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Old 03-22-2013, 09:19 AM   #41
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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...
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Old 03-22-2013, 09:30 AM   #42
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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.
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Old 03-22-2013, 09:45 AM   #43
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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...
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Old 03-22-2013, 10:16 AM   #44
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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.
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Old 03-22-2013, 02:50 PM   #45
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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.
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Old 03-22-2013, 02:54 PM   #46
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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.
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Old 03-22-2013, 03:26 PM   #47
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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.
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Old 03-22-2013, 05:56 PM   #48
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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.
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Old 03-22-2013, 06:10 PM   #49
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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.
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Old 03-22-2013, 06:57 PM   #50
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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.
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Old 03-22-2013, 07:07 PM   #51
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Khufu wrote in part:

...."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."....

Lets do it, damn the politics.
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Old 03-22-2013, 07:14 PM   #52
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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.
Me, too, on the cap. But I think you are wrong about the opinions of the others high income earners. Consider the spokesmen for the movement to cut SS benefits, for instance, Alan Simpson, who previously described the SS system as a "milk cow with 310 million teats." How do you think he feels about making the payroll tax more progressive?

The suggestion to raise the retirement age is an exceptionally cruel one. The gains in life expectancy have largely accrued to the high-income group, who are, as we know, already the winners in life and depend less on SS benefits as Krugman's graph shows:



The age of eligibility for SS benefits has already been raised. If it were raised further the lower-income people who need it most would see their benefits cut while the higher income people, who already paid a lesser percentage in because of the regressive nature of the payroll tax, would end up claiming even more of the benefits, because of their (our?) longer retired life, denied to the lower-income workers.

While it may not be your intention, those who support raising the retirement age, like Mr. Teats-on-a-Cow Simpson, are engaging in class warfare that would increase the inequality in American society.
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Old 03-22-2013, 07:32 PM   #53
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If we were to remove the cap, we should really just fold the whole thing into regular income taxes and budgeting instead of segregating it. Admit it's not a "pension" that has anything to do with what people pay into it (post-cap). It would simply be a basic income program that paid to old folks so they don't have to eat dog food if they haven't saved enough to live on after they can't work any more.

Of course we'd nuke the "hidden" employer portion (self employed people always saw through that slight of the hand) and so have to raise federal income taxes across the board by 15.2% : 6.2% + 6.2% + 2.9% (include the medicare tax too).

I don't see it happening...
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Old 03-22-2013, 09:17 PM   #54
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My friend, I think you are confusing correlation with cause. While there is indeed correlation between income level and life expectancy the cause of the lower life expectancy has more to do with differences in health habits. For example higher proportion of lower income people smoke - that is a fact and a choice that reduces the life expectancy of lower income people as a whole. While you might grant them a pass on SS for making bad decisions, I wouldn't. My guess is that they also don't eat as healthy as higher income people because many of them are buy expensive, unhealthy prepared foods rather than fresh ingredients and cook for themselves. DW was a WIC nutritionist for many years and saw this first hand. While there may be correlation between income level and life expectancy it is because of the poor choices many make. They have the same opportunity to not smoke or to eat healthy that higher income people do.

I would suggest to you that if you looked at a subset of low income people who don't smoke and eat healthier that they probably have life expectancy similar to higher income people who don't smoke and eat healthy.

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.....The suggestion to raise the retirement age is an exceptionally cruel one. The gains in life expectancy have largely accrued to the high-income group, who are, as we know, already the winners in life and depend less on SS benefits as Krugman's graph shows:

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Old 03-22-2013, 09:32 PM   #55
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I would suggest to you that if you looked at a subset of low income people who don't smoke and eat healthier that they probably have life expectancy similar to higher income people who don't smoke and eat healthy.
This is a pretty strong claim. I'm not saying you are wrong but do you have evidence to back this up?

And how would you treat something like a low income making it harder to eat healthier? or if you live in urban depressed areas, you can't get to a grocery store with healthy food (because you have no car and the nearest grocery store is miles away)?
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Old 03-22-2013, 11:27 PM   #56
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My friend, I think you are confusing correlation with cause. While there is indeed correlation between income level and life expectancy the cause of the lower life expectancy has more to do with differences in health habits.

They have the same opportunity to not smoke or to eat healthy that higher income people do.

I would suggest to you that if you looked at a subset of low income people who don't smoke and eat healthier that they probably have life expectancy similar to higher income people who don't smoke and eat healthy.
Ah, now I understand. You live in a just world, where those who succeed do so because of their superior abilities, discipline, intelligence, etc. Very probably, since the average wealth of a group of early retirees would likely be way above the societal average, you yourself are among these virtuous who have been so justly rewarded. Your world is wonderfully simple since there are really no social problems at all, just a collection of individual failures, none of whom is in any way your responsibility.

