Robert Reich's Cure for SS Shortfalls

[Mulligan]

What exactly might happen if we don't save SS? What if it was just phased out I think people would keep more of their earnings to invest over the course of their working years and families would take more responsibility to care for their elderly parents.

I'm not that old; but, I wonder what happened before SS was dreamed up in the 1930's? And, what about all of the places in the world today that don't have a SS system? I just don't recall hearing about older people dying in the streets.

The census data coming out today, probably reinforces why there is some need for government to save people from themselves or from us being taxed even more. Household net worth of Hispanics $6 k, Blacks $5k , Whites was more at $120 k, but hardly impressive either. Not making this a race thing, just an example of how many people live hand to mouth and cannot accumulate wealth to live off of whatever the reason may be. Not a big government guy, but in safety net terms of SS, this is proof of the need for it. The people on this forum regardless of race or gender probably have considerable more household wealth than the averages reported in this report. I understand your thought process, but the family unit structure from a hundred years ago is gone. Careers have moved people all over the country, divorce more prevalent, single parent families with no support from missing parent, etc. Not saying what did it or whether it's right or wrong, but it would be pretty difficult to return to that structure now.

 

[harley]

The census data coming out today, probably reinforces why there is some need for government to save people from themselves or from us being taxed even more. Household net worth of Hispanics $6 k, Blacks $5k , Whites was more at $120 k, but hardly impressive either.

No way I'm accepting this statement without some documentation. You mean to say the average white american family has a net worth nearly 25 times the average black family? I did a quick search, and all I could find was a 2004 report. But the numbers in there are far from what you said. Wealth - 2004 Detailed Tables How about a link to what you were quoting?

Not making this a race thing, just an example of how many people live hand to mouth and cannot accumulate wealth to live off of whatever the reason may be. Not a big government guy, but in safety net terms of SS, this is proof of the need for it. The people on this forum regardless of race or gender probably have considerable more household wealth than the averages reported in this report. I understand your thought process, but the family unit structure from a hundred years ago is gone. Careers have moved people all over the country, divorce more prevalent, single parent families with no support from missing parent, etc. Not saying what did it or whether it's right or wrong, but it would be pretty difficult to return to that structure now.

 

[MasterBlaster]

In a nutshell the report that came out today suggested that Black and Hispanic wealth dropped mainly due to housing equity being lost. Whites lost housing equity also, but had other assets which were not hit so hard. hence the conclusion from the report that the news media picked up about the wealth gap between races.

The report was not adjusted for income. I suspect that if you compare families of similar income across race, the results would be much closer.

Nonetheless I am sure we will hear this headline grabber for years to come.

 

[Mulligan]

No way I'm accepting this statement without some documentation. You mean to say the average white american family has a net worth nearly 25 times the average black family? I did a quick search, and all I could find was a 2004 report. But the numbers in there are far from what you said. Wealth - 2004 Detailed Tables How about a link to what you were quoting?

Harley, I wish I could, but I don't know how to link with my iPad. I got it from yahoo news. Article was called "Wealth Gap widens between whites and minorities". it was an AP release so it should be easily found. MSNBC also had a segment on it this morning on Morning Joe. The info was gleaned from the us census that just was released.

 

[donheff]

No way I'm accepting this statement without some documentation. You mean to say the average white american family has a net worth nearly 25 times the average black family? I did a quick search, and all I could find was a 2004 report. But the numbers in there are far from what you said. Wealth - 2004 Detailed Tables How about a link to what you were quoting?

It's twenty time Harley if that makes you feel better.
Wealth gap widens for whites over blacks, Hispanics - Pew - Jul. 26, 2011

 

[Koolau]

The census data coming out today, probably reinforces why there is some need for government to save people from themselves or from us being taxed even more. Household net worth of Hispanics $6 k, Blacks $5k , Whites was more at $120 k, but hardly impressive either. Not making this a race thing, just an example of how many people live hand to mouth and cannot accumulate wealth to live off of whatever the reason may be.

Sounds like one of the anomalies of using "averages". The top 100 guys have net worths in the billions (and they probably are all "white") so it skews the average. (Work your way down the chain of net worths and so it goes.)

Honestly, I don't see much real difference between a net worth of $5K or $6K vs. $120K. They both indicate virtually no chance of retiring without a government (or other) subsidy. Still, the % difference between 5 and 120 will make good political fodder when the real story is that Americans depend too much on SS when it was originally intended only as subsistence safety net. Just my opinion, of course. YMMV.

