Robert Samuelson's Dishonest Jihad Against Social Security

by publius

If the country ever gets around to ending life tenure for Supreme Court Justices, I hope we add a provision ending it for Washington Post columnists too.  Or at least ending it for Robert Samuelson.  Today, again, we see another extremely misleading op-ed from him on the fiscal health of Social Security.

Here’s a good rule of thumb – anytime you see an op-ed whining about entitlements that uses the phrase “Medicare and Social Security,” it’s safe to stop reading.  Samuelson’s is no exception.

This isn’t news, but let’s repeat it for the one millionth time.  There is no Social Security crisis.  None.

Medicare and Social Security’s fiscal outlooks are completely different.  There is no Social Security funding emergency – even after the latest trustees report.  Assuming historical rates of growth, there is no shortfall whatsoever for 75 years.  Even under more conservative or pessimistic economic assumptions, extremely modest tweaks eliminate the modest shortfall entirely. 

And finally – Social Security is not going “bankrupt.”  Even assuming 2037 is the magic date, and assuming low growth and no tinkering before then, Social Security will still be able to pay 75% of scheduled benefits.

To lump Social Security together with the more problematic Medicare shortfall (which should be addressed through national health care reform) is blatantly misleading.  It’s like saying the combination of a Big Mac and a jelly bean is an extremely high-calorie meal.

But that’s exactly what Samuelson is doing.  In fact, Michael Lind had a Salon column a while back outlining all the rhetorical tricks that dishonest Social Security skeptics make.  It’s as if Samuelson read that column, and decided to use them all.

For instance, here’s Lind:

In order to frighten gullible Americans, anti-Social Security crusaders conflate Social Security with Medicare and talk about the "entitlement crisis" in general. This masks the fact that Social Security's projected shortfalls are minor, compared to those of Medicare.

And Samuelson:

It's increasingly obvious that Congress and the president (regardless of the party in power) will deal with the political stink bomb of an aging society only if forced. And the most plausible means of compulsion would be for Social Security and Medicare to go bankrupt.

And Lind:

About a decade ago, conservative and libertarian economists who oppose Social Security, Medicare and other entitlements came up with a clever rhetorical strategy. They would calculate the gap between the payroll taxes that pay for these programs and estimated costs over time. But there was one problem: The gap isn't all that scary, at least in the near future. So in order to frighten the American people and their elected leaders, deficit hawks cite the sum total of Social Security's "unfunded liabilities" over 75 years. But even this -- a paltry $4.3 trillion over three-quarters of a century, according to the 2008 report -- isn't sufficiently terrifying.  [So they combine Medicare and SS].  [This] produces a suitably spooky 75-year shortfall of $42.9 trillion. And if this is not alarming enough, deficit hawks can cite the truly apocalyptic figure of $101.7 trillion in combined "entitlement" spending over an infinite time horizon.

The anti-Social Security lobby always presents the "unfunded liabilities" of "entitlements" in scary dollar terms, rather than as percentage points of GDP. Here's why: Over the next 75 years, the Social Security shortfall at most hovers around 1 percent of total U.S. GDP over that same period.

And Samuelson:

That the programs will ultimately go bankrupt is clear from the trustees' reports. On Pages 201 and 202 of the Medicare report, you will find the conclusive arithmetic: Over the next 75 years, Social Security and Medicare will cost an estimated $103.2 trillion, while dedicated taxes and premiums will total only $57.4 trillion. The gap is $45.8 trillion. (All figures are converted to "today's dollars.")

Lind:

[According to anti-Social Security advocates,] [w]e have only two choices, or a combination -- cutting benefits or raising the payroll tax. False. There are at least two other choices that the deficit hawks never mention. One is more rapid economic growth, which would make it easier to pay Social Security taxes in the future without either benefit cuts or tax increases.

And Samuelson:

The inadequate trust funds will steadily diminish. The government bonds in these trust accounts will be presented to the Treasury for payment. Those payments can be financed in only three ways: bigger deficits, higher taxes or spending cuts.

One more time – there is no Social Security crisis, no matter how much people like Robert Samuelson dislike the level of Social Security benefits.

Comments

[KCinDC]

Anyone want to calculate the total cost of the Department of Defense over the next 75 years and then subtract the total taxes dedicated to that (which would be zero)? Crisis!

[Brett Bellmore]

"There are at least two other choices that the deficit hawks never mention. One is more rapid economic growth, which would make it easier to pay Social Security taxes in the future without either benefit cuts or tax increases."

More rapid economic growth isn't a choice, it is at best a consequence of choices. And by no means a certain consequence.

And, anyway, I think rules of thumb of the form, "As soon as you encounter a statement saying [something I disagree with], stop reading" have to be the stupidest possible sort, regardless of whether or not you happen to be right. You should always challenge your beliefs, not cocoon yourself from arguments against them.

[publius]

brett - that a fair point as a general matter. but we've seen this specific type of argument (Medicare + SS) trotted out so many times that I think it justifies the criticism.

[MCBRIE]

Stopped reading RS more than a decade ago when he made the argument, in all seriousness, that we shouldn't worry about global warming b/c most people tend to prefer warm weather. What a stooge.

[Wagster]

What you say about the limited extent of the social security problem is true, but I hate that it's become an untouchable issue for liberals. This is the most regressive tax we've got. Hardly anyone thinks we're going to get "historic growth levels" over the next few decades, so at some point we're going to need to address this. Why not now, when we have (possibly) 60 votes in the Senate, the House, and the Presidency? When is our leverage going to be higher?

