Robert Reich's Cure for SS Shortfalls

[haha]

The Only Social Security Reform Worth Considering: Raising the Ceiling on Income Subject to It

Reich says SS needs only an increase in the top limit of income taxed to make it solvent.

Budgetary Stupidity (II): Why Medicare Is the Solution -- Not the Problem

And also that Medicare is not a problem, but a potential solution to medical costs. What is the barrier to doing this? As usual, greed and corruption.

Ha

 

[samclem]

Reich claims to be addressing the problem 26 years down the road (when the "trust fund" runs out of money), then claims the solution is to increase the "cap" on earnings subject to SS, which would allow the trust fund to pile up more IOUs and allow it to go for more than 26 years before running out of these slips of paper.

I'm fairly sure his real goal, the one that addresses a real present problem, is to lift this cap so that more money flows into SS and we can therefor go for a few more years before the cash flow is negative again. Because when the cash flow goes negative (as it is right now), the mask is effectively pulled off and we see the ugly truth: That these IOUs will need to be paid by taxpayers with real money in the present year, and every year, and that adds to the deficit problem. Reich surely wants to paper over this problem for a couple more years, because this is a very inconvenient time for it to arise, what with the public and politicos finally focused on the deficit/debt issue.

 

[jdw_fire]

Reich claims to be addressing the problem 26 years down the road (when the "trust fund" runs out of money), then claims the solution is to increase the "cap" on earnings subject to SS, which would allow the trust fund to pile up more IOUs and allow it to go for more than 26 years before running out of these slips of paper.

I'm fairly sure his real goal, the one that addresses a real present problem, is to lift this cap so that more money flows into SS and we can therefor go for a few more years before the cash flow is negative again. Because when the cash flow goes negative (as it is right now), the mask is effectively pulled off and we see the ugly truth: That these IOUs will need to be paid by taxpayers with real money in the present year, and every year, and that adds to the deficit problem. Reich surely wants to paper over this problem for a couple more years, because this is a very inconvenient time for it to arise, what with the public and politicos finally focused on the deficit/debt issue.

when will the SS trust fund bashing stop? those "IOUs" or "slips of paper" are equivilant to US government T-bills/T-notes/T-bonds. all the trust fund has done is provide a steady supply of demand for federal debt. and when the time comes for the SSA to cash them in, that will be the same as any T-bill/T-note/T-bond holder cashing in theirs. nothing evil here!

 

[donheff]

I'm fairly sure his real goal, the one that addresses a real present problem, is to lift this cap so that more money flows into SS and we can therefor go for a few more years before the cash flow is negative again.

Haven't even looked at it but I assumed that Reich is proposing to raise the income cap but not commensurately raising the benefits, thus making SS more progressive and fully funding it. There are reasons to oppose such a move but no reason why it couldn't make SS sustainable long term.

Edit: just read the two pieces. Not a lot of details other than raise the SS cap to cover 90% of wages (which it was originally intended to cover). And allow anyone to join Medicare as a primary insurer (presumably a debt neutral rate would have to be established). I bet if those proposal were put in front of the American people as something to vote for or against they would be adopted.

 

[samclem]

Haven't even looked at it but I assumed that Reich is proposing to raise the income cap but not commensurately raising the benefits, thus making SS more progressive and fully funding it. There are reasons to oppose such a move but no reason why it couldn't make SS sustainable long term.

He doesn't even address the payout to the high earners, but if they stick with the present formula it would be so low as to be virtually inconsequential. And he is making the case that it helps SS long term. But I still suspect his more important motivation is to keep the cash flow positive for a couple more years until the present imperative to do something about the debt/deficit has passed. Once taxpayers start having to pay off those "special" Treasury notes owed to SS, folks will start talking about reducing the rate at which they are being cashed in--through benefit cuts or higher SS taxes.

 

[donheff]

Once taxpayers start having to pay off those "special" Treasury notes owed to SS, folks will start talking about reducing the rate at which they are being cashed in--through benefit cuts or higher SS taxes.

As JDW says, those notes are not special. The trust fund was paid in full by you and me. If SS gets paid back less than dollar for dollar that is a default plain and simple. Look at the polls -- everybody bitc**s about taxes but they all say leave my SS (and Medicare) alone. There are a lot of ways to get to solvency without cutting these programs to the bone. I prefer some that would limit growth (COLA changes to SS, for example) but doing away with them as we know them -- nope.

 

[samclem]

As JDW says, those notes are not special. The trust fund was paid in full by you and me. If SS gets paid back less than dollar for dollar that is a default plain and simple.

