Redstate

And decide to opt out of social security or into PRAs if they want to.  Suggesting that eveyone needs big daddy state to hold their hand for everything from health care to retirement doesn't suggest you trust those folks with "actual brains" or unactual brains for that matter.

As a twenty-something, I find it hard to believe that a low-return (or no return) investment like social security will be around by the time I retire.  Why not let younger workers invest into a program similar to that of the federal Thrift Savings Plan so that they can get returns on their tax dollars that will exceed whatever pittance we may expect in 40 years.  The TSP has a very low overhead, and has produced positive returns in the long run.

I think a minimal safety net is a good thing, but social security shouldn't be the main source of income for retired Americans.  For the near future we should keep our promise to America's seniors, but I don't think it's fair, or fiscally prudent, to handcuff younger workers who can get a bigger bang for their buck from PRAs.

The SS trust fund holds those assets, just like anyone else who buys US government debt holds those assets.  Those assets are, as has been pointed out elsewhere on this thread, backed up by the full faith and credit of the US government.  Wanna renege on that?

Amos: The SS-held bonds are IOUs the government has written to itself, and as such have no intrinsic value. It would be just grand if the government's Social Security trust fund owned a couple of trillion dollars worth of Microsoft stock or Swiss Bank deposits. Unfortunately, your future paychecks and mine are the only assets in that trust fund.

But, at any rate, I'm not suggesting we "renege" on one penny of Social Security income promised to retirees. Indeed, I would hope (and I expect) substantial grandfathering to be included in any Social Security reform plan, and I would expect it the program to be voluntary for workers over, say, 40 (we'll have to wait for particulars; I might well oppose any plan that doesn't include these principles, because it wouldn't be fair). But if you're under 40, you'll have three decades to prepare for the slight adjustment in benefits you'll suffer.

The proposals on the table appear to have as their goal making the loan from the SS trust fund to the general operating fund into a gift, at the cost of SS benefits.  To make this palatable, the myth of the "SS crisis" has been invented.  That's fundamentally dishonest, and it pisses me off.

Don't know what you mean with your comment about a "gift". Even if every right winger in the country wanted to get rid of Social Security, it's politially infeasible (not to mention just plain wrong) to throw hungry old folks onto the streets. No proposal, I can safely predict, will touch one penny of guaranteed benefits from any current recipient. Any cuts in guaranteed benefits to people not yet retired will be modest. I may have mentioned this earlier, but someone in their late thirties, for instance, will still see something like 80% of what they would get under current plans. Is that really so draconian, especially when such a person (like me) will have nearly three decades to prepare, and three decades in which to contribute into a PRA? I'm constantly hearing quips from Social Security's defenders about their willingness to support modest measures to shore up the program. Well, here's your chance.

If you think SS benefits are too generous, put legislation on the table to scale them back.

Well, I hope that's part of what the legislation will be doing. Indeed, most media accouts point to a change in the benefits formula away from wage indexation.

But don't claim that it's the excessive generosity of SS that is creating the problem.

Well, by definition the relative level of generosity is part of the problem, whether you count wage indexation, or the refusal to reflect increases in lifespan in the retirement age, or what have you. Obviously changes to such elements of the program could make it far less costly.

But the idea that SS, on its own terms, is on the verge of collapse is a pile of crap.

I've never uttered the words "on the verge of collapse" with regard to Social Security, but we're both aware the program will be cash flow negative in another 13 years. At first, the necessary injections of general revenue (er, sorry, cashing in of bonds) will be modest enough, at about $16 billion. But they'll steadily grow larger. Much larger. So, while I might even agree with you about an imminent collapse being "a pile of crap" I'm afraid I've got very real reason to fear sharp hikes in the job-destroying, wage-reducing, FICA tax when the baby boomers are really at the public trough in full force. I think you seriously underestimate the strains this will put on our economy when you blithely and sunnily refer to it as "a temporary demographic bulge". By my estimates, lots of baby boomers will still be collecting Social Security 40 years from now. God willing, medical advances in the coming decades will mean that number is larger than anyone now suspects. We'd be well-advised to start getting some of the post baby boom retirees to accept benefits cuts as soon as possible, so the government can start seeing some savings. If we get a PRA/benefit plan passed this year, my guess is the government should start to see net savings by 2030 or so (by which time the excess interest costs associated with the transition will have largely been paid).

If you think the government shouldn't be in the business of providing retirement and disability benefits, put legislation on the table to get rid of it. And, good luck to you.

I don't have this opinion, Amos, and therefore have neither the need for the legislation, nor the luck. As I've consistently been making clear (but apparently not clear enough) I favor a continued role for government-guaranteed social insurance, just not one quite as generous in scale as perhaps you do. Hence, though I would be opposed to cutting the benefits of today's recipients (well, at least the non-rich ones), I think a slimming down of the guranteed future benefits for today's younger workers, along the lines of what's being reported, is desireable. Especially if they're allowed to build up bequeathable personal retirement accounts via a cut in the FICA tax they must pay. I really think you're letting your emotions run wild here.

If absolutely nothing is done, social security benefits will decrease sometime in the 2040's from the higher wage indexed payments to an inflation indexed payment that matches what beneficiaries get today.

The Reagan reforms of Social Security have funded these higher benefits through the 2040's. Modest changes in benefit growth or later retirements will make the system last into the foreseeable future.

If there is a problem paying back the IOUs that are owed by the federal government to the trust fund, that is because irresponsible deficits have been run by the current administration. Adding more debt will not solve the problem.

"If there is a problem paying back the IOUs that are owed by the federal government to the trust fund, that is because irresponsible deficits have been run by the current administration."

Give me a break.

There was a bipartisan agreement that we needed to pay down the external debt of the federal government because we knew that the Social Security Trust Fund would be redeeming its paper after 2018. The decision of this administration to cut taxes rather than continue the paydown of the external federal debt is a major problem for the future of the federal government.

Why should you get a break?

... maybe not as big as Rathergate, but just as flagrant in its disregard of core journalistic ethics. The Jackie Calmes piece in the Wall Street Journal even makes note of the fact that the memo was "not for attribution" right after it ATTRIBUTES the memo to Wehner. Just who did they think those ground rules applied to?

So, it now appears that you can have an off-the-record conversation with a reporter, but that exchange can be considered ON the record and publishable on the front page should that reporter whisper it to another.

All Calmes and the AP had to do to honor the ground rules was attribute the memo to a "senior White House official." That they didn't shows remarkably poor judgment.

I defy our liberal friends to prove that there is no problem with Social Security - to ignore the fact that Social Security's pay-as-you-go structure breaks down when there are fewer taxpayers than beneficiaries is idiotic.

The CBO says that we'll be able to pay out Social Security benefits with Social Security funds until 2053 under current law.  After that, a benefit reduction of about 20% would be required.  The point at which Social Security funds are projected to run out is farther away now than it was 10 years ago.  The year 2018 means nothing - that is just when we have to start dipping into the extra Social Security taxes which have been payed since the 1980's to provide a cushion for the Baby Boomer retirement.  As freelunch pointed out above, it's not Social Security's fault that the Social Security surplus is being spent on tax cuts and wars and stuff instead of being saved.  All that's needed is fiscal responsibility, but unfortunately that is in short supply among elected Republicans these days.

As in other cases, I'll note that this thread is funny in a sad sort of way.  Funny because it's absurdly predictable, sad because, well, you and Freelunch present factual descriptions of the actual situation, and the thread goes silent on the facts.

As with WMDs and the absolutely central role "frivolous lawsuits" supposedly play in the healthcare crisis, the facts on Social Security contrast sharply with the Bush administration's Chicken Little rhetoric.

If we stay true to form, the only rebuttal will be ad hominem.  Why do you hate America so?

Sigh.

1. If I could cut a deal to forfeit all the Social Security I have paid in over the years in exchange for opting out and funding my own retirement with the money I would save, I'd do it in a heartbeat. I guarantee that if the market were allowed to speak and this option were available, Social Security would cease to exist in a generation.
   
2. Returns on Social Security are equivalent to around 2%. That's not "security", it is sickening.
   
3. If you don't think frivolous lawsuits jack up the cost of everything made and sold in America, especially healthcare, you have not spent one minute in the world of business. Not one minute.

"Wehner rightly recognizes that most Americans don't understand that this crisis even exists, and they continue to believe the myth that there is actually money in the Social Security trust fund. "




Privatization advocates that throw up the "no money left" myth argue that the Social Security trust fund is built on US government bonds that have become worthless.  As financial obligations of the US government, if those bonds are, in fact, worthless, it's because the entire economy of the United States is in the toilet, an issue that is perpetuated and aggravated by the Bush Administration fiscal policy of cutting taxes while simultaneously fighting a war and borrowing even more money.  




Not only that, but conceding that those bonds are worthless means that the US government is admitting to foreign owners that those debts will not be repaid.

First, the overwhelmingly partisan nature of the supposedly `non-partisan' CBO renders its assessment of any government financial program questionable at best, and it should never be considered a 'reliable' source.  Too many careerist staffers with a partisan liberal agenda - much like the State Department.