Addressing SS wins the flag of fiscal responsibility for Dems. And because of the government's wacked-out accounting, cosmetically at least it will lower the deficit.

Rolling into a defensive crouch on SS was appropriate when Bush was pushing his privatization scheme, but we can and should be more aggressive now. Let's see how high we can raise the cap -- maybe we can do this without any benefit cuts at all.

[Woody]

There is no a crisis in Social Security.

But there is a real good, alternative crisis going on, in the markets, etc.

No point wasting a good crisis opportunity, right? Think "shock doctrine."

Social Security is the last big pool of capital NOT in the hands of the Banksters...

It's huge, and they REALLY REALLY REALLY want to suck it up into their voracious, insatiable maws.

[doretta]

I strongly disagree with Brett. I find such rules of thumb extremely valuable. I have several of them myself. For example, I don't discuss the economic crisis with anyone whose first words on the subject are "Fannie Mae and Freddie Mac".

There are way too many arguments and I have far too little time to give them all my attention. All arguments are not created equal. It's not about avoiding arguments I disagree with. It's about avoiding worthless wastes of time.

There are people out there with whom I often disagree who fairly consistently make legitimate points. I have been known to adjust my views based on their arguments.

There are far more who make specious arguments for effect. Use of a specious argument that's been repeated a lot of times is a strong clue that a writer's main purpose is something other than engaging in a serious and useful discusssion.

By adopting such rules of thumb might I miss some gem of an argument buried in the drivel? Maybe. However, I think that's less of an argument that I should wade through the drivel than it is an argument that people who have good ideas would do well not to surround them with it.

[efgoldman]

I'm just surprised that publius (or anyone else) is surprised by Samuelson. I don't read WaPo much anymore, but his columns there pretty much replicate what he's written for Newsweek. He's always been an ss hater. If he'd been around during the FDR administration, he'd have been agin' it.

Of course, he's never had any viable alternative suggestions. Not his job, you know...

[Omega Centauri]

SS will be in fine shape, so long as we have a growing economy. But, if I am right, and we have (or will soon) reach the limits to growth, prospects for a growing economy -at least with respect to the amount of physical resources consumed vanish. A lot more than SS will be in trouble as we attempt to transition to a new economic paradigm. Most of our financial institutions have been built under the assumption of continuing exponential growth -or at least the investor equivalent -moderately high rates of return on investment.

[Linkmeister]

digby coined the phrase "catfood lobby" to identify the Petersons and Samuelsons and their colleagues, SocSec destroyers all.

I'm going to use that from now on when discussing the mendacious columns and screeds they emit.

[d'd'd'dave]

I guess it depends on what the word crisis means. It's easy to say something doesn't exist if you redefine the word. For example, if I told my creditors that I could only pay 75% of my obligations as they came due, they would say 'chapter 11'. Yet for you that means something else:

//And finally – Social Security is not going “bankrupt.”... Social Security will still be able to pay 75% of scheduled benefits.//

[lightning]

if I told my creditors that I could only pay 75% of my obligations as they came due, they would say 'chapter 11'.

Yep. If your income forcasts show that you won't be able to pay your bills in 2037, you have to take steps *right now*.

One of my rules of thumb is to treat any financial prediction more than 20 years in the future as utter garbage.

[Bruce Webb]

That 75% is of a benefit set in real terms to be 60% better than similarly situated retirees get today and as Prof Rosset points out in what I have dubbed Rosser's Equation 75% of 160% = 120%. No doubt the reset will be a shock if it comes to be but trying as many do to make this a question of intergenerational inequity is just special.

Plus the cost of a total fix would require 0.20% increase in FICA in 2010, an additional 0.10% in 2011 then no further changes until 2026. If you do the math this means an initial tax increase for the median income household of $1 per week.

Hard to believe? Spreadsheets available at Angry Bear.

[wj]

There is the detail that both Medicare and Social Security are (ignoring the accounting smoke screen) funded out of the Federal government. So if one blows up, the other is (on of the places) where cuts will get made to get things back into line.

Not a justification for Samuelson (for whom there is little justification), just a reason why some of us figured out long ago that there was not going to be any SS money when we were ready to retire. Tell me, publius, are you planning your retirement on the assumption that Social Security will be providing any income for you? I certainly hope you have more sense, especially if you are under 50 (or even 60). Yes, we might get lucky, but I sure wouldn't want to be the ranch on it!

[Tony P.]

So what WOULD you "bet the ranch on", wj?

When you retire, you will be a non-producing consumer. Whatever you get to consume will have to be produced by those people who are still working. Whether the fraction of their output you consume is called "dividends" or "capital gains" or "Social Security", the workers will be consuming something less than they produce, which will annoy them. What makes you think it will annoy them less to see their income reduced by the dividends you collect, rather than reduced by taxes to fund the SS you collect?

--TP

[Loneoak]

Can we please not misuse the word 'jihad' anymore?

[Warren Terra]

Re Loneoak's 9:03, I am a bit confused: is this use of 'jihad' to be considered disrespectful to Muslims, who I am told use the term to describe a struggle for self-improvement, as it is unkind to use their term in describing a disreputable practice? Or is a reference to the meaning attached to the term by militant Islamists use it to mean violent war against unbelievers and apostates, and thus either disrespectful of the victims of those Islamists or unfair to Samuelson, who for all his faults is no such monster?

