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Old 10-26-2010, 08:28 PM   #161
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Originally Posted by ERD50 View Post
I didn't mean to imply that either of you said that policy should be based on this (neither did). I was asking if you think we should base policy on this, otherwise - why bring it up? And why define it in terms of race, when (as samclem reminded us) it is probably more appropriate to say that people with low LE would be disproportionately affected - generally the poor, people with medical conditions, poor genes, addiction or other risky behaviors, or bad lifestyle choices (addiction may not be a "choice").
-ERD50
I have stated very clearly that SS includes both an earned component and a welfare component. I then said it is unfair only to tax the working incomes up to 106,000 for the welfare component. If social welfare is a good idea it should be paid for by all sources of tax revenue

Whether the welfare component is a good idea is a totally different question

I further agree that how you calculate the earned component in any specific case is very complex. Its easy for the group as a whole but very hard for any individual. This makes inter racial comparisons harder. however the effect on distinct racial or gender groups of any given change is also very easy to analyze
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Old 10-26-2010, 11:05 PM   #162
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I have stated very clearly that SS includes both an earned component and a welfare component.
If you refer to this post, (post #7 of this thread) , I've read it three times, and I don't find it clear at all.

I guess you define the spousal benefit as a welfare component since there is no explicit calculation for the worker's contribution for that benefit. Under equal situations, someone who lives/dies without a spouse pays the same into SS as someone who dies and has payments from SS to the spouse.

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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.
But I could just as easily (and more simply, queue Ockam) say that *everyone* paid for the spousal benefit - it was averaged into the payments we have all made since it can't be determined ahead of time. If I don't have anyone to collect the payments, that also means I didn't need the payments. SS is a form of insurance - I don't get to tell my insurance company that I want some money back because my house never burned down.

At any rate, the spousal benefit is tied to earnings, so that doesn't even seem like a correct (let alone clear) example. Since I was taxed on earnings, and the benefits are paid based on earnings, how can anyone say that no taxes were paid for the benefit? I see it all based on averages - we all pay, and some collect. So we pay less on average since not everyone collects.


And if:
Quote:
the welfare components are "detached" from the earnings
how is it possibly determined that:

Quote:
The entire welfare component of social security is paid for by middle income workers.
?

Since we define "middle income workers" by their earnings?


Judging by the questions and comments that followed that post, I don't seem to be alone as to the perceived clearness of your clarity.

-ERD50
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Old 10-26-2010, 11:25 PM   #163
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If you refer to this post, (post #7 of this thread) , I've read it three times, and I don't find it clear at all.

I guess you define the spousal benefit as a welfare component since there is no explicit calculation for the worker's contribution for that benefit. Under equal situations, someone who lives/dies without a spouse pays the same into SS as someone who dies and has payments from SS to the spouse.



But I could just as easily (and more simply, queue Ockam) say that *everyone* paid for the spousal benefit - it was averaged into the payments we have all made since it can't be determined ahead of time. If I don't have anyone to collect the payments, that also means I didn't need the payments. SS is a form of insurance - I don't get to tell my insurance company that I want some money back because my house never burned down.

At any rate, the spousal benefit is tied to earnings, so that doesn't even seem like a correct (let alone clear) example. Since I was taxed on earnings, and the benefits are paid based on earnings, how can anyone say that no taxes were paid for the benefit? I see it all based on averages - we all pay, and some collect. So we pay less on average since not everyone collects.
-ERD50
I am sorry if the concept is difficult but I will try again

1) "tied to earnings" is a meaningless concept. The spousal benefit is calculated from earnings but nothing about the taxes paid funded the benefit. You could calculated it from anything and its still welfare eg. if the spousal benefit was 1000 per month regardless of earnings, it would be no different from the current system of half the calculated benefit. Its still welfare not funded from earnings.

2) Similarly benefits for children are "calculated' from earnings but nothing about the individual taxes paid funded the benefits.

3) Everyone paying means also that it is not funded by individual earrings.
Everyone pays taxes if we give some people money form those taxes, just because they need it or we like them its not an earned benefit.

What pays for social security is the poor return on tax payments for the dual income and upper social security wage group. The reason ifor the poor return is the need to fund the welfare payments.

The disability payments actually meet your idea of the risk insurance model. But the spousal payment do not since they are disallowed for people where both spouses earn benefits.
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Old 10-26-2010, 11:37 PM   #164
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I guess you define the spousal benefit as a welfare component since there is no explicit calculation for the worker's contribution for that benefit. Under equal situations, someone who lives/dies without a spouse pays the same into SS as someone who dies and has payments from SS to the spouse.
It might be a matter of perspective.