Second, Social Security taxes are collected and deposited into the general fund, and then they are immediately disbursed or spent.  They have never been `saved' - no matter which party has been in power.

Third, the Democrats do not want a Republican controlled Congress lead by a Republican President to solve the Social Security crisis.  That will rob the Democrats of their most crucial campaign issue regarding seniors - the Republicans want to destroy Social Security so vote for us.

Finally, the professionals at the Heritage Foundation and the CATO Institute are genuinely seeking answers to the critical questions surrounding the crisis facing Social Security.  It is obvious they welcome an honest debate that produces positive solutions.

at CBO, Cato and the Heritage Foundation look equally partisan or non-partisan depending on the party affiliation of the one doing the evaluating.

Social Securities returns are 3%, and the average little investor earns 1.5%.  The first rule of the stock market is never invest money you cannot afford to lose.  Most people cannot afford to lose their retirement fund.  Social Security is not an investment program.  It is an insurance program.  If you can afford to opt out of Social Security entirely, then you are better off than the vast majority of Americans, and probably don't need the insurance program anyway.

First, the overwhelmingly partisan nature of the supposedly `non-partisan' CBO renders its assessment of any government financial program questionable at best, and it should never be considered a 'reliable' source.  Too many careerist staffers with a partisan liberal agenda - much like the State Department.

I've never heard this before.  Do you have a source without a partisan agenda you prefer in regards to Social Security?  (Sorry, Heritage and CATO are hardly neutral observers)

Second, Social Security taxes are collected and deposited into the general fund, and then they are immediately disbursed or spent.  They have never been `saved' - no matter which party has been in power.

Of course it's being saved.  It's invested in U.S. treasuries.  Those are backed by the full faith and credit of the U.S. government just like any other investor's bonds.

Third, the Democrats do not want a Republican controlled Congress lead by a Republican President to solve the Social Security crisis.  That will rob the Democrats of their most crucial campaign issue regarding seniors - the Republicans want to destroy Social Security so vote for us.

The Social Security "crisis" is a manufactured threat to help serve the Republican agenda of privatizing it.  If the privatization concept had greater appeal, I'm sure Bush's proposed changes would be marketed as such.  It's the same strategy used to sell the Iraq war.  Frankly, Republican success at changing Social Security would be a bigger political bonus for the Democrats than thwarting any change.  Removing $2 trillion from Social Security and either a) cutting benefits or b) hastening its insolvency would be a huge political gift for the Democratic Party.  The young people who are purported to favor privatization aren't the ones who vote based on Social Security - seniors do.

Deny reality at all cost.

Social Security will become a $27 Trillion unfunded liabilty because recipients will far outnumber taxpayers.

The full faith and credit of the US Government is paid by the 'taxpayer' or by increasing the national debt.  I don't like either of those options.

Especially when something positive can be done about it now that doesn't require increased taxes, reduced benefits or raising the retirement age.

They cut tax revenue and require a reduction in benefits or an increase in the retirement age.

Deny reality at all cost.

Social Security will become a $27 Trillion unfunded liabilty because recipients will far outnumber taxpayers.

It's fully funded for decades, and recipients will never even come close to outnumbering taxpayers.  Where did you hear that?

What isn't fully funded is all the spending that's been done by raiding the Social Security surplus.  Like it or not, Social Security has its own funding, but that can't be said of the rest of government.

The full faith and credit of the US Government is paid by the 'taxpayer' or by increasing the national debt.  I don't like either of those options.

Exactly.  Republicans don't like paying taxes.  Period.  That's what reforming Social Security is about.  If Republicans had their way, the whole thing would be privatized, just because you don't want the government managing your money.  If that's what you want, by all means fight for it, but preservation of the program is not the issue.

Doing nothing will ensure the destruction of Social Security.  There simply aren't enough taxpayers to fund the liability.

PRA's, if structured correctly, will sow the seeds of personal responsibility and reduce the entitlement mentality that is so prevalent in today's society.

This enables future generations to plan and control how and when they retire.  It also reduced the level of government involvement and control over the individual.

Current reciepients will not be affected by PRA's and neither will those retiring in the near future.

If you are worried about the transition cost or a reduction in tax revenues- Simply cut the size of the federal government.

If you are worried about the transition cost or a reduction in tax revenues- Simply cut the size of the federal government.

We're talking $2 trillion in transition costs, on top of the chronic deficits if the tax cuts are made permanent.  If you were king, what would you cut?

The CBO says that we'll be able to pay out Social Security benefits with Social Security funds until 2053 under current law.

Well, of course we can "pay out Social Security benefits until 2053 under current law," because current law considers the intergovernmental IOUs, and the required interest on these IOUs, as "income" for the program. But of course, the only income the federal government possesses is what it takes from the economy in the form of taxes or borrowing.

So, sure, we can pay Social Security's bills, in the sense that it's not physically impossible to do so, just like it's not physically impossible to convert the entire defense budget into funding for the arts, or a mission to Mars. We can find the money. But the problem, again, is that this money can only come from one source, the economy. And there is plenty of other federal spending that also exerts a claim on the resources extracted from that same economy.

On a pure cashflow basis, Social Security will be running in the red by the end of the next decade  because the receipts from the FICA tax won't be enough to cover the checks of the program's recipients. This would still be the case even if President Bush hadn't cut taxes by a single penny. The FICA tax's inability to cover Social Security's costs is entirely a matter of the exploding costs of the program itself. And that exploding cost is entirely a matter of demographics, and the fact that the program's benefit structure is overly generous with the taxpayers' money.

What the opponents of reform really mean (although they use misleading language) when they complain about Mr. Bush's tax cuts is not that the tax cuts undermine the program's own finances; what they mean is that Mr. Bush's tax cuts impede our ability to inject cash subsidies into a program whose own finances are being rendered unsound by structure and demographics. I for one don't think the president should apologize for cutting taxes in the wake of the dotcom recession and the attacks of September 11, 2001. We were running a surplus prior to this period, which means the government was overtaxing the economy, and that means it was time to lower taxes.

Where our president deserves more criticism is his inability to control domestic spending. I say the response to that is pretty simple: push for spending cuts. A program as huge as Social Security cannot be exempt from such efforts to reduce spending.

So, in summary, I'll concede that the CBO is perfectly correct that current law enables us to continue to pay for Social Security's benefits for a long time. But to do so, we'll need the increasingly massive injections of cash after 2018 that Augustine's piece describes. I say the odds of massive increases in job-destroying payroll taxes to meet this need are certain to follow, if something is not done now. Thus, the single biggest reason I support overhaul of Social Security is to lock in a cost-curbing approach to the program that "heads off at the pass" the increases in FICA that otherwise will lower American living standards in the decades to come.

Private accounts do nothing...They cut tax revenue and require a reduction in benefits or an increase in the retirement age.

This reduction in benefits cannot be blithely dismissed as "nothing". Reconfiguring the benefits formula in favor the CPI will translate into a roughly 40% cut in benefits to brand-new entrants into the work force (who, after all, won't be retiring until around 2050). This is huge money. More modest, but still non-trivial savings in the program, will begin to accrue as soon as "PRA retirees" begin to draw benefits, perhaps around 2025. My own calculations tell me we're still not likely to see net savings to the budget by then, because of the likely increase in borrowing costs (interest on the debt, that is), but I would expect net savings to start to kick in shortly thereafter, as the temporary increase in the extra stock of debt is gradually retired, and as an increasingly large percentage of Social Security recipients are drawing benefits under the new, slimmed-down, regime.

Anybody concerned with bequeathing a fiscally-stronger government to their children should get behind Social Security plan, as long as it includes a cost cutting measure such as reconfiguring the benefits formula (and if it doesn't include such measures, I'll oppose it).

Let's see what happens, but so far it looks as if all of the savings come from the new indexing formula and the PRA, if we are lucky, might be able to pay back the added debt of the diverted revenues into the PRAs.

Yes, we have been using FICA taxes to fund general operations because we haven't collected enough general operation taxes. That was why there was a bipartisan agreement to pay off the external debt of the federal government before that time.

My objection is to the current irresponsible spending patterns in Washington and the proposal to make it worse.

"There was a bipartisan agreement that we needed to pay down the external debt of the federal government"

When the heck did that happen?

I don't recall the GOP being upset about the surpluses at the time. My memory is that the GOP and Democrats were competing with each other to take credit for it and both were saying that it was necessary because of the impending changes in Social Security cash flow.

"Finally, the professionals at the Heritage Foundation and the CATO Institute are genuinely seeking answers to the critical questions surrounding the crisis facing Social Security.  It is obvious they welcome an honest debate that produces positive solutions."




You are going to blast CBO as partisan and unreliable, and then heap accolades on Heritage and CATO?  The professionals at CATO, Heritage, AEI and any other conservative think-tank have been pushing privatization for at least 25 years.  See how fast it caught on.