I mean, you could make a case against misusing the term 'jihad' on the basis of either meaning, I'm just a bit bemused that it's not actually possible from Loneoak's 9:03 to tell which they mean (if, in fact, they only mean one).

Do you have a word or phrase you think would be a useful substitute? Should people object to the use of the term 'crusade', which comes with its own baggage but is often used similarly?

[d'd'd'dave]

I find this rather humorous:

// Whatever you get to consume will have to be produced by those people who are still working. Whether the fraction of their output you consume is called "dividends" or "capital gains" or "Social Security", the workers will be consuming something less than they produce, which will annoy them. What makes you think it will annoy them less to see their income reduced by the dividends you collect, rather than reduced by taxes to fund the SS you collect?//

Comrade, even in the motherland not everything belongs to the workers. For example, comrade Yevgeny has carefully saved away gold coins all of his life. He knew his Soviet pension would be worthless. Now that he is retired, he exchanges those coins for produce at the local market. The sellers are very eager to receive the coins he pays. The coins are their means of converting the potatoes they grow into clothing, tools, and other necessities that they cannot grow in their yards. They wish all of the New Soviet Men of that generation had been wise enough to store away gold coins instead of relying on the promise of the socialist utopia.

[Tony P.]

"They wish all of the New Soviet Men of that generation had been wise enough to store away gold coins instead of relying on the promise of the socialist utopia."

Where you go wrong, Squire, is your belief that "gold coins" could buy more "produce" than is actually available "at the local market" -- especially if ALL of "the New Soviet Men of that generation had been wise enough to store away gold coins".

--TP

[ert]

They wish all of the New Soviet Men of that generation had been wise enough to store away gold coins instead of relying on the promise of the socialist utopia.

It's very painful to try to explain a subject to people who are desperate not to learn anything.

[Pithlord]

State of play:

1. We have a tax, the payroll tax, that is (a) regressive and (b) punishes employment.

2. We have a benefit, the social security benefit, which is also regressive, and which reduces saving.

3. The first brings in a lot more revenue than the second expends, and will continue to do so for a few decades. However, there is really no connection between the two.

4. We pretend that fact 3 means there is a "trust fund", but really there is just an accounting fiction within the books of the US Government, said books vastly in deficit overall.

Possible solution?

1. This tax should be killed before any other tax. In a perfect world, the US Government would get the additional revenue (and enough to deal with the inevitable Bush/Obama deficits) from a national VAT.

2. This benefit should be kept at its current level. However, it should not be allowed to grow at the rate of the economy as a whole. Instead, government policy should "nudge" people into putting money in defined contribution plans, thereby increasing saving.

3&4. We should stop pretending there is a trust fund, since there is not, in fact, a trust fund.

[Dane]

Uhh, why so mean-spirited/pompous today, guys? I'm new, so maybe this is normal for ya'll.

ert: "It's very painful to try to explain a subject to people who are desperate not to learn anything."

doretta: "There are way too many arguments and I have far too little time to give them all my attention. All arguments are not created equal. It's not about avoiding arguments I disagree with. It's about avoiding worthless wastes of time"

[d'd'd'dave]

TP and ert

Yes, in either case the production of current workers is being consumed by current workers and prior workers and to some extent future workers. Each generation starts with some infrastructure produced by a prior generation and leaves some infrastructure for the next. Whether any particular generation produces more than it consumes or vice versa is a complicated question. The fact that population has traditionally grown from generation to generation suggests to me that on balance generations produce more than they consume.

//Where you go wrong, Squire, is your belief that "gold coins" could buy more "produce" than is actually available "at the local market" -- especially if ALL of "the New Soviet Men of that generation had been wise enough to store away gold coins".//

It seems to me you have flipped the premise a bit. In your 8:51 comment, it was implicit that the retirees and workers were both sharing in the produce that is in the market. The retirees were claiming some produce based either on exchanging dividends for it or by taxing it. In either case, the workers receive less current produce then is available on the market.

At 10:32 you object to the 'gold coins' (which are no different than dividends, I guess) on the basis that they do not increase the amount of goods on the market. How do I say Duh in a nice way. I didn't claim they increase the overall goods.

The question is more one of who chooses how produce will be consumed. When rents or coins are exchanged, an individuals choices are enhanced. When taxes are taken by the collective and retirement benefits are dispensed by the collective individual choices are diminished.

A person with individual property rights (coinage, property that produces rents or dividends, etc) can choose when and how to consume. A person subject to the collective action (taxes and retirement benefits) cannot choose when and how to consume. He must by default wait until retirement. Receiving the benefit at that time is subject to the success and integrity of the taxing regime. In the same way property rights in general (upon which the continued value of coinage and rents depend) are subject to the success and integrity of the incumbent regime.

What it all comes down to, it seems to me, is whether it is better to trust your fate to the collective or to yourself. In both cases the regime controls the rules of the game to some extent. But in the 'coinage/rent' case individuals are a bit less subject to the regime than in the 'taxation/benefit' case.

This person appears to take it as a given that the dominance of the collective is better: //It's very painful to try to explain a subject to people who are desperate not to learn anything.// He speaks as if someone who favors the other view is 'desperate not to learn'.

