Social Security yet again!

[DanS]

Wall Street isn't too hot on it. They were wanting a system like the Brits have, where the Wall Streeters would get substantial fees. But the Thrift Savings Plan wouldn't benefit them much at all (indeed, it might hurt them marginally), so they have cooled on it.

[DanS]

We can just as well take them out of the general fund.

The problem with that proposal is that Social Security benefits are tied to the amount in taxes that you pay into the system. Paying benefits through the general fund would fundamentally alter the nature of the system.

[GePap]

Originally posted by DanS


The problem with that proposal is that Social Security benefits are tied to the amount in taxes that you pay into the system. Paying benefits through the general fund would fundamentally alter the nature of the system.

The amount you get from the system and how much you put in have not been in sync for decades- the only question has been whether you paid a certain minimum of payroll taxes, and if you did, you get the benefit. using general funds to avoid cuts in benefits, or having to raise a regressive tax would be just fine.

[Rufus T. Firefly]

The problem with Social Security, pure and simple, is that you get to collect it at 65, or 62, or even in some cases 60.

It shouldn't work like that. Social Security isn't a pension scheme, nor was it meant to be. It's an insurance scheme, designed to insure that if you don't have much money and are so old that you can't work anymore, you'll get some dough from Uncle Sam. You pay every year, regardless; if you make it to 65, you get to collect, and if you don't you're SOL.

The problem is that, when Social Security was started, making it to 65 -- especially if you were working-class -- was a bet that favored the house. So few men did it that it made SS make sense -- somewhat like fire insurance for homes. Two generations on, however, you have to be deeply unlucky or actively self-destructive not to make it to 65. The bet no longer favors the house. Nobody issues insurance under those conditions.

The solution is to return SS to what it was: insurance against getting old. But "old" needs to be redefined; the definition from the 30's is no longer adequate, and that's what's killing the system.

And if you don't want to work until you're 70 or 75? Then don't buy the SUV, the big-screen TV, the lotto ticket every day, and start saving instead.

[DanS]

I broadly agree with Rufus. Some of the money saved would just go toward disability instead, however.

Also, while today's new retirees can start drawing at ~ 66 years. I won't be able to draw until about ~ 69.

But all of the points stand.

[GePap]

I have no problems uping the retirement age: I have said that time and time again. That will save the system, not borropwing trillions of dollars for ideologically driven, economically unproven actions.

[Rufus T. Firefly]

As it happens, the UC census bureau has posted a comparison of the 1930 and 2000 censuses (censi?), which shows that average life expectancy in 1930 was 59.7 years, while in 2000 it was 77.1 years. Obviously, those figures are more useable if you break them down by sex and adjust for the dramatic drop in infant mortality. Nevertheless, you could say that SS was designed to kick in only after you'd lived 8-10% longer than you were expected to. Using those rates, the only people collecting SS now should be 80+ years old. We can afford that.

[Spiffor]

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[JohnT]

As it happens, the UC census bureau has posted a comparison of the 1930 and 2000 censuses (censi?), which shows that average life expectancy in 1930 was 59.7 years, while in 2000 it was 77.1 years...

What that essentially tells everyone who thinks about it is that Social Security was set up to collect taxes, not to pay benefits... or else why set up a retirement plan when the benefits kick in 6 years after you're dead?

[Rufus T. Firefly]

Originally posted by JohnT

As it happens, the UC census bureau has posted a comparison of the 1930 and 2000 censuses (censi?), which shows that average life expectancy in 1930 was 59.7 years, while in 2000 it was 77.1 years...

What that essentially tells everyone who thinks about it is that Social Security was set up to collect taxes, not to pay benefits... or else why set up a retirement plan when the benefits kick in 6 years after you're dead?

Because it's not a retirement plan!!!

It's an insurance plan. All insurance plans work on one (or both) of two assumptions:

1) Even if an insurance plan pays out more than was put into it, more people will buy insurance than will ever need it (the logic of fire insurance); or
2) People will pay for the insurance, year after year, and by the time they really need it the company will have profited from investing the interim payments (the logic of term life insurance)

Social Security started as scheme #1. Because it was allowed to mutate into scheme #2, the discussion has long been about how best to grow the money being held until the policy pays off. If it were to return to being a version of scheme #1, that discussion would be moot.

[JohnT]

Well, yeah. But try explaining that to a bunch of people when you propose raising the retirement age to 83.

[PLATO]

Originally posted by DanS
Yes. And let's consider the math you did. Right now, the increase needed for long-term solvency would be about $50 billion per annum. But consider that at least roughly half of the income you quoted is not subject to payroll taxes at all, since payroll taxes top out at $90,000 in income. $50 billion on $2.5 trillion is in the 2% range, not the 1% range that you quoted. Since social security payroll taxes are 12.4% of the first $90,000 in income, a 2 percentage point increase represents a 15% increase in the payroll taxes.

Then consider that this assumes that we fix the problem right now and start pre-paying 2 percentage points additional in payroll taxes in order to just stay above water (i.e., nobody's going to be getting any additional benefit). If we put off fixing social security, and end up with the same system that we have now, we will have to pay very roughly 4 percentage points in additional taxes starting in 35 years -- a 30% increase in the payroll taxes. (Even if you pre-payed the 2 percentage point increase, in 70 years people still would be paying 4 percentage points extra).

Then let's discuss the extra $1.5 trillion that is shown as "funded." Let's face it, this money has been spent by the congress (or more accurately, it already offsets money that has been spent by the congress). It's not coming back. So in addition to the 4 percentage point increase, you have a 1.5 percentage point increase to make this program sustainable.

Adding it all up, we're talking about a 45% increase in payroll taxes, to a total of 18%.

Increasing payroll taxes is a bad idea. It's a regressive tax. Progressives should be apalled at the prospect of an increase in this tax. Further, research shows that a smaller portion of our population will choose to work as taxes increase. This will just exaccerbate the problem of fewer people supporting more retirees.

This is compelling to me.

It's an insurance plan. All insurance plans work on one (or both) of two assumptions:

1) Even if an insurance plan pays out more than was put into it, more people will buy insurance than will ever need it (the logic of fire insurance)

I'm not working until I'm 83...period.

2) People will pay for the insurance, year after year, and by the time they really need it the company will have profited from investing the interim payments (the logic of term life insurance)

With the stock market showing an average yearly return of nearly 12% for the last 70 years and with the security of investing in Government backed bonds, The privitization is beginning to sound pretty good.

[Rufus T. Firefly]

Well, yeah. But try explaining that to a bunch of people when you propose raising the retirement age to 83.

Yes, well, that is the real issue.

I'm not working until I'm 83...period.

Good on you. The question is, is retiring a right or a privledge? Under the original SS, it was assumed that you'd work 'til you drop. We've since seemed to create something like a "right to retire." Should there be such a thing?

[JohnT]

Social Security started as scheme #1.

Actually, I disagree with this. While it has been over a decade since SS was my favorite hot-button topic, I drew the conclusion from my readings that SS was nothing more than a means to raise taxes during the Depression by way of duping the populace that there will be a benefit to each of them individually.

[Dinner]

One thing is certain; if young people divert funds to personal accounts the old people still have to be paid. Since less money will be coming in but more money will be going out the general fund will have to start paying for most of social security almost immediately after privatization occurs. You think we have deficit problems now and that the dollar is sinking to fast? Just wait until the financial markets see the size of Bush's new post SS deficits.