Posted on 12/25/2012 9:00:03 AM PST by 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.
(For discussion only, NOT picking fights!)The embezzlement of SS by both parties is small potatos compared to the theft that occurred after LBJ opened the vault and told the Congress to “have at it!”. (Unless, by “embezzlement”, you ARE addressing the open theft of SS funds by the Congress! In that case, we are on the same page and you may feel free to disregard my entire reply)
There is so much rampant theft of SS funds by politicians to buy every possible vote (and them some!) through any means possible, that the fact that SS is going broke fast should not be a surprise.
Okay, change “Medicare A&B” to just “Medicare.” That’s the away it is referred to in the benefit amount paperwork I got from Social Security.
“I’ve said for years that Social Security will be “fixed” partly through a deliberate under-reporting of inflation figures that constrains cost-of-living increases over time. 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.”
Hasn’t the CPI been eviscerated before by taking out increases in food and fuel? i read somewhere that by converting to the chained CPI that old timers dependent on SS can just switch from eating chicken, to dog food and then finally to cat food as there checks dwindle. and if they find cat food unpalatable, they can fast until they no longer have the strength left to cash their social security checks.
the real reason that SS is running out of dough is because of all the illegals getting SSI, disability income, etc. but heaven forbid, we deny the illegal invaders their rightful due as we welcome them as they pour across our borders to enjoy free medical care, in-state college tuition, reduced mortgage principal and interest rates, because of their no document loans the banks forced on them.
“That sounds like a good option. Gazillionaires like Barbra Streisand and Michael Moore dont’t need it as much.”
wonder if there is a way to find out whether there are any movie stars that collect social security to supplement their paltry incomes?
“Sadly, most Americans don’t understand the concept of long-term investing and compound interest. They’re more than content to remain latched to the government teat, and let someone else foot the bill.”
The teat-latcher include may here on this forum, who should know better.
This is something that could potentially be managed.
Another, far more likely alternative is that at some point in the not-so-distant future nobody gets anything.
If you watch nothing else today....please watch this short illustration lesson. This is a non-partisan video produced by an accountant, Hal Mason, who retired after 27 years with IBM. He looks at the budget, its revenues and expenses, and very simply illustrates the financial problems of the U.S.
Amazingly, we get all the media talking heads blathering and shouting for hours and never give us clarity. This guy does it in a few minutes. The message seems to be very clear. Where Greece is today, we will be tomorrow, unless our representatives in Washington start to take some very decisive steps.
http://www.youtube-nocookie.com/embed/EW5IdwltaAc?rel=0
We are in complete agreement. I am also in agreement with Mark Levin who believes members of congress who have joined in the act of looting our treasury should be tried.
Medicare Part A is funded thru part of the payroll tax (the HI trust fund.) Medicare Parts B and D are funded thru premiums from the retirees (25%) and from the General Fund (75%).
Medicare Part A is funded thru part of the payroll tax (the HI trust fund.) Medicare Parts B and D are funded thru premiums from the retirees (25%) and from the General Fund (75%).
Tried!!??? How about hung after their hands are cut off!??
(I really HATE thieves!! Or could you tell?)
No it cant. Socialism cant be fixed, its already working as intended.
I concur...no one in Washington has any courage to tackle serious entitlement reform, with the possible exception of Paul Ryan and a few others. Obama and the Dims are content to kick the can down the road indefinitely, figuring we can muddle through until most of them have left office. I can easily see all the entitlement programs going bust in the next 10-15 years, with a lot of “low information” recipients wondering what happened to their check.
One more thing...in an effort to keep the Ponzi schemes going, I can easily see the confiscation of private pensions and retirement accounts in the next 10 years, if not sooner.
You either raise the payroll taxes or decrease benefits or some combination thereof. Here is what the Trustees said in their 2012 report:
Social Security’s expenditures exceeded non-interest income in 2010 and 2011, the first such occurrences since 1983, and the Trustees estimate that these expenditures will remain greater than non-interest income throughout the 75-year projection period. The deficit of non-interest income relative to expenditures was about $49 billion in 2010 and $45 billion in 2011, and the Trustees project that it will average about $66 billion between 2012 and 2018 before rising steeply as the economy slows after the recovery is complete and the number of beneficiaries continues to grow at a substantially faster rate than the number of covered workers. Redemption of trust fund assets from the General Fund of the Treasury will provide the resources needed to offset the annual cash-flow deficits. Since these redemptions will be less than interest earnings through 2020, nominal trust fund balances will continue to grow. The trust fund ratio, which indicates the number of years of program cost that could be financed solely with current trust fund reserves, peaked in 2008, declined through 2011, and is expected to decline further in future years. After 2020, Treasury will redeem trust fund assets in amounts that exceed interest earnings until exhaustion of trust fund reserves in 2033, three years earlier than projected last year. Thereafter, tax income would be sufficient to pay only about three-quarters of scheduled benefits through 2086.
A temporary reduction in the Social Security payroll tax rate reduced payroll tax revenues by $103 billion in 2011 and by a projected $112 billion in 2012. The legislation establishing the payroll tax reduction also provided for transfers of revenues from the general fund to the trust funds in order to "replicate to the extent possible" payments that would have occurred if the payroll tax reduction had not been enacted. Those general fund reimbursements comprise about 15 percent of the program's non-interest income in 2011 and 2012.
While the combined OASDI program continues to fail the long-range test of close actuarial balance, it does satisfy the test for short-range financial adequacy. The Trustees project that the combined trust fund assets will exceed one year’s projected cost for more than ten years, through 2027.
However, the Disability Insurance (DI) program satisfies neither the long-range test nor the short-range test. DI costs have exceeded non-interest income since 2005, and the Trustees project trust fund exhaustion in 2016, two years earlier than projected last year. The DI program faces the most immediate financing shortfall of any of the separate trust funds; thus lawmakers need to act soon to avoid reduced payments to DI beneficiaries four years from now.
Thank you Seek. I have the video link but was unaware of Pat Dollard’s article. To date, have you seen anyone else introduce such detailed legislation re: Social Security? Maybe in light of what happened to T-Mac, no one wants to.
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