George W. Bush promised in the 2000 race that he wouldn't touch the Social Security surplus.

What the opponents of reform really mean (although they use misleading language) when they complain about Mr. Bush's tax cuts is not that the tax cuts undermine the program's own finances; what they mean is that Mr. Bush's tax cuts impede our ability to inject cash subsidies into a program whose own finances are being rendered unsound by structure and demographics.

Actually, it is the Social Security surpluses which are subsidizing Bush's tax cuts.  Social Security has its own funding source, which is providing extra cash now for when the cash flow goes negative.  The payroll tax hits working people disproportionately, promising in return that the money set aside will be there for them after 2018.  The government needs to live up to its promises.  The way to do it is for Bush to either cancel his tax cuts or pay for them with spending cuts outside of Social Security so that the non-Social Security budget is balanced.

Augustine -

A few corrections, from my understanding of the situation.

"Social Security's pay-as-you-go structure breaks down when there are fewer taxpayers than beneficiaries"

Correct me if I'm wrong, but I don't think you actually meant this.  The putative issue is that there will be fewer taxpayers per beneficiary than there are now, not that there will be fewer taxpayers than beneficiaries in absolute numbers.

The ratio problem, while real, is mostly due to the boomers' reaching retirement age, which is a large, but temporary, event.  And, we've already planned for it, see below.

"We all know that as of 2018, with the onset of deficits, the system will crack"

We don't all know that.  In fact, this statement is at variance with every estimate of the problem I've read, including that of the CBO and SS trustees report.

Which is why, in response to this:

"I defy our liberal friends to prove that there is no problem with Social Security"

I reply that, no, the burden is in fact on you, Augustine, to demonstrate why your much more pessimistic assessment is correct.

Moving on:

"they continue to believe the myth that there is actually money in the Social Security trust fund"

There is something to this.  Instead of money, what is in the SS trust fund is IOU's.  The government has been borrowing against that fund, which was wisely established in the 80's, to fund other operations.

Guess what?  We borrowed against it, now we have to pay it back.  No fair taking away SS benefits to fund the deficit.

Nice try, but this is unconvincing.

Thanks -

Why ignore prior surpluses?...Yes, we have been using FICA taxes to fund general operations because we haven't collected enough general operation taxes.

Freelunch: I ignore prior surpluses (FICA or general, for that matter) because they weren't saved. If we had stuck the cash in Swiss bank accounts or shares of General Electric, you might have an argument. We didn't. We spent it. There's no "there" there.

If Bush wants to reduce the cost of social security by allowing some people to put money in the market in the hopes of better returns, he should just be honest enough to say that. It's probably not a bad idea, although it's not necessary. But trying to gin up a crisis is dishonest and shameful.

There's been a big surplus building for years, so when 2018 rolls around, they'll start using it.

It's hard to believe that so many people are so willing to buy anything Bush says without letting facts get in the way.

We paid down external debt with the surpluses. Sure, the trust fund has nontrading bonds, but it wouldn't take much to turn those into tradable treasuries. Shouldn't we?

The current deficits are not an excuse to destroy social security.

The current deficits are not an excuse to destroy social security

I agree. Who is talking about destroying Social Security? If I didn't know better I'd say you're engaging in over the top rhetoric and scare tactics.

I predict:

a) Any legislation reaching the president' desk will feature longish grandfathering. Probably nobody over 40 will be required to either participate in PRAs or take a commensurate cut in benefits.

b) Younger workers may be required to participate, we shall see (certainly I would expect at some point, new entrants into the workforce will be required to participate), but, they'll be given credit for FICA tax already paid, which means the benefit cut affecting them will be lessened. I'm 38, for instance, and am given to belive my cut in guaranteed benefits would be in the vicinity of 20%. Taking a glass-half-full approach, that means I'd get 80% of what I'm entitled to under current projections, and that ain't bad, IMO, espcecially as I've got 30 years to prepare. Will I likely save a bit more dilligently with this knowledge (even above and beyond my PRA)? You betcha. And that's a good thing for our economy.

c) New entrants into the work force will indeed be looking at deeper cuts in benefits from what they would receive under the status quo's plans. But even the most draconian numbers I've heard (which we get from a complete switch away from wage indexing) still give that new worker about 60% of the guaranteed benefit he would get otherwise. And remember, a 20-year old entering the workforce will have a half century to prepare, as well as a half century of contributing into a PRA.

So, please, freelunch, call it "radical overhaul" if you want, or "fundamental reform", but "destruction" is definitely not in the cards for Social Security.

Until a real proposal is on the table "necessary overhaul", "system saving reform", and "wholesale destruction" are equally accurate. We don't even know if it will be a radical overhaul. Given that we know that we can make Social Security viable for the foreseeable future by changing the indexing formula today from 100% of change in average wages to an index of inflation plus 50%-75% of real wage increases, radical reforms will appear to be an attempt to undermine the system.

I'm willing to see reform in Social Security, but I don't see how removing a large part of the revenue stream by diverting it to PRAs can work if no replacement funding is offered. When there is a proposal, I'll be happy to discuss its strengths and weaknesses.

As for those leftists who persist in ignoring the truth about the retirement savings crisis, that's as it should be - go on your merry way, and leave the challenge of reform to the adults.

Yea, well it was these adults who raised payroll taxes in 1983 to fund the retirement of the babyboomers and have been raiding the cookie jar ever since. If your parents tell you to eat your vegetables because they're good for you but every time you see them in the kitchen they're stuffing their face with your Oreos you just might grow suspicious.

I find it paradoxical that conservatives who oppose taxes so much are so willing to let the SS fund that was established with those taxes, be pilfered without a peep.  

Let's see,  who pays a larger part of their income in payroll taxes ?  Oh right, middle and lower income individuals. Now, who do you think will benefit by a massive infusion of cash into the stock market ? Right, people who are already in the market not the rubes who will be learning how to invest with their retirement money.

Yes, the adults have come up with another sound plan. If you don't mind I'll take my cookies now and leave.

-rc-

Until a real proposal is on the table "necessary overhaul", "system saving reform", and "wholesale destruction" are equally accurate.

Well, the first two terms mean something very different from the third. And since the ideas I've laid out have the advantage of being grounded in a) MSM reporting, and b) political feasibility, I'd say my characterization of the changes likely to be proposed are on solid ground, whereas your contention that the proposed "destruction" of Social Security is imminent sounds like a tract authored by Michael Moore. If you don't want significant changes, then argue away. But to quote a political hero of mine, when I hear words like "destruction" used in the context of the debate about reform of Social Security, I say "there you go again."

I'm not completely off-base, though. As long as there is no proposal to fund Social Security after PRA revenues have been diverted from it, it is destructive to the program.

As long as there is no proposal to fund Social Security after PRA revenues have been diverted from it, it is destructive to the program.

There won't be a proposal to fund Social Security, because we put in place just such a proposal back in 1937 when FDR was president. Because of this proposal's adoption, we already have an earmarked tax in place called FICA that funds Social Security. Unless the eventual proposal includes getting rid of the payroll tax (I'd love to see this occur, but it's certainly not going to) I don't quite understand what you mean about needing a proposal to fund Social Security.

As you know, the FICA tax currently takes in a lot more than the program needs. I think the surplus is currently running in the neighborhood of $150 billion. We could thus divert up to $150 billion annually and still have ample money left to send to current retirees.

Now, it is true than in a relatively short time, FICA will no longer cover Social Security's costs, and will have to be supplemented with injections of cash from general revenue. But this is the case even without changes to Social Security, when this cash injection becomes necessary in less than 15 years' time.

With reform of the system, the cash injection deadline will be upon us sooner. Perhaps in three or four years. But what's the big difference between having Social Security running in the red starting in 2018, or starting in 2009? Either way the political infeasibilty of letting old folks eat dog food means the necessary cross subsidy will occur.

At least with reform, we confront this daunting fiscal arithmetic sooner -- and we'll get over the fiscal hump sooner, as well (probably by the early 2030s).

1.  I'm sure you believe that.  But your believing it does not make it so.
   
2.  See below.  I'm sorry, but you've got the facts wrong.  Read the CBO reports.
   
3.  Your answer is the definition of ad hominem.  You know nothing about me.  Whether I have spent time in the world of business (I have, and continue to, by the way) is irrelevant to whether the facts are on my side.

As for whether "lawsuits jack up the cost of everything made and sold in America," I'm sure they do.  But how much, compared to the many other things that jack up those costs?  Enough to end hundreds of years of using tort law as a means of holding powerful people accountable for their actions?  And if so, why so selectively?  Why not bar corporations from suing individuals?  Or why not bar corporations from suing corporations?

I doubt whether the kinds of lawsuits Bush wants to ban are really that important.  Economists call many of the things that jack up costs "externalities," and there are lots of them.  For example, people and firms dumping pollutants into the ground without fear of regulatory punishment or legal retribution jack up the costs of doing business in virtually every community in America because the rest of us have to clean up after the dumper.  Ask anybody involved in real estate development, or economic development, people who try to bring businesses and jobs to communities.

