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Politics

It Depends On What the Meaning of "Cut" Is

Peter Suderman | 11.11.2010 2:16 PM

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The conversation about entitlement reform in Washington usually revolves around two rhetorical poles: tax hikes and benefit cuts. The tax hikes are, well, tax hikes. But as often as not, the so-called benefit "cuts" are actually reductions in the projected growth of benefits.

That's an important distinction to keep in mind as we enter the coming deficit-reduction plan season. A lot of the proposals we'll see between now and the end of the year will include significant changes to Social Security. And a lot of those changes will be referred to as cuts, but will actually be reductions to the growth of benefits.

Take yesterday's Simpson-Bowles draft proposal. Read through this morning's headlines, and you'll see quite a few uses of the word cut. And as progressives are always keen to remind us, the American public really doesn't like the idea of cuts to Social Security, especially when the alternative is tax cuts on the rich.

That's why it's worth looking into the actual details of the plan. Charles Blahaus, one of Social Security's two public trustees, has a great explainer on how the proposal would work. Here's a rundown of the major changes that it calls for:

  • An increase in the Social Security payroll tax cap so that it would affect 90 percent of all wages. Right now, the cap is set at about $106,000 a year, so income over that figure doesn't get taxed. Bowles-Simpson would raise the cap to somewhere in the neighborhood of $175,000 a year.
  • A change in the benefit formula so that high earners would get significantly less and middle income earners would get slightly less. This is where the biggest savings come from.
  • A change in the way cost of living increases are calculated so that they would rise with the consumer price index.
  • A change in the retirement age that indexes it to life expectancy. The result is a rather slow change; according to Blahaus it would rise by about one month every two years.

In addition, the plan also increases the minimum benefit and provides added benefits for anyone who has been eligible for 20 years.

The result, as Blahaus shows, is actually a fairly progressive proposal. The tax cap rises, capturing more income from workers making six figures. Benefits still rise faster than inflation for median-wage workers. Indeed, according to Blahaus, thanks to extra benefits for the needy, the bottom fifth of the income distribution would actually see benefits rise more rapidly under this plan than if you left the current plan in place and financed it entirely through tax hikes. 

So sure, it's true that some people would see reduced benefits versus a situation in which there were no changes to the plan. But the biggest reductions come out of benefits that would have gone to high earners. And the poorest Americans would get more. Yet progressives and liberal defenders of Social Security still aren't pleased.

That's despite the fact that the Bowles-Simpson plan is a step toward ensuring that the program is fiscally sound, meaning that Americans could more reasonably count on these benefits being around (though obviously they'd still be subject to political manipulation down the road). That's not the case with the program we have today. One of the progressive mantras used to defend the program is "hands off Social Security," which implies doing nothing to the program. But that's obviously not a realistic option, at least not unless you're also for big tax hikes. As Blauhaus shows fairly convincingly, the program's fiscal outlook just isn't sustainable. If the current benefit formula is kept in place, costs skyrocket: In 2008, the program ate up about 11.6 percent of each worker's dollar earned. In 2035, without changes, that figure is projected to be about 16.7 percent. "You're either for changes to the benefit formula, or you're for big tax increases on the next generation," he writes. "If you oppose benefit formula changes on the grounds that they are 'cuts,' then you are for big tax increases. Period."

Like Blahaus, I would prefer to see a plan that does not include any tax hikes. But the Simpson-Bowles proposal has quite a bit going for it, at least in comparison with the broken program we have today.

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Peter Suderman is features editor at Reason.

PoliticsPolicySocial SecurityBudgetBudget Deficit
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  1. Brett   15 years ago

    I fail to see how a progressive plan that increases the redistribution of wealth has "quite a bit going for it". Comparing it favorably to the current plan is kinda like claiming somebody to be the tallest midget.

    1. Gilbert Martin   15 years ago

      Indeed.

      Ramping up the degree of socialism in the program certainly does NOT have "quite a bit going for it".

      They want to both increase the taxes of higher income people and reduces their benefit.