If we view SS as earned by/paid to individuals (an individual pays SS and earns an entitlement, which is based on the individual's earnings), then checks to spouses and kids might be seen as welfare ("these other individuals didn't earn their entitlements)

If we view SS as earned by/paid to families, then the checks to spouses and kids are not welfare, as these individuals are also part of the family unit. Some families are small (one person) some are bigger, but this is group insurance so the "rates" are the same.

As it happens, in this government program we apparently pay as individuals but can receive some benefits as a family unit, which may be where the confusion comes from.

Of course, there's no easily identifiable "welfare" component, this is just an invented construct. The SS program is a two-axis wealth transfer mechanism: From the young to the old, and from the wealthy to the poor. The gradients across these axes are smooth without readily identifiable "components."
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Old 10-27-2010, 11:35 AM   #165
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... but nothing about the taxes paid funded the benefit.
How do you arrive at this result? How are you matching up parts of the tax with the various benefits? I'm also having trouble following.
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Old 10-27-2010, 01:30 PM   #166
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Of course, there's no easily identifiable "welfare" component, this is just an invented construct. The SS program is a two-axis wealth transfer mechanism: From the young to the old, and from the wealthy to the poor. The gradients across these axes are smooth without readily identifiable "components."
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Old 10-27-2010, 02:37 PM   #167
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As it happens, in this government program we apparently pay as individuals but can receive some benefits as a family unit, which may be where the confusion comes from.
Social Security is not a retirement program for workers it is a family-based economic security program. Therefore, it has disability and death benefits components as well.

I think of it as an insurance policy and as such I think it will be vitally important for the baby boomers coming up to retirement who have seen their retirement savings hit by the recent downturn. That FDR guy was pretty smart.
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Old 10-27-2010, 03:58 PM   #168
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That FDR guy was pretty smart.
especially only when 51% of adult males were expected to reach retirement age when SS was put in place.
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Old 10-27-2010, 04:11 PM   #169
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Social Security is not a retirement program for workers it is a family-based economic security program.
Yes and no. If SS were exclusively based on the family unit, then the annual caps would be based on family income. They ain't.

The tax is collected against individual pay, but benefits are paid to family units. That's the cause of some confusion.
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That FDR guy was pretty smart.
Brilliant. We're still finding the ticking timebombs he and his helpers sprinkled around.
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Old 10-28-2010, 10:32 AM   #170
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especially only when 51% of adult males were expected to reach retirement age when SS was put in place.
I had the time today to do some numbers so here they are.

A group of males aged 21 in 1940 could expect to live an average of 38.6 years before 65. (Some would live exactly 44 years, but others would die before 65 and pull the average down.) They would live an average of 7.25 years after age 65. This gives a ratio of "years paying taxes" / "years receiving benefits" of 5.3.

If we still had a retirement age of 65, the corresponding numbers for 2010 would be 42.5 years of work, 13.25 years of retirement, and a ratio of 3.2

In order to get back to the ratio of 5.3 in 1940, we'd need to have males retire at 71.

Now that we have lots of women working, we would also have to recognize that to get the 5.3 ratio for females, we'd need to set their retirement age at 74.

So that's a rough measure of the extent that longevity alone has impacted SS financing. Birth rates have also changed significantly, and they have another big impact.

[ I'm using the "period" tables here. List of Tables Maybe "cohort" tables would be more appropriate. ]
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Old 10-28-2010, 10:45 AM   #171
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In order to get back to the ratio of 5.3 in 1940, we'd need to have males retire at 71.

Now that we have lots of women working, we would also have to recognize that to get the 5.3 ratio for females, we'd need to set their retirement age at 74.
Even if people had the health and stamina to work until that age, the impact on the unemployment rate would be horrific.
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Old 10-28-2010, 10:53 AM   #172
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I had the time today to do some numbers so here they are.

A group of males aged 21 in 1940 could expect to live an average of 38.6 years before 65. (Some would live exactly 44 years, but others would die before 65 and pull the average down.) They would live an average of 7.25 years after age 65. This gives a ratio of "years paying taxes" / "years receiving benefits" of 5.3.

If we still had a retirement age of 65, the corresponding numbers for 2010 would be 42.5 years of work, 13.25 years of retirement, and a ratio of 3.2

In order to get back to the ratio of 5.3 in 1940, we'd need to have males retire at 71.