Bush singles out and focuses on lawsuits and lawyers because it is politically convenient, not because it will make health care better.  We all love to hate lawyers.  (How many lawyers does it take to shingle a house?  It depends on how thin you slice them.)  So blame the lawyers for the health care system meltdown that Bush continues to do nothing to resolve, and Bush is absolved.  The problem continues, and his supporters are filled with righteous anger toward lawyers.

Again, it's funny in a sad kind of way.  The politician distracts us by yelling, "Look!  It's Elvis!"  And we all look.

All of the reform comes from increased taxes or decreased prospective benefits. The PRAs increase the federal deficit and, eventually, may decrease Social Security outlays.

 There simply aren't enough taxpayers to fund the liability.

Social Security started out with something like 35 taxpayers per retiree. Today, it is three.

Why is it we have been able to endure a ten fold decrease in the worker to retiree ratio, and yet you are worried about going from three to one and a half workers?

Instead of money, what is in the SS trust fund is IOU's.  The government has been borrowing against that fund, which was wisely established in the 80's, to fund other operations.

That is the problem with the whole "trust fund" myth. Just what is the government supposed to do with excess FICA dollars?

1. Buy Treasuries. This is what has been done so far. This is clearly and reasonably intepreted as funding current spending with FICA dollars. Ok.
   
2. Buy something else. Like what? What could the government buy today that could be converted into spendable cash in 40 years? Stocks?
   
3. Ok, so lets say they buy stocks. What happens if the government is running at a net (current account + SS) deficit? (That is today's scenario, BTW). That means that the goverment is borrowing money in order to buy stocks.

I wish one PRA advocate would explain how that makes sense. It doesn't. It is absurd. Please explain how, from a macro-economic perspective, the nation can increase its overall pool of wealth by borrowing money and investing it into stocks.

As for those leftists who persist in ignoring the truth about the retirement savings crisis, that's as it should be - go on your merry way, and leave the challenge of reform to the adults.

For someone who aspires to be considered one of the "adults", that is a rather juvenile comment. You sound like a Democrat after the Bush re-election: Unable to understand how someone could possibly disagree with your view, you resort to personal attacks.

For what it is worth, I am no leftist, but I think PRA's are a disasterously bad idea.

The status quo of Social Security is not sustainable. End of debate. Under the current model, if you plan to retire in 2018, 2047 or 2078, either your benefits will have to be significantly cut, or your taxes will have to be significantly increased. There are no other choices for maintaining the status quo. While Dems and the AARP wallow in unrealistic fantasies about maintaining a 1930's government program, 21st century demographics and resulting economic realities are speeding toward us like Clinton on a campaign donation.

Are you willing to impose the oppressive taxes on your children and grandchildren that are sufficient to fund this depression-era scheme? As someone who is within 15 years of retirement, I am not. Thank God that GW and the Repubs are politically willing to propose a viable alternative.

The status quo of Social Security is not sustainable. End of debate.

That has been the conventional wisdom because alot of people have been saying it, but it's really not true.  Social Security has its own funding source, which covers its obligations until about 2053.  It has the U.S. Treasuries to prove it.  Those bonds are the same as those held by investors foreign and domestic.  The problem is the unsustainable spending and tax cuts for the rest of government spending.  The Social Security surplus just hides some of the fiscal irresponsiblity of the rest of the budget.  That's the real problem.

"On a pure cashflow basis, Social Security will be running in the red by the end of the next decade  because the receipts from the FICA tax won't be enough to cover the checks of the program's recipients."

Yes, that's right.  That's why, 20 years ago, we adjusted FICA to create the trust fund so that we could fund the obligations of SS through the boomer retirement years.

"This would still be the case even if President Bush hadn't cut taxes by a single penny."

Also true.  If we had a 100 gazillion dollar surplus in the general budget, it would still be true.  SS and the general operating budget are, by law, separate.  

The issue with the President's tax cuts is that they put the federal operating budget into a very, very significant deficit, which will make it difficult for the general budget to pay back the money it's been borrowing from the SS trust fund.

"The FICA tax's inability to cover Social Security's costs is entirely a matter of the exploding costs of the program itself. And that exploding cost is entirely a matter of demographics"

Right again.  The boomer retirement bulge is the demographic in question.  And, as long as the treasuries are repaid, the shortfall in FICA receipts will be made up for by the trust fund money.

"What the opponents of reform really mean (although they use misleading language) when they complain about Mr. Bush's tax cuts is not that the tax cuts undermine the program's own finances; what they mean is that Mr. Bush's tax cuts impede our ability to inject cash subsidies into a program whose own finances are being rendered unsound by structure and demographics"

Repaying a loan is not "injecting cash subsidies".  Try convincing your bank that you're doing them a great big favor by paying your mortgage.

Here's the deal:

1.  20 years ago, we recognized that SS was gonna come up short.  This would be a temporary situation, caused by the boomer retirement.  We started saving for it.
   
2.  Folks began noticing the big fat surplus in SS money and decided to borrow against it to fund other operating costs.  Was this kind of a shell game?  Yes, it was, but not on the part of the SS program.
   
3.  In about 15 years, it's gonna be time to start dipping into the trust fund to fund SS obligations.

Uh oh!!  That means we have to pay back those treasuries.  I know, let's say that it's really SS that is causing the problem, and "reform" it so we don't have to deal with the financial shambles that is the federal general operating budget.

Sorry, man, but the problem is not SS.

If you want to say (as some have) that the government fundamentally has no business being in the retirement and disability benefit game, go ahead and put the legislation on the table.  But, the pitch we've been hearing about the "crisis" and "need for reform" is hogwash.

Cheers -

Reading this thread makes me wonder where the usual cast of RedStaters have gone.  It seems that when it comes to Social Security, RedState has gone blue.

Just for the sake of everyone, could someone please list some legitimate resources that argue both sides of the problem?

There's enough fantasy here to satify a Tolkien convention. But I'll focus on this one little gem so I can get back to my Celtics game:

In about 15 years, it's gonna be time to start dipping into the trust fund to fund SS obligations.

Oh really? We can start "dipping" into the "trust fund"? What trust fund assets would those be? The US Government deposits in Swiss bank accounts? The several trillion in equities the government owns?

We both know, that, your dismissals aside, "dipping into the trust fund" means exactly what I called it earlier: injecting cash from general revenue into Social Security. Again, this is what it would mean even if taxes hadn't been cut one penny, and even if we we're now on our eighth year in a row of total budget surplus.

Well, we did cut taxes (a good thing). And we did let spending get out of control (a bad thing). But neither of these items is responsible for the fact  that Social Security's underlying demographic architecture makes highly likely sharp increases in payroll taxes. And regardless of how one might wish the last few years had plaid out, the simple fact remains is that Social Security's cash flow will turn negative in a dozen years.

And with time, that cash flow hemorrhage turns real, real ugly. As the folks of Cato remind us (via Augustine):

In 2018, the first year that Social Security will run a cash deficit, that shortfall will be approximately $16 billion, or roughly the equivalent of the current budgets for Head Start and the WIC nutritional program. In another two years, Social Security's shortfalls will nearly exceed those two programs, plus the Departments of Education, Commerce, Interior, and the Environmental Protection Agency. By 2030 or so, you can throw in the Departments of Energy, Housing and Urban Development, and Veterans Affairs. And the biggest deficits would be still to come.

George Bush's tax cuts will be ancient history -- heck, they might even be long-since repealed or reversed -- when you and I (and our children) are asked to pay for the self-destructive, unsustainable entitlement program in question through tax increases, disfunctional government and lower living standards.

So, feel free to argue in favor of the status quo. I'll feel free to argue in favor of a move to a sensible, sustainable, longterm, cost-curbing approach that balances the needs of future graybeards like me with the actions necessary to provide for the common good. Future generations will thank me.

Well, we've been known to welcome a few Blue State minded-folks to these parts, in a spirit of friendly debate. But what you're seeing here, I reckon, is the way bees react when the queen is threatened. Social Security may no longer be the political kryptonite it once was, but it's very much still the crowning glory of America's version of the welfare state (indeed, even a fairly red state-oriented fellow like myself favors its continued operation, albeit with significant changes). So, any move, no matter how modest, away from the concept of state-guaranteed social insurance is met by cries of "Aux barricades!" from the Left.

right here.  Nearly all the usual sources assume one position and go from there rather than report all the angles. The unhealthy red-blue polarization of politics today make it difficult to get all the data needed to develop an informed position.  

You have just explained why the combination of tax cuts and out-of-control spending of the past few years were fiscally irresponsible. Under President Reagan, we changed the funding mechanism for Social Security to make certain that it would have the funds needed for half a century or more. It turned out that the good economy of the nineties not only stretched that, but allowed Republicans and Democrats to agree on a program to pay off the external debt. That program, as you note, has been shredded over the past four years. We are not paying down the external debt because of our current fiscal irresponsibility.