      That stretches beyond the breaking point the notion that there is a connection between taxes paid and benefits received from SS.

      And it's just a further example of how government punishes the responsible and rewards the irresponsible.

      James Deadbeat can fritter his life away spending everything he makes (and more) as fast as he gets it on instant gratification - new cars, big screen TV's etc. And he can look forward to the government forcing John Industrious - who worked hard, was prudent, saved and invested his money - to underwrite his foolishness.

      1. Brett   15 years ago

        Exactly. If massive wealth redistribution is the way to fix SS, why stop there? Let's just introduce an 80% tax bracket on income over $120K and let the middle/upper class fund every entitlement program and balance the budget.

        Anyway, not a damn thing will be done by either party, about SS or any other entitlement program, until it's too late.

        1. Hazel Meade   15 years ago

          I'm all for turning social security into a straight welfare program.
          It will increase political support for cutting the payroll taxes.

          Cut the benefits for the top earners first, then but the tax rate, then progressively reduce the benefits again until it turns into retirement insurance.

        2. John Thacker   15 years ago

          So both of you are in favor of instead just raising the Social Security taxes even more, instead of cutting benefits at all? Or perhaps just hoping that it will only affect a later generation?

          There is no avoiding that. If you're not for some benefit cuts, then you're for even higher tax increases.

          It sounds like you two are the ones who want to "just introduce an 80% tax bracket on income over $120K and let the middle/upper class fund every entitlement program and balance the budget."

        3. John Thacker   15 years ago

          Or perhaps the two are you are wanting to wait until it's too late? But the longer we wait, the higher the inevitable taxes will be, not least because as soon as new retirees start getting benefits, it becomes politically impossible to cut them. Whereas making benefits only increase the level of inflation is much more politically sustainable. Same effect with slowly raising the retirement age.

          So sure, go ahead and defend that principle of the middle and upper class having to get out more than they put in plus the Treasury rate. You'll only drive us even faster into socialism. Socialism isn't just about how much redistribution is going on from rich to poor. Redistribution from the pockets of the rich back to the rich, and from the pockets of the middle class back to the middle class is redistribution too.

      2. Slumpbuster   15 years ago

        Since it is based on income and not wealth, if James Deadbeat earned a lot of money and was not a good saver, he can get screwed a lot, since he will now have fewer benefits on which to retire.

        It basically says to the higher wage earner that you get to keep a lot less of your money, but you have to save a lot more of what is left to get to the same retirement income you would have had before.

      3. rac   15 years ago

        I thought the idea was increase the SS tax, but reduce the income tax for higher earners. In that case, unless the two cancel each other out, and i don't think that is the plan, higher earners can use more income to invest towards their own retirement funds.

        Just to be clear, I would abolish SS completely.

      4. John Thacker   15 years ago

        They want to both increase the taxes of higher income people and reduces their benefit.

        But do understand that the extra taxes would result in extra benefits, just the bend points would be adjusted. In other words, if the income limit went up to $190k, the person at $190k would still get more benefit than the person at $120k does now.

        James Deadbeat can fritter his life away spending everything he makes (and more) as fast as he gets it on instant gratification - new cars, big screen TV's etc. And he can look forward to the government forcing John Industrious - who worked hard, was prudent, saved and invested his money - to underwrite his foolishness.

        I'm sorry, could you explain how this applies in this instance? Differing patterns of consumption have little to do with how much taxes you paid in? The benefits would still be based on how much taxes you paid in, not your wealth left over after spending or investing.

    2. Irresponsible Hater   15 years ago

      But there *must* be a midget out there that is taller than all the others...

      Same with a shortest giant.

      Or Paul Krugman, who might be both, along with being the world's smartest idiot.

    3. joshua corning   15 years ago

      I fail to see how a progressive plan that increases the redistribution of wealth has "quite a bit going for it".

      Right now we are using general funds to help pay out SS benefits.

      So yeah cutting that spending is better.

