defense in fiscal 2008, including emergency war funding. By contrast it spent $62 billion on education and $5 billion on Social Security that year.

There is an elephant in the room that never gets mentioned: the cap on earnings taxed for the purpose of funding the program.

Having paid the max into the program for over twenty years I am keenly aware that as a high wage earner I could expect an annual "holiday bonus" toward the end of each year thanks to the cap on my FICA tax. It started over each January as I entered a new year for tax accounting purposes.

The vast majority of wage earners have no idea that their higher-paid bosses and supervisors stop "contributing" (I hate that word) to the system every year while they who earn less keep on slogging away, year after year, til they can't go on.

It should be mentioned, by the way, that this so-called "contribution" to the program is collected from the first dollar earned, but there is no annual "exemption" or "standard deduction" to ameliorate the impact of that TAX, which it is.

One of the sticking points to Congressional approval of this year's famous "stimulus checks" was that the original plan was to exclude anyone who had not paid "income tax" last year. Seemed logical at a glance: if you didn't pay any tax, then you shouldn't be eligible to have any returned. Democrats, however, dug in their heels, pointing out that plenty of people who didn't psy income tax, or may even have received a low-income tax credit, DID, in fact, pay Social Security tax... from day one of their earnings... with NO rebates or deductions. This discussion was kept pretty low-profile and the sponsors caved quickly enough, because that is perhaps America's best-kept secret. You have to listen closely to hear this on the news, but believe it or not, that's where I heard it.

One reason I am an Obama fan is that sometime last year I heard him speak openly of this reality. First time I ever heard a politician mention this inequity in our tax system.

Just writing about it makes me angry. I'm retired now, but all my working life I spent managing the working poor in the food business, knowing there was little I could do to change the rules, but seeing first-hand the tough challenges facing large numbers of hard-working, decent people whose world is far smaller and tighter than those of us at or well-above the median.

In contrast to the CBO report, the 2008 Social Security Trustee's report says,

"Annual cost will begin to exceed tax income in 2017 for the combined OASDI Trust Funds, which are projected to become exhausted and thus unable to pay scheduled benefits in full on a timely basis in 2041 under the long-range intermediate assumptions." [My emphases.]

These projections were unchanged from the 2007 report. In the 2006 report the pertinent projection dates were 2017 and 2040.

There was a time when I would have trusted the Social Security Trustees' projections over those of the CBO. But after 8 years of the Bush Administration, that is sadly no longer the case. The full report is here: http://www.ssa.gov/OACT/TR/TR08/trTOC.html.

It is true that workers begin paying the FICA contribution with their first earned dollar. But it is also true that the benefit computation formulas are weighted to give lower waged workers a much higher rate of return on those taxes than a worker who maxes out every year. No one here has said otherwise, but I think it's important to keep it in front of us when we discuss fairness.

Good point. The system IS "weighted" as you say, but not for the reason you suggest. It's purpose is to furnish a safety net for those whose earnings are too small to provide both the costs of everyday living AND a nest egg for retirement.

That's why it's called SOCIAL Security, not Individual Security. There is no "rate of return" on those taxes and there never has been. From the outset the purpose was to furnish a safety net, not a lifestyle.

Along those lines, one part of the accounting dilemma might be a means test instead of (or in addition to) a higher cap on taxed earnings.

Agree totally with the Social vs Individual Security stipulation, and use "rate of return" only as shorthand to make the point.

Means testing is another matter. The Social Security Administration already administers a means-tested program, called Supplemental Security Income (SSI). The SSI program disbursed $39.5 billion in 2007, to about 2 million recipients, with administrative expenses of $2.8 billion.

In contrast, in the same year the OASDI Trust fund disbursed about $585 billion to 50 million beneficiaries, with administrative expenses of only $3 billion .

The only significant difference in administering the two programs is the means-testing.

Aside from that, I think the notion that everyone who contributes substantially to Social Security (i.e., pays taxes) will receive something from it is a cornerstone of public acceptance.

There are people who would love to destroy Social Security -- not because it doesn't work. It works very well! No, they want to destroy it because it is against their "philosophy."

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