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[Mandark]

Social Security is a government program to keep US citizens from being poor when they get old. You pay a tax when you work and then get money when you retire. It's sort of like collective savings, except the program has always been pay-as-you-go. Basically, this means instead of setting aside the money that workers pay in taxes, then giving it back to them when they retire, current workers pay taxes which are paid out to current retirees.

Payroll Taxes:

Social Security is paid by payroll taxes. You pay 6.2% of your income, and your employer matches that amount. This is a flat tax rate up to $90,000, after which you pay nothing (the cap is adjusted annually, I believe). This revenue is only for Social Security (there is a similar tax for Medicare; these two make up the FICA taxes on your pay stub). It is not like income taxes, which go to the general budget and can be spent on whatever Congress votes it should be spent on. It is also not progressive, like income taxes (that is, you don't pay a higher percentage as you get richer).


Greenspan's Commission and The Trust Fund:

Back around 1982, Social Security was running out of money. So they put together a commission to study the issue and suggest a solution. Alan Greenspan was the head. The commission said that the retirement age should be gradually raised, and FICA taxes should be raised. The recommendations were generally followed, passed by Congress, and signed into law by president Reagan.

The idea was that Social Security would run a surplus, and that gradually it would build up a big pile of cash, so that when the baby boomer retirement crunch came, it would have the resources to deal with it. This is what people mean when they talk about the Trust Fund.

The money of the Trust Fund isn't sitting in a massive vault, a la Ducktales, though. The SS surplus was invested into US Treasury Bonds. Which is a very safe investment that is pretty much guaranteed, assuming we're not invaded by Belgium and our government is toppled.

Except that when the Social Security Administration buys bonds from the Treasury Department, that money is counted in the unified budget. What does that mean? That means that some of the FICA taxes which are for social security have counted as revenue for the federal government. When they say they're running a $412 billion debt, they mean that they're $412 billion short AFTER counting surplus SS revenue that's not really theirs.


The Baby Boomer Crunch

President Bush mentioned two dates in his State of the Union speech: 2018, when "Social Security will be paying out more than it takes in," and 2042, when "the entire system would be exhausted and bankrupt." Where's he getting this and what does he mean?

First of all, he's using estimates by the Social Security trustees, who analyze oodles of economic data and create projections of what this means for the program's finances.

2018 is the date when Social Security would start paying out more than it takes in. At this point, it would have to start dipping into the Trust Fund, which means cashing in Treasury bonds. That means the unified budget will have to start paying.

2042 us the date when the Trust Fund runs out. At this point, Social Security would only be taking in about 75% of what it would need to pay out the current promised benefits.

HOWEVER, these dates are far from definite. The Congressional Budget Office has its own set of estimates (2020 and 2052, respectively). Also, the trustees have pushed back the dates several times. In fact, in the last ten years, without any changes being made in Social Security, the date when the trust fund is exhausted has gotten farther away:

I'll follow this up with a rundown of the Bush talking points and private accounts proposal, but this is already a bunch of writing for this late an hour.

 

[Greenpanda]

I guess this is a pretty dumb question, but I'm no economist:

What is the overall advantage to/purpose of having Social Security? I realize that a huge argument against tweaking it now is the fact that a lot of people have been paying it into for decades. But I guess I'm a little confused about why we need it in the first place. What's the point of having a huge system set up just so that people can pay into the system and then get that money back later? What's being accomplished? Why not just let them keep the money to begin with; the result should be the same in the end, right?

I understand one argument is that people are too irresponsible with their money and need Social Security to ensure that they have anything left by the time they retire. Are there others?

 

[JoshuaJSlone]

I understand one argument is that people are too irresponsible with their money and need Social Security to ensure that they have anything left by the time they retire. Are there others?

A main thing would be that it was an advantage to those who really needed it when it was first implemented, and from there the continuation only makes sense. If workers were helping out the old poor folk in the 30s and 40s, I'm sure they wouldn't be so pleased if they didn't get "paid back" when they reached that age.