  2. Henry   15 years ago

    A plan with *any* tax increase or *any* benefit cut could mark the end of SS. From what I can tell, if you were to calculate the average person's "return" on their SS dollars, it's just barely positive. Adjust either cost or benefits and they turn negative. Once people figure this out, the program is done. I suspect the left knows this and that's why they reject *any* reform.

    1. ph   15 years ago

      right - raising the cap on payroll taxes and moving toward equalizing benefits regardless of income is probably the best way to weaken public support for SS. When the myth that you get out what you put in is thoroughly busted, the public will see that all that's left is pure redistribution. Here's to hoping they don't dig it.

    2. John Thacker   15 years ago

      From what I can tell, if you were to calculate the average person's "return" on their SS dollars, it's just barely positive

      No, if that were the case it wouldn't have a financial problem. The financial problem comes from that we've promised most people more out than they put in than we could afford to do so. We've been able to afford that so far based on the shape of the population distribution, by having lots of people paying in for each person paying out, but as the baby boomers retire and people live longer, we're screwed.

      It's already progressive (but with the important caveat of ignoring if richer people live longer), but on average, people get out more than they pay in.

      That's why the default Social Security plan is a sudden cut of 21% or so in benefits in 2035, so that then people would get out what they put in, plus inflation.

    3. Hazel Meade   15 years ago

      Evolve it inbto a retirement insurance system. Everyone just pays a minimal level of payroll tax, and gets a minimal benefit if they retire without any other savings.

  3. Pro Libertate   15 years ago

    Seeing how Schwarzenegger has a barbarian sword in his office, I don't see this giant pocket knife as an accurate illustration of his position.

    I demand a retraction.

    1. Conan   15 years ago

      Look at my giant (never used) cutting thing!

    2. Irresponsible Hater   15 years ago

      I thought it was a Bowie knife at first, then saw that it was a giant folding buck knife gimmick. How appropriate.

      1. Pro Libertate   15 years ago

        The man has a giant, barbarian sword. What can a mere knife of any size have to compare to that?

        1. James   15 years ago

          What is steel compared to the hand that wields it?

          1. Pro Libertate   15 years ago

            Nothing, but wouldn't your hand rather wield a cool sword? Crom favors hands that use cool swords.

          2. joshua corning   15 years ago

            The secret of steel has always carried with it a mystery. You must learn its riddle, Conan. You must learn its discipline. For no one - no one in this world can you trust. Not men, not women, not beasts.
            [Points to sword]
            This you can trust.

            1. James   15 years ago

              How they managed to make such a good movie with that cast still amazes me. Besides James Earl Jones, and a brief Max Von Sydow appearance, you have bodybuilders, dancers, and a surfer as your leads. And Mako. Unbelievable accomplishment.

              1. Pro Libertate   15 years ago

                It's actually a very good movie, but people don't want to admit that because it's swords and sorcery, and it stars a bunch of quasi-actors.

          3. Ragin Cajun   15 years ago

            What is steel compared to fire? We know The Truth.

        2. Warty   15 years ago

          That's not a particularly giant sword. This is.

          1. Pro Libertate   15 years ago

            What are you, a cultural ambassador from Australia?

            1. Warty   15 years ago

              Crikey, don't you skugger me off, dickbat.

              1. Pro Libertate   15 years ago

                Here, have a Vegemite sandwich.

                1. Jordan   15 years ago

                  Piss off, wowser.

                2. Warty   15 years ago

                  Tip: if you don't actually know any Aussie slang, just string together some syllables. You'll come up with a convincing fake.

                  1. joshua corning   15 years ago

                    just string together some syllables.

                    This is getting suspiciously close to sounding like dialog from Buffy the Vampire slayer...

                    You do not want to see my Buffy rage.

                    1. Pro Libertate   15 years ago

                      Well, I suppose I could confess now that Josh Whedon writes all my comments.

                    2. cynical   15 years ago

                      Lucky.

                  2. fresno dan   15 years ago

                    dogibblet me shagob pussblater evonne goolagong
                    shazobs jogdeggie - it works

          2. Atanarjuat   15 years ago

            Awesome that they have a young Wilford Brimley promoting it.

