Yes, we can fix Social Security

LIFE INC ^ | 12/25/2012 | Allison Linn

[SeekAndFind]

The fiscal cliff negotiations are reviving the debate about that other financial elephant in the room: Social Security.

Under current government estimates, Social Security could face funding shortfalls in about two decades if nothing changes. That’s because the U.S. population is aging -- and generally living longer.

That sounds like a disheartening scenario for workers who are currently paying into Social Security and worry that they won’t get as much out of it once they retire.  About half of the Americans polled by Pew Research Center earlier this year believe it’s not likely there will be enough money in Social Security and Medicare to maintain current benefit levels into the future.

But experts say there are ways to fix Social Security. Politicians just may not like trying to sell those changes to the American people.

It has happened before, though. In the mid-1980s, none other than President Ronald Reagan, working with Democrats in Congress, oversaw a major overhaul of the nation’s retirement safety net.

That’s something many say seems less likely these days.

“There are politicians – and especially in the Senate but also in the House as well – who could work together and come to an agreement,” said Alan Auerbach, a professor of law and economics at the University of California, Berkeley. “But they’re not the majority of Congress.”

Experts say there are two ways to fix Social Security, and neither of them are pretty: reduce benefits or increase revenue.

Reduce benefits
One of the few parts of the fiscal cliff negotiations that President Barack Obama and House Speaker John Boehner seem willing to compromise on involves a change in the way Social Security increases are calculated going forward. 

The proposed switch to calculating cost of living increases using the chained Consumer Price Index instead of the current method would result in smaller annual Social Security raises. That’s because that method assumes that people change their spending habits when prices go up.

Proponents say the switch could save billions and is a more realistic method of how Americans really adjust to rising prices.

But opponents say the chained Consumer Price Index isn’t a good way to measure the needs of older and disabled Americans, because their expenditures are disproportionately focused on things like health care. A family of four may choose to eat more chicken if beef prices go up, but an elderly person can’t easily choose to spend less on heart medicine, they argue.

 “It’s the biggest hit on the people that couldn’t take it,” said Dean Baker, an economist with the liberal-leaning Center for Economic and Policy Research who is opposed to the measure.

One of the longer-term options for reducing benefits is to simply tell people they have to wait longer to get their full benefits. By extending the age at which you can get full benefits, proponents argue that Social Security would be keeping up with trends toward longer life expectancies.

But opponents, including CEPR’s Dean Baker, say that a closer look at the data shows that the bulk of improvements in life expectancies have come from wealthier Americans. They say a broad-based increase in the age at which people can get benefits would punish less wealthy Americans, who haven’t seen such big life expectancy gains.

Andrew Biggs, resident scholar with the conservative-leaning American Enterprise Institute, argues that another option would be to dial down benefits for middle- and high-income people while maintaining the current system for the poorest Americans.

Biggs argues that if wealthy people are told to expect less Social Security, they have more leeway to prepare for it than poor people.

“If you cut my Social Security benefits I’m going to react by saving money and working longer,” he said. “That’s good for the economy.”

Another option would be to reduce the Social Security benefits available to spouses. Some critics argue that’s growing outdated now that more women work and earn their own Social Security payments.

“It’s kind of a relic from a different era,” Baker said.

Increase revenue
Under the current rules, the maximum taxable earnings for Social Security in 2012 is about $110,000. Some argue that an easy fix would be to simply raise the cap on Social Security taxes to include higher wages. 

Baker, of CEPR, proposes raising the cap to around $190,000, reflecting the growing wealth at the top of the income scale. Raise it higher than that, he said, and wealthy earners will just start finding ways to dodge it.

But others say that it’s unlikely politicians will propose raising taxes on high earners now, when many expect those taxpayers to already see increases as part of the fiscal cliff negotiations.

“The timing of it just seems kind of awkward,” Auerbach said.

Another option would be to add an across-the-board increase in payroll taxes that go toward Social Security. Although that would help solve the system’s future funding woes, experts say it’s also likely to be a hard sell in these tough times.

