Old Age Having A Go At Youth

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New at Reason: Julian Sanchez fights the future of budget-busting benefits.

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  1. Okay we all know there is a problem and the problem gets worse the longer we wait and the more new goodies are added to the mix. What we need is some straight information on solutions.

    Does anyone know of any studies which show the impact of any of the following reform on reducing Medicare and/or Social Security’s unfunded liabilities:

    1) Letting younger workers invest a portion of their FICA dollars in exchange for foregoing benefits
    2) Phasing in a higher retirement age to say 70 or 72
    3) Correcting the Cost of Living Adjustments which most economists agree overstates inflation which means that instead of entitlement recipients keeping up with inflation, their standard of living is actually increasing
    4) Means testing at different levels of income and/or assets

    I think it would helpful if someone could provide some studies or sites which have some information on what any or a combination of these or other reforms would do to mitigate the problem.

  2. I just cannot see how this can be stopped. The AARP is the largest interest group and will only get larger.

    Everyone knows a potential member….or two.

  3. Here are the five stages of grief:

    1) DENIAL
    2) ANGER
    3) BARGAINING
    4) DEPRESSION
    5) ACCEPTANCE

    Judging from the fact that 75% of the general public thinks the entitlements can go on without any budget or deficit ramifications makes it pretty clear they are in Stage 1.
    AARP is probably in Stage 2– “What do you mean, reduce my benefits!!! I paid into Social Security all my life!!!!”
    CATO is at Stage 3– “Well, if we just allow private accounts; yeah, that’ s the ticket, that will solve everything.”
    Me, I’m at stage 4. Perhaps I rationalize with the biker aphorism: “I used to be disgusted, now I’m just amused”.

    What has died is the republic. We now have a democracy. Like all democracies of history, it will degrade further and further as people vote themselves more and more swag, until finally, it will end in tyranny. Always. Die beloved country, die.

    Oh, and the 5th level? Well, that has to be Terry Gilliam’s movie “Brazil”. Central Services on the way folks. Enjoy.

  4. I hate to be a pessimist, but really there is no way to solve the problem without a significant chunk of the population being screwed. Someone has to keep pumping in the tax dollars to pay for those that are still on it- if you went for a gradual end to SS. In the case that you simply ended it, all of the people that paid in and never received any money back are all screwed. For the population and especially the pols to stand up and be honest with the situation will require some sort of significant development- i.e. skyrocketing taxes, inflation, default, etc.

  5. yeah, you’re definitely in 4.
    Maybe this will help:
    http://home.hawaii.rr.com/snlcn/franken/stuart.html

  6. The worst case scenario here is not the collapse of American society — it’s pumping up the FICA tax to something like 50%-100% above what is now. That would seriously burden workers and would certainly raise unemployment. That’s an unattractive prospect to be sure, but it’s not the end of the world.

  7. Right yelowd.

    How do you fight against an entrenched interest who if focused on obtaining benefits for a specific group of people, while the costs are spread out amongst tens of millions of taxpayers?

    You don’t.

    Maybe once a threshold is crossed where the costs are spread out amongst a shrinking pool while the beneficiaries grow to an equal size.

    Maybe then, but right now…no. The costs are diffused and thus opposition is difficult to organize while the benefits are large and go to a smaller(but growing)group of beneficiaries.

  8. That’s one of the problems with the burgeoning welfare state. In the course of paying for it the whole economy is made less productive and with the projected demographics the effect is going to be exacerbated. Every one is adversely effected, making the net take even for seniors, for example, whose medicine is subsidized, less attractive. This is the argument that must be made to older people. They don’t want to see the whole economy throttled. Most have younger people that they care for.

  9. There are two solutions that I see. First is that Democrats gain some sanity after this election and join with Republicans in passing a bipartisan private account option for Social Security in 2005. This is the unlikely variant. The more likely one is that enough extra Republicans get elected to the Senate that the filibusters don’t hold and a largely Republican written bill gets passed in 2005.