    3. Almanian   15 years ago

      "Diss wass my fodder's Buck knife. It's bigger than a normal Buck knife. Dat's what's so funny about it. Da Buck Company doesn't make diss mottel any more, so it's a collectors item, you know. My fodder wass very proud of diss knife - it's bigger dan a normal knife, you know."

  4. Brian Moore   15 years ago

    I was kind of surprised by how good it was. I was expecting something that would completely ignore the problem, but what the commission produced was... kinda good. Yes, good only compared to the status quo -- but just being better than that is something most proposals don't achieve.

    1. Some Guy   15 years ago

      The key is that it is only a suggestion, and nothing even remotely close to it will ever even make it to the floor of Congress.

      One of the people on the committee has already stated he wouldn't actually vote for it.

      If I could vote yes or no on the full proposal right now, I'd take it without hesitation. But go ahead and do some polling of voters and see how many would actually allow fiscal sanity like this to happen.

  5. Greer   15 years ago

    How about scuttling the whole fucking thing. That would probably save some money.

    I realize that it's probably not a realistic option until we are completely broke and the decision sort of makes itself rather than waiting for someone to make it for us.

    But I can dream. The social security act was I'd say one of the top 5 worst things that have ever happened to this country. There are dozens of things that have come afterwards (Obamacare) that simply would not have happened with SS acting as a precedent.

    1. sage   15 years ago

      So would you prefer old people to live on the street eating the fancy canned cat food or the dry stuff?

      1. Dr. K.   15 years ago

        The dry stuff. It's much more fun to watch them try to eat without any teeth.

        1. sage   15 years ago

          Plus they can drink water with it and it will expand in their stomach, meaning we have to give them less food. Good call.

      2. Alan Grayson's Evil Twin   15 years ago

        I just want them to die quickly, brother. No cat food at all.

      3. Jack   15 years ago

        You could let them move in with you and do chores and stuff.

      4. Anonymous Coward   15 years ago

        What's this I hear about "DOOOOOOMMMMM!!" now?

    2. Kroneborge   15 years ago

      "How about scuttling the whole fucking thing. That would probably save some money."

      But that will never happen because to many old people depend on it. And old people vote.

      Thus the best solution is to make it solvent.

      Best methods are

      raise retirement age,
      and slow benefit growth.

      But things that are in the proposal.

      1. Jordan   15 years ago

        Nope. The best method is to do nothing and wait for it to go broke.

        1. East Bay Jay   15 years ago

          Make social security a choice: you get it, or you get to vote. But not both. Problem solved.

        2. John Thacker   15 years ago

          And then enjoy the enormous tax increase that would happen. You don't seriously believe that benefits are going to be radically slashed the next time it goes broke, do you?

          But maybe you're one of those people who supports it because it would be other people suffering the tax increase, and you'd be safely retired or gone. Quite a lot of people don't really oppose socialism, just being taxed themselves.

        3. John Thacker   15 years ago

          The choice is some tax increase and benefit cut now, or all tax increase later.

          It might be possible to change benefit increase back to the rate of inflation now, but it won't be possible to cut benefits by 21% 25 years from now.

          1. Kroneborge   15 years ago

            agreed

      2. JD   15 years ago

        Enact some sort of means test for benefits. If you have more money than some arbitrary cutoff, you get nothing from Social Security.

        Exposing Social Security as the welfare program that it truly is rather than the government-guaranteed pension program that politicians make it out to be is the only way to make it unpopular enough to kill it.

  6. Fleeing Cali   15 years ago

    If even these small changes are provoking howls of outrage, what hope for real change is there?

    1. Publius Cato   15 years ago

      A holiday in Cambodia.

    2. Slumpbuster   15 years ago

      The tax increase is not a small change. It effectively can increase a person's social security tax by 71%. That is a big change.

      1. Fleeing Cali   15 years ago

        HI Slumpbuster, what I was trying to say is these are 'tinkering around the edges' changes. And I'm pretty sure that there will be screams, protests, etc. if any of this is implemented. How can something like privatization ever be possible?