 

[donheff]

It's twenty time Harley if that makes you feel better.
Wealth gap widens for whites over blacks, Hispanics - Pew - Jul. 26, 2011

I tossed that out rather flippantly because I am concerned with the direction wealth disparity is moving but the choice of median rather than average makes a big psychological difference. Several of the news articles actually use "average" when the study intentionally used "Median." Here is Pew's note about the difference (note we are still talking big disparities) - probably explains Harley's surprise:

Medians and Means: Just as the gap in median household wealth among racial and ethnic groups rose from 2005 to 2009, so too did the gap in mean household wealth. However, the mean differences are not as dramatic as the median differences. (A median is the midpoint that separates the upper half from the lower half of a given group; a mean is an average, and, in this case, the average is driven upward by households with high net worth). In 2005, mean white household wealth was 2.3 times that of Hispanics and 3 times that of blacks. By 2009, it was 3.7 times that of both Hispanics and blacks.

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Edit: here is the actual Pew link if anyone wants details.

 

[Mulligan]

It's twenty time Harley if that makes you feel better.
Wealth gap widens for whites over blacks, Hispanics - Pew - Jul. 26, 2011

Thanks for bailing me out with a link Donheff! My only point in using the numbers, was IMHO a definite need for SS for many Americans.

 

[GregLee]

... but the choice of mean rather than average makes a big psychological difference. Several of the news articles actually use "average" when the study intentionally used "Mean."

"Mean" = "average"

 

[donheff]

"Mean" = "average"

Thanks, even I did it. I meant median - I went back and fixed it so everyone else can be even more confused.

 

[harley]

Well, thanks for the clarifications, guys. I didn't mean to sound like I was attacking Mulligan or anything, I was just blown away by the numbers. I do think that using median would give a better, if less headline-worthy, report. And I've heard that Hispanics and Blacks were much more effected by the housing situation. I guess if in 2005 you have $100K in equity, then in 2009 you are $50K in the hole, it would seriously effect your net worth. And I do think averaging in Bill Gates and Warren Buffet would tend to throw the numbers off a bit too. Still, shocking numbers in general.

Usually in these threads, when they wander off into partisan bickering over raising taxes/cutting spending, someone will say "feel free to send in some extra of your own money". I just read an interesting article about people who have done just that. Showdown encourages citizens to give gifts to reduce debt - The Washington Post

I don't think this is the way we're going to pay off the debt. It's like giving the guy on the corner money. He'll spend it the way he chooses, and not the way you hope he will. We need to find the equivalent of giving the gov't a cheeseburger instead of cash.

 

[Mulligan]

Well, thanks for the clarifications, guys. I didn't mean to sound like I was attacking Mulligan or anything, I was just blown away by the numbers. I do think that using median would give a better, if less headline-worthy, report. And I've heard that Hispanics and Blacks were much more effected by the housing situation. I guess if in 2005 you have $100K in equity, then in 2009 you are $50K in the hole, it would seriously effect your net worth. And I do think averaging in Bill Gates and Warren Buffet would tend to throw the numbers off a bit too. Still, shocking numbers in general.

Usually in these threads, when they wander off into partisan bickering over raising taxes/cutting spending, someone will say "feel free to send in some extra of your own money". I just read an interesting article about people who have done just that. Showdown encourages citizens to give gifts to reduce debt - The Washington Post

I don't think this is the way we're going to pay off the debt. It's like giving the guy on the corner money. He'll spend it the way he chooses, and not the way you hope he will. We need to find the equivalent of giving the gov't a cheeseburger instead of cash.

No offense was taken, and if I was smart enough to know how to attach a link from this iPad, you wouldn't have to had to ask, as the numbers are startling. There are even more studies of groups of Americans that show numbers even worse than this, and we have had a current thread of millions of people who could not come up with $2,000 if they needed to. I just think they all kind of reach same conclusion that the importance of SS for millions of Americans cannot be overstated.

 

[Texas Proud]

In a nutshell the report that came out today suggested that Black and Hispanic wealth dropped mainly due to housing equity being lost. Whites lost housing equity also, but had other assets which were not hit so hard. hence the conclusion from the report that the news media picked up about the wealth gap between races.

The report was not adjusted for income. I suspect that if you compare families of similar income across race, the results would be much closer.

Nonetheless I am sure we will hear this headline grabber for years to come.

One of the problems with a report like this is the huge wealth that a few have.... I remember many years ago when Gates was WAY up there... they compared his net worth with the lowest net worth Americans.... it took 100 million of the poorest people to get the net worth of ONE guy...


That kind of skews the ratio....

