Taking A Look At Social Security
Dec 12th, 2011 | 8 responses
In all the debate over the payroll tax cut the gorilla in the room has been Social Security (and Medicare) and the fact that both face future problems with solvency.
Some would argue that since they are currently secure we don’t need to worry about things but to me that is like arguing that the cliff is still a half mile away so I can continue to race towards it at 70 miles an hour. While I can still probably stop in time doing so later will be harder on the system and run a greater risk of failure.
So to me the common sense thing is to solve the problem now, or to at least begin the process of solving it, thus ensuring we won’t face a bigger problem in the future.
When you have a problem with solvency there are two ways to resolve it, you can either increase income or decrease expenses. Obviously in the case of Social Security that is a very important decision since reducing expenses could mean reducing payments to beneficiaries.
Since many people are dependant, or are depending on income from Social Security I think we need to be very careful about this. With that in mind I would say that anyone who is within 25 years of eligibility (IE age 40) will get their benefits as scheduled. They’ve paid enough in and are close enough to retirement that they deserve security.
Having determined that we should next look to increasing income to the system by removing the cap on the social security tax. Right now the cap is at $ 106,800 meaning any income over that is not taxed. That seems unreasonable to me given the problems with the system.
It also seems to be that this should be something both sides can agree on. Democrats are rarely opposed to raising taxes on upper incomes so they should support it. Many Republicans support a flat tax or some other version of tax equality. Since the tax would be equal on all income levels it seems something they should be able to support.
While it might not entirely solve the problem with Social Security solvency, removing the cap would certainly go a long way towards that goal.
A second step on the income side would be to insure that money paid in to the Social Security trust fund is used strictly for Social Security payments. Given our current budgetary problems it might not be possible to implement this reform immediately but it is something that should at least be phased in over time (this also would allow us to view the true measure of the overall budget deficit).
Although improving the income side of the system would help it is not likely to solve it. Demographic trends are simply not in favor of the system and so we will need to make some changes on the expense side.
The first thing we could do is to retain the cap on benefits. Right now your benefits are based in part on how much you paid into the system. If we retain such a system then the increased income from lifting the cap would not solve the problem, it would merely expand it.
So we would need to retain the cap on benefits and it seems simplest to retain the current cap for purposes of payout while lifting it for purposes of taxation. I realize this will result in people paying tax for benefits thet do not get but we cannot justify paying higher benefits to someone who does not need them at the risk of denying basic ones to someone who does.
In short the price of a civilized society is that sometimes the better off pay more to help those who are less so.
A second step I think we need to take on the expense side is the eventual and gradual increase in the retirement age. When the social security system was first created it was intended as short term benefit for a few years of retirement. It was not intended to pay for 20 or 30 years or more and simply cannot do so if the system is to remain viable.
As I said before nobody over the age of 40 would face any change in their benefit so here we are looking at those under 40. I would suggest as a starting point the idea of a one year increase per decade.
So those between 30 and 40 would not qualify until age 67, those between age 20 and 30 would have to wait until 68, those between 10 and 20 would have to wait until 69 and those under 10 (or unborn) would wait until age 70.
I don’t see this as such an unreasonable burden for those of a much younger age and it would do much to insure future stability to the system.
Of course if the math shows that the income reforms and the retained cap on benefit payouts allows for a more gradual increase in retirement age then we should stretch out the increases (perhaps doing 1 year every 15 or 20 years).
I’m sure there will be plenty of objections to these proposals, from those who want to only cut benefits to those who want to raise taxes but never increase retirement age. But we have to start to discussion somewhere.
8 Responses to “Taking A Look At Social Security”
Social Security can be reformed by both raising the cap (and the benefits could also be raised, though perhaps not excessively), since there are comparatively few that would be getting them compared to the whole SS population.
The age can be raised to 67 and is now in the process of doing just that. As future populations live longer, the age can be raised as appropriate.
The big problem is Medicare and Medicaid and we will have to see how the PPACA performs as it is implemented.
My daughter is planning on it’s implementation to release her from a so-so job into the world of entrepreneurship as soon as it’s implemented. I suspect she will have lots of company.
Since there is no cap on Medicare contributions, this will help to get over the baby boomer bump that’s causing the current problem.