        1. Kroneborge   15 years ago

          It's not

  7. prolefeed   15 years ago

    How about making participation in Social Security optional? You don't want it, you opt out, and "lose" the "benefits" you "accumulated". And all payments must be paid for via premiums from those remaining in the program.

    Then it fucking doesn't matter how this Ponzi scheme slowly collapses, since you can always bail out when you get a clue.

    1. John Thacker   15 years ago

      It would do a lot more than slowly collapse if you did that. It would massively hasten the collapse. But it wouldn't help or happen politically, because all the boomers who paid in (but not enough to pay for their promised benefits, despite what they think) would howl about forcing the younger generation to pay for their promised benefits. And they'd outvote the young people.

    2. BenDU99   15 years ago

      I'm a huge supporter of letting people opt out and give up what they've already put in. It can never happen though because it would collapse.

  8. JSinAZ   15 years ago

    This is aimed right at my forehead and I don't like it one bit:

    An increase in the Social Security payroll tax cap so that it would affect 90 percent of all wages. Right now, the cap is set at about $106,000 a year, so income over that figure doesn't get taxed. Bowles-Simpson would raise the cap to somewhere in the neighborhood of $175,000 a year.

    A change in the benefit formula so that high earners would get significantly less and middle income earners would get slightly less. This is where the biggest savings come from.

    So, pay more, expect less. Except as an exercise in altruism, I should support this why?

    1. Slumpbuster   15 years ago

      For the self employed person who makes 175K, it is about an $8500 per year tax increase. That is a pretty hefty burden.

    2. James   15 years ago

      Wealthy people tend to get less than they pay in, anyway. This doesn't affect the concept, just the execution.

      1. JSinAZ   15 years ago

        Fucking hell, I'm supposed to be wealthy? I thought that was for those evil scumbags who make at least 250K$

        Goddammit, I don't even have servants to abuse.

    3. Fleeing Cali   15 years ago

      Because if you don't it will eventually end with someone with a gun taking you into custody and seizing your property... 😉 SO you may as well start slacking to get your income down.

  9. The Other Kevin   15 years ago

    I read something pretty profound from Ron Paul the other day. He said if you want Social Security to be a welfare program, then call it that.

    And I think this report actually does that. It is a shift from thinking, "We all put money in, so we all the the same guaranteed payment out", to "we all put varying degrees of money in, but we all get money out based on need". In other words, a shift from some sort of magical retirement savings fund, to straight up welfare. When you look at the numbers, it is definitely welfare.

    So if anything, if this report gets more people to think this way, it can only be a positive.

    1. Carl Marks   15 years ago

      From each according to their ability, et cetera, et cetera, et cetera

    2. robc   15 years ago

      Baron Hill ran a "great" angry old people commercial this year. In some speech somewhere, his GOP opponent called Social Security a welfare program. The commercial was old people ranting about how they werent on welfare.

      Hill lost his seat easily.

    3. The Other Kevin   15 years ago

      Welfare = Some people put money in, others take money out

      When your benefits outlast your contributions (which happens to most retirees), that's exactly what SS is.

  10. BenDU99   15 years ago

    "An increase in the Social Security payroll tax cap so that it would affect 90 percent of all wages. Right now, the cap is set at about $106,000 a year, so income over that figure doesn't get taxed. Bowles-Simpson would raise the cap to somewhere in the neighborhood of $175,000 a year.

    A change in the benefit formula so that high earners would get significantly less and middle income earners would get slightly less. This is where the biggest savings come from."

    I'm 29 and expect to be earning in that range in the next ten years and it really pisses me off that I may have to pay a lot more in only to not see any of SS when it comes time for me to retire. Just cause people make good money doesn't mean they accept being ripped off anymore than anyone else.

    I don't think people are altruistic enough to increase SS taxes and then means test the benefits.

    1. John Thacker   15 years ago

      I'm 29 and expect to be earning in that range in the next ten years and it really pisses me off that I may have to pay a lot more in only to not see any of SS when it comes time for me to retire.