[d'd'd'dave]

//maybe this is normal for ya'll.//

Ha. Exactly.

[doretta]

So Dane, are you arguing that admitting to any exercise of judgment is by definition "mean-spirited/pompous" or that I do have time to read/engage with every argument on every subject?

It's not clear from your comment.

[Warren Terra]

Pithlord, I'm very much not an expert, but I'm a bit puzzled by your comment. Taking your numbered points:

1) I'm with you that the Social Security Tax is regressive. That it punishes employment, I'm less sure of (because I believe the benefits only go to people who have worked), although a case could be made that it punishes self-employment, at least cosmetically.

2) But that the benefits are regressive? That's very much a new one by me. In fact, I have no idea how you are justifying this argument - about the closest I've seen is that, because the least advantaged socioeconomic groups die younger they get fewer benefits (the actual form where I've seen this argument was a crude racial appeal from rich white folks to poor black folks); but the disadvantaged also benefit most relative to their contributions, and I've never seen how it all works out on average.

3) Sure enough, the taxes were hiked to build up the trust fund but aren't as linked as they should be. That is to say, the money does go to the trust fund (see next point), but it was really disgusting in the Dubya administration when Greenspan, who engineered the tax hike and the trust fund, smiled on plans to exploit the Social Security surplus to give tax cuts to rich folks.

4) As to the trust fund: it exists, as government debt. Genuine government bonds, just like the ones that trade on the open market. I don't think the government can default on them without creating problems because it has defaulted on treasury bonds, problems much broader than just Social Security. Maybe the government could confiscate the trust fund from the SSA and cancel it that way, without actually defaulting on the debts, rendering the debts indeed a complete bookkeeping fiction - but that would be a pretty extreme and transparent action, and it's one they haven't dared to contemplate. At present the trust fund is not a bookkeeping fiction unless the rest of the national debt also is.

In response to your proposed solutions, still using your numbering:
1) A VAT? Really? Sure, a VAT brings in a lot of money, but it also requires a lot of administration and is, I had thought, regressive. Why not something more imaginative, such as a wealth tax? Or using highly progressive income and estate taxes?

2) Your preferred solution is really to put retirees into the stock market? And to stop cost-of-living increases? Would you care to reconcile this plan with the news over the last nine months?

3&4) I disagree as to whether there is a trust fund - although I will concede that it can only be redeemed if our government moves back towards a sound fiscal footing in which its treasury can be honored indefinitely.

[publius]

Pith - I agree with Warren. The benefits aren't regressive at all.

But the most shocking part of your recommendation was to divert people to the stock market. We need to lower retirement risk.

There's a good article in the Post today (I think it was) about how generous pensions in France seemed dumb until the crash came. Now, they provide a safety net and stimulus.

we should be more French

[liberal japonicus]

ya'll???

I hope I'm not being mean and pompous, but if you are going for the down home hospitable vibe, at least spell it correctly. Though you have found a kindred spirit in our fabulist ddddave, so I guess there's that.

[nice strategy]

The assets in the SS trust fund are government obligations.

The deficit and debt are at problematic levels approaching historical highs as a % of GDP.

Nearly everyone believes life expectancy will continue to climb.

The benefit in real terms has grown over time.

Nothing to reform here! It is all a GOP plot to destroy the welfare state.

After all, Bill Clinton thought SS was on sound footing. Err, actually, no he didn't. He fretted about its future at a Georgetown commencement.

Samuelson hypes the urgency but I'd prefer the structural problems be sorted out sooner than later. The label we attach to the problem is of little consequence. Why play his game? Pretending that SS is on sound footing doesn't make it so. If it weren't for immigration related nominal growth over the past 15 years, we might be in a pickle right now.

Repeat: There is no Social Security Crisis. There is a big, looming, expensive problem, however. Just don't call it a crisis. That's not tactically convenient.

[Brett Bellmore]

"Maybe the government could confiscate the trust fund from the SSA and cancel it that way, without actually defaulting on the debts, rendering the debts indeed a complete bookkeeping fiction - but that would be a pretty extreme and transparent action, and it's one they haven't dared to contemplate."

Why would the government contemplate canceling the bonds held by the SS trust fund, (Itself, IOW) while the SS cash flow was positive, and it was piling them up, not having to redeem them? Though I'm pretty sure some in government have contemplated it, it's just not reached the point to speak of it.

Though, strictly speaking, as the government is both sides of the transaction in this case, it doesn't have to cancel the bonds, just decide that it won't ask itself to pay them off.

[triangular gutters]

Every now and then I wonder why I read d'd'd'dave because he drives me a little crazy, and then I read things like the post at 1:00 that are really insightful and make me think.

[skeptonomist]

Also, the SS Trust Fund is not "inadequate" - it is supposed to expire around 2045-50 when the last of the Boomers are paid back what they have been taxed for since 1983.

The biggest deception of all may be in convincing people that SS benefits are paid out of the Trust Fund, as if it were some kind of 401k. Many people, perhaps including Samuelson, think that SS will be "bankrupt" if the Trust Fund reaches zero.

[LongHairedWeirdo]

First, I agree with you regarding the basic facts of Social Security, but... if you were running a business, and came to a point where you could only pay your creditors 75 cents on the dollar, you'd end up bankrupt - i.e., going to court to keep a few debt collection lawsuits from destroying your business utterly.

