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"Congress Proposes Three Changes To Social Security That Make Sense"
I prefer: 1)raising the retirement age 1Year,63,66,71 people are living longer, and they raised the age in our life time, 2)Raise the amount of income that is subject to SS taxes ie $200,000 3) they raised every other tax in the world , raise the SS tax rate( if necessary after the above two points)
There you have it..... Mr politician....SS all FIXED.....Please don't vote for me
You might take a look at "the Social Security game" from the American Academy of Actuaries. It lets you choose from various changes and tells you how much of the shortfall you've addressed.
I tried plugging in the choices they had that IMHO were closest to your actions; you just made it to 100% of the solution:
1. Gradually increase the retirement age for full benefits - accelerate by one year, the current scheduled increase to age 67. Then index the retirement ages to maintain a constant ratio of expected retirement years to work years. (This is a bit more aggressive than you suggested, because it automatically increases ages in the future as lifetimes extend.)
2. Gradually raise the cap on wages taxed from $106,800 (which covers 83% of wages) to an amount that covers 90% of wages. (They didn't say what that amount would currently be - likely is somewhere in your ballpark, though.)
3. Raise the SS tax rate to 6.7% (from 6.2%) for both employer and employee.
I don't necessarily agree with all your choices, but I thought it was interesting how well they seemed to solve the problem without going over. (The actual figure was 105% of the needed fix.)
\\\ [Raising the retirement age] sounds plausible until you look at exactly who is living longer. The rise in life expectancy, it turns out, is overwhelmingly a story about affluent, well-educated Americans. Those with lower incomes and less education have, at best, seen hardly any rise in life expectancy at age 65; in fact, those with less education have seen their life expectancy decline. ... this common argument amounts, in effect, to the notion that we can’t let janitors retire because lawyers are living longer. And lower-income Americans ... are the people who need Social Security most.
\\\ there’s a strong case for expanding, not contracting, Social Security.
Interesting point. Problems are frequently more complex than they appear at first glance (a fact which is frequently lost upon our legislators).
Perhaps a hybrid, including some of the ideas in the article, would work fairly well? For instance, maybe: • A decreasing scale for the COLA adjustment for well-off recipients. • Raise the amount of income that is subject to SS taxes... (TB's point 2, above) • Gradually raise the SS tax rate... (TB's point 3, above; also point 3 of the Forbes article) • Increase the Threshold Amounts for Inclusion of SS Benefits in Taxable Income... (point 2 of the Forbes article)
Yeah, means testing is always kicked around, always a good idea, and people like Buffett advocate it strongly. Your 4th point might work something like EIC for low-income recips.
Fixing it is trivial, ultimately, and over the next decades the really pressing problems will quite other, US and worldwide. Sea rise for starters. I'll be on my way out, but have kids and grandkids.
DavidM - thanks for pointing out some of the problems with raising the retirement age - that's the main problem I had with TB's list. As you and others are pointing out, changes like that one are not as simple as they might appear.
Not only do the more affluent live longer, but it is blue collar workers that wind up retiring earlier, because the jobs literally wear them out. Raising the minimum age for SS could kick many people over to disability and poverty programs - not saving money (in the big picture, not specific to SS), possibly even costing more.
With respect to making SS means tested - it already is, in subtle ways. Taxation of benefits is based on income. There are two "bends" in the benefits curve, so that lower wage earners get a higher percentage of their pay-in than do people who maxed out SS taxes each year (with high wages).
My understanding is that SS was designed to pay retirees based on what they paid in (as opposed to being means tested) as a way of ensuring SS's political survival. Give "other people" benefits, and many will want to eliminate a program. If a program gives you benefits, you will want to keep it.
As to the Forbes article and its suggestion that SS should use CPI-E instead of "the" CPI index ... First, the writer is mistaken - SS is not based on CPI-U (what is generally quoted as "the" CPI index, and which averages spending patterns of 88% of the US population), but CPI-W, which covers only 29% of households. (CPI-U wasn't implemented until 1978, well after SS began.)
Second, while CPI-E sounds good in theory, it doesn't cover all SS recipients (which would, one hopes, be the objective of switching indexes). Here's a Bureau of Labor Statistics article on that issue: http://www.bls.gov/opub/focus/volume2_number15/cpi_2_15.htm
Aside from index design issues (something we should all be familiar with as fund investors ), according to the article, CPI-W was higher than CPI-E (or CPI-U) between 2006 and 2011. (The article is dated 2012, so that was the most recent five year span at the time.)