Let me introduce you to Sir Michael Marmot, director of a WHO commission in 2005, who studied life expectancy differences just among Whitehall (UK Foreign Office) civil servants, a group all of whom would be at least middle-class by UK standards.

In the 1980s, in a series of ground-breaking studies among Whitehall civil servants, Professor Marmot showed that the risk of death among those on the lower rungs of the career ladder was four times higher than those at the top, and that the difference was linked with the degree of control the individuals had over their lives.

The interim report of the commission, in the online edition of The Lancet, says the effects of status syndrome extend from the bottom to the top of the hierarchy, with Swedish adults holding a PhD having a lower death rate than those with a master's degree. The study says: "The gradient is a worldwide occurrence, seen in low-income, middle-income and high-income countries. It means we are all implicated."

Thirty years: difference in life expectancy between the world's rich and poor peoples - Health News - Health & Families - The Independent

Marmot's study doesn't attempt to account for all of the sources of difference in life expectancy, but it does describe a world that is incompatible with the comfortably just world that you imagine.

Since you mention smoking as an example of completely personal decision, you should know about one of the outcomes of the Framingham Heart study.

Researchers analyzing changes in smoking behavior over the past three decades within a large social network found smokers quit in groups and not as isolated individuals. Those who continued to smoke also formed clusters that, over time, shifted from the center of the social network, where social connections are more numerous, to the periphery of the group.
Press Releases for the Framingham Heart Study

Information, including the effects of lifestyle on health, spreads through society through social networks. Those who are plugged in at the top level with friends who are well-educated, read widely, include professionals such as doctors, etc. will have earlier access to better information that will enable them to improve their lifestyle even if their motivation is just to avoid ridicule for being the last smoker in their social circle. This view is also incompatible with a model of society that assumes everyone has the same access to information and the same means to process it.

You can be sure that if the opponents of the SS system succeed in raising the retirement age further, the discrepancy in life expectancy between the low-income and high-income groups will increase. Some no doubt will attribute that increase to individual failings of the low-income group.
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Old 03-23-2013, 12:01 AM   #57
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Khufu, I am fortunate to live in the good ol' USA, a land of opportunity. I think of a good friend and his three siblings. They were all raised middle class and had essentially the same opportunity to succeed. One is a successful professional who is now upper middle class. Another is a small business owner who has also been successful, albeit less so. Another, arguably the most handsome and accomplished of the siblings in his youth, found the demons of alcohol and is now dead. The last squandered his opportunity and is chronically unemployed and struggles from paycheck to paycheck. So while these siblings had the same parents and the same home environment and upbringing, the outcomes have been very different because of the decisions and sacrifices they made.

You seem to suggest that one's success or lack thereof is preordained. While there may be some truth to that hypothesis in other parts of the world, I reject that it is true in this great land of opportunity. There are far too many instances of people of low or modest means having success through guts, grit and determination to make what you believe true.

My advantage in life was a college education and parents who grew up poor and wanted a better life for their children. My graduating class included a broad mix of people from poor, middle and upper income backgrounds. But from graduation forward, it was all up to me and I took advantage of the opportunities that presented themselves. Some of my classmates did better, and some did worse. but we all started from the same point.
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Old 03-23-2013, 06:43 AM   #58
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My guess is that they also don't eat as healthy as higher income people because many of them are buy expensive, unhealthy prepared foods rather than fresh ingredients and cook for themselves. DW was a WIC nutritionist for many years and saw this first hand. While there may be correlation between income level and life expectancy it is because of the poor choices many make. They have the same opportunity to not smoke or to eat healthy that higher income people do.
While the proportion of smokers among the low income is high it is not most and you have it exactly backwards on food "choices." A lot of people have studied food costs trying to figure out the obesity epidemic. They find that it is much more costly to eat whole fresh foods than processed foods. Our government subsidizes the sugar, corn (HFCS), and wheat that goes into those cheap boxes, cans and bottles making them the frugal choice for poor people. We smart, rich people can afford to buy fresh vegetables and lean cuts of meat while we sneer at the poor, dumb neer-do-wells getting fat on the crap we subsidize for them.
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Old 03-23-2013, 07:04 AM   #59
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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.

I remember Charles Rangel having a debate with a Republican... someone in the audience asked why they can not just agree and 'get things done'... his response was something like 'don't trivialize our real difference in how we think things should be'...

IOW, the congress people are usually voting the way they believe.... and the different groups of people send them money because they believe this way.... I do not think many actually vote for or against anything because someone gave them money... they really believe in whatever it is.... even if it is different thinking than you or me...
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Old 03-23-2013, 08:02 AM   #60
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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.
And now? Illinois is broke! Just a joke of a state as far as fiscal management.
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