Now, it would take little effort to allow the Social Security trustees to sell their bonds on the market. The money was paid in for a specific purpose and, unless Congress changes the law, the money must be made available from general revenues to cover these trust fund debts. If Congress chooses to repudiate these nontrading bonds, it will have declared the US bankrupt.

We do not need an increase in payroll taxes, we certainly don't need the increase to fund further tax cuts for the wealthy. Yes, we may need to cut the increase in benefits a bit. We could increase the retirement age by an additional year or two over the next 3 decades, we could cut benefit increases to less than 100% of wage increases, as long as they are still greater than inflation increases. These are small and incremental. If we do that, the Social Security fund will remain solvent. Yes, the general fund would still have an oppressive debt to deal with but that debt was made worse by this President and those who have foresworn responsible governing. I don't think that "Social Security will go broke because Republicans cut taxes too much." is a very strong sales pitch for Republicans.

You warn us that Congress would repudiate these debts. It will not. No Congressman is that stupid.

freelunch has very kindly made my reply for me.  I've nothing to add.

Cheers -

As a blue person in a heavily blue region of a blue state, I appreciate the opportunity to have sensible discussions here with people who disagree with me.  Social Security is indeed something of which Democrats are very proud and protective.  We like the idea that nobody needs to die in poverty because they made the mistake of living too long.  Indeed, in a civilized society, that would have to be the case.  We aren't willing to let people die destitute as punishment for foolishly not saving enough money or making bad investment choices.  They would get bailed out, plain and simple.  So, government steps in with a national pension program.

There are a couple reasons for the Left's vociferous reaction.  For one thing, those of us in the blogsphere are educating ourselves about Social Security and realizing the conventional doomsayer's wisdom is bogus.  It isn't Social Security that has the funding problem - it is the rest of the government.  The second reason why we are jumping all over this is because we are now more familiar with Bush administration marketing strategy.  After seeing the Iraq / WMD marketing, it became clear (to those of us who weren't already suspicious) that the agenda is used to shape the facts on the ground, instead of the other way around.  In fact, if averting financial catastrophe were really the goal, Bush would be working on Medicare, which is seeing exploding costs and insolvency long before Social Security.  Basically, the only power Democrats have left (due to clever strategy on the Right and pitiful leadership on the Left) is to make alot of noise.

We've probably been commenting in this thread alot because Social Security is an easy target.  All of you true Red Staters are willing to admit that fiscal policy in the last four years has been horrific, so it makes it easy for us to point out the obvious that massive spending increases (and wars count, as that uses the same color money) and huge tax cuts don't mix.  That Bush himself promised not to touch the Social Security surplus four years ago pretty much makes our point for us that the money should be set aside but isn't.

Actually, I take that back.  I feel the need to reply to one or two things.

"What trust fund assets would those be?"

I believe that those are treasuries.  That is how the US government borrows money to fund operating expenses.  The SS trust fund holds those assets, just like anyone else who buys US government debt holds those assets.  Those assets are, as has been pointed out elsewhere on this thread, backed up by the full faith and credit of the US government.  Wanna renege on that?  Didn't think so.  Should the government have borrowed from the SS surplus to fund operating expenses?  Maybe not.  Too late.  That horse is out of the barn.

The trust fund was established because anyone with an inclination to do so could see the specific demographic problem presented by boomer retirement coming ten miles away.  The intent of the trust fund is to make up for the difference between expected FICA revenues and expected SS payments during that demographic bulge.  All projections I've read indicate that the assets held by the trust fund in the form of US treasuries are sufficient to cover this shortfall in revenue.

You are correct to note that, in order for the SS trust fund to convert the Treasuries into cash, it will have to redeem them.  That is, the US government will have to repay them to SS out of its general operating revenue.  Yep, that means higher taxes or a reduction in spending.  So, there is in fact a crisis, but it's not a crisis that was caused by SS.  It's a crisis that was caused by the mismanagement of US general operating money.  SS is doing just fine.  The general fund is screwed.  To avoid going completely off topic, I will leave aside the question of how that situation came to be.

The proposals on the table appear to have as their goal making the loan from the SS trust fund to the general operating fund into a gift, at the cost of SS benefits.  To make this palatable, the myth of the "SS crisis" has been invented.  That's fundamentally dishonest, and it pisses me off.

If you think SS benefits are too generous, put legislation on the table to scale them back.  But don't claim that it's the excessive generosity of SS that is creating the problem.

If you think the government shouldn't be in the business of providing retirement and disability benefits, put legislation on the table to get rid of it.  And, good luck to you.

But the idea that SS, on its own terms, is on the verge of collapse is a pile of crap.  SS is fine, the problem is in the general fund.  The idea that Bush is boldly confronting a crisis that noone else has the stones to face is a great big steaming pile of rancid horse crap.  Guess what?  There was a crisis, but other, more responsible folks have already faced it.  The deal is done.  Bush wants to undo it, for reasons that appear to include either an ideological distaste for entitlement programs, or a desire to cover his own sorry financial butt.  Maybe God appeared to him in a dream and told him that SS had to be reformed.  In any case, it's 100% unadulterated crap, and it's being presented dishonestly.  I'm sick of it.

We borrowed the money.  We have to pay it back.  Too late to second guess that.  And, no fair taking it out of SS benefits.  By law, that is separate money, dedicated for that purpose.

If I'm missing something here, fill me in.  If the best you have to offer is, "we'll have to raise taxes or cut benefits", that's no news to me.  We're living on debt.  By "we", I don't mean SS, but the general operating fund of the US government.  It sucks.  That's what happens when you live on debt.  If it bothers you, talk to your Congressmen.  Or your President.

Thanks for your time.  Hope you enjoyed the game.

Is this discussion about the financial condition of SS, or about a move, however modest, away from the concept of state-guaranteed social insurance?

This thread has presented itself as being concerned with the financial instability of SS.  As far as I can tell, that argument has no merit.

If you want to talk about whether the government should be in the business of providing state social insurance, put it on the table.  There's merit to that point of view, and I'd look forward to the discussion.

But, don't claim that my argument with the flimsiness of your factual argument is anything but that.  And, if your issue is a philosophical disagreement with state-guaranteed social insurance, don't pretend that your concern is really the fiscal health of the SS program.  SS is fiscally fine, thanks very much.

And, BTW, the reason SS is political kryptonite is that it's a program that people like, and benefit from.

You pick which argument you want to pursue, and I'll be happy to take it from there.

Thanks -

Reading this thread makes me wonder where the usual cast of RedStaters have gone.  It seems that when it comes to Social Security, RedState has gone blue.

Dude, maybe you need to stop seeing issues as red/blue and start looking to see if arguments just make sense. Maybe, just maybe, if people here are not enthusiatic about the SS proposals its because they're flawed. Contrary to what you may believe people have actual brains that are capable of deciding what's good for them regardless of what the Administration or RNC says .

Comment Rated: ( / ) (User Info) (#0)

And decide to opt out of social security or into PRAs if they want to.  Suggesting that eveyone needs big daddy state to hold their hand for everything from health care to retirement doesn't suggest you trust those folks with "actual brains" or unactual brains for that matter.

As a twenty-something, I find it hard to believe that a low-return (or no return) investment like social security will be around by the time I retire.  Why not let younger workers invest into a program similar to that of the federal Thrift Savings Plan so that they can get returns on their tax dollars that will exceed whatever pittance we may expect in 40 years.  The TSP has a very low overhead, and has produced positive returns in the long run.

I think a minimal safety net is a good thing, but social security shouldn't be the main source of income for retired Americans.  For the near future we should keep our promise to America's seniors, but I don't think it's fair, or fiscally prudent, to handcuff younger workers who can get a bigger bang for their buck from PRAs.

You warn us that Congress would repudiate these debts. It will not. No Congressman is that stupid.

No, I never said this, nor do I believe it. What I believe is that Congress will balance Social Security's books in two or three decades by drastically hiking the FICA tax. If history is any guide, I'm correct.

Privatization advocates that throw up the "no money left" myth argue that the Social Security trust fund is built on US government bonds that have become worthless.  As financial obligations of the US government, if those bonds are, in fact, worthless, it's because the entire economy of the United States is in the toilet...

No, the bonds are worthless in the sense that the holder of the bond (the lender) and the issuer of the bond (the borrower) are the same entity. There's no intrinsic economic value to the bonds. If you lend your neighbor $1,000, that loan is an asset to you, and at some point can be collected (and indeed can make money for you in the form of interest). If you lend yourself money, the loan can hardly be considered an asset.

Sidenote: one of the most ludicrous claims I've heard on this subject is the contention that Social Security could convert the special issue bonds it holds into regular bonds by selling them to third parties. Well, suppose for a minute Congress authorized such a sale, and the government sold $100 billion worth of Social Security Administration-held bonds to the governments of China and Japan. The entity issuing Social Security checks, the United States Government, would now owe $100 billion to China and Japan that would have to be paid back with interest. And the only place to get that money is the exact same place the government goes right now, and will be going in 2018: the US taxpayer, and third party lenders.