CPI-E could turn out to be another "feel good" change (like having people take off shoes at airports) that sounds good, but really doesn't achieve anything.
msf- Well, this is getting quite interesting, and thanks for your input on this topic. You are correct in your observation that the system "was designed to pay retirees based on what they paid in (as opposed to being means tested) as a way of ensuring SS's political survival." I think though that with a bit of skilful engineering and camouflage there could be a subtle shift so that the benefits to the well-off (and I include myself in that category) get trimmed a bit here and there, but remain viable. Unfortunately, with our current political deadlock the odds of "skilful engineering" are pretty remote.
msf, Thanks much for your scholarship and supple detail and understanding. I hope (trust) you read Krug faithfully, just to get the facts. And Forbes mistaken?? I sure hope you post a comment.
Shoes x-rayed at airports may ultimately be feelgood only, but in Boston it makes us feel rather more than that. Preferable to the opposite, I and others would argue.
rjb, Medicare may not need much macro fixing (not considering fraud and idiot categorizations and wack payments in both directions and other such decisions):
“The latest report from the Social Security Administration makes it clear that the American economy continues a 40-year trend of moving in the direction of becoming a Third World country where the vast majority of people are struggling to keep their heads above water while the richest people in the country have never had it so good,” Sanders said. The report also shows that last year, 39 percent of all American workers made less than $20,000 and more than 50 percent of all American workers made less than $30,000. The median wage of $28,031 for American workers is lower today than it was in 1999, after adjusting for inflation. LINK: http://www.sanders.senate.gov/newsroom/recent-business/us-headed-toward-becoming-third-world-country
So far, government-generated data seems relatively untainted by politics. Sources like SSA, Bureau of Labor Statistics, Census Bureau, etc. are good places to fact check.
For health coverage, Kaiser Family Foundation, http://kff.org is a fine source.
Adding to Max's quote - household incomes are now just about back to where they were in 2007 after adjusting for inflation.
One can disagree about solutions (or even what constitutes problems), but one should start with solid facts and apply sound reasoning. I'll read anything that meets that standard, regardless of politics. If it's something I disagree with, a well constructed position will force me to think and reexamine my own views.
So I do read Krugman, but I'm not inclined to pay attention to some people all across the spectrum, from Sharpton to Limbaugh.
The only thing that will 'save' Social Security is to have it privatized and market based. I don't say this to ruffle any feathers. Structurally, it is unsound because it is unable to grow at a pace necessary to cover its obligations.
I don't see a problem with private SS accounts. You would get that early start on saving which is one if biggest reasons for success and if the person doesn't want to pick any investment then they can go with a pure vanilla very conservative one which would still end up better than what we have. It would be their money.
Roosevelt had a pure idea for SS when he proposed it. It has strayed a long ways from that and perhaps would have held up if government hadn't fiddled with it along the way.
Common sense says that whether I own 100 shares of Apple or you own 100 shares of Apple, the return on those shares is going to be the same.
So even if we assume, for the sake of argument, that investing in the market is necessary to 'save' Social Security, common sense says also that the results will be the same whether the title on those shares says BrianW or US Government.
That is, common sense says that privatization has no effect, good or bad, on the viability of Social Security.
Brookings said this much better than I two decades ago:
The claimed economic advantages of privatization can be obtained in either a public or a private retirement system. In either case, a short-term consumption sacrifice is needed. The best political argument for privatization is that the consumption sacrifice will be more palatable if workers are given ownership rights over the extra contributions they will be forced to make.
A common sense issue will always be economic/financial rather than political. If a Politician introduced a program tomorrow and said, hey, we're going to take a percentage of your pay and the same percentage from your employer. You don't own it anymore but we're going to hold it in trust for you. Actually, it really isn't a trust. We're just going to give you an IOU and use the money for whatever we want. Any normal person would have a problem with this. And yes an account that says BrianW is much preferred to one that says the US Government. An account owned by me can be inherited by my descendants and theirs while taking advantage of compounding of all our efforts. It should belong to those who worked for it. Do I believe something should be done for those who are less fortunate, yes. But, it is a matter of ownership.