As for why it was deemed necessary at the time, here's a bit I copied from Wikipedia:

But the ill is all one or at least not greatly different whether men are thrown out of work because there is no longer work to do or because the disabilities of age make them incapable of doing it. Rescue becomes necessary irrespective of the cause. The hope behind this statute is to save men and women from the rigors of the poor house as well as from the haunting fear that such a lot awaits them when journey's end is near.
...
The evidence is impressive that among industrial workers the younger men and women are preferred over the older. In time of retrenchment the older are commonly the first to go, and even if retained, their wages are likely to be lowered. The plight of men and women at so low an age as 40 is hard, almost hopeless, when they are driven to seek for reemployment. Statistics are in the brief. A few illustrations will be chosen from many there collected. In 1930, out of 224 American factories investigated, 71, or almost one third, had fixed maximum hiring age limits; in 4 plants the limit was under 40; in 41 it was under 46. In the other 153 plants there were no fixed limits, but in practice few were hired if they were over 50 years of age. With the loss of savings inevitable in periods of idleness, the fate of workers over 65, when thrown out of work, is little less than desperate. A recent study of the Social Security Board informs us that "one-fifth of the aged in the United States were receiving old age assistance, emergency relief, institutional care, employment under the works program, or some other form of aid from public or private funds; two-fifths to one-half were dependent on friends and relatives, one-eighth had some income from earnings; and possibly one-sixth had some savings or property. Approximately three out of four persons 65 or over were probably dependent wholly or partially on others for support.

 

[Hitokage]

I guess this is a pretty dumb question, but I'm no economist:

What is the overall advantage to/purpose of having Social Security? I realize that a huge argument against tweaking it now is the fact that a lot of people have been paying it into for decades. But I guess I'm a little confused about why we need it in the first place. What's the point of having a huge system set up just so that people can pay into the system and then get that money back later? What's being accomplished? Why not just let them keep the money to begin with; the result should be the same in the end, right?

I understand one argument is that people are too irresponsible with their money and need Social Security to ensure that they have anything left by the time they retire. Are there others?

First, money is pooled. How much you get is not directly porportionate to how much you put in. Second, the US Government going belly up is far less likely than any individual company or bank. Such events wipe out the retirement of thousands through no fault of theirs.

 

[Greenpanda]

First, money is pooled. How much you get is not directly porportionate to how much you put in. Second, the US Government going belly up is far less likely than any individual company or bank. Such events wipe out the retirement of thousands through no fault of theirs.

OK, those make sense. Thanks.

 

[Jesiatha]

Payroll Taxes:

Social Security is paid by payroll taxes. You pay 6.2% of your income, and your employer matches that amount. This is a flat tax rate up to $90,000, after which you pay nothing (the cap is adjusted annually, I believe). This revenue is only for Social Security (there is a similar tax for Medicare; these two make up the FICA taxes on your pay stub). It is not like income taxes, which go to the general budget and can be spent on whatever Congress votes it should be spent on. It is also not progressive, like income taxes (that is, you don't pay a higher percentage as you get richer).

This is my #1 problem with social security. It's already a sort of personal savings account - your yearly contributions are capped and your benefits are tied to how much you contributed. If it is supposed to be a safety net, why don't they lift the $90K cap (and probably drop the rate a percent or two) and also allow everyone to draw similar amounts?

I make a decent amount of money, but way more is paid on my behalf in FICA taxes than in federal income taxes (remember to double the amount of FICA because your employer pays an additional 6.2% before your paycheck is computed). For the poor up to some in the upper middle class, you pay a small percentage in federal taxes but still pay ~15% in FICA. What a ridiculously regressive forced savings plan. This punishes the poor far more than Bush's tax cuts (which only worsened the problem).

 

[VictimOfGrief]

So by 2042, I won't have to pay SS tax anymore?!?! YAY!

 

[Azih]

How is the amount of money you get back when you're old determined? by the amount you put in?

 

[KingGondo]

On a side note, a highly skilled opponent to Bush's plan is Paul Krugman--columnist at the New York Times.

I encourage everyone to read his columns. Here's a link to his page at the NY Times:

Paul Krugman

 

[Drozmight]

damn, I'll be ~60 when it goes belly up... damn it all to hell.

 

[JoshuaJSlone]

damn, I'll be ~60 when it goes belly up... damn it all to hell.