It would be just grand if the government's Social Security trust fund owned a couple of trillion dollars worth of Microsoft stock or Swiss Bank deposits. Unfortunately, your paycheck and mine are the only assets in that trust fund.

The SS trust fund holds those assets, just like anyone else who buys US government debt holds those assets.  Those assets are, as has been pointed out elsewhere on this thread, backed up by the full faith and credit of the US government.  Wanna renege on that?

Amos: The SS-held bonds are IOUs the government has written to itself, and as such have no intrinsic value. It would be just grand if the government's Social Security trust fund owned a couple of trillion dollars worth of Microsoft stock or Swiss Bank deposits. Unfortunately, your future paychecks and mine are the only assets in that trust fund.

But, at any rate, I'm not suggesting we "renege" on one penny of Social Security income promised to retirees. Indeed, I would hope (and I expect) substantial grandfathering to be included in any Social Security reform plan, and I would expect it the program to be voluntary for workers over, say, 40 (we'll have to wait for particulars; I might well oppose any plan that doesn't include these principles, because it wouldn't be fair). But if you're under 40, you'll have three decades to prepare for the slight adjustment in benefits you'll suffer.

The proposals on the table appear to have as their goal making the loan from the SS trust fund to the general operating fund into a gift, at the cost of SS benefits.  To make this palatable, the myth of the "SS crisis" has been invented.  That's fundamentally dishonest, and it pisses me off.

Don't know what you mean with your comment about a "gift". Even if every right winger in the country wanted to get rid of Social Security, it's politially infeasible (not to mention just plain wrong) to throw hungry old folks onto the streets. No proposal, I can safely predict, will touch one penny of guaranteed benefits from any current recipient. Any cuts in guaranteed benefits to people not yet retired will be modest. I may have mentioned this earlier, but someone in their late thirties, for instance, will still see something like 80% of what they would get under current plans. Is that really so draconian, especially when such a person (like me) will have nearly three decades to prepare, and three decades in which to contribute into a PRA? I'm constantly hearing quips from Social Security's defenders about their willingness to support modest measures to shore up the program. Well, here's your chance.

If you think SS benefits are too generous, put legislation on the table to scale them back.

Well, I hope that's part of what the legislation will be doing. Indeed, most media accouts point to a change in the benefits formula away from wage indexation.

But don't claim that it's the excessive generosity of SS that is creating the problem.

Well, by definition the relative level of generosity is part of the problem, whether you count wage indexation, or the refusal to reflect increases in lifespan in the retirement age, or what have you. Obviously changes to such elements of the program could make it far less costly.

But the idea that SS, on its own terms, is on the verge of collapse is a pile of crap.

I've never uttered the words "on the verge of collapse" with regard to Social Security, but we're both aware the program will be cash flow negative in another 13 years. At first, the necessary injections of general revenue (er, sorry, cashing in of bonds) will be modest enough, at about $16 billion. But they'll steadily grow larger. Much larger. So, while I might even agree with you about an imminent collapse being "a pile of crap" I'm afraid I've got very real reason to fear sharp hikes in the job-destroying, wage-reducing, FICA tax when the baby boomers are really at the public trough in full force. I think you seriously underestimate the strains this will put on our economy when you blithely and sunnily refer to it as "a temporary demographic bulge". By my estimates, lots of baby boomers will still be collecting Social Security 40 years from now. God willing, medical advances in the coming decades will mean that number is larger than anyone now suspects. We'd be well-advised to start getting some of the post baby boom retirees to accept benefits cuts as soon as possible, so the government can start seeing some savings. If we get a PRA/benefit plan passed this year, my guess is the government should start to see net savings by 2030 or so (by which time the excess interest costs associated with the transition will have largely been paid).

If you think the government shouldn't be in the business of providing retirement and disability benefits, put legislation on the table to get rid of it. And, good luck to you.

I don't have this opinion, Amos, and therefore have neither the need for the legislation, nor the luck. As I've consistently been making clear (but apparently not clear enough) I favor a continued role for government-guaranteed social insurance, just not one quite as generous in scale as perhaps you do. Hence, though I would be opposed to cutting the benefits of today's recipients (well, at least the non-rich ones), I think a slimming down of the guranteed future benefits for today's younger workers, along the lines of what's being reported, is desireable. Especially if they're allowed to build up bequeathable personal retirement accounts via a cut in the FICA tax they must pay. I really think you're letting your emotions run wild here.

PB -

Thanks for the measured and thoughtful reply.

Two things:

1.  "The SS-held bonds are IOUs the government has written to itself, and as such have no intrinsic value"

I think this is the heart of our disagreement.  I agree that the Treasuries held by SS are IOUs issued by the operating fund to SS, and so from government to "itself", but if they have no intrinsic value, then we have much, much bigger problems than SS.

2.  I have no problem with people making creative proposals to limit SS costs.  That includes adjustments to the benefits packages, although I think it will be, justifiably, a very hard sell.  What I have a problem with is the Bush approach of manufacturing a crisis out of thin air.  It's not there.

Cheers -

"social security shouldn't be the main source of income for retired Americans"

It's not.  Per the SS administration, SS retirement benefits make up, on average, 1/3 of retirees income.

"I think a minimal safety net is a good thing"

That's what it is.

PB -

Agreed that the ultimate source of funding for both SS and the general operating budget is the taxpayer, i.e., you, me, and probably everyone here on RS.

Here's perhaps a better analogy for the situation we face.

I have a 401K.  I fund the 401K by making regular monthly payments from my salary.  That money is earmarked for my retirement, and is kept and managed separately from the money I use to pay bills, run the house, and buy groceries.

At some point, I decide what I really need in life is a Hummer, a plasma TV, a second home in the mountains, and a nice vacation in Italy.  I don't really have the money for this, so I borrow a very large pile of cash from my 401K.

Uh oh!  Looks like I need to pay that 401K back loan between now and the time I retire!  Bummer!

I definitely have a problem now.  But, is the problem my 401K, or is it the way that I manage my household expenses?

Is the solution to scale back on my retirement plans, or to tighten my belt, start living within my means, and pay back the loan?

In either case, the money's coming out of my pocket.  The question is, what's causing the problem, and where is the appropriate solution.

Thanks -

A Treasury Bond is just another deferred I.O.U. which the Government (taxpayer) will have to redeem in the future.

The first SS recipient, Ms. Ida May Fuller, paid only $44 into SS, but recieved benefits of $20,934 over her lifetime. Ms. Fuller had 11 taxpaying workers supporting her benefits. Today, the ratio is 3 to 1. By 2025 it will be 2 to 1. And if current population growth projections remain true ..... it will be 1 to 1 by 2075. What level of taxation would it take to support a 1 to 1 ratio? 80%?

SS is a pay-as-you-go program. The tiny amount leftover after retirees (and non-retiree recipients) are paid goes into a "trust fund". This fund will soon be depleted.  What funding source will make up the difference in the future? 2 trillion dollars in government borrowing? If you want the status quo, you will either have to increase taxes on workers ...... or you cut the benefits of recipients.

It's time for a 21st century solution. 42 million Americans currently fund their retirements through 401K accounts. There is no logical reason why this same private sector solution cannot be applied to all Americans.

If you want to require people to put money into a retirement program, fine, but Social Security is not the retirement plan, it's the insurance.

It is the general fund that needs more revenue and less spending.

In either case, the money's coming out of my pocket.  The question is, what's causing the problem, and where is the appropriate solution.

Amos: I agree with this, bingo! Yes, indeed, it is true to say "the money's coming out of my pocket" (and yours).

I was focusing on the narrower point of the non-existence of intrinsically valuable economic assets held by the Social Security Administration. It is certainly possible that we can require ourselves to keep paying Social Security benefits under the status quo for another century (I and many others believe this will require huge increases in payroll taxes). It is also possible for us to change this system and pay less.

PB -

Yes, we agree.  I think we are in agreement on the basic facts of the matter, but disagree on what they mean, where the problem lies, and what the proper remedy is.

To rephrase the question from my analogy in terms of the situation at hand:

Does the problem lie with SS, for whose obligations we've already made provision?

Or does the problem lie with the management of the operating budget, whose debt load is partially underwritten by SS's surplus?

More specifically, if there isn't enough money to go around, is the best remedy to cut back benefits on a program (in fact a useful and popular program) that has made responsible provision for its obligations, or should the "spendthrift" side of the house be made to pull its weight?

And, I really, really insist that it's no fair claiming that SS is in crisis because we are obligated to pay back the money we've borrowed from it.

I think I've made the points I want to make on this issue (perhaps ad nauseum), I'll give you the last word on this if you'd like to make a reply.

Cheers -

More specifically, if there isn't enough money to go around, is the best remedy to cut back benefits on a program (in fact a useful and popular program) that has made responsible provision for its obligations, or should the "spendthrift" side of the house be made to pull its weight?

