Retiree Entitlements ‘Undermine’ Everything Else

[Midpack]

Meanwhile, back in the corporate boardrooms of America, corporations are devising more and more elaborate ways to avoid paying corporate income tax...

Yeah, I can't understand why they don't pay more than they are legally required to. I'll bet their investors wonder too. Go figure...

 

[NanoSour]

legally required to

Don't get me started!

 

[sengsational]

Tangled web is right...

It seems like the damage is caused by the spread between the cost of living and the artificially low interest rates? Have I got that right? I mean, if you can buy the same goods a year from now as you can today with your bank account earning 0.25%, then nobody's pocket got picked. But if there is a spread between the two, that's the thievery. I personally think inflation picks the pocket of savers more directly than a zero fed funds rate does. They can't go lower than zero, hehe.

 

[mickeyd]

They can't go lower than zero, hehe.

Hmmm, then why is my TIPS fund paying -1+%?

 

[pb4uski]

Meanwhile, back in the corporate boardrooms of America, corporations are devising more and more elaborate ways to avoid paying corporate income tax leading to the "theoretical" SS crisis. And every other government spending crisis.

These corporations can only avoid paying corporate income tax if Congress provides the loophole and the President signs it into law so IMO you're blaming the wrong people. Also, the same people can close the loophole if they wish to. I'm not aware of any corporation that knowingly violates tax law, but many will take advantage of any benefit the law provides whether Congress intended to provide a benefit or not.

BTW, any conniving is probably done in the Tax Department based on pitches brought to them by consultants - most board members don't have a clue even though a particularly strategy might be presented to the Board.

Makes me wonder if you have any idea what you are talking about.

 

[chasesfish]

Social Security really isn't difficult to fix, means testing, retirement age, contribution rates and income limits and type of income subject to the tax are all options.


Heathcare and the total national debt are much bigger issues, the left and right can't accept certain changes to Medicare (rationing, privatization, state control, et). There are likely to be too many takers and not enough payers. The system doesn't work when the healthy people aren't in the Medicare pool, but people over 65 are.

The government also can't keep flooding the country with as much as the ENTIRE NFL payroll ($5bil) in money every two days. If printing money created wealth, than Zimbabwe would be the the richest county in the world.

Hopefully this year we will finally see an adult conversation out of Washington about what level of services people want and what level of taxes people are willing to pay and get that gap closed.

 

[Khufu]

Most of what people think they "know" about Social Security is wrong and/or the product of deliberate misinformation spread through the media. The problem with SS is not a large increase in life expectancy (life expectancy for retirees has not increased that much, in fact it has decreased for some groups such as those without college degress), nor is it the result of high-wealth retirees drawing benefits (so that means-testing will not do much to solve the problem) since the vast bulk of benefits rececipients depend entirely or almost entirely on SS to live.

You can read more about the "Life Expentancy Zombie" from Krugman:
The Life Expectancy Zombie - NYTimes.com

Instead about half of the loss of contributions now and in the future is due to the growing inequality in America coupled with the regressive nature of the payroll tax. Over the last 30 years most of the gains of productivity in the US economy have gone to the upper few percentiles. This is not an accident, nor is it some inevitable law of economics. But it has happened. Since income subject to FICA excludes the sources of income that are available to the rich (capital gains, dividends) and excludes all of their labor income above the cap, this means that much of the increase in income that has taken place has escaped the payroll tax. This, not a change in life expectancy, is the feature that the founders of SS in the thirties did not forsee, the polarization of wealth and income in the US. Indeed today the US has the most inequality among the highly developed nations, comparable to Thailand, as it happens.

The sequestering of income gains by the rich due to increases in productivity of the economy as a whole is indeed a threat to SS and to much else in American life. The US now has less upward mobility, supposed its big advantage, than the European Community. The 1% and the other top percentiles do not want to pay for benefits from the govt such as health care, retirement benefits, medical insurance, or education since they can buy these services easily on the market. And they have been remarkably successful in reducing their taxes over since Reagan got into office. If productivity does not increase in the future then the living standards of all Americans, including workers and retirees, will not improve.

I know that for some of the posters here understanding the role of productivity in the economy andstandard of living is apparently above their paygrade. Unfortunately, it is simply not possible to understand living standards without understanding the role of increasing productivity, and that includes SS recipients along with everyone else.