Even when we're old and needing money for our PS9s we'd still get a majority of what we'd expect to, even if no minor measures were taken to fix things in the next 50-ish years.

 

[Phoenix]

damn, I'll be ~60 when it goes belly up... damn it all to hell.

There isn't any 'real' threat of the system outright collapsing/going bankrupt - it simply wouldn't be able to pay out as much. Currently the amount that is paid out is adjusted with a cost of living adjustment to account for inflation and other such things. There is one way to quickly improve on the deficit problem - remove the earning cap. Currently only the first 90K of your earnings are subject to social security taxation. I'm not sure how they arrived at thius number, but it is fairly arbitrary and should just be removed altogether. This alone would go a LONG way to dealing with the deficit and is no where near as risky as privitazation or anything else. It is one of the 'low hanging fruit' solutions to the problem that make more sense than 'upping the retirement age'.

 

[McLesterolBeast]

The system isnt doomed so much as it is bound to have a deficit at some point. Who pays for the deficit is what's at stake.

The GOP proposal gradualizes the deficit over several generations, but for some reason imposes none of the cost on the current generation of retiries.

Switching from public to private is a separate issue from addressing the deficit. A public system, however, is no less sustainable now than it was when the system was first proposed. Once the deficit is accounted for, so long as population growth doesn't drastically decrease again, social security will be fine.

 

[Mandark]

How is the amount of money you get back when you're old determined? by the amount you put in?

Yes, though it's not directly proportional. You figure out the 35 years where you paid the most SS taxes, adjusted to current dollars. Then you take the average amount of SS taxes you paid per month in those 35 years.

From that per-month average, you get 90% of the first X dollars, 30-some percent of the next Y dollars, and a teen percent of the next Z dollars after that. Sort of the way taxes work, but upside down and flowing the other way.

The normal retirement age is 65, being phased up to 67 gradually. You can choose to start receiving benefits at age 62, though they would be adjusted down. The initial benefits are adjusted by wage growth each year, and once you start receiving benefits, they are adjusted by inflation each year to account for the cost of living.

On a side note, a highly skilled opponent to Bush's plan is Paul Krugman--columnist at the New York Times.

Krugman's good. Too bad Dragona banned Ripclawe, or he'd come in here quoting Donald Luskin and we'd have some fun.

Currently only the first 90K of your earnings are subject to social security taxation. I'm not sure how they arrived at thius number, but it is fairly arbitrary and should just be removed altogether. This alone would go a LONG way to dealing with the deficit and is no where near as risky as privitazation or anything else. It is one of the 'low hanging fruit' solutions to the problem that make more sense than 'upping the retirement age'.

There is a Republican president and a Republican congress. I would bet my entire savings against any major policy problem being solved by a tax hike on the rich. That's just the way the party is operating right now.

What a ridiculously regressive forced savings plan. This punishes the poor far more than Bush's tax cuts (which only worsened the problem).

I think the flat/regressive nature of the tax is a main reason that Social Security has survived this long. If it were funded by other, more progressive taxes, there would be serious political pressure to end it by high-income people who would pay a lot into it, and wouldn't feel a need for its safety net.

Also, I disagree that Social Security punishes poor people. Because the payments to retirees are progressive, poor people get a higher benefit:tax ratio, and need each dollar of the benefits more than a middle- or upper-class person would.

 

[Loki]

Personally, I think they should uncap the maximum income taxable for SS. If we as a society have decided that SS is beneficial and necessary, then there's no excuse not to pay into it. Can I claim exemption from the portion of my taxes that go to welfare programs just because I myself will never need welfare? No, and rightly so; neither should rich people (or, more accurately, the politicians who represent the affluent) be able to decide which social programs they'll pay into. It smacks of a double standard to me. But maybe I'm wrong...


I understand the whole "they'll never need SS" argument, but I don't feel that it holds in the broadest sense, since many of us can claim similar things about what programs and causes our mandatory taxes go to. If it's deemed to be a proper program by society (which it has been or else it would have been eliminated), then all should pay into it for the good of society, same as for every other program.


At least up it to $1M or something instead of $90K. Mandark, do you feel that raising the limit would be a boon to the system? It would seem so, since you said that it's regressively beneficial (i.e., rich folks wouldn't be receiving SS payments when they retire which were proportional to their investment, but poorer folks would see payments higher than their investment). Is this the case?