Amos: Well, I think the point about whether or not there's enough money to go around is a little beside the point. We can find the money. As I've written before, raising taxes ain't rocket science. But one thing I would mention is the fixation on the present time that many folks have, especially with regard to the current adminstration, in terms of this debate (I'm not singling you out). While it's true that the stock of external US government debt has increased by a lot since Bush took office (over a trillion?), I think his fiscal policies' influence on Social Security's longterm prospects are greatly exaggerated. It's simply difficult to predict how the economy will perfrom in, say, 2019, or 2026, 0r 2034. The current president cannot serve after January of 2009. We may well have significantly different fiscal policies in place in the near future. We may even have surpluses again at some point. I mean, as a percentage of GDP, the deficits of say, 1992, or 1983, were larger than today's, and indeed nobody was forecasting surpluses. Yet we got them a short time later. What I'm saying is, that, the extraordinarily expensive demographic trends looking us in the face will remain with or without George W. Bush's policies.

Now, the older I get, the less lengthy a period of 14 or 22 or 29 years seems. None of the years cited above seems all that far away to me. Taking steps -- modest steps -- now, will mean that, when we find ourselves having arrived at the year 2034, the worst will be behind us when it comes to Social Security finance. My vision would very much keep a social safety net in place, albeit at a level only about 4/5ths as generous for folks (like me) who will be starting to draw benefits at that point. Eventually the level of generosity of benefits would decline to about 3/5ths of what it is today. I think such a leaner program, combined with mandatory savings, is superior to the status quo's plan to increase by half, over the next four decades or so, the percentage of the economy devoted to retiree cash transfers.

Now, while such arrangements may not square with what The Powers That Be devised in 1983, I would ask you: who's in a better position to makes plans for the year 2034, people 51 years from that date (1983), or people 29 years from that date (us)?

More specifically, if there isn't enough money to go around, is the best remedy to cut back benefits on a program (in fact a useful and popular program) that has made responsible provision for its obligations.

Amos: your words above betray, to my mind at least, a certain romanticization of Social Security. When you talk about a program "that has made responsible provision for its obligations" it sounds like you (perhaps subconsciously) think of Social Security as a person, or as an independent actor, imbued perhaps, with moral agency ("atta boy, Social Security, you've really done the right thing!"). Thing is, while I agree with you that the program has its merits, and has helped millions of people, I honestly believe I simply take a less romantic, more objective view of the system. Sure, it has its merits. But it also has its faults: it's exremely costly; it takes money away from private sector actors who would use the money more efficiently (and so it hurts prosperity); it's financed in the most ludicrous fashion imagineable (in a manner that directly makes it more difficult for the economy to create employment and increase wages); it gives money to people who don't need it; it lowers savings; and finally, it renders the public sector's finances a hostage to demographics in a particularly pernicious fashion.

The proposals for reform being talked about are not perfect, but the basic concept has a certain elegance. I believe the transition costs are a price worth paying to arrive, in a few decades' time, at a new status quo that is better for the country as a whole.

Finally, having said all that, I'll conclude (looks like I've got some snow shovelling to do) by admitting I'm not betting the farm on the passage of reform this year. I like to discuss policy, but I've learned to live with dissapointment. Life goes on no matter whose views prevail.

Thanks for a spirited debate. -- P.B.

SS is a pay-as-you-go program. The tiny amount leftover after retirees (and non-retiree recipients) are paid goes into a "trust fund". This fund will soon be depleted.

The fund won't be depleted until 2053, which is not particularly soon.  The government's general fund is already depleted and running a huge deficit.  The problem is not Social Security, it's everything else.

If you want the status quo, you will either have to increase taxes on workers ...... or you cut the benefits of recipients.

Actually, if you want the status quo general fund spending, you know, for wars and agricultural subsidies and everything else, you have to increase taxes on somebody or stop spending all the money.

There is no logical reason why this same private sector solution cannot be applied to all Americans.

The failure of private accounts is that people are screwed if they have the misfortune to live too long and run out of money.  Social Security pools people together so everyone has insurance in case they live a long life.

It's all in bonds issued to the SSA. There is absolutely no money in the so called trust fund just issued bonds(IOUs). From the Heritage Foundation here and here. One from Allison Frasier and the other from David C. John.

I see very few options and less as time goes on.

They are here and here.

Geez, guess I screwed that up. Sorry.

-hides in embarassment-

"The failure of private accounts is that people are screwed if they have the misfortune to live too long and run out of money.  Social Security pools people together so everyone has insurance in case they live a long life."

There you go.

Cheers -

Gordo -

Noone's disputing that.

It seems to me that, with few exceptions, most folks on this thread agree on the basic facts at hand.

1.  Social Security payments will start exceeding receipts sometime around 2018.  This will primarily be due to the retirement of the boomers.
   
2.  Back in the 80's this was foreseen, the FICA withholding was increased, and a trust fund was set up to hold the surplus to fund the projected shortfalls caused by boomer retirement.
   
3.  The US general operating fund (by law, a separate bucket of money) has been, wisely or not, borrowing against the SS trust fund.  The SS trust fund now consists mostly of US debt.
   
4.  To pay back the T-bill debt to the social security trust fund out of general operating expenses, as will be necessary to fund the FICA receipt shortfalls starting around 2018, we'll have to cut operating expenditures or raise taxes.

So far, I think everyone pretty much agrees to this set of facts.  Some make the argument that the financial picture for social security is not quite as rosy as this would indicate, but I think everyone agrees that if the debt held by the SS trust fund were converted to cash, the SS "crisis" would be much further off than 2018.  As in, 20 or 30 years further off, far enough off that the SS "crisis" pales in comparison to other issues.

The parting of the ways comes in discussing the remedy.

Most of the "blue state" folks here, including myself, argue that the proper remedy is for the general fund to pay back its debt and let social security proceed as originally planned.  Speaking for myself, I think SS is a sound and useful program, is pretty efficiently run, and provides a real benefit to a lot of people.  I understand that some folks don't like entitlements on principle, but in practical terms I think SS is a winner.

Most of the "red state" folks here seem to be arguing that a tax liability is a tax liability, and we should entertain scaling back SS so that the need for the SS trust fund to redeem its debt either goes away or is not so severe.  Please correct me if I'm misunderstanding this.

As noted above, there are also some who just don't like federally mandated and funded entitlements on principle, and would prefer to have the cash to invest as they see fit.  This is a totally defensible point of view, but in this case is not one I agree with.

Nobody is disputing that most of the assets held by the SS trust fund are in the form of US debt.  I dispute that the solution to that problem is to not repay that debt.  If that is the means by which fiscal discipline is restored to the general fund, so much the better.

BTW, since when is a receivable debt not an asset?

Cheers -

The surplus is the difference between Social Security receipts and expenditures, which is about $160 billion per year.  Before Bush came into office, most of it was actually being used to pay down the debt, and Bush promised to continue doing that.  The Social Security IOU's definitely exist, just the same as all the IOU's our government has given to China and Japan for buying our bonds.

I see very few options and less as time goes on.

Then we better stop spending like a druken sailor and cancel Bush's tax cuts to bring the general fund back in balance.  Last year, the general fund was about $570 billion in deficit, while Social Security was in surplus.  And we're supposed to believe Social Security is the problem?

Amos:

I haven't followed this thread at all, but I saw your last comment.  The current system screws those who don't live long which is disproportionately the poor and minorities.  One could see the current system as an "insurance" scheme.  But it could also be seen as a regressive tax or as a redistribution scheme from minorities to whites.  Just thought another perspective might be worth your while.

I think everyone agrees that if the debt held by the SS trust fund were converted to cash the SS "crisis" would be much further off than 2018

Actually, if the "trust fund" were converted to cash, inflation would run rampant.

I know I am beating this horse to death, but there is no "trust fund". There can't be a "trust fund".

The fact that there is this entirely artifical (and macro-economically meaningless) distinction between Social Security and the general fund is...well meaningless. The government is engaging in a completely arbitrary accounting process: One account runs a deficit and the other runs a surplus and they offset.

Why all this lamenting about how the "trust fund" has been raided? Seriously, what else is the government supposed to do? Where is the Social Security system supposed to put the money, other than into Treasuries?

When individuals save, the economically meaningful event is that consumption is deferred. In the process, funds are made available for investment in 'something' (like new plant and equipment, R&D, whatever) that would not have been funded otherwise. As a result, overall economic growth will occur.

I am willing to entertain that that process can scale up for an entire country (although I am skeptical. I am still concerned that there are natural limits to the amount of securities that a nation can collectively own. At some point, I don't see how the country can maintain liquidity in the face of unlimited investment ownership). However, the one thing that is still central to the process is that current consumption be deferred. Without that, what is really happening?

Follow the flow of dollars: "Paul" works at his job. At the end of the week, $25 (to pick a number) is withheld from his check and deposited into his PRA. At Paul's direction, that $25 is invested into an S&P 500 index fund, thus increasing the pool of equity money that is in the market.