“For every problem, there is a solution that is simple, neat, and wrong.”

― H.L. Mencken

 

[chasesfish]

Most of what people think they "know" about Social Security is wrong and/or the product of deliberate misinformation spread through the media. The problem with SS is not a large increase in life expectancy (life expectancy for retirees has not increased that much, in fact it has decreased for some groups such as those without college degress), nor is it the result of high-wealth retirees drawing benefits (so that means-testing will not do much to solve the problem) since the vast bulk of benefits rececipients depend entirely or almost entirely on SS to live.

You can read more about the "Life Expentancy Zombie" from Krugman:
The Life Expectancy Zombie - NYTimes.com

Instead about half of the loss of contributions now and in the future is due to the growing inequality in America coupled with the regressive nature of the payroll tax. Over the last 30 years most of the gains of productivity in the US economy have gone to the upper few percentiles. This is not an accident, nor is it some inevitable law of economics. But it has happened. Since income subject to FICA excludes the sources of income that are available to the rich (capital gains, dividends) and excludes all of their labor income above the cap, this means that much of the increase in income that has taken place has escaped the payroll tax. This, not a change in life expectancy, is the feature that the founders of SS in the thirties did not forsee, the polarization of wealth and income in the US. Indeed today the US has the most inequality among the highly developed nations, comparable to Thailand, as it happens.

The sequestering of income gains by the rich due to increases in productivity of the economy as a whole is indeed a threat to SS and to much else in American life. The US now has less upward mobility, supposed its big advantage, than the European Community. The 1% and the other top percentiles do not want to pay for benefits from the govt such as health care, retirement benefits, medical insurance, or education since they can buy these services easily on the market. And they have been remarkably successful in reducing their taxes over since Reagan got into office. If productivity does not increase in the future then the living standards of all Americans, including workers and retirees, will not improve.

I know that for some of the posters here understanding the role of productivity in the economy andstandard of living is apparently above their paygrade. Unfortunately, it is simply not possible to understand living standards without understanding the role of increasing productivity, and that includes SS recipients along with everyone else.

“For every problem, there is a solution that is simple, neat, and wrong.”

― H.L. Mencken

I'm curious how this post isn't considered "political discussion" at this point, it's now the fault of Regan, the rich, and if I don't understand, the it's above my pay grade?

 

[pb4uski]

.....I know that for some of the posters here understanding the role of productivity in the economy andstandard of living is apparently above their paygrade. Unfortunately, it is simply not possible to understand living standards without understanding the role of increasing productivity, and that includes SS recipients along with everyone else.....

I seem to recall your making the same arguments on another SS related thread a couple months ago. No one was buying IIRC.

 

[jollystomper]

Isn't that the answer for every interest group? Vote and protect your benefits while asking someone else to pay for it.

+1

I would happily support the politician who says something like "we are going to actually spend (fill in some percent) less this year from what was actually spent last year, across the board, no exceptions. Each organization responsible for a budget item can decide what to reduce. No sacred cows. And any tax raises will apply across the board, both individuals and companies, no sacred cows here either." But someone like that would never get elected on a national level, perhaps because the concept is too simple. Either politicians are getting smarter or I'm getting dumber.

 

[Animorph]

+1

I would happily support the politician who says something like "we are going to actually spend (fill in some percent) less this year from what was actually spent last year, across the board, no exceptions. Each organization responsible for a budget item can decide what to reduce. No sacred cows. And any tax raises will apply across the board, both individuals and companies, no sacred cows here either." But someone like that would never get elected on a national level, perhaps because the concept is too simple. Either politicians are getting smarter or I'm getting dumber.

Like the sequester?

 

[jollystomper]

Like the sequester?

The problems I have with the sequester is (a) it is not a cut but a "you spent $100 last year, instead of spending $110 this year you can only spend $107", (b) it was not across the board, but targeted things folks thought would be "too painful" to let it go through, and (c) flexibility was not given as to what could be cut within the budget categories. So areas very visible (in order to show the pain) have been impacted, while other areas that the majority on both sides of the political spectrum agree are "boondoggles" are not changed. But I'm just too dumb for it to make sense to me.

 

[M Paquette]

I seem to recall your making the same arguments on another SS related thread a couple months ago. No one was buying IIRC.

