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Fixing Social Security: It's Simple
Wall Street Journal ^ | 23 Nov 2004 | Susan Lee

Posted on 11/23/2004 6:35:06 AM PST by docbnj

Prepared to spend the next many months reading about reforming Social Security? Of course not. And you don't have to. Just read the next 975 words of this column and you will know all you need to know. In fact, you will be able to fix Social Security yourself in the time it takes to recite this sentence: "Drop the wage indexing formula."

As anybody who has been breathing during the last decade knows, Social Security is heading for disaster. Boomers are going to start retiring, and paying for their benefits will slurp up all the payroll taxes coming into the system. And then what? Do we have to raise taxes? Borrow hundreds of billions of dollars? Slash benefits?

None of the above.

(Excerpt) Read more at online.wsj.com ...


TOPICS: Editorial; Government
KEYWORDS: governmentfinance; socialistinsecurity; socialsecurity; solutions
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The author convincingly shows that the problem is that the benefits are indexed to increases in wages, not just to the cost of living. Solving the Social Security system is thus very easy.

Of course, this may be too complicated for your congressman, so you better explain it to him of her.

1 posted on 11/23/2004 6:35:07 AM PST by docbnj
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To: docbnj

Can you post just a little more?


2 posted on 11/23/2004 6:36:34 AM PST by byteback
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To: docbnj

Do you have a WSJ login you want to share with us to read the rest of the article? or is your synopsis following the excerpt enough and I won't need to read it?


3 posted on 11/23/2004 6:37:46 AM PST by timtoews5292004
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To: timtoews5292004

More:

The calculation of the AIME is key. Earnings before age 60 are indexed to real growth in wages -- an adjustment that brings nominal wages close to current wage levels. (Earnings after age 59 enter into computations at actual levels, adjusted by the consumer price index.) So every retiring worker gets to take advantage of overall economic productivity, pushing up the level of wages during the time in which the work was performed. This adjustment allows the purchasing power of benefits to grow over time.

Simply put, it's the real wage growth component that is at the heart of Social Security's problem. The wage index functions like a little pituitary gland because rising productivity causes wages to grow faster than prices. So benefits keep getting larger for each cohort of retiring workers.

Thus, two workers who earn identical amounts -- and pay identical taxes -- will get different benefits if they are so much as five years apart in age. The younger worker will get more than the older worker just because of wage indexing. As economist John Cogan at the Hoover Institution points out, the purchasing power of benefits paid to today's teenager are scheduled to be 60% higher than benefits paid to a typical worker who retired in 2001.

Obviously, wage indexing is not financially sustainable. If benefits were indexed to prices however, Social Security would, at this very minute, be in balance over the long-term -- the system would be permanently solvent. Not only would future revenues equal future costs, but there would be a surplus!


4 posted on 11/23/2004 6:41:17 AM PST by docbnj
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To: docbnj

Benefits are indexed to contributions.

The more you earn, the more you contribute, and hence the more you receive.

It's all part of the pretense that it's a retirement plan instead of a government handout.


5 posted on 11/23/2004 6:42:33 AM PST by jdege
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To: docbnj

Still more:

Indexing for price changes alone would protect retirees, new and not-so-new, from inflation, thereby maintaining purchasing power. Moreover, other proposed fixes -- such as raising the retirement age, changing the COLA, or increasing taxes on benefits -- are not as powerful, so a combination of several of them would have to be implemented. This is politically tricky since each fix would make one of the various constituents angry; blue-collar workers and minorities, for example, would be intensely unhappy if the retirement age was increased.

But solving Social Security's long-term financial crisis is not the same as solving its spiritual problem. Why, at the dawn of the 21st century, are workers forced into a government retirement program that will, very soon, deliver unto them a rate of return that is barely visible?

And that's why the creation of personal accounts as part of Social Security reform is just as important as averting its bankruptcy. Rather than being a transfer payment filched from some young person's paycheck, such accounts generate returns on investments. And not only will personal accounts allow participants to earn a market rate of return on their savings, those savings will be real assets and not just a promise from the government.


6 posted on 11/23/2004 6:43:05 AM PST by docbnj
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To: docbnj

Even Americans, noted for their ingenuity, cannot make socialism work.


7 posted on 11/23/2004 6:46:04 AM PST by headsonpikes (Spirit of '76 bttt!)
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To: docbnj

Does this mean someone who doesn't contribute to social security won't receive benefits? We have people from other countries applying for social security every day. Will this eliminate that problem?