Social Security isn't a business, and is unlikely to seek the protection of the bankruptcy courts. (I doubt that it's possible or necessary.) Nevertheless, when the time comes, it will be in the same state as many a bankrupt business.

[mds]

"if you were running a business, and came to a point where you could only pay your creditors 75 cents on the dollar, you'd end up bankrupt."

Thank goodness, then, that Social Security will at worst be forced to pay $1.20 on the dollar in real terms, as Bruce Webb and Barkley Rosser have already pointed out again and again and again. (Note that they patiently continue to point it out, despite the criticisms of those of us who grow tired of the same already-refuted arguments being recycled over and over.)

"Nevertheless, when the time comes, it will be in the same state as many a bankrupt business."

Whoa, bankrupt businesses have it a lot easier than I thought.

[hairshirthedonist]

"Many people, perhaps including Samuelson, think that SS will be "bankrupt" if the Trust Fund reaches zero."

Yes. If only such people (whether they think this or simply claim to) protested all unfunded future obligations of the federal government with equal zeal, we might have the potential for a real conversation. SS deserves special attention in this regard, because...?

[Americaneocon]

I commented on this over the weekend, at the Newsweek piece:

"Left unchecked, spending for Social Security will account for 6.4 percent of GDP by 2050, and Medicare and Medicaid will use a combined 21.9 percent, for a total of 27.3. Over the past fifty years, total government spending has averaged 18.5 percent of GDP. What this means is that by 2050, these programs will absorb 150 percent of average government spending without appropriating a penny for food stamps, defense, science, space exploration, or anything else - including interest on the federal debt, which is projected to average 2 percent of GDP in coming years.

Something's got to give. You can't run an annual deficit equal to 18 percent of GDP without wrecking the economy. Solving this problem will require either huge tax increases or huge benefit cuts - or some combination of the two."

[Pithlord]

-The tax punishes work because both the employer and employee have to pay it. That means the cost of the employment transaction is higher, which means you'll get les of it.

-Whether the benefits are regressive is a bit tricky, I agree. But they're based on how long you live, which tends to correlate with wealth and education.

-Defined contribution doesn't necessarily mean money in the stock market. It means savings, which ought to be well-hedged.

But in the aggregate, more savings and investment is exactly what you need to have long run growth.

-I agree there is a role for a state-provided defined benefit tier. I'd just stop pretending it is "paid for" by the payroll tax and just provide it out of general revenue. Also, I don't see why it has to grow above the rate of inflation.

[Eric Martin]

You can't run an annual deficit equal to 18 percent of GDP without wrecking the economy. Solving this problem will require either huge tax increases or huge benefit cuts - or some combination of the two.

Also cuts elsewhere. Say, in defense.

[Jadegold]

"Left unchecked, spending for Social Security will account for 6.4 percent of GDP by 2050,"

Several problems: first, this ignores the fact SS is currently running a surplus. Second, for SS spending to rise from today's 4.4% to 6.4% over the next 40 years, our GDP will have to grow at virtually stagnant rates which I would suggest is a much bigger problem than SS's 2.2% increase over 4 decades.

[hairshirthedonist]

I'd like to know what GDP will be in 2050, since someone else aready seems to know. It would help greatly with my investment strategies.

[Pithlord]

Jadegold, when you say "surplus", you just mean the revenues from a really indefensible tax exceed the expenditures for a particular social program. The total tax take of the USG is way below the total expenditures -- and that's the only relevant issue.

[Pithlord]

Warren,

The Government hardly needs to "default" on the debt "held" by the SS Trust fund because it is just a debt by itself to itself. SS benefits could be cut to any conceivable degree without "defaulting" on this debt, so it is completely meaningless. And there are no legal limits (as opposed to political limits) on reductions in SS benefits.

Basically, Greenspan just raised an indefensible tax and the USG kept spending more than it was bringing in.

ERISA exists precisely to stop private companies doing (far more sophisticated) versions of this.

[GoodOleBoy]

Per the exchange between Jadegold and Pithlord, although the latest report gives 2016 as the year SS cash flow will go negative, our recent 50% increase in unemployment plus the unknown reduction in income for the self-employed (coupled with the fact that these conditions are continuing to deteriorate) will reduce the revenue component more than predicted. Similarly, it seems the outlay component should get a negative effect as well since common sense seems to indicate that greater numbers of people will opt for benefits sooner than would have occurred absent the economic downturn. So that negative cash flow event may come sooner than projected.

[Hartmut]

I wonder why noone has yet mentioned another option that can be combined with the others.
Since people live longer these days, there is no cogent reason for a fixed retirement age. Germany raised its default value from 65 to 67 and there are projections/extrapolations that it could go up to 70 in the long term. That would still leave a longer eve of life than any previous generation enjoyed. When the system was introduced more than a century ago it was assumed that retirement would last not more than about 5 years.

[hairshirthedonist]

So that negative cash flow event may come sooner than projected.

I think an important point being made on this thread is that the cash flow of SS is really not important. It's something the government funds, like anything else. The only difference is that we pretend that payroll taxes are somehow (or somehow have to be) different from the other taxes taken out of our paychecks, and that there is a trust fund full of bonds that are somehow (or somehow have to be) different from other bonds. The government funds deficit spending by incurring debt. That can be a problem, but it's not one specific to SS. (I'm no expert here, so please tell me where I'm wrong, because I'd like to know.)