Yah. Alas, while his information is factually correct, it lacks truthiness.

http://en.wikipedia.org/wiki/Truthiness

 

[friar1610]

I joined AARP for the benefits; not their politics. The two periodicals are a nice addition too. When they send me a survey; I fill it in the opposite of how they want. When they send an email; I reply with the reverse of what they want.

AARP isn't as much a lobbyist for seniors as they are probably the largest insurance broker in the world.
Marc

I finally called them up and told them to stop sending me anything having to do with insurance. They did and although I don't get as much mail these days, I have less recycling.

 

[travelover]

These corporations can only avoid paying corporate income tax if Congress provides the loophole and the President signs it into law so IMO you're blaming the wrong people. Also, the same people can close the loophole if they wish to. I'm not aware of any corporation that knowingly violates tax law, but many will take advantage of any benefit the law provides whether Congress intended to provide a benefit or not.

BTW, any conniving is probably done in the Tax Department based on pitches brought to them by consultants - most board members don't have a clue even though a particularly strategy might be presented to the Board.

Makes me wonder if you have any idea what you are talking about.

What you are overlooking is that congress is virtually always in a campaign mode and that takes lots of cash. Much of that cash comes from corporations who trade campaign money for tax favorable carve outs. So, technically corporations pay all they "legally" have to, but congress gets to decide what is "legal". As corporations become more global, it is easier to shield the money off shore in a shell game to game the tax laws.

 

[Midpack]

What you are overlooking is that congress is virtually always in a campaign mode and that takes lots of cash. And ultimately who's the only group that enact campaign finance reform? Congress? Corporations? Grassroots? Other? Much of that cash comes from corporations who trade campaign money for tax favorable carve outs. So, technically corporations pay all they "legally" have to, but congress gets to decide what is "legal". As corporations become more global, it is easier to shield the money off shore in a shell game to game the tax laws.

What am I missing? The folks downstream can't be expected to change the game IMHO. Just as unlikely as expecting individual corporations to pay more in taxes than they're legally required to...

 

[travelover]

What am I missing? The folks downstream can't be expected to change the game IMHO. Just as unlikely as expecting individual corporations to pay more in taxes than they're legally required to...

I agree. As long as Congressmen get re-elected, they are happy and as long as corporations get favorable legislation they are happy. Joe Sixpack is too busy following Kim Kardahsian's latest escapade to try to understand complex tax laws. And besides, a corporate PAC decided who was the candidate in their gerrymandered district, so the election was over before it began.

 

[Midpack]

I agree. As long as Congressmen get re-elected, they are happy and as long as corporations get favorable legislation they are happy. Joe Sixpack is too busy following Kim Kardahsian's latest escapade to try to understand complex tax laws. And besides, a corporate PAC decided who was the candidate in their gerrymandered district, so the election was over before it began.

Campaign finance reform is my only hope (and the underlying cause of so many other issues), though short of a grassroots movement (which seems unlikely these days), I don't see a path...

 

[Independent]

The current interest rate environment has resulted in a huge transfer of wealth from savers (called old people) to borrowers (called young people). These things work both ways.

Right.

The silver lining for me is that the "young people" include my kids - all three have very low interest mortgages. I guess they'll inherit less, but they will get their money early in the form of lower mortgage interest.

 

[pb4uski]

What you are overlooking is that congress is virtually always in a campaign mode and that takes lots of cash. Much of that cash comes from corporations who trade campaign money for tax favorable carve outs. So, technically corporations pay all they "legally" have to, but congress gets to decide what is "legal". As corporations become more global, it is easier to shield the money off shore in a shell game to game the tax laws.

What makes you think I was overlooking it? I was simply responding to a previous post that didn't go anywhere near there.

If congressman (and women) had the balls to do their job right, listen and then decide what is right for their constituents as a whole then it wouldn't be a problem. I seem to recall an old quote by someone in Congress long ago about eating the lobbist's food and drinking their wine and then voting how they damn well want but I can't find it. We need more patriots in Congress with that attitude.

It is folly to blame any taxpayer, corporate or individual, who structures their affairs so as to minimize the taxes they pay. Learned Hand made it clear that it was not a taxpayer's duty to pay any more tax than the law required.