 

[Triumph]

Whoa, Loki and I agree on a social issue? Mark this date on yer calendars, boys, girls, and boys pretending to be girls!

Oh, and Krugman's great. Check out the Great Unravelling if you haven't already.

 

[Incognito]

Personally, I think they should uncap the maximum income taxable for SS. If we as a society have decided that SS is beneficial and necessary, then there's no excuse not to pay into it. Can I claim exemption from the portion of my taxes that go to welfare programs just because I myself will never need welfare? No, and rightly so; neither should rich people (or, more accurately, the politicians who represent the affluent) be able to decide which social programs they'll pay into. It smacks of a double standard to me. But maybe I'm wrong...


I understand the whole "they'll never need SS" argument, but I don't feel that it holds in the broadest sense, since many of us can claim similar things about what programs and causes our mandatory taxes go to. If it's deemed to be a proper program by society (which it has been or else it would have been eliminated), then all should pay into it for the good of society, same as for every other program.


At least up it to $1M or something instead of $90K. Mandark, do you feel that raising the limit would be a boon to the system? It would seem so, since you said that it's regressively beneficial (i.e., rich folks wouldn't be receiving SS payments when they retire which were proportional to their investment, but poorer folks would see payments higher than their investment). Is this the case?

What the fuck....

...I agree with Loki.

I know, Raoul, it's scary.

 

[BuddyC]

How is the amount of money you get back when you're old determined? by the amount you put in?

First, money is pooled. How much you get is not directly porportionate to how much you put in.

.

 

[Loki]

What the fuck....

...I agree with Loki.

I know, Raoul, it's scary.

...the hell?


Everything I say is good sense. One day all of you clowns* will come around.


* "Clowns" here referring, of course, to Babyface Lonestar® and his handlers, not Raoul, who is merely a bit overzealous at times.

 

[Apharmd Battler]

Good info....

 

[Phoenix]

One thing I love is how the administration says that putting this 'private' money in personal funds would accrue money at a better rate than that used by Social Security. Well.... why not just take that money out of the system and invest it in those funds/securities IN the system. If there are better ways for the system as a whole to get a better return, invest the money in the system in such a way that it can get a better return. This is where the numbers start getting funny and the logic falls apart. What purpose is served by going to individuals and saying "hey would you like to invest your money in a better system" if supposedly this better system is already known... UNLESS (here we go) the risk of doing so is non trivial and there is a risk of devaluing the SS system in the process. In this case, why would we want individuals to do it?

The ONLY thing that is compelling about the Bush proposal is that you'd be able to leave that money behind to your family - which is something you can't do today and puts certain groups (particular black americans) at a disadvantage because they don't live to retirement age generally so never benefit from all the years that they have been pumping money into the system. I'm sure that will be the primary selling point when it comes time to pushing the Bush proposal to black america.

 

[Loki]

One thing I love is how the administration says that putting this 'private' money in personal funds would accrue money at a better rate than that used by Social Security. Well.... why not just take that money out of the system and invest it in those funds/securities IN the system. If there are better ways for the system as a whole to get a better return, invest the money in the system in such a way that it can get a better return. This is where the numbers start getting funny and the logic falls apart. What purpose is served by going to individuals and saying "hey would you like to invest your money in a better system" if supposedly this better system is already known... UNLESS (here we go) the risk of doing so is non trivial and there is a risk of devaluing the SS system in the process. In this case, why would we want individuals to do it?

The ONLY thing that is compelling about the Bush proposal is that you'd be able to leave that money behind to your family - which is something you can't do today and puts certain groups (particular black americans) at a disadvantage because they don't live to retirement age generally so never benefit from all the years that they have been pumping money into the system. I'm sure that will be the primary selling point when it comes time to pushing the Bush proposal to black america.

Nice insight.

 

[Incognito]

Thankfully, President Bush explained his plan in full yesterday. So I don't think this topic will be needed anymore.

Because the -- all which is on the table begins to address the big cost drivers. For example, how benefits are calculate, for example, is on the table; whether or not benefits rise based upon wage increases or price increases. There's a series of parts of the formula that are being considered. And when you couple that, those different cost drivers, affecting those -- changing those with personal accounts, the idea is to get what has been promised more likely to be -- or closer delivered to what has been promised.