      Don't worry, if you're 29 then even if we do nothing you'll have to pay a lot and not see any SS when it comes time for you to retire. The Democratic alternative to this plan is to suddenly cut benefits when it's time for you to retire, after the baby boomers are safely gone.

  11. Hazel Meade   15 years ago

    So, the other day, I stumpled across an utterly horrifying story about a proposal to set up "guarenteed retirement accounts" administered by the SSA.

    Creepily, this would include removing the tax exempt status of the 401(k) while making the GRA tax-exempt, in an effort to encourage people to put their 401(k)'s into the GRA plan.

    Even more disturbingly, this proposal has the government providing a fixed 3% annual return and a defined benefit.

    Hmm, methinks, what exactly would this money be invested in? This money that would be handed over to the government and administered by the social security system?

    Not, say, Treasury Bonds, you think?

  12. Dr. K.   15 years ago

    For people smart enough to read this site, I see way too many references to "getting your investment back."

    You need to come to terms with the fact that it's already gone; it was never there in the first place. The FICA taxes you pay are just another income tax. The money that tax generates is put into the same pool as every other tax and the money is promptly wasted by congress.

    Yes, the current benefit formula takes into consideration taxes paid when determine the size of the welfare check. There is no legal requirement that this remain so always.

    Yes, the SSA says the FICA taxes go into a "trust fund" to pay benefits from, but that is a complete accounting fiction. The only useful function of the trust fund is that once it is "exhausted" benefits will be insta-cut - this will provide the political impetus to make needed changes to this abomination of a program.

    The sooner you give up on the notion that you're "owed" "your" SS, the better off you will be in your retirement planning.

    1. Jordan   15 years ago

      One can believe he is owed the money stolen from him without depending on it. If a mugger takes my wallet, you can bet I'll believe I'm owed my wallet back, but I won't be counting on it.

      1. Dr. K.   15 years ago

        If a mugger takes your wallet, does that make you justified in taking the wallet of the next guy to come down a road?

        You ain't getting your FICA taxes back. They're already paid and spent. Focus on getting the benefits and tax rate cut so they at least won't steal as much from you in the future.

      2. John Thacker   15 years ago

        One can believe he is owed the money stolen from him without depending on it.

        Yes, but what so many people believe is that they're owed 120% of the money stolen from them. Which doesn't work.

        1. JSinAZ   15 years ago

          Just don't expect to steal even more without receiving some complaints.

          1. John Thacker   15 years ago

            But they should have no problem with cutting their benefits so that they get what they put in, right?

            You have a right to complain about money being stolen from you. You don't have a right to complain that you should get back much more than was taken from you.

    2. Cyto   15 years ago

      I'm surprised how few people can understand the notion that if you invest any SS surplus in T-Bills, that money is spent and gone, not invested. They can't wrap their head around the fact that a T-bill is an IOU from the government - so in this case it is writing an IOU to itself - as you said, pure fiction.

      The insult is double for people in my demographic. They raised the payroll tax to create the surplus "trust fund" pretty much at the time I started working. They said they had to build up a trust fund or else the payroll tax would have to go toward 70% in about 2024. Of course since they invested the surplus in T-Bills they just spent the whole thing immediately on general operating expenses. Now as they start drawing on the trust fund we'll have to pay those T-Bills back. And where does that come from? Income tax, of course. So instead of taking 70% as payroll tax, they'll have to take 70% as income tax. Well, that certainly makes a difference.... So I'll end up paying for the entire surplus and then turning around and paying all of the T-bills back - in effect my generation ends up paying the entire "boomer" overage - twice. Thanks Tip!

      (assuming that they ever decide to quit just running the entire government on debt. I guess we could just end up with 40 trillion in debt.)

      1. Paul Krugman   15 years ago

        (assuming that they ever decide to quit just running the entire government on debt. I guess we could just end up with 40 trillion in debt.)

        This is perfectly manageable.

      2. Janice   15 years ago

        What does it matter who owns a T-Bill, whether an individual, China or SSN? The government still has to pay it or it becomes a default.

