Social Insecurity

In last night's debate, Bush and Kerry gave almost precisely parallel answers to questions about how they plan to deal with Social Security's looming fiscal crisis.

Bob Schieffer asked Bush how he would cover the transition costs of moving to a partly private system: As younger workers start diverting some of their payroll taxes to private investment accounts, how will the government continue paying full benefits to current retirees? After hemming and hawing for 264 words, Bush allowed that "we're of course going to have to consider the costs." Thanks for clearing that up.

Schieffer asked Kerry how, if he refuses to consider any form of privatization to increase the returns that workers get on their payroll taxes, he plans to fix the system without reducing benefits or raising the retirement age. After a 229-word wind-up, Kerry conceded that Social Security might need an "adjustment." And since Kerry no doubt will make sure that government-funded health insurance covers chiropractic treatments, that shouldn't be a problem.

Comments

[Ken Shultz]

If the magic that makes economies grow keeps working the way it's supposed to, then, over time, the problem may eventually disappear.

Besides, the big problems don't kick in for a couple of election cycles, so, even if it does effect the bond market or something, there's nothing to worry about.

[fyodor]

Neither plan (or lack thereof) solves the potential long-term demographicly based funding shortfall (unless you believe Kerry that hitting up the above 200K crowd can take care of this in addition to all its other miraculous healing powers, which is dubious at best). But at least Bush's plan at least partly solves the problem that SS is still basically a rip-off for the vast majority of participants even when it works the way it's supposed and is potentially a pyramid scheme (nod to Thomas Sowell) that may someday collapse and not work at all at (not entirely unlikely) worst.

[Ken]

SS is the biggest Ponzi scam the world has ever seen. The so-called "trust fund" has no real assets, it consists of IOUs issued by one US government agency to another US government agency.

Write out an IOU from yourself payable to you - there, now you have yourself a "trust fund" just like SS. Maybe you'll feel better if you keep your "trust fund" in a "lock box"?

[grylliade]

My economics professor keeps on telling us that Social Security isn't really in trouble. You see, even if we start running out of money, we'll just raise the upper limit on taxable wages (currently $87k) or raise the tax rate. And the government can't go bankrupt anyways; after all, they're the government. So we don't really need to worry about spending or anything. How the hell did this man become an economics professor? Why can't I have a good one? WHY?

[Russ D]

grylliade,

What school are you talking about? Just want to know where to keep my kids from going.

[The Lonewacko Blog]

Bush's solution is actually quite brilliant. He wants to give social security to illegal aliens. You see, it will cost hundreds of billions of dollars. And, they'll only need to work for 6 quarters to be eligible for benefits, vs. we citizens needing to work for 40 quarters. But, this is going to be good for American citizens in some vague, unspecified way. I just know it.

[Luisa]

One of the biggest lies of the debates was the moderator's "question" that "We all know that Social Security is running out of money..." This is pure BS -- SS is projected to be fully funded for four decades. Do you really want to worry about a projected shortfall forty years from know from folks who can't come within 5% of projecting a year ahead?

I'd expect a wee bit of critical thinking by Reason editors before regurgitating Wall St propaganda.

[Lowdog]

The point is, Luisa, that we need to privatize, if not eliminate, SS whether it's running out of money now or not. As Ken so eloquently points out, it's a total crock that needs to be disposed of.

The best way to do that? I'm not sure because I'm no economist. But something needs to be done. Honestly, I'd be happier if they just paid me my share right now and let me walk. If I'm too irresponsible to provide for my own retirement (which is totally possible, knowing me), then that's too bad. I'll just have to work until I drop.

[Raymund]

Luisa, the numbers I've seen project that the amount of Social Security benefits paid out will exceed the amount of Social Security taxes received sometime around 2015-2020. In other words, Social Security will run out of money in about 15 years, not 40.

Is the 40 year value you used based on the observation that the Treasury has issued Social Security trillions in IOUs? The problem with that is exactly what Ken pointed out upthread. Those trillions of excess Social Security receipts have gone to the Treasury and then straight to Sen. Grassey's Iowa rainforest. They're gone.

