4 ms·

Social Security taps into trust fund for first time in 36 years

7 points by maxshmax 8y ago

cepth 8y ago
This is a calculator from CRFB that is a few years old: http://www.crfb.org/socialsecurityreformer/ http://www.crfb.org/socialsecurityreformer/. I think that the baseline data may be dated, but it's still a useful tool for getting a general idea of what changes to Social Security are needed to keep the program solvent. A more recent one, with fewer options, is available from Wharton: http://budgetmodel.wharton.upenn.edu/social-security http://budgetmodel.wharton.upenn.edu/social-security. Bottom line is, there are some tough choices that policymakers will have to make in the years ahead if they want to keep Social Security solvent. An aging population and a slower rate of economic growth make for a nasty fiscal future.
- wahern 8y ago
  Using that Wharton calculator the choices don't seem tough at all. For example, raise payroll tax from 12.4% to 14.%, raise retirement age by two years, and increase taxable minimum to $150k. For such an important program it seems like a no brainer. But no doubt it will be (and is) an existential battle. Medicare is where the real tough choices are. It's ridiculous we can't just implement the relatively minor fixes needed for Social Security.
  - cepth 8y ago
    I agree there are a number of easy solutions in a mathematical sense. But the political battles around any of these paths are going to be intense. Raising the retirement age has been a non-starter because of the power of groups like AARP. And there's a fairness question of who to apply it to. Do you tell 40 year olds that the age is going up? Is that enough time to adjust your retirement planning? How about for a 50 year old? Increasing the taxable maximum income would also be an interesting fight. At a 12.4% payroll tax, you're effectively raising taxes on someone making $150k by $2600 a year, since the current cap is is $128700. I think if you're living in an expensive city like SF or NYC, or an expensive state, that may be a political nonstarter.
    - wahern 8y ago
      Increasing the payroll tax will definitely hit the working class hard but it's also inline with the otherwise reasonable Republican argument that people should be paying for their own retirement. The Republican preferred alternative is 401(k)s and IRAs, where the working class will simply be screwed and the middle-class burdened with unnecessary risk and uncertainty. See, e.g., Chile, which Republicans naively point out as a model for retirement savings reform but which evidences exactly why their preferred models simply won't work as intended.[1] Given the long-standing conservative climate, Democrats really have no choice but to usher through a bill with moderate Republicans that keeps Social Security solvent with a less-than-progressive taxation and benefits model. But the Democrats won't because the moment they do Republicans will paint them as taxing the working-class and Democrats are too chicken to do the right thing and deal with the unfair consequences. Yeah, the solutions are simple and obvious (because of the math, because of the political landscape) but the path to get there is unfortunately treacherous and not at all certain. :( I just want to fight the narrative of the Social Security "crisis", and point out that it's entirely self-inflicted and largely the product of a very cynical narrative--a self-fulfilling prophecy--promulgated by an extremist conservative faction, which unfortunately has enjoyed outsized influence for the past 25 years, ever since Newt Gingrich's Republican Revolution. [1] Hint: (1) Banks take a huge, often double-digit premium in management fees. (2) The working class simply don't fund their accounts because, much like with Obamacare, it's not politically feasible to enforce the mandate widely. (It's in some ways worse than the Obamacare mandate because people are more likely to appreciate the benefits of healthcare as opposed to retirement savings, though in terms of absolute numbers people really underestimate the cost of healthcare). (3) People are subject to additional, sometimes severe market risk because there's simply no more efficient way to provide a defined benefits plan (what all economists agree is most rationale for retirement) than a nationwide, government guaranteed insurance program. (Who here younger than 50 invests in an annuity? Probably no one, myself included, even though it's what makes most sense. Though I suppose precisely because we have Social Security we can take on more risk with our personal retirement investments.)

7 points by maxshmax 8y ago

This is a calculator from CRFB that is a few years old: http://www.crfb.org/socialsecurityreformer/ http://www.crfb.org/socialsecurityreformer/. I think that the baseline data may be dated, but it's still a useful tool for getting a general idea of what changes to Social Security are needed to keep the program solvent. A more recent one, with fewer options, is available from Wharton: http://budgetmodel.wharton.upenn.edu/social-security http://budgetmodel.wharton.upenn.edu/social-security. Bottom line is, there are some tough choices that policymakers will have to make in the years ahead if they want to keep Social Security solvent. An aging population and a slower rate of economic growth make for a nasty fiscal future.

wahern 8y ago
Using that Wharton calculator the choices don't seem tough at all. For example, raise payroll tax from 12.4% to 14.%, raise retirement age by two years, and increase taxable minimum to $150k. For such an important program it seems like a no brainer. But no doubt it will be (and is) an existential battle. Medicare is where the real tough choices are. It's ridiculous we can't just implement the relatively minor fixes needed for Social Security.
- cepth 8y ago
  I agree there are a number of easy solutions in a mathematical sense. But the political battles around any of these paths are going to be intense. Raising the retirement age has been a non-starter because of the power of groups like AARP. And there's a fairness question of who to apply it to. Do you tell 40 year olds that the age is going up? Is that enough time to adjust your retirement planning? How about for a 50 year old? Increasing the taxable maximum income would also be an interesting fight. At a 12.4% payroll tax, you're effectively raising taxes on someone making $150k by $2600 a year, since the current cap is is $128700. I think if you're living in an expensive city like SF or NYC, or an expensive state, that may be a political nonstarter.
  - wahern 8y ago
    Increasing the payroll tax will definitely hit the working class hard but it's also inline with the otherwise reasonable Republican argument that people should be paying for their own retirement. The Republican preferred alternative is 401(k)s and IRAs, where the working class will simply be screwed and the middle-class burdened with unnecessary risk and uncertainty. See, e.g., Chile, which Republicans naively point out as a model for retirement savings reform but which evidences exactly why their preferred models simply won't work as intended.[1] Given the long-standing conservative climate, Democrats really have no choice but to usher through a bill with moderate Republicans that keeps Social Security solvent with a less-than-progressive taxation and benefits model. But the Democrats won't because the moment they do Republicans will paint them as taxing the working-class and Democrats are too chicken to do the right thing and deal with the unfair consequences. Yeah, the solutions are simple and obvious (because of the math, because of the political landscape) but the path to get there is unfortunately treacherous and not at all certain. :( I just want to fight the narrative of the Social Security "crisis", and point out that it's entirely self-inflicted and largely the product of a very cynical narrative--a self-fulfilling prophecy--promulgated by an extremist conservative faction, which unfortunately has enjoyed outsized influence for the past 25 years, ever since Newt Gingrich's Republican Revolution. [1] Hint: (1) Banks take a huge, often double-digit premium in management fees. (2) The working class simply don't fund their accounts because, much like with Obamacare, it's not politically feasible to enforce the mandate widely. (It's in some ways worse than the Obamacare mandate because people are more likely to appreciate the benefits of healthcare as opposed to retirement savings, though in terms of absolute numbers people really underestimate the cost of healthcare). (3) People are subject to additional, sometimes severe market risk because there's simply no more efficient way to provide a defined benefits plan (what all economists agree is most rationale for retirement) than a nationwide, government guaranteed insurance program. (Who here younger than 50 invests in an annuity? Probably no one, myself included, even though it's what makes most sense. Though I suppose precisely because we have Social Security we can take on more risk with our personal retirement investments.)