Posted on 03/08/2005 8:39:25 PM PST by FairOpinion
So, we're making assumptions about what most people will do.
I will tell you why people will work longer. Keeping wages constant, if the marginal output of labor increased your marginal wages/wealth you will increase the output of labor.
Ok. We're talking about welfare costs. Payroll taxes are a disincentive. Most people are less willing to work. They lower discretionary income. Or, so the theory, keeping wages constant, goes.:-) But, contributing to social insurance programs, though compulsory, shares risk associated with not working.
If your marginal labor will be taxed at a higher amount, you will consider all your other elasticities before you commit to the extra hour of working. Maybe you would rather go fishing than have govt take 60% of what you would make if you worked that extra hour.
You might choose to work overtime, take a second or third job, invest in additional education or training, in an attempt to raise your present or future discretionary income. Many people are willing (if they think about it at all) to accept the tax to achieve a gain. Others would prefer running a trot line.
And then, until recently, and maybe even now, there is the question of how much of a loss do workers regard the OASDHI tax to be? Until the media and the politicians went to work, there was some level of confidence that a worker connected the tax with some level of present or future benefit. That, as well, would affect labor supply.
Social security represents such a tax. Govt borrows at a real rate of .86%. So, when you work an extra hour you know that 12.4% of your earnings will give you .86% on average. If you knew that it will get a higher return, then it represents a tax-cut. People will allocate labor more efficiently.
Assuming labor is allocated less efficiently now.
First, a higher rate of return simply, or not so simply, requires new legislation: overhauling the Social Security program. As everyone knows, or should know, a social security pension is not a return on investment. Second, the payroll tax includes not only contributions to the pension program but a portion is allocated to survivor's and disability insurance. Seems to me, that in the absence of an OASDHI payroll tax, our aggregately rational workers' higher rate of return would be diminished by the cost of privately purchased survivor and disability insurance, assuming they are rational enough to delve into estate planning and income protection. Third, the higher rates of return generally involve higher risks, unless someone starts to sell insurance which provides a safety net. Social Security and its associative programs involve higher political risks. That in the long run stocks and other private investments have tended to increase in value does little to comfort the retired worker caught in the trough of a bust. Fourth, no one has tackled the challenge of convincing a young person they are not immortal and not guaranteed good health. Some of the younger ones will be wise and some will be stupid or unlucky. The stupid and the unlucky will starve or become dependent on government kindness. The wise will pay for private insurance programs at what ever happens to be the market rate.
Part of the problems seems to be Republican media doesn't focus enough on domestic issues like Social Security. I go to blogs like TalkingPoints and Koz and they're always talking about Social Security. Then I go to Instapundit and PowerLine, and rarely do they mention it. Sites like Newsmax and Townhall also don't cover it in great detail. We talk a lot about foreign policy- Iran and N. Korea, but we seem to be non-chalant about issues within our own borders.
I think you're right. Compared against all the talk about Social Security, the real looming crisis in Medicare/Medicaid is a hushed whisper.
Bush and the Republicans need to go to the people directly and explain things. People succumb to the Dems scare tactics and don't understand that the choice is NOT for a continuing fully funded Social Security, but whether we fix it now, or wait until it falls off the cliff.
I wonder how many of these folks understand that they are in 100% agreement with the Communist Party -- literally. The Communist Party website has several articles attacking President Bush's reform of their Socialist Security system:
When did the communists morph into conservatives? :-)
Indeed -- it is ironic, but trying to save the status quo is indeed in some sense conservative, although in this case it is conservation of a leftist Ponzi scheme.
In fact, I guess most communists are quite happy to be conservative about saving the legacy of their favorite president, President Franklin Roosevelt, who was our greatest domestic disaster of a president.
The purpose of insurance is to assess premiums over a large enough base to cover risk. When you allow some of the premium to leak out it is no longer insurance.
Americans are smarter than that.
BUMP
LOL Thank you. On this Rush and I are on the same page.