[R C Dean]

Luisa, the question is what income stream will fund Social Security benefits.

Currently, they are funded entirely out of Social Security payroll taxes, and will be for the next 10 -15 years.

After that, payroll taxes will be insufficient, and general tax revenue will be used to fund the shortfall. On the books this tax revenue will be carried as a redemption of bonds now held by SS, but it really makes no difference, as this redemption by one branch of government of bonds issued by another branch is the equivalent of cashing a check today that you wrote yourself last week.

[gaius marius]

If the magic that makes economies grow keeps working the way it's supposed to, then, over time, the problem may eventually disappear.

truth be told, mr schultz, i think that woefully underestimates the depth of the hole. short of emerging-market type growth -- which the us simply isn't going to see again -- that's wishing upon a star.

SS is projected to be fully funded for four decades. Do you really want to worry about a projected shortfall forty years from know from folks who can't come within 5% of projecting a year ahead?

the problem, luisa, is that their projections are probably too rosy about the hole that SS is in. the scope of it can be seen in this study

http://www.aei.org/docLib/20030723_SmettersFinalCC.pdf

that the shortfall in revenues over outlays is $45 trillion in 2003 dollars. that's four years of gdp.

it gives us four options to start in 2003 and continue in perpetuity to cover the shortfall:

* increase federal income tax revenue 69%
* increase payroll tax revenue 95%
* cut federal discretionary spending completely (100%)
* or cut social security/medicare benefit outlays by 56%

some combination of smaller percentages of the above would be most practical, of course. but now its 2004, we're getting the *opposite* of all those prescriptions, and mustering the political will to do anything else is seemingly unthinkable.

sooner or later, we have to start paying the piper or it will -- all melodrama aside -- destroy the country. the united states, public and private, is in an unprecedented fiscal hole. someone needs to admit that. to be keynesian for the sake of electability and cutting taxes and interest rates in the hopes of delaying necessary debt corrections (while markedly aggravating the eventual viciousness of same) is irresponsibility bordering on criminality.

i hate paying taxes, as we all do -- but if we're going to keep our lowered tax load, someone better tell the old folks to find their own way to the grave and tell the army to pack up and come home for a few decades.

[JDM]

It would be nice if politicians were able to talk realistically about Social Security. The entire notion that it is a trust fund needs to purged from the debate language. Taxes are collected and redistributed. If the privitization scheme fails, the fallback positions is just the one that would have occured in the end anyway. The same number of tax dollars will be collected and redistributed as would have been the case if privatization never been tried. In the mean time, why not use the surplus in the earmarked tax to try to get away from the ponzi scheme?

[Ken Shultz]

Luisa,

Thank you for making my original post twice as funny as it was.

[mark]

SS doesn't run out of money in about 15 years. The trust fund runs out. SS estimates that 73% of expected benefits can be paid from the incoming cash flow, according to the annual information sheet I received this year.

[Gilbert Martin]

"Neither plan (or lack thereof) solves the potential long-term demographicly based funding shortfall (unless you believe Kerry that hitting up the above 200K crowd can take care of this in addition to all its other miraculous healing powers, which is dubious at best)."

It seems to me that Kerry is planning to spend his proposed tax increase on the over 200K crowd about 5 times for 5 different purposes based on the number of times he's brought it up related to various subjects - like needing to spend money on additional homeland security, etc.

Maybe he's figured out some new way to spend the same money over and over again instead of just once the way the rest of us mere mortals have to do it.

[Ken Shultz]

gaius marius,

I was being facetious.

[Luisa]

Raymund, RC,
I believe the 15 years you refer to is when SS will stop adding to its surplus and start running an annual deficit. This is very different from running out of money, which, even under the apparently pessimistic growth projections used, would not occur for 40 years or so.

I haven't checked this recently, but I doubt it's changed much.

[Luisa]

Gaius,

Is the AEI's story any more credible than that of a progressives think tank's? Here's one very different view: http://www.cepr.net/ss_growth_letter.htm

I'd bet on the truth lying somewhere in the middle.