They actually are a special series of notes. But more importantly, from an annual budget perspective, if SS needs money to pay benefits, then it "sells" the notes to taxpayers. From a "pain" perspective, it "feels" exactly the same as if the taxpayers were simply pumping money into SS every year sans these special notes. Every year, for decades, the amount of money taken from taxpayers and transferred to SS will increase. Viewed this way, the notes are totally irrelevant, just a way of keeping track, as if it mattered, of how much SS tax money was spent for current "needs" the year it was received. That money is long gone, and when the last note is gone it will have zero practical impact--the transfers from the general fund to SS will continue just as before, because they must in order to pay what SS recipients have been promised. Or, we cut benefits.

 

[donheff]

They actually are a special series of notes. But mor eimportantly, from an annual budget perspective, if SS needs money to pay benefits, then it "sells" the notes to taxpayers. From a "pain" perspective, it "feels" exactly the same as if the taxpayers were simply pumping money into SS every year sans these special notes. Every year, for decades, the amount of money taken from taxpayers and transferred to SS will increase. Viewed this way, the notes are totally irrelevant, just a way of keeping track of how much SS tax money was spent for current "needs" the year it was received. That money is long gone, and when the last note is gone it will have zero practical impact--the transfers from the general fund to SS will continue just as before, because they must in order to pay what SS recipients have been promised. Or, we cut benefits.

Can't disagree with any of this except that the money taken from payroll and "transferred to SS" is not irrelevant. From this point of view the solution seems to me to be a social security system funded from the general funds (i.e. income tax, cap gains, etc). In that case, the fat cats would squeal because they would pay for more of it than they currently do. As things stand, the SS payroll taxes affect the working class much more than the top earners.

 

[gerntz]

The Only Social Security Reform Worth Considering: Raising the Ceiling on Income Subject to It

Reich says SS needs only an increase in the top limit of income taxed to make it solvent.

Budgetary Stupidity (II): Why Medicare Is the Solution -- Not the Problem

And also that Medicare is not a problem, but a potential solution to medical costs. What is the barrier to doing this? As usual, greed and corruption.

Ha

Why insert the word "only"? A 12%+ rate increase (including employer part) on those making over the limit ($105K/person?) is an "only"?

 

[Lancelot]

when will the SS trust fund bashing stop? those "IOUs" or "slips of paper" are equivilant to US government T-bills/T-notes/T-bonds. all the trust fund has done is provide a steady supply of demand for federal debt. and when the time comes for the SSA to cash them in, that will be the same as any T-bill/T-note/T-bond holder cashing in theirs. nothing evil here!

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

 

[Telly]

As soon as I read this quote:

Reich says SS needs only an increase in the top limit of income taxed to make it solvent.

it smelled.

Ol' Robert has blown a fuse. I read his article in the link. A non-Robert Reich commision came up with that "fix" as only fixing 35% of the SS shortfall.

Remember this? http://www.fiscalcommission.gov/sit...files/documents/TheMomentofTruth12_1_2010.pdf

Go to document page 51, Recommendation 5.6 for the description. Then go to document page 54, Figure 12: Social Security Reform Provisions to see the effect of that one provision alone... over 75 years, the share of existing shortfall closed by that provision alone is only 35%.

EDIT: Unless Reich wasn't going to phase-in the raising of the cap rate, instead, like, "let's just start doing it all next week." Even then, I don't know whether it would stretch to really cover 100% of the shortfall given even that extreme approach. Seems doubtful.

 

[clifp]

As soon as I read this quote:
it smelled.

Ol' Robert has blown a fuse. I read his article in the link. A non-Robert Reich commision came up with that "fix" as only fixing 35% of the SS shortfall.

Remember this? http://www.fiscalcommission.gov/sit...files/documents/TheMomentofTruth12_1_2010.pdf

Go to document page 51, Recommendation 5.6 for the description. Then go to document page 54, Figure 12: Social Security Reform Provisions . Seems doubtful.

Thanks for finding this. That was my immediate reaction to his proposal, you don't raise enough money by eliminating the cap. I don't fundamentally oppose the idea of getting rid of the cap. But lets call it what is a tax hike on the upper class.

It also reinforce my belief, there are always simple solutions to complex problem. There just aren't simple solutions to complex problems that actually work.

 

[jdw_fire]

As soon as I read this quote:
it smelled.

Ol' Robert has blown a fuse. I read his article in the link. A non-Robert Reich commision came up with that "fix" as only fixing 35% of the SS shortfall.

Remember this? http://www.fiscalcommission.gov/sit...files/documents/TheMomentofTruth12_1_2010.pdf

Go to document page 51, Recommendation 5.6 for the description. Then go to document page 54, Figure 12: Social Security Reform Provisions to see the effect of that one provision alone... over 75 years, the share of existing shortfall closed by that provision alone is only 35%.