I learned something from RJBs post but strongly disagree with BrianW/I have always thought SS was easy to fix and medicare hard. RJB made me think medicare is solvable . As to ss just raise the age, raise the cap (but not for employer contributions as that might cost jobs, change the index and increase the % contribution.How much changes in each ? I leave that to the actuaries and politicians but my idea is misery loves company so make everyone pay a little more and or get a little less and no one pays much more or much less If everyone has changes and must contribute to addressing the problem we can't complain about benefiting the 99% or the 1%.When I fill out my income tax they ask for my occupation.>Surely that can be used to give those whose jobs require physical labor a break including the ability to retire at 62.AS to medicare the problem is too tough for me though going to a different way to pay Drs . in order to discourage unneeded tests might help.
So, you're saying just throw more money at the problem? How much and for how long? I also find it interesting that you concede that taking money from an employer may cost jobs, but taking money from you doesn't cost you anything? Disagree with me, but my approach cost you nothing. Your approach dooms me deal with an inefficient, structurally unsound program.
BW, Sugg reading the links provided above. I and several others have pointed out that there are args that it is not doomed, not inefficient, not structurally unsound.
Your common sense may actually be quite unsophisticated and quite uninformed.
I should not speak for others here, sorry. Just for me. Try this; it's savvy:
" And yes an account that says BrianW is much preferred to one that says the US Government."
"Any normal person would have a problem with this."
These are political arguments - they address not what will keep Social Security economically viable, but what is superficially attractive (regardless of real effect), i.e. politically palatable.
How would you react if someone said he had this great business idea - you give him your money, and he gives you an IOU and uses the money for whatever he wants. Would any normal person have a problem with this?
That's called a corporation - and the IOU is called a corporate bond. Or it's called the US government - and the IOU is called a Treasury Bond.
One's private, one's public. I'll bet that most people (at least most people who know anything about investing) would say that a Treasury bond is safer than a corporate bond.
And, what if I don't believe a Treasury Bond is an appropriate investment for me? And, for the person that keeps providing suggested reading links, I could find just as many links to support my position. And, your assumption that I must be misinformed because I don't share your point of view is somehow polite? Once again, my position doesn't cost you anything.
Comments
1)raising the retirement age 1Year,63,66,71 people are living longer, and they raised the age in our life time,
2)Raise the amount of income that is subject to SS taxes ie $200,000
3) they raised every other tax in the world , raise the SS tax rate( if necessary after the above two points)
There you have it..... Mr politician....SS all FIXED.....Please don't vote for me
I tried plugging in the choices they had that IMHO were closest to your actions; you just made it to 100% of the solution:
1. Gradually increase the retirement age for full benefits - accelerate by one year, the current scheduled increase to age 67. Then index the retirement ages to maintain a constant ratio of expected retirement years to work years. (This is a bit more aggressive than you suggested, because it automatically increases ages in the future as lifetimes extend.)
2. Gradually raise the cap on wages taxed from $106,800 (which covers 83% of wages) to an amount that covers 90% of wages. (They didn't say what that amount would currently be - likely is somewhere in your ballpark, though.)
3. Raise the SS tax rate to 6.7% (from 6.2%) for both employer and employee.
I don't necessarily agree with all your choices, but I thought it was interesting how well they seemed to solve the problem without going over. (The actual figure was 105% of the needed fix.)
\\\ there’s a strong case for expanding, not contracting, Social Security.
http://www.nytimes.com/2013/11/22/opinion/krugman-expanding-social-security.html
Perhaps a hybrid, including some of the ideas in the article, would work fairly well? For instance, maybe:
• A decreasing scale for the COLA adjustment for well-off recipients.
• Raise the amount of income that is subject to SS taxes... (TB's point 2, above)
• Gradually raise the SS tax rate... (TB's point 3, above; also point 3 of the Forbes article)
• Increase the Threshold Amounts for Inclusion of SS Benefits in Taxable Income... (point 2 of the Forbes article)
Fixing it is trivial, ultimately, and over the next decades the really pressing problems will quite other, US and worldwide. Sea rise for starters. I'll be on my way out, but have kids and grandkids.
Not only do the more affluent live longer, but it is blue collar workers that wind up retiring earlier, because the jobs literally wear them out. Raising the minimum age for SS could kick many people over to disability and poverty programs - not saving money (in the big picture, not specific to SS), possibly even costing more.