Now that we have lots of women working, we would also have to recognize that to get the 5.3 ratio for females, we'd need to set their retirement age at 74.

So that's a rough measure of the extent that longevity alone has impacted SS financing. Birth rates have also changed significantly, and they have another big impact.

[ I'm using the "period" tables here. List of Tables Maybe "cohort" tables would be more appropriate. ]
I hadn't thought of this before but since you bring it up, did you consider that there are many more households today with two FICA contributors with much smaller families than there were in 1940? Have you also considered whether/ how the change in immigration (1965) policy has impacted this?

I'm certainly willing to accept actuarial science as a means of setting a contribution rate that will sustain the program. However I strongly object to the policy of undermining the program by spending its surplus on tax cuts.
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Old 10-28-2010, 01:30 PM   #173
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I hadn't thought of this before but since you bring it up, did you consider that
1) there are many more households today with two FICA contributors with
2) much smaller families than there were in 1940?
3) Have you also considered whether/ how the change in immigration (1965) policy has impacted this?

I'm certainly willing to accept actuarial science as a means of setting a contribution rate that will sustain the program.

4) However I strongly object to the policy of undermining the program by spending its surplus on tax cuts.
I added the numbers

1) AFAIK, the increase in wives in SS covered jobs has helped SS finances. First, when they were entering the workforce they added to the paygo revenue and are partially responsible for the program running the surplus that it did. In the long run, they reduce the cost of spousal benefits, improving the tax/benefit ratio, so they help there, too.

2) I mentioned birth rates as a big deal. In the simplest terms, the WWII generation had 3 children per couple, the boomers had 2. If nothing else changed, either the boomers would have to settle for 2/3 the benefits that their parents got, or the boomers' kids will have to pay 3/2 = 150% of the taxes their parents paid. (Note that this impacts all retirement programs, not just SS.)

3) I've never looked at that. It seems that if legal immigrants come as young workers they impact the system just like births - more people paying taxes today and more receiving benefits in the future. If they come late in their working careers they may get a slightly better deal than workers who were here for a lifetime due to the skewed benefit formula.

Many illegal immigrants pay SS taxes but can't legally get benefits. So they are a net plus. The SS actuaries have gone back and forth in their projections. In some years they have assumed that illegal workers would eventually get some sort of amnesty and hence would get benefits. In other years, they've assumed no future benefits. I'd guess the current projections use the second assumption, but I haven't checked.

4) I'll agree with that.
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Old 10-28-2010, 01:38 PM   #174
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However I strongly object to the policy of undermining the program by spending its surplus on tax cuts.
Revenue comes from taxes and spending is spending. Exactly how does one "spend" on tax cuts?
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Old 10-28-2010, 02:34 PM   #175
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Even if people had the health and stamina to work until that age, the impact on the unemployment rate would be horrific.
You've said this before and I've never responded. You're assuming that the number of jobs is fixed so more willing workers means more unemployment. Yet, the US has many more workers today than it did 100 years ago, and most of them have jobs.

I'd say the number of jobs is independent of the number of workers in the short run, but very dependent on the number of workers in the long run.

In the short run, an employer isn't going to suddenly hire more people just because the factory down the street closed and he now has many more applicants for jobs.

But there's a feedback mechanism where a slow increase in the number of workers puts a little downward pressure on wages, resulting in slightly higher profits per worker, leading to a few more job openings, leading to more people working and producing and spending, leading to more demand for products, leading to more job openings, etc. It's worked for the US for a very long time. Automation meant fewer workers were needed to produce a widget, but we've always employed those freed up workers producing more stuff other than widgets because we've always wanted more stuff.

So a sudden increase in the SS retirement age could increase unemployment short term, but a gradual increase shouldn't.

(I have a concern that we have a class of workers who've suddenly found new global competitors, and we're in the "short run" relative to those workers. That is confusing the situation right now.)
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Old 10-28-2010, 03:11 PM   #176
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I added the numbers

1) AFAIK, the increase in wives in SS covered jobs has helped SS finances. First, when they were entering the workforce they added to the paygo revenue and are partially responsible for the program running the surplus that it did. In the long run, they reduce the cost of spousal benefits, improving the tax/benefit ratio, so they help there, too.

