Protect SS, it's important

[stoutboy]

you are correct. unfortunately, memories are short, and there are few around anymore alive before the days of SS who can explain just how bad it really was to get old in our country then. Old age meant poverty for the majority of people.

The other thing is that most people are way, way too overconfident in their investing acumen. Those behind privatization are fully aware of that, and they manipulate this.

I think George Carlin was utterly correct in one of his monologues about the true owners of American society. They want that money and they are going to get it. Eventually.

...and the media gets a lot of copy from those very firms. There is a constant drum beat against SS, if it wasn't for AARP I'd hear nothing positive about it. Seriously if we gut SS that will be the final barrier stopping
that majority of older people form either working until they die or living in poverty.

 

[Emeritus]

E,

There are many arguments like this that with all due respect are on the margins.

I'll admit I haven't thought this through but I don't even know that I agree FICA is a tax. SS is an old age annuity, funded through contributions paid by the employer and the employee much as a defined contribution 401k benefit. And for that reason I don't think SS should be funded through an income tax.

The SS benefit is determined by the individual contribution and an annual cost of living adjustment. If the program becomes underfunded for whatever reason, (e.g. demographic) then the administrators of the program should be expected to ajust the participant contributions accordingly. But again..we're good until 2037 or there abouts.

The decision to make the SS surplus available to the general fund has provided flexabilty to congress but the tax policies subsequent to that decision have become / are clearly a strategy to undermine the program.

I am afraid you are incorrect on both ends. It is not in any way an annuity. It is a tax and benefit program. Some benefits are RELATED to taxes paid some are merely computed on someone's earnings.

 

[ronocnikral]

Ron...if you consider where the income distribution has gone in the past three - four decades then some might question who that mule is.

If fiscal dicipline is on your mind then we trippled the national debt in the eighties and doubled it again in the 2000's. Those fiscal policies put the "mule" before the cart.

But we both know with all honesty that fiscal prudence was never the objective here.

you missed my point. with the increase in national debt, it's not necessarily fair* to say, "we need adjustments, we'll make them to some arbitrary date and then look at the situation from there," after you have lived high on the hog. while flexibility is always needed, it's a crappy deal for those who are young to get stuck with paying for the current bill and paying yesterday's at the same time. shouldn't we all bear this burden?

Well, here's the thing. We have two different somewhat opposing dynamics at work:

1. Convincing younger voters (say under 40) that continuing SS for the foreseeable future is a good thing for generations to come;

2. Knowing that *any* fiscally workable reforms to make SS solvent for many decades will, by necessity, make it a worse deal for younger generations while the older generations share little to none of the pain.

Frankly, other than an appeal to altruism or respect for elders, from a strictly economic standpoint I don't know why 20-somethings and 30-somethings would buy into it eagerly. Retirement is often such a foreign and far-out topic that they consider needs in the here and now more important, like being able to hold a job or generating enough income to live an acceptable lifestyle today. A few of us (myself included) were fortunate enough to be focused on retirement even in our 20s, but we are decidedly in the minority.

i'm on board with 1. i grudgingly accept 2. the problem is, as i stated above, this burden should be shared. it's not fair* to "change the rules in the middle of the game." but it's also not fair* for me to be stuck with the tab, as I have been a voter for less than a decade. i say obama should go sarkozy on those under 60. sure, there may be chaos, but i predict it will be short lived. let's share the love...

*i realize the objectives of these gummit programs are not to balance them to what i think is fair.

 

[Independent]

You have to deconstruct the social security problem into its components.

Social Security has two critical components, which we can call the Earned component

and the Welfare component. The welfare component of social security includes spousal benefits, added benefits for low income workers and benefits for disabled children. The earned components are pensions for middle and upper contributors and disability payments.

you can tell the difference because all wage earners benefit from the earned component in proportion to taxed earnings.
the welfare components are "detached" from the earnings i.e. they are calculated based on the earnings but no taxes are paid to support them. In particular there are no taxes collected to support the spousal benefit.

The entire welfare component of social security is paid for by middle income workers.
The rich are absolutely totally exempt from this welfare tax
Class Warfare on a grand scale.

I have not seen recent estimates of the welfare component but the last ones I saw indicate its about 50% of the SS tax for middle and upper income wager earners. (50-100,000 )
Its highest for the Dual income wager earners close to the social security limit.