        1. Hazel Meade   15 years ago

          A) Yes, the government has to pay it back. Which means, the general treasury is going to have to raise money to pay it back. And it's going to have to raise it from either increased taxes or spending cuts. The opposite of when the trust fund was running a surplus and Congress was "investing" it in treasury bonds and using the money to pay for general operations. We're talking a couple hundred billion dollars a year of reversed revenue.

          B) The bonds the SS trust fund holds are special non-transferable bonds. So the trust fund couldn't even theoretically sell them in favor of a more stable valued investment if the US government (say) decided to devalue the currency ... thereby effictively wiping out our debts to it. This is highly likely (IMO) to be what will happen. There will be a freeze placed on SS benefits, the currency will be devalued, and then both the trust fund and the value of SS benefits will be worth much less, along with all out other debts. It's way easier to do this than to pass legislation cutting benefits directly.

          1. Hazel Meade   15 years ago

            Actually, I kind of suspect they are doing this now, by lying about the inflation rate, while printing a shitload on money.

            When we finally realize that "oops" the inflation rate has actually been 10-15% for several years in a row, the COLAs will have been zero and they will just send all the senior citizens a $250 check and say the benefits needed to be cut anyway.

            1. John Thacker   15 years ago

              So you really don't believe in the market, then? Or perhaps you are buying the hell out of TIPS, I don't know.

              In order to believe that the inflation rate has "actually been 10-15% for several years in a row," you have to believe that there's a massive mispricing of TIPS right now, and an absolutely huge arbitrage opportunity.

              1. Hazel Meade   15 years ago

                If they are lying about the inflation rate, why would I buy TIPS?

      3. Hazel Meade   15 years ago

        I'm surprised how few people can understand the notion that if you invest any SS surplus in T-Bills, that money is spent and gone, not invested. They can't wrap their head around the fact that a T-bill is an IOU from the government - so in this case it is writing an IOU to itself - as you said, pure fiction.

        Yes. Progressives go all slack jawed at this, like you were speaking some kind of insane gibberish.

        I think the reason is that if they actually grasped it, they would be forced to be utterly appalled and horrified at the utter medacious ineptitude of the politicians on their side. They simply CAN'T believe that the money was spent. That they've been had all along.

  13. joshua corning   15 years ago

    A change in the benefit formula so that high earners would get significantly less and middle income earners would get slightly less. This is where the biggest savings come from.

    No shit...the biggest savings...i am glad i thought of it before they did. Anyway might as well make social security look like the welfare program it is...plus with the added bonus of making less regressive.

    Killing poor people to secure retirement for rich white women has always been shitty idea. Making it less shitty is better.

  14. John Thacker   15 years ago

    Here are the collective beliefs that cause a mathematical contradiction:

    Premises:
    1) The American people do not believe that people of working age should get welfare if they aren't looking for jobs, with the possible exception of women with young children

    2) The American people do, however, believe that poor people should be able to retire at some point, and have enough to live on. Since we don't want to have a general welfare program, we need one that applies for poor people of retirement age.

    3) The American people strongly prefer the accounting fiction of one retirement program that takes care of everybody, instead of a separate program for supplementing the retirement of the poor. However, it is impossible for the poor to get enough to live on through only what they actually paid into Social Security, so they have to get more back than what they paid (plus risk-free return on investment.)

    4) At the same time, the American people don't like the idea of anyone (particularly themselves) getting less out of Social Security than they paid into it.

    Conclusions:
    5) If everyone gets out at least what they put in (plus risk free rate of return) and some people get out significantly more, the program isn't balanced from an actuarial perspective. You can only keep it going by running it as a Ponzi scheme.

    6) Keeping the Ponzi scheme going requires a steadily increasing population, whether through immigration or through government subsidies of childbirth. The latter may be needed anyway because a guaranteed government retirement reduces one of the motivations for people to have kids (to care for them in their old age).