 

[Independent]

Most of what people think they "know" about Social Security is wrong and/or the product of deliberate misinformation spread through the media. The problem with SS is not a large increase in life expectancy (life expectancy for retirees has not increased that much, in fact it has decreased for some groups such as those without college degress), nor is it the result of high-wealth retirees drawing benefits (so that means-testing will not do much to solve the problem) since the vast bulk of benefits rececipients depend entirely or almost entirely on SS to live.
....
Instead about half of the loss of contributions now and in the future is due to the growing inequality in America coupled with the regressive nature of the payroll tax. Over the last 30 years most of the gains of productivity in the US economy have gone to the upper few percentiles.

It's good to look at the facts. The SSA has a paper re historical ratios of "covered" SS earnings to total earnings. I think you're interested in Chart 4 here: The Evolution of Social Security's Taxable Maximum

It's true that growing inequality has moved more of total earnings above the SS maximum taxable amount. But, I don't think that "correcting" this completely solves the SS tax/benefit balance.

Note that the highest share ever covered was about 90% in the early 1980's. We could raise the maximum so that 90% of earnings are taxable. If we did that, and did not use the increased tax base in the benefit formula, we could cover about 1/4 of the long term shortfall.
(That's E3.2 here: Long Range Solvency Provisions )

Of course, completely eliminating the taxable maximum would have a bigger impact (but no cap would be an entirely new idea for SS). That would close more than half the gap. E2.1

The SSA doesn't do an estimate for collecting SS taxes on all forms of income. I'm pretty sure that if we did that, without providing additional benefits, we'd have taxes exceeding benefits. Note that in that case, retirees would be paying SS taxes on their investment income, pensions, IRA withdrawals, etc.

 

[pb4uski]

I was over the cap while I was working as were many of my colleagues. I wouldn't have objected to raising or eliminating the cap and I don't think many people over the cap would object as long as the increase was totally dedicated to solving the SS problem in the long term.

That along with increasing the retirement age for those currently in their 20s (our children in my case, like they did for my generation) would go a long way towards preserving the system.

 

[imoldernu]

A controversial subject at any level. Just a few points about they why's of there being so many people in the "retirement"sector of our population. Why the national debt has grown so rapidly, and why the entire pension part of retirement is so deeply underwater. Obviously open to what others may see, but a snapshot that I see from having lived through the years that began the problems.
.......................................................................

In the 1950's it was common to hear "if you can't make it in business, go into teaching". The pay scale was low.
Through the next 20 years, teaching continued as a low paying positions, augmented by contract improvements for vacation, hours and most importantly, pensions.
Similar situations in the auto industry, and in municipal positions such as fire departments, police departments and some public works.
In many cases, this allowed long term employees to retire with pensions in as little as 25 years, meaning more and earlier retirees... (compared to the years before 1950, when most pensions did not begin until retirement age (60 to 65).
So, many public employees could retire with pensions as early as age 50.
In many cases, lucrative union contracts allowed final pensions to not only include Cola's, but pension payments based on the final year of work wages, rather than averages or the total employment averages.

A case in point: a friend who retired at the same time a I did, in 1989, was sergeant on the Chicago Police force, shared with me that during his final year on the force, he was allowed... encouraged to not only work regular hours, but as much overtime as he could handle. In fact, he averaged more than 60 hours over the final year, boosting his pension based salary by 50%. I don't know the actual amount of his pension, but in 1989, when we both retired at the same time, his pension was more than $80,000... a lot of money even now.
Also... same time, a neighbor teacher friend retired at age 53, with a $53,000 pension.
One more... same time... Canadian neighbors, husband and wife, who had worked at both Ford and General Motors retired at age 56, with $104,000 in (total) pensions.

So here's the point that I see. Of course YMMV, but these pension increases were paid in lieu of wage increases. It was easy to do. The money didn't come out of profits, and the cost could be pushed down the road, to be paid for out of future revenues. The current Pension shortfall in the United States is 2.5 Trillion Dollars. The Fund manager didn't have to answer for this shortfall, nor did the government officials who allowed it to happen. In Chicago alone, the Teachers Pension Fund is $800 Billion below its' obligations.

All of these people, and many more, including many US Military have retired early under contractual agreements.

In a non similar situation, the Social Security deficit was also easily avoided by politicians who refused to equalize the obligations along the way, as well as using (as was and is legal) the funds to finance current obligations.

Just as we borrow to finance "quantitative easing" so too have we been borrowing to avoid paying for necessary increases in Social Security payouts.
...............................................................................