All repeat all of the social security privatization arguments are based on eliminating this welfare payment. that is how they make the numbers work. In particular they always eliminate the spousal pensions.

The easiest path to solvency for social security is to shift the welfare component to the general government budget. There is simply no rational basis for taxing only middle income workers for social welfare payments.

FWIW, I agree with the general drift here. There are details, like the "absolutely totally exempt" that don't ring true if "rich" means someone with very high earned income.

I've never seen a calculation of the "welfare component" and I don't think we'll get a theoretical agreement on exactly where to draw the line. As an idea that won't fly politically, I could see freezing (or even reducing) the SS payroll tax and saying it pays for benefits up to a replacement ratio of xx%, with additional benefits paid from the income tax. Then solve for xx each year as SS benefit/tax ratio changes.

 

[keegs]

you missed my point. with the increase in national debt, it's not necessarily fair* to say, "we need adjustments, we'll make them to some arbitrary date and then look at the situation from there," after you have lived high on the hog. while flexibility is always needed, it's a crappy deal for those who are young to get stuck with paying for the current bill and paying yesterday's at the same time. shouldn't we all bear this burden? .

Did we all benefit equally from those tax policies? If you don't think so then shouldn't the majority of the cost of re-balancing be borne by those who did?

 

[ziggy29]

Did we all benefit equally from those tax policies? If you don't think so then shouldn't the majority of the cost of re-balancing be borne by those who did?

There are more than tax policies in play here. There are also intergenerational inequities.

So if one believes the "rich" benefited more because of the "cap" on taxation of earnings (which isn't clear to me because benefits are also capped) and should thus bear the brunt of the cost of "fixing" SS, then it would also seem logical that the "cost" of the fix should be disproportionately placed on older taxpayers since they are getting a better deal out of SS than the younger folks, yes?

(Not that I'm advocating that -- I advocate across-the-board shared sacrifice. But it seems like it follows from the "those who benefited most should pay more" argument.)

 

[haha]

The leach problem will not go away. So this conflict will not go away. I hear on this board about many people who do not own a cellphone, or do not take cable, etc. Yet all day I see panhandlers with cell phones. I think quite a few of the have nots who receive social benefits live more fitted out lives than very many of us, who pay those benefits. Most people on this board have better homes- but they eat no better, have perhaps no more toys, and no more free time in spite of finally being retired. I see food being bought with food stamps by plenty of people with very nice Nikes and leather coats. And although I don't observe this, the Seattle Times did an excellent expose of a bigtime scam to transfor food stamps into cash in cooperating food stores- at a 50% discount.

Ha

 

[Emeritus]

FWIW, I agree with the general drift here. There are details, like the "absolutely totally exempt" that don't ring true if "rich" means someone with very high earned income.
.

the non working rich are absolutely exempt
the working rich have all their earned income above abotu 106,000 exempt.

That is a vast amount of income to exempt. I am perfectly happy with any of the several estimates of the social welfare component of the SS budget.

 

[ERD50]

The main point of my original post has been lost. There is s definite bias against thinking of SS as a critical part of retirement funding.
The article states

Why not write it like this:

Workers have clearly gotten the message that SS is important to their retirement: Just-released numbers from Charles Schwab reveal that more than half of the general population say they plan on counting on Social Security as a source of income in retirement.

While this would probably be giving the authors too much credit, there is at least the possibility that that would not be an accurate way to turn it around. What if 30% were undecided? That might mean that (for example) 45% say they don't plan on SS, 30% are undecided, and 25% are counting on SS.

Raising the age puts the cuts disproportionately on poor African Americans due to shorter life expectancies.

That's not true, they would not be "cut" out of anything by that.

OK, LE for African Americans on average is shorter, I believe that to be true. Should we base policy on it? SS provides payments for life. You don't get any past that, it is there to help support you while you are alive, whether that is one year or 40 years - that's the deal. Once I'm dead, I don't need support.

If we want to match payments or contributions to LE, I guess everyone needs to fill out a questionnaire - how long did your parents live, what are your indicators, risks, etc. Seems that would be "fairer" than basing it on ethic background. And Oh, do I get my money back if I come down with a terminal disease before retirement age? I think this is one of those areas where we have to treat everyone equal. The whole purpose of an annuity is to group risk together.

-ERD50

 

[keegs]

There are more than tax policies in play here. There are also intergenerational inequities.

