Independent said:
Tadpole - You can check the long-term assumptions yourself. They are in table II C-1 in the 2006 Trustees report on the SSA website. I'll try posting a link here:
www.ssa.gov/OACT/TR/TR06/II_assump.html#wp95492
The most important assumptions are the demographic ones, because they determine the ratio of workers to retirees.
I think that the date when the "trust fund" runs out is less important than the date when SS first attempts to cash in some of those bonds. This is projected as 2017, and this date isn't so sensitive to a lot of long term assumptions.
At that point, we have the political problem of determining how the "general fund" part of government is going to repay "social security" for the $2 trillion of accumulated borrowing.
I agree with all the people who say that the real problem isn't Social Security, it is the rest of government that has been running big deficits for a long time. I think the big political issue around the "trust fund" is that Social Security is funded by a mildly "regressive" payroll tax, and the General Fund is funded primarily by "progressive" income taxes. The people who pay income taxes have been borrowing from the people who pay SS taxes since the SS tax rate was raised in the mid-80's. At some point before 2017, I hope we face up to that.
So when SS taxes don't completely cover SS benefits, will we: (1) Raise income taxes, or cut General Fund programs, so the General Fund can repay SS? or (2) Cut SS benefits, or raise SS taxes, so the General Fund taxpayers don't have to repay the debt?
Of course, a lot of people around the upper middle pay about the same SS tax as they pay FIT, so if it's a tax increase they really don't care if it's on the payroll tax or on FIT. But high income, and median to low income, people do care (or should, if they understand the issue).
I have read the trustee reports and demographics have nothing to do with my statement about what seems to be overly pessimistic parameters used in the models. Perhaps the US economy will be far worse than ever seen before, perhaps not. Who knows? So far it has performed better than even the low-cost model has been predicting. My comments are simply based on current cash reserve build-up in the fund. The problem is that, given the current trend, the trust fund will balloon beyond belief if we continue to buy only federal securities. I imagine that when the trust fund was first set up, it was thought that the 75-year pay-go would need less adjustment at the new tax rate but I don’t think anyone realized how large the trust fund would grow. The estimate of how high the tax needed to rise in the ‘80s was evidently too high. Of course, this could mean that Greenspan was an idiot and everyone knows he is the shining light of all that is genus (NOT).
And yes, taxes should rise if for no other reason that the general fund is a debt of all the people, not just those that are regressively taxed under a SS cap. Those who had a little extra in their paychecks to invest, earn capital gains and dividends on and to buy rental property and McMansions will, quite simply, need to pay the money they borrowed back. After all, haven’t we been told that money, privately invested over the last 50 years, has outperformed government securities by leaps and bounds? There should be a little excess ROI to repay a loan. What is happening is that a regressive tax is being used to reduce a progressive tax. Some may think that is just fine but I don’t especially when the budget is not even balanced. I consider this phenomena to be, politely, exploitation of the worker.
The payback should be configured to be progressive. Some people like the Ball plan because it proposes to use the estate tax to pay the shortfalls. I don’t know because, at the current time, the estate tax is going into the general fund and the general fund is not balanced. The money to replace the lost estate tax will need to come from somewhere. Other people propose a means test for benefits. I oppose this because it hits the highest achievers in the workforce the hardest and hardly touches the wealthy. A means test would need to eat way down the income level in order to have enough benefits cut to be useful because most the payback is progressive. To find enough benefits to cut to restore pay-go, you would need to hit moderate income retirees of modest means who sacrificed to save a little extra and have a house. By the way, many of us have lived in a higher tax rate era and somehow thrived.
I would rather pay taxes now while the boomers are still working and making their highest pay than to see thousands of people that are old, helpless, and cold. The Lafler curve just doesn't create enough revenues to make up the difference of lost taxes. I don't know how many times we are going to buy into this free lunch. Just look at the debt built up over the last six years. You can buy into your government projections of a balanced budget in just a few years but you better pray that normal economic cycles, which include recessions, do not occur. All you are doing while you wait for that balanced budget to raise it’s illusive head is adding to the DEBT. Unlike the deficit, which goes to zero with a balanced budget, the DEBT just sits there and laughs at that balanced budget while it accrues interest.
What do I think will happen? A little of everything if the US economy remains viable. Dollar devaluation, benefit cuts, more old people in the workforce, lots of talking about rethinking euthanasia laws, and higher taxes. Perhaps we will even learn to spend money responsibly, but don’t hold your breath on that one. I think, for the most part, people will get most of their promised benefits but the worth of those benefits will be eroded. So we will still need food stamps, Medicaid, etc. to help those at the bottom. Ultimately it will cost, one way or another, if people live as long as projected.
But I don’t think people will live longer unless we have giant breakthroughs in research on diabetes, cancer and other old age diseases like Alzheimer’s. You see the boomers, especially the early ones, grew up as children in a TV society that was increasingly polluted. I don’t know how much DDT I ingested as a kid but it was a lot. Leaded gas was all there was. Factory chimneys had no scrubbers. Who knows the life span of a generation growing up under these conditions, especially with a lifestyle that was increasing sedentary and, for some, very unhealthy? Then too, who knows what medical research will produced? It’s a crapshoot.
Another point just for putting us, hopefully, on the same page. The boomer era is a curve of population that rises to a peak and then drops. Not all boomers will retire on the same day as pictured by some people.
I like to ask people the following question. I have a neighbor that has made the exact same salary as I have all our lives. He squandered every penny and I lived frugally and saved every penny I could. We are promised the same SS benefit per month and coincidentally my savings will buy an annuity exactly equal to my promised SS benefit. Should he get his and I lose mine? (This is, admittedly an exaggeration to make a point.) If you say that I should lose some of mine then why did I have to use my paycheck to save for his retirement? If you had told me that I would pay into SS and have my savings taken away, I would have known that I needed to live the lifestyle of my neighbor or increase my savings to save a pot of money for him too. The reason I use this example is to explain the effect of a severe means test on some moderate-income seniors. Finding a solution by pooling all the boomer assets and redistributing them is taxing a smaller population and making the per person impact more severe than necessary. The debt is owed by the general fund (all the people) not just the people who just so happen to be retired at the moment.
Hopefully, that was clear even if you disagree with the point it tries to make. Now, I have an ROI on the money I borrowed through my lower taxes; how much did I borrow that should be paid back? It’s complicated but each citizen that has enjoyed lower taxes has a bit of loan to repay. Now, if the US credit can be made “the best in world” again, perhaps there isn’t as much a problem as projected. But in order to replace some of the SS securities by selling new securities, the debt cannot continue to build. That is my reasoning and that is why I want taxes raised to pay for all these new ways we have found to give taxpayer dollars to people who contribute large amounts to campaign funds.