8 posted on 11/23/2004 6:49:03 AM PST by Dan12180
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Comment #9 Removed by Moderator

Comment #10 Removed by Moderator

To: headsonpikes
Even Americans, noted for their ingenuity, cannot make socialism work.
That's hilarious!! You have ever so succinctly hit that nail square on the head! See the ANTI-DNC Web Portal at ---> http://www.noDNC.com
11 posted on 11/23/2004 6:55:48 AM PST by woodb01 (See the ANTI-DNC Web Portal at ---> http://www.noDNC.com)
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To: headsonpikes

It depends on what you mean by "making socialism work." When socialism really works, people starve.

Anyone can see that government activity tends to expand like a metastasizing cancer. However, a small amount of government activity can work IF it is embedded in the matrix of a free, capitalistic culture. Thus the US Postal Service, while not as good as a private system, is still much better than Canada Post, and that in turn is far better than most postal systems in other parts of the world. Our Postal Service has improved largely because it has been forced to compete, even just marginally, with private parcel services, and with email.


12 posted on 11/23/2004 6:55:53 AM PST by docbnj
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To: docbnj

bump


13 posted on 11/23/2004 7:00:17 AM PST by RippleFire ("It was just a scratch")
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To: jdege
Thats not what he's talking about. The article is about the fact that benefits for retires are indexed to wage increases. It pushes the payments higher then just a COLA would.

"Simply put, it's the real wage growth component that is at the heart of Social Security's problem. The wage index functions like a little pituitary gland because rising productivity causes wages to grow faster than prices. So benefits keep getting larger for each cohort of retiring workers."
14 posted on 11/23/2004 7:13:41 AM PST by Kozak (Anti Shahada: " There is no God named Allah, and Muhammed is his False Prophet")
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To: docbnj

You're kidding, right? Changing SS from a retirement program to a straight up welfare program is a viable option? Then why not scrap SS altogether and just pay seniors from the general tax revenue fund?

I mean, if you're looking for simple solutions, another one is to simply raise taxes to pay for it (like Reagan did with the last SS "crisis"). The SS problem is NOT that there is no way to meet the payments. The problem is that there is no way to meet the payments without confiscating greater and greater amounts of money from taxpayers.

SS is a coercive Ponzi scheme. As such, it ****CANNOT**** indefinitely produce the same returns that it has in the past.

This was well-known to SS's brilliant designers at the time, seeing as the rise and fall of Charles Ponzi was a widely publicized story in the popular press. FDR and his advisors should be judged in that light.

So, either scrap the very notion of SS, or get used to the idea of adding to the burden of struggling young workers the requirement of supporting some unknown senior citizen. Then expect that those workers, rightfully, will expect to be supported themselves, and therefore will not need to put away for their own retirement.

A vicious cycle pitting young against old. Expect euthanasia & suicide to rise in social acceptance.


15 posted on 11/23/2004 7:14:59 AM PST by beavus
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To: beavus
There's alway "carousel", i.e. Logan's Run.
16 posted on 11/23/2004 7:19:55 AM PST by Sybeck1 (Victory!!)
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To: docbnj
However, a small amount of government activity can work IF it is embedded in the matrix of a free, capitalistic culture.

A small amount of thievery does not impoverish a wealthy man. One can usually cope with a very small cancer.

17 posted on 11/23/2004 7:25:05 AM PST by beavus
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To: beavus
SS is a coercive Ponzi scheme. As such, it ****CANNOT**** indefinitely produce the same returns that it has in the past.

This was well-known to SS's brilliant designers at the time, seeing as the rise and fall of Charles Ponzi was a widely publicized story in the popular press. FDR and his advisors should be judged in that light.


For the time and circumstances, FDR and his advisors were most certainly, absolutely brilliant.  Competing schemes, ala Father Coughlin and Huey Long, were a genuine political menace that threatened a lot more than the keep-your-fingers-out-my-pocket crowd of today realize.  FDR done good.  His successors screwed it up.
18 posted on 11/23/2004 7:47:47 AM PST by Racehorse
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To: Dan12180
Does this mean someone who doesn't contribute to social security won't receive benefits?

Only Mexican illegals deserve benefits
19 posted on 11/23/2004 8:09:14 AM PST by ARCADIA (Abuse of power comes as no surprise)
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To: docbnj
Re: Indexed versus non-Indexed Earnings for Social Security benefit calculations.

I've prepared an Excel workbook using SSA info & formulas from their websites.

Using my spouse, working as a nurse, starting her part-time earnings in 1957 as a 16 year old & through her college years and later as part-time through child bearing/rearing years, then full-time, as an example:

Average High 35 years earnings Indexed: $38,220 [SS benefit at age 62: $1,037 per month]

Average High 35 years earnings NOT Indexed: $26,568 [SS benefit at age 62: $802 per month]
20 posted on 11/23/2004 8:10:31 AM PST by NutmegDevil
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