I gave them leeway when they didn't have a majority in practice. As of Nov. 3, 2004 they have a majority. Slight as it may be. I have given them a few months to settle into the roles and since I hear the same rhetoric, little action, and more excuses as to why they cannot lead. The president can lead and take the rest of the world with him on foreign policy but in the House and the Senate he needs these people to stick their neck out and do the job expected of them. Certainly if they can pass measures we aren't in agreement with, passing measures we DO like that supposedly do not go against the conservative principles they claim should be welcomed.
I'm not sympathetic to poll driven pols. I don't like a minority oppressing the majority. It's time they acted. If not, My impression is that it is time to put up our own candidates in the primaries and send a very strong message that we'll kick them out if they don't follow through.
It seems the MSM and Dems use scare tactis, then the Republicans cave in.
I wonder what would happen if we really did some of their worst fears. Like just cancelled social security outright, giving every worker in America a 12% raise overnight.
Good post.. greed does triumph fear. Most people don't seem to care if the nation is bankrupt 20 years from now, as long as they keep getting their check in the mail..
But give them a chane at getting a bigger check, and all of a sudden they are listening.
How so?
It's dead, Jim. There is no chance the personal accounts will pass because the House REPUBLICANS are scared of the geezers in next year's election. Let SS die...just be sure to hang the corpse around the Democrat's necks. No bail-outs by raising taxes on our poor children and grandchildren who won't see a dime for all the money they've had stolen from them by this fraudulent Ponzi scheme.
The youngsters will start eliminating the oldsters?
The key is to reach young people in their twenties and early thirties and explain to them what lies ahead without the hope of personal accounts.
SS is a pay as you go system. There is no doubt that benefits will be cut, but personal accounts will more than compensate for the loss of benefits and reduce the USG's unfunded liability in the future.
The problems associated with SS will not be solved through "a slow cut in benefits through slight of hand, and infusion of general tax revenues." If you understand the demographics, it cannot be a slow cut in benefits and it will take a massive infusion of general tax revenues (read borrowing) to honor the IOUs in the SS Trust Fund. SS started with over 40 workers per recipient, to 16 in 1950, to 3.3 today, to 2 in 2030. The system as currently structured will not work. The earlier something is done, the less painful the solution.
In 2008, the SS surplus starts declining and in 2018 we will be paying out more in benefits than we are collecting in revenue. We will need to start borrowing to make up the shortfall.
How will Congress replace the lost revenue? Borrowing more money through Treasury Bonds. The additional borrowing will increase the national debt, which means that we will have to pay more to service the debt annually.
Approximately 17 cents out of every dollar of total tax revenue collected is immediately used merely to pay the burgeoning interest on the Federal debt. This is now surpassing the costs for our entire defense establishment, and it is exceeded only by the revenues needed to fund the total Medicare and Medicaid programs.
Currently, 80% of all American wage earners pay more in FICA than in income taxes. 40% of all tax revenue comes from FICA and Medicare. If we don't do something about entitlement programs, the entire budget will be consumed by entitlement programs and debt servicing. Defense is a discretionary expense.
Sheeple are easily herded......
Sticking with the present plan is not an option. Current recipients are doing quite well from this Ponzi scheme, but those under 30 today will actually get a negative return on their investment (sic).
Congress can change the benefits at any time under SS. They did so in 1983 when the raised the retirement age to 67, increased the FICA tax, and indexed the cap. Under SS, a person can contribute for almost 50 years and die without receiving any benefits or have any tangible assets. SS is the risky scheme. At least you own the private accounts. 6% return shoud not be hard to meet given historical rates of returns from eqities.
BS... I'm 25 any EVERYONE I've talked to my age or younger loves the idea if I explain it to them.
This is more 'creative polling' as news.
You'd think after they "accidentally" couldn't get the election right 3hrs before the final count, that people even pay attention anymore.
Saving" Social Security without individual accounts could require a 50% increase in Social Security taxes or a 27% cut in benefits.
Source: 2003 Social Security Board of Trustees Report
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