On the other hand, that $25 is no longer available to the feds. But since they are running a deficit, they need to replace it. They replace it by borrowing money from Peter. So, now the country has a liability (the $25 loan from Peter) that directly offsets the $25 that Paul put in the market.

Do we have any reason to assume that economic growth will result from this set of transactions? Simply put, the answer is no.

Again, the point is this: Saving does not occur because someone buys stocks. Saving occurs because someone defers consumption, thus translating the real wealth created by today's economic activity into the potential for productivity growth in the future. For individuals, this is more or less automatic. No bank is going to loan you unsecured money to fund a 100% leveraged margin account, and few investors would be foolish enough to want to. But for the US Government, with its nearly unlimited borrowing power, things are different. Unfortunately, just because the government can borrow money to invest in the market, it does not follow that doing so will make sense.

BTW, since when is a receivable debt not an asset?

Answer: When the debtor is the same as the creditor.

A receivable is an asset to the creditor because, to the creditor, it represents a net transfer of money coming his way. It represents an economically meaninful transaction that, when it occurs, will result in an increase to his cash account.

But in the example at hand, no such economically meaningful transaction occurs as the creditor, the US Government, will not realize a net increase in cash. This is because not only is the US Government the party receiving the money (when the bonds are redeemed), the US Government is also the party paying back the money.

 You did not mention the affect of 1:1 worker support for SS recipients. In 2053, Americans will not accept the imposition of required taxation that will be dictated by this Keynesian solution to 1930's concerns. The thought that the status quo of SS can be maintained at the expense of spending on of national defense, infrastructure, and other forms of social assistance is ludicrous. The original intent of SS was to provide "supplementary" assistance, not to expand into full retirement funding.

There is a looming "funding gap" that will have to be addressed. Most Democrats will want to apply the "Ted Kennedy solution": Raise taxes, pretend the system is fixed, pat each other the back for a job well done, do a media blitz extolling the fine and compassionate work they've done, and leave the real work to the  next generation.

PFA's may not be the ultimate solution, but they are a step in the right direction for maintaining this behemoth program. Individuals must be accountable for funding the majority of their own retirements. The economic prosperity of our children, grandchildren, and this country are at stake.  

In 2053, Americans will not accept the imposition of required taxation that will be dictated by this Keynesian solution to 1930's concerns. The thought that the status quo of SS can be maintained at the expense of spending on of national defense, infrastructure, and other forms of social assistance is ludicrous.

Actually, if we could say such things with certainty, I'd be less adamant about the need for reform. One could argue that arbitrary, unplanned, drastic cuts in Social Security benefits would be a perfectly legitimate policy response to the yawning gap in Social Security funding that will begin to emerge by the end of the next decade. In a mere 25 years or so, that gap wil really begin to open up and smother other parts of the budget. But Americans are far too fair-minded a people to take a cudgel to the benefits checks of old people; and, even if they were this ruthless, putting the neccesary votes together would be difficult.

My big fear is that, in 2053 (or, actually, a lot sooner), Americans will accept sharply higher payroll taxes, or, more accurately, they'll have them forced on them by the government and the powerful elderly lobby (heck, in another 25 years or so I'll almost be a member of the old folks lobby myself, and I can assure you I know how to bitch and moan!). There's no better job destroyer known to man than the FICA tax. This concern is my biggest single reason for supporting a reform that trims future benefits (in exchange, of course, for  PRAs).

Doverspa -

Good point, I hadn't thought of that.

I also note, and agree with, your comment about the regressive nature of FICA.  Personally, I'd like to see the $87K cap lifted and the rate adjusted downward.

I think SS was meant to be, as is best thought of as, retirement and disability insurance.  Lots of folks now treat it, and think of it, as part of their retirement investment portfolio, which I think is part of the problem we're facing now.

Thanks for your comments, I appreciate it!

Cheers -

Jeff and PB -

Thanks for the excellent and thoughtful replies.

It's apparent to me that I've achieved the limit of my grasp of economics in the large.  It appears to me that my way of thinking about this -- reasoning up by analogy from personal finances -- is probably not the best way to get a useful understanding of the issues.

I'm gonna check of active debate here and just audit, in the hope of learning something.

Thanks again.

Cheers -

part of the investment portfolio, but they surely are encouraged to think of it as the first part of their retirement plan.  Any retirement planning worksheet starts with estimating living expenses, subtracting the estimated SS benefit, and begin retirement planning from there.

Because the data I have from the SSA shows that 53% of Americans depend on SS for 90% or more of their income.  

http://www.socialsecurity.gov/pubs/10055.html#difference

Here's my compromise attempt at bipartisan reform.

1. Lift the $87K cap to end the regressive nature, but leave it a flat tax.  So Democrats can say they are making the rich pay their fair share.
   
2. Allow (only by choice) workers to divert up to their 6.2% allotment into a PRA for long-run sustainability while lowering guaranteed benefits.  So Republicans can tout the ownership society.
   
3. Index benefits to inflation instead of wages.  So both sides can claim they are being responsible.

I generally believe this reform can only happen if significant numbers on both sides agree to it.  Amos and the other center-leftists, I'd like to hear your view on such a compromise legislation.

Once the $87K cap is lifted #3 might not be necessary at all.  Someone else also suggested, because SS is an insurance program, that those who don't need it should not receive benefits, but that might conflict with your #1.

The fact that there is this entirely artifical (and macro-economically meaningless) distinction between Social Security and the general fund is...well meaningless.

It is common accounting practice to designate certain funds for certain purposes, even funds within the same account.  The federal government does this all the time when it gives money to the states: it says X funds must be used on Medicare; Y funds for federal highways, etc.  States have similar accounting, such as requiring gas tax revenue to be spent on highways.  Just because all the money belongs to the federal government doesn't mean it can be spent in an arbitrary way.  Just because one part of government owes bonds another half must redeem doesn't mean the bonds don't have to be paid back like any other bonds.

Working class people have been hit disproportionately hard by the payroll tax with the promise that the money would be there for them after they retired.  To then turn around and pull the rug out from under them and say the money will be spent on tax cuts for the wealthy, wars, or whatever else is a breach of trust as well as accounting practice.

It is common accounting practice to designate certain funds for certain purposes, even funds within the same account

I agree, but it is also true that no congress can tie the hands of a future congress. There is no legal way to prevent congress in 2020 from spending money in a way that is contrary to today's wishes.

To then turn around and pull the rug out from under [the working class] and say the money will be spent on tax cuts for the wealthy, wars, or whatever else is a breach of trust as well as accounting practice.

I agree in principle that the working class is getting screwed by the PRA proposals, but I disagree that spending the "trust fund" is in and of itself the problem.

As I mentioned above, what else is the government supposed to do with excess revenue? Money is fungible. You can try to "colorize" dollars by designating some for one purpose and others for another, but the only thing that is meaningful in the end is the aggregate total. The government takes in so many dollars and spends so many dollars. As long as the total being spent is greater than the total being brought in, none of these proposals will work.

Please...

1. What would you and your friends do? Are you going to rely solely on Social Security when you retire? If you aren't, why not?
   
2. The CBO? Really? Well that settles THAT.
   
3. Whether you have spent time in business is entirely relevant to the tort discussion. You say you have, and I would be interested in knowing in what capacity. If it were "business owner", I would be assured that your opinion is grounded in experience, and would be worthy of consideration as a "fact".

Let me give you this example. In Chapel Hill, NC, a man was diagnosed as bipolar, and given medication. He did not take this medication, had a psychotic episode, and killed several people on Franklin Street in broad daylight. After several years, he sued his doctor for not making sure he took his pills, and WON $500,000.

Now - do you think that psychologists in Chapel Hill are quick to hospitalize someone who shows any sign at all of a psychotic episode? That the slightest mental illness is medicated to the point of absurdity in order to "cover all the bases"? That malpractice insurance rates increased? Do you think for one minute that costs to the health care system are reduced by this lawsuit? Is health care made better, or are scarce resources utilized improperly?

Tort reform is not the end of the health care crisis, but it sure as hell is the place we ought to start.

Good lawyer joke, by the way.

An overblown promise that is fast evaporating.

The federal government was doing exactly what it should have been doing: paying down the federal debt. The current failure to pay it down reflects on policy decisions of this administration. If there is a 'funding crisis' it was created by the unsustainable tax cuts of the past four years.

You are right, that the government should be using the current FICA surplus to pay down the aggregate debt. I should be more clear: When I say that the government has no alternative but to loan FICA surplus money to itself, that is only true in the context of aggregate deficit spending. If the government were running an aggregate surplus, then the right and proper thing to do would be to pay down the debt.

Unfortunately, that point is probably moot for at least the next ten years.

As to your other point (that the funding crisis was created  by tax cuts) I don't agree. The crisis is one of out of control spending.

If you're spending more than you are taking in, it's not a good time to quit your job.

If you want to cut taxes, you cut spending. You don't increase it.

I don't care too much what mix of tax increases and spending cuts happen to balance the budget, but I'll bet that we won't get a balanced budget any time soon. Apparently Congress and the White House really think there is a free lunch.