EDIT: Unless Reich wasn't going to phase-in the raising of the cap rate, instead, like, "let's just start doing it all next week." Even then, I don't know whether it would stretch to really cover 100% of the shortfall given even that extreme approach. Seems doubtful.

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

Modify the Social Security tax cap. Workers pay into the Social Security system on earnings up to $106,800 in 2010. About 83 percent of worker earnings were subject to Social Security payroll taxes in 2008. If all earned income above $106,800 annually were subject to Social Security contributions but did not count toward benefits, Social Security’s projected deficit would be completely eliminated. If the higher income counted toward Social Security benefits, about 95 percent of the shortfall would be absolved. Other ideas: apply a new Social Security formula to earnings above the current cap or raise the amount of the income cap to apply to 90 percent of all worker earnings.

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.

 

[clifp]

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.

 

[chinaco]

Staunch Democrats will want it done with 100% new taxes.

Staunch Republicans will want it done with 100% SS and Medicare cuts.

Independents, and center oriented Democrats and Republican tend to be somewhere in between.

The population is 310M. about 75M are below 18. That leaves 235M eligible voters.

There are 75M boomers and about 6.5M earlier generations.

That is 81.5M.... most of which vote. 235M - 81.5M = 153.5M

Many (almost all) of those prior generation voters have parents who are counting on SS and Medicare. There will be family discussion about mom and pop making ends meet.

It will be an interesting election. It will be very polarized on this issue!

How many already know how they are going to vote?

 

[gerntz]

I didn't know we had issues elections at Fed level. Thought we voted for people.

 

[ERD50]

I didn't know we had issues elections at Fed level. Thought we voted for people.

I was confused by that comment also.

Knock, knock, knock - is the SOAPBOX open?

-ERD50

 

[samclem]

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

It would make the government a stakeholder in most US businesses. That results in lots of government "help," etc.

 

[ziggy29]

And also that Medicare is not a problem, but a potential solution to medical costs. What is the barrier to doing this? As usual, greed and corruption.

I'd say it a bit differently: Medicare *is* a problem, but it's a problem for the same reason the rest of the U.S. health care mess is a problem: inability to control runaway costs. That is the primary nut to crack, IMO, and one that would make all the other health care problems **much** easier to address.

Any serious health care reform must start with cost containment. Otherwise any other reforms are doomed to failure.

 

[Koolau]

I think it's a good exercise to look at "saving" SS or in some fashion dealing with the SS "problem". It's probably an even better exercise to be (currently) looking at the $14+ trillion deficit and what we might do to deal with it. But, as at least one of the resident pessimists, I am haunted by the carefully documented work of Burns and Kotlikoff in their 2004 book THE COMING GENERATIONAL STORM. IIRC their estimates were that SS is a $10 Trillion dollar problem. Unfortunately IIRC Medicare was a $60 Trillion dollar problem. So as Al Sleet (aka the Hippy Dippy Weatherman, aka George Carlin) would say "I wouldn't sweat the thunderstorms" as the weather radar was picking up a squadron of Russian ICBMs. YMMV

 

[samclem]

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.

 

[Mulligan]

In relation to coming generational clash over SS, Chicano brings up an excellent point. As thought process for younger ones deepens from the "our generation is getting the shaft", could change to " if drastic cuts are made to SS/Medicare my parents who have no money will become my financial problem". This may in turn cause them to be in favor of more tax increases. Not saying it's right or wrong, it just could change the thinking process as the specifics hit closer to home.

 

[haha]

I'd say it a bit differently: Medicare *is* a problem, but it's a problem for the same reason the rest of the U.S. health care mess is a problem: inability to control runaway costs. That is the primary nut to crack, IMO, and one that would make all the other health care problems **much** easier to address.

Any serious health care reform must start with cost containment. Otherwise any other reforms are doomed to failure.

I think you are agreeing with his position, but saying it differently. The issue is not Medicare, but medical costs. Medical costs throughout our system are out of control, and in some aspects, (administration) Medicare is much cheaper than other insurance schemes. Another thing frequently overlooked by those who wish to gut Medicare is that of course old people and/or people on disability cost more to care for. They're old for Heaven's sake!

Although I am generally a Burkian Conservative, I think the US model of medical payments is insane. Likely no more so than many other aspects of US life, but insane nonetheless.

Ha

 

[gerntz]

Government has promised too much to seniors for the resources likely available IMJ. As long as I believe that to be true & government doesn't correct it, then I'll feel obligated to pass back some of what government gives me to my descendents to compensate them for this malfeasance - versus hoping to die they day I've spent my last penny.

 

[cb7010]

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.