[Brett Bellmore]

No, the cash flow of SS is important, because the SS program has been subsidizing the rest of the government's budget, and it is now poised to BE subsidized by the rest of the budget. That's not an unimportant change, unless you regard the capacity of the federal government to raise revenue as essentially unlimited.

I'd say we're fast approaching the point where the federal government hits that limit... and that limit hits back, hard.

[d'd'd'dave]

Bruce Webb

//That 75% is of a benefit set in real terms to be 60% better than similarly situated retirees get today and as Prof Rosser points out in what I have dubbed Rosser's Equation 75% of 160% = 120%. No doubt the reset will be a shock if it comes to be but trying as many do to make this a question of intergenerational inequity is just special.//

I followed up on this by reading some angry bear posts (which are very helpful) and by reading this by Prof Barkley Rosser. It appears that the benefit set being referred to is one which grows over time to match the growth in real wages. The market basket of goods a retiree will be able to buy with his SS checks in 35 years is larger than what a retiree can buy today in proportion to the growth in real wages expected over that timeframe.

That's great. It's probably not well known element of the social security benefit.

Nonetheless, it led me to question the 75% x 160% = 120% assertion referenced above. Real wages will have to grow by 1.5% annually over the next 33 years to reach 160% of today's level by 2042. It seems like a modest number and easy enough to do. But then I noticed that between 1970 and 2005 real wages grew only 3% in TOTAL which is something like 1/10th of a percent per year.

I'm wondering what logic Prosser, Angry Bear, and Webb use to justify using a wage growth rate about 15 times higher than we've recently experienced. If we substitute recent historical wage growth into the equation we get 75% x 103% = 77% which is a very different story.

PS. Look, I actually made an html link.

[GoodOleBoy]

There is a trust fund. The amounts paid into Social Security are in turn invested in US Government issued securities which, in all of my lifetime so far, have always been the safest place to invest. Now, our current fiscal circumstances and behaviors could lead one to believe that this assumption of safety is tenuous. No one wants to be invested in a part of their retirement that looks like it could be like a 401K at Enron, Chrysler, or GM where most or all of the investment is in company stock. Lots of things have gone on since last September with more to come and I see many opinions about where these events and actions are going to take us but, frankly, I haven't a clue. I lean toward the view that much of what the government is doing will come back to bite us hard, but I don't know.

Social Security was enacted almost when I was born in Georgia where a lot of conservative democrats did not like the liberal democrat president Roosevelt's social programs. And this opposition existed among conservatives nationwide, democrats and republicans. Most never liked the notion of an social entitlement program. So a lot of careful tinkering was done to call it old age insurance where there was a linkage at the individual level between lifetime payroll taxes paid and benefit levels at retirement. I haven't spent a lot of time researching this but my recall of snippets I read in the past makes me think that FDR had to work pretty hard to get this going and overcome a couple of constitutional challenges as well. Another aspect of opposition at that time came from rural America where the custom in farm states and communities had historically been that the elderly were cared for in their old age by those members of the family who had remained on the farm, so to speak. The 19th century and early 20th century produced large families many of whom stayed and lived together and, before the advent of the automobile, mobility was minimal.

So when the initial and later 20th century political battles over Social Security were fought, much of this old ammunition was still in the arsenal and has been used over and over. I'm talking about the linkage between money paid in and benefits earned, for example. Conservatives have always had kneejerk responses to suggestions involving means testing, for another example. But about the time this program was created, the big war came, after that we had an economic boom, mobility across the country exploded, and many fewer families were well positioned to personally care for their elderly. Fortunately, much of our population had improved their financial circumstances such that they were better prepared for those twilight years.

We are in a totally different time now. I agree with several points Pithlord made before. The payroll tax is regressive in the extreme and the benefit payments are indeed regressive. There is little validity to the so-called link between payroll taxes paid and benefits due, although there are surely a lot of government jobs provided in order to keep track of that dubious information.

With the Democrats in the power position they are now in, they should be able to actually cause some movement toward reform of Social Security where this has been almost untouchable before. This last election showed that the senior vote is not the only way to win office and that is a sea change from where things have been in my lifetime. The young are going to pay so they should start to act on what the system should look like.

[Brett Bellmore]

"There is a trust fund."

This is the heart of the matter. There is no trust fund.

Look, suppose that you loan me $10, and I have a fantastic rep for repaying my debts. That loan constitutes an asset. It's a claim on resources external to you, if things get tight, it actually helps you get by.

If I, on the other hand, write "I owe Brett Bellmore $10" on a scrap of paper, and put it in a jar on the kitchen counter, and go out and spend my lunch money for next week on some natchos, that is NOT an asset. Come next week, pulling that note out of the jar does absolutely zip to help me pay for my lunch.

A bond can not be an asset for the issuer. The asset and obligation cancel out.

There is no trust fund, in any sense more meaningful than my jar of IOUs to myself.

[GoodOleBoy]

So Brett, where would you invest the Social Security funds? Oh, and I do understand the precise correctness of your position.

[Gary Farber]

"PS. Look, I actually made an html link."

Here's a cookie. You don't have to wait until retirement to eat it.

"Look, suppose that you loan me $10"

It turns out you do not have the sovereign powers of a nation state. I realize this is disappointing news.

It also means you can't analogize between an individual and a nation state concerning the powers of a nation state.