With respect to making SS means tested - it already is, in subtle ways. Taxation of benefits is based on income. There are two "bends" in the benefits curve, so that lower wage earners get a higher percentage of their pay-in than do people who maxed out SS taxes each year (with high wages).
My understanding is that SS was designed to pay retirees based on what they paid in (as opposed to being means tested) as a way of ensuring SS's political survival. Give "other people" benefits, and many will want to eliminate a program. If a program gives you benefits, you will want to keep it.
As to the Forbes article and its suggestion that SS should use CPI-E instead of "the" CPI index ... First, the writer is mistaken - SS is not based on CPI-U (what is generally quoted as "the" CPI index, and which averages spending patterns of 88% of the US population), but CPI-W, which covers only 29% of households. (CPI-U wasn't implemented until 1978, well after SS began.)
Second, while CPI-E sounds good in theory, it doesn't cover all SS recipients (which would, one hopes, be the objective of switching indexes). Here's a Bureau of Labor Statistics article on that issue:
http://www.bls.gov/opub/focus/volume2_number15/cpi_2_15.htm
Aside from index design issues (something we should all be familiar with as fund investors
CPI-E could turn out to be another "feel good" change (like having people take off shoes at airports) that sounds good, but really doesn't achieve anything.
Thanks much for your scholarship and supple detail and understanding. I hope (trust) you read Krug faithfully, just to get the facts. And Forbes mistaken?? I sure hope you post a comment.
Shoes x-rayed at airports may ultimately be feelgood only, but in Boston it makes us feel rather more than that. Preferable to the opposite, I and others would argue.
rjb,
Medicare may not need much macro fixing (not considering fraud and idiot categorizations and wack payments in both directions and other such decisions):
http://www.nytimes.com/2014/08/28/upshot/medicare-not-such-a-budget-buster-anymore.html
LINK: http://www.sanders.senate.gov/newsroom/recent-business/us-headed-toward-becoming-third-world-country
For health coverage, Kaiser Family Foundation, http://kff.org is a fine source.
Adding to Max's quote - household incomes are now just about back to where they were in 2007 after adjusting for inflation.
http://www.nytimes.com/interactive/2013/08/21/us/household-incomes-slow-climb.html?ref=politics
Or if you prefer Fox, here's similar data (via Marketwatch):
http://www.foxbusiness.com/economy-policy/2014/09/16/median-household-income-basically-flat-last-year/
One can disagree about solutions (or even what constitutes problems), but one should start with solid facts and apply sound reasoning. I'll read anything that meets that standard, regardless of politics. If it's something I disagree with, a well constructed position will force me to think and reexamine my own views.
So I do read Krugman, but I'm not inclined to pay attention to some people all across the spectrum, from Sharpton to Limbaugh.
Roger that!
Roosevelt had a pure idea for SS when he proposed it. It has strayed a long ways from that and perhaps would have held up if government hadn't fiddled with it along the way.
So even if we assume, for the sake of argument, that investing in the market is necessary to 'save' Social Security, common sense says also that the results will be the same whether the title on those shares says BrianW or US Government.
That is, common sense says that privatization has no effect, good or bad, on the viability of Social Security.
Brookings said this much better than I two decades ago: Emphasis added. http://www.brookings.edu/research/papers/1997/03/saving-burtless
I'm assuming we're discussing an economic/financial issue, not a political one.
Sugg reading the links provided above.
I and several others have pointed out that there are args that it is not doomed, not inefficient, not structurally unsound.
Your common sense may actually be quite unsophisticated and quite uninformed.
I should not speak for others here, sorry. Just for me.
Try this; it's savvy:
http://www.nytimes.com/2013/06/03/opinion/krugman-the-geezers-are-all-right.html
Here is another one, albeit dated and leading to the above:
http://www.nytimes.com/2010/08/16/opinion/16krugman.html
"Any normal person would have a problem with this."
These are political arguments - they address not what will keep Social Security economically viable, but what is superficially attractive (regardless of real effect), i.e. politically palatable.
How would you react if someone said he had this great business idea - you give him your money, and he gives you an IOU and uses the money for whatever he wants. Would any normal person have a problem with this?
That's called a corporation - and the IOU is called a corporate bond.
Or it's called the US government - and the IOU is called a Treasury Bond.
One's private, one's public. I'll bet that most people (at least most people who know anything about investing) would say that a Treasury bond is safer than a corporate bond.