For one thing, Americans may already be facing higher payroll taxes in 2012. For the past two years, Americans have enjoyed a payroll tax holiday that reduced the amount of money they paid toward Social Security, but that could end in the coming year.

“I suspect that’s going to be a not very attractive option right now,” Auerbach said.

Politicians may be nervous about proposing any reform to Social Security that costs more or results in fewer benefits, but Americans seem to accept that some changes are needed.

About 66 percent of those polled by Pew Research Center said they would support raising payroll taxes on high-income earners, while 55 percent said they would support reducing benefits for high-income seniors.

Just 38 percent said they’d support raising the eligibility age.

[Cymbaline]

How do you fix a Ponzi scheme?

[Vermont Lt]

Too bad he was one of the guys in congress stealing it from the lockbox?

[Mr. K]

how much does the social security administration itself eat up?

For example, Welfare is KNOWN FACT to be only 30% efficitent- 70% is lost in the bureacracy and only 30% makes it to actual people

How much does SS pay out each year to people, and how much does all the payroll and overhead cost?

[upchuck]

Think of it: the government reports inflation of 1.5% while the real rate of inflation is 5% or higher, and it’s obvious what is happening here.

That's already happening, due to the poor way the COLA is figured.

For 2013, we're getting a measly 1.7% increase. Meanwhile:

• my grocery bill for 2012 is up way more than that
• my Medigap premium is up by 20% for 2013
• my Medicare C premium is up by 15% for 2013
• my Medicare A&B premium is up 5% for 2013

And we get a lousy 1.7%? Why do they even bother? And under the proposal we'll get even less.

Pardon my "senior" rant :)

[kabar]

Under current government estimates, Social Security could face funding shortfalls in about two decades if nothing changes.

SS is a pay as you go system. It has been running in the red since 2010. It has been facing shortfalls since then.

We’ll start with the basic numbers. The nonpartisan Congressional Budget Office issued its most recent projections for Social Security’s income and outgo Jan. 26, along with its twice-yearly “Budget and Economic Outlook.” What those numbers show is that Social Security ran a $37 billion deficit last year, is projected to run a $45 billion deficit this year, and more red ink every year thereafter.

Source: CBO “Combined OASDI Trust Funds; January 2011 Baseline” 26 Jan 2011. Note: See “Primary Surplus” line (which is negative, indicating a deficit)

Matters are even worse than this chart shows. In December, Congress passed a Social Security tax reduction. Workers are temporarily paying 2 percentage points less, from 6.2 percent to 4.2 percent, in Social Security payroll taxes this calendar year. Since the government is making up the shortfall out of general revenues, CBO’s deficit projections for the trust funds do not include that. But CBO’s figures predict that the “payroll tax holiday” will cost the government’s general fund $85 billion in this fiscal year and $29 billion in fiscal year 2012 (which starts Oct.1, 2011.) Since every dollar of that will have to be borrowed, the combined effect of the ” tax holiday” and the annual deficits will amount to a $130 billion addition to the federal deficit in the current fiscal year, and $59 billion in fiscal 2012.

Social Security has passed a tipping point. For years it generated more revenue than it consumed, holding down the overall federal deficit and allowing Congress to spend more freely for other things. But those days are gone. Rather than lessening the federal deficit, Social Security has at last — as long predicted — become a drag on the government’s overall finances.

As recently as October, CBO was projecting that it would be 2016 before outlays regularly exceed revenues. But Social Security’s fiscal troubles are more severe than was thought, and the latest projections show the permanent deficits started several years ahead of earlier predictions.

Don’t be confused by the fact that the trust funds are projected to continue growing for several more years. That’s because Treasury must still credit interest payments to the funds on the borrowings from earlier years. But unless taxes are increased or other spending is cut severely, the government will have to borrow from the public to pay the interest that it owes to the trust funds.