 

[Independent]

If we raised the SS cap, the increased revenues will continue to go to the general fund to pay for current spending, just as they have for decades (with a slip of paper in the "trust fund" as a meaningless note of the transfer). These increased funds will not "save social security" or make it solvent in any real sense. It will be clear to everyone that we're just mining another revenue stream to keep the current (general, non-SS) spending rate going while we build up more debt for our kids to pay.
It's more honest just to move to a true "pay-as-you-go" SS system. We make either the payout formula or the SS payroll tax rates constant from year to year and adjust the other (benefit level or SS taxes) to fit every year. Yes, that means adjustments down the road, but that's going to have to happen anyway.

Advantages:
1) We break the unhealthy link between the general fund and SS. Each budget sheet becomes clear and self-supporting. Neither SS nor the general fund will be looked upon as "billpayers" for the other.
2) It makes the intergenerational "contract" of SS explicit. No one will be under the illusion that they are somehow building up an individual account in a lockbox somewhere. When you work you pay so that oldsters can get a modest check. When you are old, new workers will pay so that you'll get a modest check. If you don't trust this system, save money of your own.

Yes.

 

[Independent]

No its not evil but why not manage SS collections as a true pension fund with a conservative allocation of stocks, bonds and cash?

Because SS is primarily a pay-as-you-go system. Over most of its history, most taxes collected have been distributed as benefits in the same year the taxes were collected.

All this discussion of trust fund and IOUs etc. is the result of the 1983 act that increased taxes by more than benefits. I've heard that the players at that time were working with projections that were too conservative and didn't realize that SS would run a surplus for so many years. But those surplus years seem to have ended (sooner than more recent projections had estimated, due to the recession). So there is no surplus cash flow today to invest.

 

[Independent]

raising the tax cap would fix more then 35% of the problem, per 12 Ways to Fix Social Security - Planning to Retire (usnews.com)

quite some time ago i suggested removing the cap and putting a new knee in the benefit formula at the $106,800 point and above (if i remember correctly it was 5%). i am thinking that would still work.

This suggests that the SS shortfall is only 17%, since 83% of all wages are captured by the tax. I am pretty skeptical of this claim since most analysis talks about 25-30% reduction in the benefits for today's 35 year old when the reach 70, or when the "trust fund" runs out. It might make a nice down payment on solving the problem, but probably not the whole thing. Obviously there is a political problems for raising taxes on the top 6% or so of people making over 100K and not raising their benefits.

If you want the numbers, the best place is the original source - Individual Changes Modifying Social Security

The SS actuaries have calculated the impact of many different changes. The advantage of going right to their data is that they show year-by-year impacts. Often, immediate changes just increase the trust fund (with all the attendant complications) and still don't balance the out years.

Change E 2.1 is the simple "make all earnings subject to tax" proposal. But they have 35 more with varying degrees of complexity.

 

[donheff]

All this discussion of trust fund and IOUs etc. is the result of the 1983 act that increased taxes by more than benefits. I've heard that the players at that time were working with projections that were too conservative and didn't realize that SS would run a surplus for so many years. But those surplus years seem to have ended (sooner than more recent projections had estimated, due to the recession). So there is no surplus cash flow today to invest.

True, and that makes the SS problem larger than anticipated absent the recession but not huge. There are a number of modest changes that fix SS without major cuts beyond a COLA tweak, primary among them raising the earning caps. The bigger problem will be non-SS revenues needed to pay back the trust fund. That should not come from the SS payroll tax which would be a regressive double hit on workers.

 

[Texas Proud]

True, and that makes the SS problem larger than anticipated absent the recession but not huge. There are a number of modest changes that fix SS without major cuts beyond a COLA tweak, primary among them raising the earning caps. The bigger problem will be non-SS revenues needed to pay back the trust fund. That should not come from the SS payroll tax which would be a regressive double hit on workers.

Agree.... the problem now is that the funds have to be paid back from the general fund and there is nothing there to be able to pay it back...

From an accounting prospective, the general fund has been borrowing a lot more than people thought and the debt is a lot higher than what they keep telling us.... SS is not that bad, but the general fund is so bad that SS will take the hit along with everything else....

 

[donheff]

Agree.... the problem now is that the funds have to be paid back from the general fund and there is nothing there to be able to pay it back...

From an accounting prospective, the general fund has been borrowing a lot more than people thought and the debt is a lot higher than what they keep telling us.... SS is not that bad, but the general fund is so bad that SS will take the hit along with everything else....

Yes, I expect that you are right.