[fyodor]

Gilbert Martin,

Good point. Though, to bend over backwards (ouch!) for the sake of fairness, citing the soak the 200K+ idea five times for five diffeent purposes could potentially make sense if he needed only an average of one-fifth of the funds thusly raised for each purpose. Somehow I think he'd need a lot more than that, and funny how he didn't cite any numbers, eh?

Luisa,

But how does SS "run" on a deficit? When realizable income fails to match desired outflow, doesn't that mean that the system has "run out" of sufficient money to operate independently? Either that desired outflow will have to be curtailed or else the missing income will have to be found from somewhere else. Whether or not finding the missing income will be as easy as grylliade's econ prof glibly claims might be open to debate, but at the least the self-sufficiency of the system will become threatened as soon as it runs a "deficit."

[Bill]

Luisa,

Regardless of the fiscal sanity of the Social Security system, why do you or anyone else have the right to take 12% of my income from me? Why do you think that it is moral to make me a 12% slave? And, of course, that 12% is just the beginning. Social Security and Medicare taxes cost me 15.3%, and there are income taxes, sales taxes, various local assessments, etc.

Fuck you and all slavers like you! You are enemies of freedom and giant fucking control freaks!

Try to get a liberal to justify the righteousness of personal freedoms; they'll have a field day. Then repeat all of their glorious exhortations with respect to economic freedoms. They'll give you a look like YOU are the wackily inconsistent one.

[Ron Hardin]

There's no crisis. Whether you privatize or not doesn't matter. The retirement age will go up because of the age distribution of the population.

ALL the goods and services for the retired are supplied by the working. If that's too much, it won't work, no matter how much money you print.

What's wrong with living the last 15 years of your life retired, unstead of the first 65 years working? As life expectencies go up, so does the retirement age.

Privatizing has no effect other than reducing the average return on investment enough to enforce a rise in average retirement age (too many people buying stocks now, too many selling later).

The government, by the way, cannot save. All the money that comes in must instantly go back out, or the money supply would fall. They either spend it or buy back debt to achieve thi

[Dan]

I believe the 15 years you refer to is when SS will stop adding to its surplus and start running an annual deficit. This is very different from running out of money, which, even under the apparently pessimistic growth projections used, would not occur for 40 years or so.

Luisa, you seem to think that the government has saved the surplus social security money. It hasn't; it spent it, and wrote itself an IOU. Social security has no assets, and no surplus. The money is gone; all that remains is an accounting trick that would make an Enron employee blush.

Fifteen years from now is when the government has to jack up our taxes in order to start paying back those IOUs. The forty-year figure is meaningless; that's just when the government uses up the IOUs it wrote to itself.

[JDM]

"Privatizing has no effect other than reducing the average return on investment enough to enforce a rise in average retirement age "

You aren't much of a supply sider, I guess...

[kevrob]

Hey, Bill. Nice mouth. That's the way to convince people to join our side. Assuming Luisa isn't a pure troll, maybe she is open to a polite argument.

I am also philosophically against scaring the double-X chromosome types away from our usual bratwurstapalooza. 🙂

There is a problem with rising retirement ages. If we push it from where it used to be, 62 or 65, to 70 or so, a much larger part of the workforce will have chronic health problems, that will either be exacerbated by staying on the job, or could restrict working seniors to more limited duty, for which there might not be sufficient demand. Improved medicine might alleviate this problem, but we know what a mess that system is. I don't even want to think about the mess involved in transitioning from Medicare to private health plans, and how insurance will be market-provided to 65-70 year-olds. These are tasks that need doing, but they seem Sisyphean.

Kevin

[Fred Gillette]

Go to the Social Security Administration's website and you will see they have already raised the retirement age - a long time ago. Tried to post the link but it didn't work.

[gaius marius]

I'd bet on the truth lying somewhere in the middle.

managerial prudence demands that we don't take such risks. you MUST err on the side of caution. if it turns out better than that, you can take your foot off the brake.