[GoodOleBoy]

Yeah, while Gary was commenting I was thinking that even in your individual example, if I had cash on hand or in the bank to cover my IOU in the cookie jar, I could still call the IOU a trust fund. When I could not do that and had no credit to borrow, I guess it would not make much sense to call it a trust fund. If the US reached the point where it could not tax, borrow, or print then I guess there is no trust fund.

[Pithlord]

Gary,

It's true the USG can always tax more to pay for its expenditures. But that doesn't mean the payroll tax revenues have been "invested" somewhere. They have been spent, along with all the other tax revenues of days past.

There is no legal obligation on the US Government to provide any particular level of benefit, other than as Congress provides from time to time. What it provides is based on poltical reality, just like any other government program.

[Daddy Love]

How is it that US Goverment Treasury bonds, backed by the full faith and credit of the US government, on which our government has NEVER defaulted, and which are so trusted that other nations buy them by the hundreds of billions of dollars, are worthless?

[GoodOleBoy]

Discussion of the trust fund characteristics is in some ways academic. It is though a way to track the finances of the program. And the underlying individual recordkeeping, all of which would be unnecessary if the linkage from earnings to benefits were dropped, creates the need for many bureaucrats, just as the income tax system does at the IRS, and Medicare does but they do use many contractors. These are disasters in administration and costs to the taxpayer, and we are rushing full speed ahead with eyes-wide closed to try to put healthcare in their hands as well. I'd like to see some successful reforms in Social Security, Medicare and our tax system before jumping into something totally new.

[Gary Farber]

"But that doesn't mean the payroll tax revenues have been 'invested' somewhere. They have been spent, along with all the other tax revenues of days past."

Which government spending is or isn't an "investment" is largely a matter of semantics, or perspective; I'd regard building a bridge or subway, or funding research in basic science, as an "investment," for example, myself.

"What it provides is based on poltical reality, just like any other government program."

Sure, and the political reality is that the chance of the Congress and president allowing Social Security to collapse is next to nil.

Members of Congress who allowed that to happen would not be in the next Congress.

Which is why the people who go around asserting that Social Security won't be there for them are idiots.

[KCinDC]

"But that doesn't mean the payroll tax revenues have been "invested" somewhere. They have been spent, along with all the other tax revenues of days past."

And along with all other money "'invested'" in Treasury bonds.

"What it provides is based on poltical reality, just like any other government program."

Assuming that's true, and that the relationship between payroll taxes and Social Security spending is completely fictional, then what makes Social Security spending more of a crisis than defense spending?

[Pithlord]

what makes Social Security spending more of a crisis than defense spending?

It isn't. Spending is fungible.

[Pithlord]

and the political reality is that the chance of the Congress and president allowing Social Security to collapse is next to nil.

True enough. No one, not even Ron Paul, is proposing eliminating Social Security benefits. So that's not a real issue.

A real issue is whether the tax makes sense. Another real issue is whether the retirement age is fixed. Another real issue is whether benefits should increase just with inflation or with salary growth.

The "trust fund" is completely irrelevant to these actual issues.

[Pithlord]

How is it that US Goverment Treasury bonds, backed by the full faith and credit of the US government, on which our government has NEVER defaulted, and which are so trusted that other nations buy them by the hundreds of billions of dollars, are worthless?

They're not worthless, they just have nothing to do with anything.

[d'd'd'dave]

Thank you for the cookie, Gary. I like cookies.

[Bernard Yomtov]

For the umpteenth time, this "not invested" argument is bogus.

Suppose the Social Security Administration had invested the payroll tax surplus in private securities - corporate bonds or whatever. Then what? The government would have borrowed the money it has actually borrowed from SS elsewhere (maybe even from the people who sold corporates to SS). Government debt would be the same as it is today when you include the debt to the trust fund.

Now suppose that in that alternate private investment universe the government becomes unwilling to impose the taxes needed to pay its debts. Isn't it just possible it might take the SSA's assets? Is that any more or less likely than that it would, in the actual universe, default specifically on the trust fund bonds?

The answer is: No. the two events are equally likely (which is to say, not at all likely) and have identical consequences - SS benefits are not paid, but other creditors are.

[Pithlord]

Bernard,

You're right that it wouldn't matter if the USG borrowed more money and invested it in other securities (in fact, the Canada Pension Plan involves just such jiggery-pokery). The USG's net borrowing would be the same, and the level of SS benefits would depend on politics, just the same.

The point is that SS benefits are just another government spending program, and the payroll tax is just another tax and a lot of hooey about trust funds doesn't change that one bit.

[Bernard Yomtov]

Pithlord,

The point is that SS benefits are just another government spending program, and the payroll tax is just another tax and a lot of hooey about trust funds doesn't change that one bit.

I disagree. Sure, money is fungible and so on. But the payroll tax is dedicated to SS, and its current level is based on the promise that collections exceeding current benefit payments will be saved to meet future obligations.

So no, it's not just another tax and just another spending program. It's a program to which specific revenues are dedicated, and those revenues are adequate, or close, to meet the spending obligations.

That the government has been incontinent in its fiscal policies in other respects is not a valid basis for criticizing SS. There's a deal here, and the US Govt needs to fulfill its end.

[LongHairedWeirdo]

MDS:

Thank goodness, then, that Social Security will at worst be forced to pay $1.20 on the dollar in real terms, as Bruce Webb and Barkley Rosser have already pointed out again and again and again.