2) I mentioned birth rates as a big deal. In the simplest terms, the WWII generation had 3 children per couple, the boomers had 2. If nothing else changed, either the boomers would have to settle for 2/3 the benefits that their parents got, or the boomers' kids will have to pay 3/2 = 150% of the taxes their parents paid. (Note that this impacts all retirement programs, not just SS.)

3) I've never looked at that. It seems that if legal immigrants come as young workers they impact the system just like births - more people paying taxes today and more receiving benefits in the future. If they come late in their working careers they may get a slightly better deal than workers who were here for a lifetime due to the skewed benefit formula.

Many illegal immigrants pay SS taxes but can't legally get benefits. So they are a net plus. The SS actuaries have gone back and forth in their projections. In some years they have assumed that illegal workers would eventually get some sort of amnesty and hence would get benefits. In other years, they've assumed no future benefits. I'd guess the current projections use the second assumption, but I haven't checked.

4) I'll agree with that.
Apologize if I'm confusing the source, but I think Burns and Kotlikoff discussed (documented) in GREAT detail the issues with SS (esp. effects of birth rates, women in the workplace and effects of migration) in "The Coming Generational Storm". IIRC, they DO point out that women in the workforce has been somewhat of a good thing to SS (as has immigration). However, they make a better case for the system as it stands being unsustainable, immigration or not.

But the good news for SS is that it is in dramatically better shape than Medicare!! Forget the numbers exactly, but I'm thinking they indicate a total deficit of something like 10 Tril. for SS and 60 Tril. for Medicare in the next (50 or 75 years - forget the details).

Anyway, I point all this out as a possible reference point for further discussion - if anyone wants to use (estimates of) facts and figures, all in one neat chapter of a book. Probably not.
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Old 10-28-2010, 03:32 PM   #177
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Apologize if I'm confusing the source, but I think Burns and Kotlikoff discussed (documented) in GREAT detail the issues with SS (esp. effects of birth rates, women in the workplace and effects of migration) in "The Coming Generational Storm". IIRC, they DO point out that women in the workforce has been somewhat of a good thing to SS (as has immigration). However, they make a better case for the system as it stands being unsustainable, immigration or not.

.
I guess "the systems as it stands being unsustainable" could be read two ways.

The first is that no paygo system is sustainable - they are all doomed Ponzi schemes.
The second is that the benefit formulas within our paygo system are based on outdated demographics and need to be changed periodically to keep up with changes in births/deaths, but the concept of paygo is perfectly valid.

I'd agree with the second statement but not the first.
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Old 10-28-2010, 03:48 PM   #178
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I guess "the systems as it stands being unsustainable" could be read two ways.

The first is that no paygo system is sustainable - they are all doomed Ponzi schemes.
The second is that the benefit formulas within our paygo system are based on outdated demographics and need to be changed periodically to keep up with changes in births/deaths, but the concept of paygo is perfectly valid.

I'd agree with the second statement but not the first.
IIRC, B&K agree with you in the "short" run but disagree with you in the "long" run.

On a happier note, someone earlier suggested giving our SS payments to our kids. Had never thought of it quite that way, but, in a sense, that is what we are doing. We fund our kids ROTH IRAs. However, we plan on leaving our estate(s) to charities - with a small token to the kids. YMMV.
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Old 10-28-2010, 04:01 PM   #179
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IIRC, B&K agree with you in the "short" run but disagree with you in the "long" run.

On a happier note, someone earlier suggested giving our SS payments to our kids. Had never thought of it quite that way, but, in a sense, that is what we are doing. We fund our kids ROTH IRAs. However, we plan on leaving our estate(s) to charities - with a small token to the kids. YMMV.
Of course, I think the numbers don't support B&K.

On the happier note, I was at least one of the people who suggested that - post #135. We haven't started SS yet. I'm sure that if we're in decent shape financially when we do my wife would vote for sending the money to the kids. Her argument will be "why not give it to them while they're alive?" and won't have anything do do with her opinion on SS as a system. I'm more concerned that we won't be able to afford it when that day comes, but we'll see how it works out.
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Old 10-28-2010, 04:32 PM   #180
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This morning on Squawk Box, the guest was Ken Langone. Generally uberconservative, and an unabashed cheerleader for Wall Street, but he wondered aloud why he was getting a SS check, being a brazillionaire and all. Said his wife donates it to charity.

Also stated he would be happy to pay more income tax, but he didn't want to see it pissed away wasted...

Of course, he could voluntarily send the IRS a check, if he wanted. No need to wait for an invitation...
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