So if one believes the "rich" benefited more because of the "cap" on taxation of earnings (which isn't clear to me because benefits are also capped) and should thus bear the brunt of the cost of "fixing" SS, then it would also seem logical that the "cost" of the fix should be disproportionately placed on older taxpayers since they are getting a better deal out of SS than the younger folks, yes?

(Not that I'm advocating that -- I advocate across-the-board shared sacrifice. But it seems like it follows from the "those who benefited most should pay more" argument.)

Let me be clearer. The SS program is solvent until 2040 or there abouts. That's to say enough money has been contributed to the program to pay full benefits until that time. So is our SS funding issue a spending problem or a revenue problem? To me it's neither until 2040.

There is however no longer a SS surplus going to the general fund and political pressure is coming to bear on the program. Surplus revenue has been helping to mask what has been for some time now a federal tax revenue shortfall. The shortfall has been due in large measure to successive cuts in the marginal rates over the past thirty to forty years.

Who's benefitted the most from those tax cuts? Clearly it's been those who's marginal rates have declined.

The media, conservative pundits and ideologues would have us believe that this issue has to be resolved NOW by raising contributions and cutting current and future benefits to SS NOW. I disagree. Contributions levels NOW will sustain SS until 2040. There may indeed have to be adjustments to keep the program solvent beyond 2040 but there's time for that.

Again, federal deficits spending levels are and have been unsustainable for some time. They've been masked by SS's surplus revenue going to the general fund. That problem should be resolved first by a combination of federal spending cuts elsewhere in the budget and by increasing the marginal income tax rates.

 

[samclem]

The main point of my original post has been lost. There is a definite bias against thinking of SS as a critical part of retirement funding.

If various entities (FAs, brokers, "the press" etc) are encouraging people to be less dependent on SS, that's a good thing. I'm aware of their motives, but their acts are more important than their motivations. Does anybody think we've got a problem because people are being too vigilant in saving and being self-reliant?

 

[MasterBlaster]

Let me be clearer. The SS program is solvent until 2040 or there abouts. That's to say enough money has been contributed to the program to pay full benefits until that time. So is our SS funding issue a spending problem or a revenue problem? To me it's neither until 2040.

That assumes a SS trust fund of which to draw down. In reality the tough decisions will be made way before then. And as you know... There really isn't a trust fund.

SS is just going negative now. Once the Boomers start retiring en masse then the big deficits start.

 

[ERD50]

the non working rich are absolutely exempt
the working rich have all their earned income above abotu 106,000 exempt.

You are often quite the stickler for precise definitions for words. Clearly, "exempt above $106,000" is not the same as " totally exempt", which is what you said earlier.

-ERD50

 

[samclem]

Let me be clearer. The SS program is solvent until 2040 or there abouts. That's to say enough money has been contributed to the program to pay full benefits until that time.

It won't feel like that when taxes or borrowing have to be increased to pay the monthly checks starting in a few years. It does not matter at all that SS is "solvent" on paper if the entity responsible for making the incoming payment has a negative cash flow problem--and they are both "us".

 

[keegs]

It won't feel like that when taxes or borrowing have to be increased to pay the monthly checks starting in a few years. It does not matter at all that SS is "solvent" on paper if the entity responsible for making the incoming payment has a negative cash flow problem--and they are both "us".

Sam. they should have thought of that before they cut marginal rates...or perhaps more likely... maybe they did.

 

[samclem]

Sam. they should have thought of that before they cut marginal rates...or perhaps more likely... maybe they did.

Ancient history. When "they" cut marginal rates "they" didn't need any extra money to make monthly SS payments, and anything else that would have been brought in by higher taxes would have been spent just like the first two trillion dollars.
Now, here we are. . .

 

[keegs]

Ancient history. When "they" cut marginal rates "they" didn't need any extra money to make monthly SS payments, and anything else that would have been brought in by higher taxes would have been spent just like the first two trillion dollars.
Now, here we are. . .

...it's ancient history... it's too good a deal...it's a crummy deal....it's another welfare program... it's on it's way out the door... it's out of money ..it's a burden to our children.. All these characterizations serve an ideological agenda.

And as disappointing as this may be to some....the fact remains Sam that FICA has accumulated a surplus and the tax cuts blew the federal budget ...again. Voters should realize this.