Neither the Social Security, nor the Pension Plans were designed to "kick the can down the road".

From a regulatory standpoint. A failure
From an oversight standpoint. A Failure.
From the corporate standpoint. A success, as the taxpayers will support the unregulated failure of their defaulted pension plans.
.................................................................................

The current solution appears to be:

Cut Social Security.
1. Let the government (Taxpayers) pay for the underfunded Pensions. Not legal, YET!
2. Leave those persons who were honest in their payments into the system, and believed what they were told... Leave them out in the cold.

What in the world ever prompted them to think that their contract with the Government "entitled" them to anything.
..................................................................................

I don't have a personal axe to grind here. I think that DW and I are safe enough for what we expect will be our four or five more years of life. this is not intended as a political statement, as it matters not Republican or Democrat.

It's more of a throwback to what we learned as kids. You pay for what you expect out of life as you go along, and don't dump the expense on the next generation... and yet, that's just what happened, when no one was looking.

 

[BLS53]

I still believe Simpson-Bowles was a missed opportunity. Supposedly, if they crunched the numbers correctly, it would have solved many of the fiscal problems with SS and Medicare for decades to come.

Many of the power brokers, on both sides, approach the problem from an ideological standpoint, rather than finding a solution that would inflict the least amount of pain on the citizenship.

You have the AARP's of the world, unwilling to change anything, and then you have the "self-made man" types, who see SS and Medicare's fiscal problems as an opportunity to force seniors to eat beans and rice.

 

[Khufu]

It's good to look at the facts. The SSA has a paper re historical ratios of "covered" SS earnings to total earnings. I think you're interested in Chart 4 here: The Evolution of Social Security's Taxable Maximum

It's true that growing inequality has moved more of total earnings above the SS maximum taxable amount. But, I don't think that "correcting" this completely solves the SS tax/benefit balance.

Note that the highest share ever covered was about 90% in the early 1980's. We could raise the maximum so that 90% of earnings are taxable. If we did that, and did not use the increased tax base in the benefit formula, we could cover about 1/4 of the long term shortfall.
(That's E3.2 here: Long Range Solvency Provisions )

Of course, completely eliminating the taxable maximum would have a bigger impact (but no cap would be an entirely new idea for SS). That would close more than half the gap. E2.1

The SSA doesn't do an estimate for collecting SS taxes on all forms of income. I'm pretty sure that if we did that, without providing additional benefits, we'd have taxes exceeding benefits. Note that in that case, retirees would be paying SS taxes on their investment income, pensions, IRA withdrawals, etc.

It's correct that the 1983 Greenspan Commission set the level of labor income subject to the payroll tax to be 90%. Currently only 83.2% is taxed and that number is predicted to drop to 82.5%, worsening the funding problem.

The Tax Max charts in the first link of your post show that while the percentage of workers who earn over the payroll tax cap has remained stable at about 6%, the amount of earnings has increased more than that. This is another observation of the upward distribution of income that has increased inequality in America. Another way of explaining the same effect is the fact that the portion of GDP held by companies as earnings relative to the portion received by workers has increased. Still another way of stating the same effect is to note that real wages for the bulk of workers have stagnated for 30 years even in the face of productivity gains.

For this reason returning to the 90% level of payroll taxation instituted by the Greenspan Commission would not be adequate as you point out. Had the wages of American workers kept pace with productivity gains more of the increase in output would have been available to fund SS as Dean Baker argues here:

The Impact of the Upward Redistribution of Wage Income on Social Security Solvency | CEPR Blog

The payroll tax is a particularly regressive tax. Any of us who earned over the cap paid the same dollar amount every year as Warren Buffett. Buffett doesn't think that is fair and neither do I. The widespread practice of paying executives with stock options also moved income income to escape the payroll tax. Therefore, my own view is that the payroll tax cap should be removed completely and, if that does not fully solve the funding problem, an SS tax should be instituted on forms of income not currently subject to the payroll tax.

The founders of the SS system in the 30's and the Greenspan Commission in 1983 never envisioned an America with the levels of inequality that currently prevail. Such inequality can make it impossible to maintain SS which would bring back levels of poverty among the elderly not since since the Depression. In fact, what is needed now is to expand SS to replace the level of support that has disappeared with the decline of private pensions.