And don’t be misled by those who say the system can pay full benefits until about 2037 without making any changes to the law. That’s true, but does not change the fact that Social Security taxes no longer cover those benefits. The government is now borrowing money to pay them, and will do so every year for the foreseeable future. And keep in mind, if nothing is done, when those trust funds are exhausted, benefits would have to be cut by 22 percent in 2037, and more each year after that, according to the most recent report of the system’s trustees. By 2084, the system will generate only enough revenue to pay for 75 percent of promised benefit levels.

[SeekAndFind]

RE: 16 months ago, Thaddeus McCotter introduced the SAVE SOCIAL SECURITY ACT (HR 2889)

FOR REFERENCE:

http://patdollard.com/2011/09/mccotter-heres-my-social-security-plan-now-show-me-yours-with-video/

EXCERPT:

Below is a summary of McCotter’s “Save Social Security Act” Provided by McCotter2012.com:

1. This legislation empowers each worker age 50 and below individually with the freedom to choose a contribution to a personal savings and investment account equal roughly to half of the employee share of the Social Security payroll tax (5% of the first $10,000 of earnings each year, and 2.5% of earnings above that up to the maximum Social Security taxable income each year). That contribution would be financed by a payment each year from general revenues financed by reductions in government spending, so there will be no reduction in the payroll tax that would negatively impact Social Security revenues, and no additional costs for the worker in choosing the personal accounts option.

2. No change is made in any way for those already retired today, or those anywhere near retirement.

3. Each worker is free to choose to stay with the current Social Security program and forego the personal accounts entirely. There would be no change in Social Security benefits under current law for those who make this choice.

4. To the extent a worker chooses the personal account option over his career, the personal account would finance an equivalent percentage of the worker’s future Social Security retirement benefits, under a statutory formula. For a worker who exercises the account each year for his entire career, the account would replace the maximum of 50% of the worker’s retirement benefits, with the rest continuing to come from Social Security. For those who exercise the account option for fewer years and later in their careers, the account would replace proportionally less under a statutory formula.

5. Workers who choose the personal accounts are backed by a federal guarantee that they will receive at least as much as promised by Social Security under current law, maintaining the social safety net of the current program.

6. The Chief Actuary of Social Security scores the bill as ultimately eliminating all future deficits of Social Security, with no benefit cuts or tax increases, assuring that all current and future Social Security benefits will be paid. Because the personal accounts finance so much of the future benefits of Social Security, the deficit between continuing payroll tax revenues and continuing benefit obligations of the public program is eliminated.

7. Under this legislation, there is no change in the Social Security retirement age, cuts in the Social Security COLA, or other benefit cuts promoted by other proposals. Workers with personal accounts choose their own retirement age (62 or later) with the incentive to delay retirement as is feasible to allow further account accumulations.

8. In fact, because long term market investment returns are so much higher than what Social Security even promises, let alone what it can pay, future retirees with personal accounts will enjoy higher benefits than the current Social Security program promises. The benefits payable by the personal accounts at just standard, long term, market returns would be much higher than the Social Security benefits than they replace.

[kabar]

The lock box is nonsense. It wouldn’t fix SS. The problem is the change in demographics—a pig going thru a python—that makes SS unsustainable. The number of retirees will double in the next 20 years while the number of workers supporting the system goes to just two workers for every retiree. We need to raise contributions and/or reduce benefits to keep the current system going.

[Parmy]

How do you fix a Ponzi scheme?

Fact is that all insurances are forms of Ponzi schemes. It is just that most are managed and not allowed to go broke.

[kabar]

•my Medicare A&B premium is up 5% for 2013

Why are you paying a premium for Medicare Part A? You couldn't qualify for Medicare Part A due to a lack of contributions when working?

Medicare premiums for Part B only cover 25% of the costs of the program. The other 75%, by law, comes from the General Fund. In FY 2011, the General Fund paid $222 billion to cover Medicare Parts B and D (SMI) costs. Eventually, if not reformed, Medicare will consume the entire federal budget.

[knarf]

If we look at your numbers (which I don't doubt), it's clear that any sudden reduction in funding would put a gazillion people on ... unemployment first, then welfare.

I mean, what can a social worker do in the real world?

type?

shuffle papers?

nod acquiescence?

There will be a revolution in the near future and it will be between government workers and non government workers.