I have no idea what you're talking about. I responded to a particular paragraph, and you'll pardon me if I assumed readers could figure it out:

And finally – Social Security is not going “bankrupt.” Even assuming 2037 is the magic date, and assuming low growth and no tinkering before then, Social Security will still be able to pay 75% of scheduled benefits.

My point is: If you have obligations, and can only pay 75% of them - be they debts, scheduled benefits, or what-have-you - you are in the same position as many a bankrupt business.

To say that Social Security is not going bankrupt is to disregard what bankruptcy is. It's not "going broke" it's being unable to meet your obligations.

If the intent is to say "Social Security is not going broke", then, say "Social Security is not going broke". Because it isn't.

But don't say "it won't be bankrupt, it just won't be able to meet its scheduled obligations". That's like saying "it's not shit, its feces." Same thing, and denying the first while affirming the second is silly.

Of course, if the 75% figure is incorrect, great... don't bring it up at all, or bring it up to point to the debunking.

[Gary Farber]

"My point is: If you have obligations, and can only pay 75% of them - be they debts, scheduled benefits, or what-have-you - you are in the same position as many a bankrupt business."

I've looked into this, and it turns out, much to my shock and dismay, that a government is not, in fact, a business.

[Tony P.]

The people who warn that the trust fund is merely an accounting fiction are absolutely correct. But, if I ever catch a one of them whining that "the top X% of income earners pay over 50% of income taxes", I swear I will violate the posting rules all over their sorry asses.

It does not matter how much of the money flowing into the IRS is labelled "FICA", how much is labelled "income tax". That distinction is an accounting fiction, too. So we can make the SS Trust Fund incredibly solvent by a very simple accounting redefinition: eliminate the FICA cap, and cut marginal income tax rates in the brackets above the current cap by the same amount. Rush Limbaugh's payments to the IRS would not change by a dime; the money would simply get divvied up differently: more to the Trust Fund, less to general revenue.

Obviously, a stunt like that would not change the cash flow of The Government one bit. But at least it would deprive the SS-is-going-broke crowd of their stupidest talking point.

--TP

[Pithlord]

Social Security does not have "obligations" in the relevant sense.

If the SS benefit formula was rejigged, there might be political hell to pay, but neither the courts nor the financial markets would regard it as "default".

[LongHairedWeirdo]

Gary:

I've looked into this, and it turns out, much to my shock and dismay, that a government is not, in fact, a business.

Then don't pair the concept of "Social Security" and "bankruptcy" at all. Bankruptcy is a business concept; if you want to draw the reader away from business concepts, don't use business concepts.

But if you absolutely have to use the term "bankrupt", then don't say "not bankrupt, because it can still pay some, but not all of its obligations" because a lot of bankrupt companies can pay some, but not all, of their obligations.

[Brett Bellmore]

"But the payroll tax is dedicated to SS, and its current level is based on the promise that collections exceeding current benefit payments will be saved to meet future obligations."

And that premise was a lie. Nothing was saved, and I don't believe there was ever any intent to save anything. It was never anything but an excuse to take in more money in the form of SS taxes to fund more spending in the rest of the government.

It didn't have to be that way, theoretically the excess revenue could have been invested in some fashion without simply increasing borrowing in some other part of the government. Ideally by paying down the debt, paying off existing debt being the most reliable investment any entity in debt has available.

But that would have required fiscal discipline which was utterly lacking.

Anyway, the period of excess SS revenues is drawing to a close, without having been used to in any way make it easier to cope with the coming period of shortfall. And I hope we can agree that the 'trust fund' contributes nothing at all to coping with that shortfall.

[hairshirthedonist]

Brett, you seem to be making more or less the same point that I made, yet you still seem to disagree with me. Maybe we're just talking past each other. My point, and I think Pithlord's and others, is that the cash flow of SS is not special or distinct (or, at least, shouldn't be) from the overall cash flow of the government.

I suppose you can argue with someone who claims that SS cash flow doesn't matter at all to anything. It does to the extent that it is part of the the overall revenue/expenditure profile of the government, and if I wasn't entirely clear about that, that's my fault. It's just that looking at it separately, specially, distinctly or what have you, aside from the overall picture, is baloney.

[Bernard Yomtov]

Brett,

And that premise was a lie. Nothing was saved, and I don't believe there was ever any intent to save anything.

No. It was not a lie.

The fallacy of the "SS is going broke" crowd is to fail to recognize that the problem, if there is one, is the fiscal condition of the United States. SS is no more going broke than the Defense Dept is.

the excess revenue could have been invested in some fashion without simply increasing borrowing in some other part of the government. Ideally by paying down the debt, paying off existing debt being the most reliable investment any entity in debt has available.

And we were actually getting close before 2001, weren't we? So maybe there was a bit of fiscal discipline back then.

[Brett Bellmore]

"And we were actually getting close before 2001, weren't we?"

In a bizzaro world where a stock market bubble pushing up revenues faster than Congress can respond by spending them equals fiscal discipline, yes. Not in this world.

And even that took a President and Congress of opposing parties virtually at the point of open warfare. At the moment we're right on track to double the national debt over the course of a single administration.

[fasdf]

好秘书 我爱皮肤 中国公文网other securities (in fact, the Canada Pension Plan involves just such jiggery-pokery).