Does that make any sense to you? It's kind of muddled. Look, there's a series of things that cause the -- like, for example, benefits are calculated based upon the increase of wages, as opposed to the increase of prices. Some have suggested that we calculate -- the benefits will rise based upon inflation, as opposed to wage increases. There is a reform that would help solve the red if that were put into effect. In other words, how fast benefits grow, how fast the promised benefits grow, if those -- if that growth is affected, it will help on the red.

Okay, better? I'll keep working on it.

Whew, after all that, clearly privatization is the ONLY way to go.

:lol

 

[bob_arctor]

Thankfully, President Bush explained his plan in full yesterday. So I don't think this topic will be needed anymore.



Whew, after all that, clearly privatization is the ONLY way to go.

:lol

What I find the most crazy is actually entertaining the notion of trusting Bush and his administration with even a penny of our cash. Happen to get a whiff of that budget "plan" he submitted?

 

[Karg]

Because the -- all which is on the table begins to address the big cost drivers. For example, how benefits are calculate, for example, is on the table; whether or not benefits rise based upon wage increases or price increases. There's a series of parts of the formula that are being considered. And when you couple that, those different cost drivers, affecting those -- changing those with personal accounts, the idea is to get what has been promised more likely to be -- or closer delivered to what has been promised.

Does that make any sense to you? It's kind of muddled. Look, there's a series of things that cause the -- like, for example, benefits are calculated based upon the increase of wages, as opposed to the increase of prices. Some have suggested that we calculate -- the benefits will rise based upon inflation, as opposed to wage increases. There is a reform that would help solve the red if that were put into effect. In other words, how fast benefits grow, how fast the promised benefits grow, if those -- if that growth is affected, it will help on the red.

Okay, better? I'll keep working on it.

Jesus christ that made my head hurt.

 

[Incognito]

What I find the most crazy is actually entertaining the notion of trusting Bush and his administration with even a penny of our cash. Happen to get a whiff of that budget "plan" he submitted?

Yeah, it's a goddamn joke. That thing is DOA.

MS. MORNIN: That's good, because I work three jobs and I feel like I contribute.

THE PRESIDENT: You work three jobs?

MS. MORNIN: Three jobs, yes.

THE PRESIDENT: Uniquely American, isn't it? I mean, that is fantastic that you're doing that. (Applause.) Get any sleep? (Laughter.)

:/

 

[Mandark]

Loki: Uncapping FICA would help. The question after that is whether the benefits would be uncapped, and if so, whether it would be an extension of the current bracket used to figure out benefits, or whether there would be a new bracket added.

In any of those cases, it would still help the system. However, it's basically a moot point. The leadership of the current Republican party will never attempt to solve a problem with a tax on the wealthier people.

Phoenix: The difference between black and white life expectancies has been somewhat overstated. A 65 year old African American has a life expectancy of a year and a half less than that of a 65 year old European American. Not to mention that any policy which benefits those likely to have shorter lives will hurt those likely to have longer lives (women, for example).

Besides, the basic idea of Social Security is not to make sure that people have a certain lump sum at the time they retire, but to make sure that senior citizens don't have to live in poverty after outliving their savings. The only way to ensure that with private saving is to buy an annuity, which won't pass on to surviving family members anyway.


On the subject of indexing benefits to wage increases or price increases: This is code for benefit cuts. The language used will be all about "adjusting the rate of increase," but in terms of buying power, it's a cut.

As society gets wealthier, certain things stop being considered luxuries. Adjusting by wage takes this into account. Adjusting by inflation would mean there was enough to eat, but probably not enough to get all those modern amenities (air conditioning, color television, heated water, flush toilet, internet access).


I get the feeling that Bush is sort of testing the waters for what he can and can't do. He hems and haws about all the things that are "on the table," never getting solidly behind anything than a vague idea of private accounts. That way, if anything sets of a firestorm, he can say "Well, I never said I supported doing that."

If he'd just set forth exactly what he thinks should be done, the loyal opposition such as myself would have a much easier time responding.