    If the Republicans back away from their own reform proposals, there’s no reason left not to go third party.

  10. Alkali and shane-

    You can’t fight it. You end up with “reform” such as the prescription drug plan. The republicans did us a favor because it’s less than what the dems would have done… gee, that’s great.

    The problem, too, is that since we have given ourselves over to democracy the group paying for the boomers and greatest generation is too small (even if united) in numbers to make significant reforms possible.

    As for major tax increases, that would definitely change America. I’m not going to try and theorize on what exactly would happen, but the steps Paul listed would definitely be run through fairly quickly.

  11. Benefits begin at age 75 or after age 65 when your gross yearly income for the past 2 years has averaged at the 30th percentile or below.

    Benefits end after 10 years. Maybe your kids and grandkids will be able to help you with the hundreds of thousands of dollars they saved.

    Yeah, that’ll happen. Anyone have a good way I can be a tax protester without going to prison?

    Erik
    Who is looking down a 45 year long gun barrel at this point.

  12. How come nobody mentioned what could happen if the US completely opened its borders then dropped frequent flyer miles like leaflets over places like Bangladesh?

  13. I wasn’t aware that Julian had become an economist. Wow! The things that happen when you go away for awhile. Congratulations.

  14. tm- you’re kidding right? If only the republicans had more control of the house, the senate, and the executive branch, then they’d fix things….good luck with that.

    It seems that the most reasonable solution is to continue to provide benefits to those receiving them currently. Then to look at the group that will be “entitled” to benefits over the next 5 yrs (randomly picked) and consider ways to scale back their benefits. Now the tricky part is paying for it. Those more than 5 yrs away from retirement would have to have their taxes raised to do this. People will also get fire pissed because they’ll finally see that the gov’t was stealing their money.

    As for privatizing, the problem I see is that the gov’t is still depriving people the free use of their money. Essentially, the younger generation will be deprived of 7.5 -14% of their income that they could use as capital to invest as they see fit (this is already going on). If the economy is weakening because the boomers and older are bleeding it white, then it seems to me that capital will be scarce and desperately needed.
    In addition, the notion of the gov’t having to approve mutual funds and particular stocks that everyone in the country is forced to pick from and invest in seems to border on fascism (the economic one, not hitler). The capitalists will see a feast of easy money to gorge on. Can you imagine the potential for corruption?

    BTW, Reagan raised the rates in the early 80’s when SS collapsed. He also raised the retirement age.

    Personally, I’d say pay off your debts over the next couple of decades and pray you can ride it out.

  15. The problem as I see it is that the people who got us into this mess are the ones that are now claiming hardship when we try to get out of it. Every single proposal for actual reform (not including the ones that are called ‘reform’ like the new prescription drug giveaway) is characterized by ‘well, let’s screw the young people less than they’re screwed now, and they should be happy with that.’ I mean, ‘let’ me put a ‘portion’ of what I’m paying now into an account for me? All because someone else had the gall to presume to take what I’m working for before I was even born. I know there isn’t much that we can do now, and I know there isn’t even a point to getting upset about it, but I’d still like to see some more of the proposals to straighten out this mess put more of the responsibility where it belongs, on the people who made the bad investment decisions whenever, and just went ahead and relied on ‘the government’, whether they realized it was their (and everyone else’s) kids and grandkids or not, to provide for them, instead of taking care of it themselves. It may not be reasonable, and it may not be compassionate, and it may not be nice, but at least bringing up the subject might get people to realize who is responsible for this.

  16. Good call highway. I only presented what might be just barely acceptable in this country. My belief is that if you didn’t prepare, too bad for you. Let your family, church, whatever help out freely if they see you’re in need.

    Let the age war begin.

  17. The US is going 90 miles an hour toward a cliff, but hasn’t the EU been going 95 miles an hour that way for even longer?
    What do they propose?
    As an anarchist, mind you, I rub my hands with glee. I don’t really want a “solution.” I’m just an interested observer.