    The numbers just don't work, and cannot be made to work without rejecting one of the first four premises. Either have a welfare program that applies to everyone who doesn't work, reject the idea that the working poor should be able to retire at some point, or concede that people at the upper and middle upper portions of the Social Security range won't get what they put into it. You can also set up a separate "welfare retirement fund for the elderly working poor and others unable to work," but that really only renames the issue and doesn't address how to fund it, etc.

    1. John Thacker   15 years ago

      Oh, there actually is one thing in the plan that does add more people to the Ponzi scheme for a short term help, long term hurt-- they want to force new state and local government employees to join starting in 2020. It would give extra tax revenues for a while, but then require extra payouts in the future.

      1. Hazel Meade   15 years ago

        They also want to get workers to put money into "guarenteed retirement accounts" by revolking the tax-exempt status of 401(k)'s. The money going into GRAs (5% of income) will be managed by the SSA, thereby creating a new tax revenue stream, which they can then invest in treasury bonds and spend, while promising retired workers a 3% annual return.

        In this way, they can effectively raise payroll taxes by 5% while pretending to offer an even larger new benefit. Which can the be legislatively cut or devalued at some future date to avoid ever having to cash any of those bonds.

  15. Terr   15 years ago

    "Knife to see you."

  16. joshua corning   15 years ago

    Perhaps we should just give the fuck up.

    Fixing the left's catastrophic blunders so they actually make sense economically and fighting the left the entire time has a reward approaching a number that is less then zero.

    Perhaps instead of thinking about how to fix this shit we should be working on a secession government set to take over when their plans finally fail under their own weight.

    I am not talking about dooms day bomb shelter cult...more like a lobby that sets up tax breaks for privately archiving all the property deeds in the county.

  17. East Bay Jay   15 years ago

    The entire thing is a non-starter. The public won't get behind it because there will be groups that are sheilded from the impacts. Basically, Obama's too twisted up with the unions. Private sector workers aren't going to go for a write down of their financial situation while federal workers go on their merry way with annual pay raises guaranteed.

  18. Paul   15 years ago

    It's 1994 all over again.

  19. adam   15 years ago

    Wow, this is a real double wammy to a 30 something earning in the higher six figures. Prevent him from saving for retirement by increasing his taxes, but take away the SS benefits that he might otherwise retire on. Nice.

    1. John Thacker   15 years ago

      If you're a 30 something like me, you're already screwed without any changes. Either tax increases or benefit cuts are inevitable.

      1. adam   15 years ago

        Agreed, but this proposal accomplish both benefit cuts and tax increases. I'd rather just see benefit cuts.

  20. R C Dean   15 years ago

    The only problem with the Bowles-Simpson ("B-S", get it?) proposal is that it represents the triumph of the Obama's Greater State.

    It enshrines the federal government as the custodian of over 1/5 of the nation's wealth. That is unprecedented, and was the goal of the Obama administration's stimulus bill - to crank up the baseline of the federal budget.

    B-S buy that, completely, and for a "deficit-reduction" proposal lay out a plan for permanent federal custody of an unprecedented share of taxing and spending.

    Reject B-S. We can do better than pretend that the radical expansion of government under Obama is some kind of compromising cut to state.

    1. John Thacker   15 years ago

      The increase to over 1/5 was guaranteed by Social Security and Medicare long, long before the stimulus. That was already "enshrined." You can look at the CBO Long Term
      Budget Outlook from 2007
      for one example.

      We can do better than pretend that the radical expansion of government under Obama is some kind of compromising cut to state.

      We can do better than pretend that the proposal represents other than a cut from pre-Obama levels. We can also do better than pretend about the real state of finances in this country. We can also do better than pretend about the real state politics in this country.

  21. Ebeneezer Scrooge   15 years ago

    But the Simpson-Bowles proposal has quite a bit going for it....

    Just the kind of "insight" we're coming to expect around here.

    It's got a lot going for it if you like socialism and big government. I mean then it's got LOTS AND LOTS going for it.

    1. John Thacker   15 years ago

      The proposals on Social Security and tax reform are anti-socialism and anti-big government.

      The only reason to oppose the Social Security proposals are because you're in favor of socialism for the middle class. Same with the tax proposals too.

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