SS has been around for seventy years. It's kept allot of people out of poverty in their old age and it provides and should remain the foundation to every sound retirement plan.

 

[obgyn65]

Very interesting conversation going on under this thread. I am learning a lot. Thank you to everyone who has been posting here.

 

[Independent]

Sam. they should have thought of that before they cut marginal rates...or perhaps more likely... maybe they did.

If you're talking about the 2001 tax cuts, I have to believe that "they" did it deliberately. They certainly knew that SS was running a big surplus while the general fund was in the red, yet they chose to cut FIT instead of cutting the payroll tax. I can argue both sides of that decision, but when I look at the competing arguments I think I come down on the other side.

 

[samclem]

Sam. they should have thought of that before they cut marginal rates...or perhaps more likely... maybe they did.

Doesn't the legislation call for a reversion to the higher marginal tax rates next year--just before SS starts needing the money to make those monthly payments? So, what's the complaint? As you say--maybe "they" did think of all this.

 

[chinaco]

SS is intertwined with the fabric of our society and economy at this point.

If any major changes are made about participation... it will be to new worker entering the work force (very young).

For those of us well into our career... you will pay a little more and get a little less (however solvency is dealt with).

Since the majority of people seem to not be able to prepare for retirement (and business no longer takes care of it)... My guess is that SS will remain as a mandatory program to ensure that elderly have some basic income.

The people at the bottom rung of the ladder will be the burden (in terms of cost) that modern society will carry. Some wind up there due to choice, others through no real fault of theirs.

Someone will bear the cost one way or the other for the people who did not thrive in our economy (similar to medical... show up to the emergency room).

Consider this modern problem: Children are often not located near their parents (and grandparents). If we went back to the 1800's the burden would fall directly on the children. That would seem fair.. but not practical today. So a pooling of money to ensure there is food and basic needs met for people who contributed to our society makes sense.... it is just handled in a more efficient and flexible manner.

There is no perfect system.

 

[Emeritus]

You are often quite the stickler for precise definitions for words. Clearly, "exempt above $106,000" is not the same as " totally exempt", which is what you said earlier.

-ERD50

Sure but it depends on how you define rich as opposed to well paid earners.
my point was that earnings from capital are exempt

 

[cb7010]

Re-Thinking SS

I've read through most of this thread and am generally interested in what others think about SS. My opinion is that before we talk about tweaking or fixing the current system, we reset to determine if the nation really wants to perpetuate a retirement savings system that is administered by the federal government and that is largely underfunded for the future. Can anybody honestly say they would rather have politicians and government employess managing their retirement money rather than Goldman Sachs or Fidelity, etc..Based on the track record of the federal government in running this and other large programs, I would venture to say that most of us would not agree to this idea if it were presented anew today.

I think SS was developed to be a safety net for those in society who reached an age where they could no longer work, had insufficient savings, and so they would be provided the basic necessities to live. Fundamentally, I do not disagree with this type of program, as it is not healthy for our society to let those at the bottom of the financial rung roam the streets breeding crime and disease.

Sure, unwinding SS would be complex, but it can be done by honoring our obligations to those far into the current system and migrating younger workers out of it. How about instead we all pay a small 1% tax for safety-net insurance and then all manage our retirement plans ourselves with private market advisors.

I am afraid, the lack of political will and the entitlement state of mind will continue and we will probably still have the current SS system for the forseeable future..

 

[nun]

Can anybody honestly say they would rather have politicians and government employess managing their retirement money rather than Goldman Sachs or Fidelity, etc.

This is a joke - right.

In all this the "insurance" aspect of SS is missed, it's not money for the individual to gamble in the stock market with the associated fees.

 

[samclem]

I am afraid, the lack of political will and the entitlement state of mind will continue and we will probably still have the current SS system for the forseeable future..

As you may recall, there were initial proposals under President Bush to allow individual accounts within SS and to reduce somewhat public reliance on a government-determined monthly SS check. That modest effort had many of the features you describe (grandfathering of those above a certain age, etc). The idea was roundly shouted down by those who favor the present system, and it didn't get much public support. I doubt that the recent market "turbulence" will increase public desires for private accounts.

Now is not the time for this, I'm afraid--it's both too late and too early. "Too late" because many have already developed an expectation of what they are owed (never mind that what they paid in was already largely spent supporting previous retirees). "Too early" because many people still believe in the promises.