  18. Thorley Winston writes:

    Does anyone know of any studies which show the impact of any of the following reform on reducing Medicare and/or Social Security’s unfunded liabilities:

    1) Letting younger workers invest a portion of their FICA dollars in exchange for foregoing benefits
    2) Phasing in a higher retirement age to say 70 or 72
    3) Correcting the Cost of Living Adjustments which most economists agree overstates inflation which means that instead of entitlement recipients keeping up with inflation, their standard of living is actually increasing
    4) Means testing at different levels of income and/or assets

    2, 3 and 4 will all clearly reduce the amounts necessary to keep SS and Medicare going, and if you locked a moderately talented actuary into a room, you could get answers. (I would point out as to 2 that there is a limit to how high you can push the retirement age, particularly for manual laborers who disproportionately depend on Social Security.)

    As to 1: it is clear that if the rules provide that people can invest a portion of their FICA tax outside SS if they are willing to accept a lower payment later, that will reduce SS’s out-year liabilities. However, that opt-out will mean that that money is unavailable to pay SS’s current obligations. The transition cost would have to be financed (i.e., borrowed) and the amounts involved would be very large. This is not a dispositive argument against providing for opt-out — maybe we’d decide that we want to bear that cost in order to change the system — but it is an unavoidable fact.

  19. Thorley-
    Try Diamond and Orszag’s stuff (search at the Brookings site), but also be sure to go to Cato’s “socialsecurity.org” and read Andy Biggs’s memo pointing out that they use a messed up baseline to make private accounts look bad by comparing their payoffs to unpayable benefits under current law. The American Academy of Actuaries has plenty of stuff as well. I think the Urban Institute has done some work here too. The trustees of Social Security have scored out various sorts of private accounts plans; you can read their report at the SS site, or Andy Biggs’s summary at the Cato social security site. (Sorry for not providing links; all this stuff should show up pretty easily via Google.)

  20. Here are four links:

    Brookings (moderate leftish)
    Cato (libertarian leaning)
    Andrew Biggs at Cato (ditto)
    SSA Trustees’ reports (bipartisan)

    I would observe that you need not be an expert on retirement policy to know that there is no simple, costless answer to the problems Social Security faces. In particular, any person who says we should let people invest their FICA tax in private accounts and doesn’t explain how Social Security’s current obligations are to be funded is not thinking seriously about the problem. Likewise, anyone who thinks that they have discovered that Social Security is a “fraud” or “Ponzi scheme” — with the implication that we don’t need to worry about transitioning out of the current system because it is doomed to catastrophe — is not really thinking about the problem. The people linked above are really grappling with the issues, not with strawmen, and are worth reading.

    I would also add to JS’s immediately previous post that his paraphrase of Biggs’ criticism might be read to suggest that Biggs is accusing his adversaries of being intentionally deceptive. I don’t think that he is.

  21. I love how all these silver foxes show such concern for their grandkids, until it means pulling out their wallets. Simple solution? Two words: Logan’s Run.

  22. Posted by yelowd at December 30, 2003 01:33 PM:
    yeah, you’re definitely in 4.
    Maybe this will help:
    http://home.hawaii.rr.com/snlcn/franken/stuart.html
    ==================================================

    Thank’s for the self help tip– this will suppliment my Dr. Gene Scott watching – laughter is the best medicine bro–

  23. The solution is to stop paying taxes.

    Lie, cheat and steal — it’s your money that you are “stealing” anyway.

    Work under the table.

    Incorporate for own business and pay yourself with profit sharing instead of as a W-2 employee.

    Partipate in the barter-driven black market.

    Forge a Social Security card. Work under a phony SSN. Claim exempt.

    Retire outside of the country.

    And never forget that members of the U.S. congress do not pay into the Social Security fund.

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