[oh8eleven]

The problem is the change in demographics—a pig going thru a python—that makes SS unsustainable.
Oh yeah, those damned Baby Boomers ... again.
When the boomers were young, there were about 150 million Americans. Today, that's doubled to 300 million, plus another 20 million illegals.
Besides doubling the work force, the SS withholding rates and salary caps have increased drastically too.
WTF is all that money? General fund thievery and SSDI to name just two.

[DustyMoment]

But . . . but . . . but . . . . Bubba Clinton and his leftist sycophants told us that Socialist Security didn’t NEED fixing!!

What up wit’ that???

[preacher]

Video: http://www.youtube.com/watch?feature=player_embedded&v=LHJHKSItud0

Discussed in the video:

• If the AMT is not fixed, millions of taxpayers will face thousand dollars in increased income taxes due in 2013.
• When the payroll tax was suspended to stimulate the economy a scenario was setup that will cause a 30% cut in Social Security payments by 2019.

[DustyMoment]

Algore preached about the "lock box" for well over a year way back in 1999 yet the congress, the media and the voters were deaf to the subject.

The issue goes back well beyond Algore. When LBJ initiated his War on Poverty, he "unlocked" the "lockbox" and placed SS revenue in the general fund.

Congress has been having a field day spending the money as though it grew out of the ground like grass (or weeds, if your yard is like mine!).

Like so many other things, this is yet another bunch of worms that aren't going back in the can!!

[dalereed]

“How do you fix a Ponzi scheme?”

get in early so you are dead before it goes broke!!!

I think I made it at 75!!!!!

[RetiredArmy]

TAX THE RICH, TAX THE RICH, TAX THE RICH. That will fix it. Oh, wait, MAKE CONGRESS CRITTERS PAY INTO SOCIALIZED SECURITY AND DUMP THEIR PRIVATE, CREATED BY THEM, FOR THEM, PAID FOR BY US. That would work better.

[kabar]

General fund thievery

Another myth. This is the way SS works:

SS is a pay as you go system, i.e.. today's workers pay the benefits for today's retirees. When SS was running a "surplus," i.e., payroll taxes exceeded the benefits paid out, the amount of the "surplus" was deposited into the General Fund and non-market, interest bearing T-bills in the amount of the surplus were issued by Treasury and deposited into the SS Trust Fund. The redemption of those T-bills is guaranteed by the full faith and credit of the USG the same way that the USG guarantees payment to the Chinese who hold over a trillion dollars in US T-bills.

Currently, the SSTF has about $2.4 trillion in these T-bills. The SSTF is included in our $16 national debt under the category of "Intragovernmental Holdings," the same category as other trust funds like HI and federal pension funds. They amount to about $5 trillion of our national debt as distinguished from our publicly held debt.

Since SS has been running a deficit since 2010, it has had to cash in some of its T-bills in the SSTF to make up the shortfall. The General Fund must come up with the money. Unfortunately, 42 cents of every federal dollar spent is borrowed. So we must borrow more money to pay for the redemption of the SS T-bills. So technically, no money was stolen from SS.

[DustyMoment]

If we want to “fix” socialist security (and, I’m not sure it’s worth fixing; it’s a crappy program to begin with!), the first thing that has to happen is to get control of the program away from Congress.

Congress long ago opted out of SS and have their “own” retirement program, yet they still control SS and determine who can collect what SS “benefits” at what age. If they don’t particpate, they can’t legislate!!

[Baynative]

Investing at simple interest would have been huge if the funds hadn’t been robbed. The idea of individualized accounts makes pretty good sense, but that is future and somewhat corrective. I was referring more to the embezzlement that has been taking place since the 60s. Had the money coming in not been absorbed into the general fund to waste on LBJ’s soft socialistic ideals this conversation would be much different today.

[Baynative]

I hear you, but my point was that the embezzlement is seen as no big deal. When Algore was trying to campaign on the issue the media had every opportunity to make a point of it. However, being the good liberals that they are they remained silent on the issue, as did, both parties in congress.