[...] Taking A Look At Social Security (themoderatevoice.com) [...]
No mention of payroll tax cut? This extremely short-sighted break is exacerbating the problem. It was a terrible mistake and will never be repealed. It will end up hurting the very people it was intended to help: working class families who will rely on the system in their old age.
Obama screwed the pooch on that one..
This sentence exhibits a confusion most people are hampered by: “A second step on the income side would be to insure that money paid in to the Social Security trust fund is used strictly for Social Security payments.” It’s the confusion among money as a store of value and medium of exchange (“cash”) versus money as a unit of account (UA$). No cash came in to the SS Trust Fund, so it makes no sense to talk as many do, about “the [SS] money,’ or “that money” being “stolen” or “spent on other things.” UA$ are only kept artificially scarce from working people. Didn’t we all see a lot of it vanish in the Crash, and the Treasury, but more so the Fed, create $2.7 trillion in quantitative easing, and cumulatively over 30.5 months, create, then extinguish, $16.1 trillion UA$s?
The “inflation” that has followed may have several other causes than this, e.g., turning food into fuel and commodity futures speculation.
Raising the retirement age rather than increasing funding is a very counter productive idea. Between endless mechanization, tool improvement and automation; recessions; merger, acquisition and downsizing; free trade net job elimination though capital and job exportation and private equity LBO work force downsizing, keeping Americans employed at all is our worst economic problem. It’s why we need government as employer of last resort, industrial and incomes policy, job sharing, overtime prohibition, etc. – all the things Republicans won’t allow and Democrats won’t enact.
This says it all: http://bit.ly/sottH4 Endorsed by Judge Ray Holbrook, the Tx. Judge who implemented the Galveston retirement plan: AmeriCareToday or the ACT proposal: http://bit.ly/qbq62z
The SS system is a political football (no surprise there) but in fact politicians don’t even treat is consistently. When it suits them, they treat SS as a special entitlement that needs special treatment. At other times, they treat it as just another pot of money to be used for immediate needs. The latest round of “tax cuts” is an example of the latter.
But I do agree that something needs to be done to fix the structural problems. Firstly, using the SS tax for short term stimulus is not what should be done. More generally, the fact is that the reason the system has structural problems is because people live longer. So the clear solution (IMO) is a corresponding increase in the retirement age.
Since SS is such a political football, I propose that congress and the president pass the requirement to deal with the problems to people who are only marginally responsible to the short-term voters. In other words, they created the Federal Reserve because politicians could pander all they want, but the Fed officers are more immune to the short-term wishes of political panderers [please note that I know that the Fed has problems, but it does have some degree of autonomy that is needed in crises such as 2008 and 1929].
Thus: the retirement age should be set by an independent commission. Benefits should be parsed out by this commission in a (lawful) manner that makes sense. The initial laws setting up the commission and the rules should have ‘simple majority’ protection (i.e. they can’t be changed by less than 2/3′s of the house and senate).
I realize that this gives an awful lot of power to certain individuals, but, in the end, congress and the president have shown that they are incapable of solving the problems due to voter back-lash. Congress gets its payraises due to a back door system, perhaps it is time that SS recipients do the same?
There are a number of options for making Social Security a sustainable program and for reducing the deficit. Changing the benefit formula for SS would essentially eliminate the long-run funding gap and require no additional solvency tax. It also would produce the most dramatic reduction in spending on benefits, equal to 23% of long-run spending under the current benefit formula. In addition, it would retain the progressive nature of the benefit formula, but reduces the degree of progressivity relative to the current formula. Furthermore, raising the retirement age would reduce Social Security’s unfunded obligations for retiree benefits to $6.3 trillion and require a solvency tax of 1.3% of taxable payroll. It would result in the third-largest program, with about 87% of the current law spending. Moreover, though the distribution of net taxes would still be progressive, of the four potential changes considered it would reduce the degree of progressivity the most relative to current law. Finally, eliminating the taxable maximum would reduce Social Security’s unfunded obligation for retiree benefits to $8.3 trillion and require a 1.3% payroll tax increase. It would result in the largest program in terms of long-run spending, and would increase the progressivity of the program (http://eng.am/sWDUJ8).