Posted on 11/04/2015 7:13:16 AM PST by SeekAndFind
Social Security's financial health has deteriorated significantly over the past eight years, with multi-trillion-dollar funding shortfalls posing a threat to retirees and taxpayers alike. But if Social Security is to thrive in the 21st century, the next president needs to do more than simply adjust its tax and benefit rules. Instead, Social Security needs a new paradigm for how individuals and government programs contribute to retirement security.
Social Security receives scant attention compared to many other policy issues, large and small. But Social Security is an important program, both in its impact on Americans' lives and in what it says about the political parties' philosophies. The scale of Social Security's reach is enormous: It is the biggest federal-government program, the largest tax most American workers pay, and the largest source of retirement income for most households. Americans interact with Social Security from the day they enter the workforce as teenagers to the day they die, and Social Security affects how much they work, whether they become disabled, when they choose to retire and, some research shows, even how many children they choose to have. How the political parties deal with the program -- with its day-to-day functioning, with its $10 trillion–plus long-term deficit, and with how Americans save for retirement on their own -- says a lot about their governing philosophies.
Americans have not yet been so co-opted by the welfare state that they embrace progressive activists' model of an expanded Social Security program supplemented by government-run savings accounts, a model in which most Americans could eventually receive the vast majority of their retirement income from government programs. But Americans have gone far enough down that road that a conservative agenda on Social Security reform has to be about more than simply cutting benefits. Whatever the conservative policy approach may be, on a program as large and important as Social Security, there has to be a philosophy of governance behind it.
The philosophy under which Social Security was founded in 1935 states, "A program for the poor is a poor program." President Franklin D. Roosevelt explicitly wished to distinguish Social Security from what then was called "relief†and what we today would call "welfare.†Participants must work ten years just to qualify for benefits, and benefits increase with the worker's earnings. Benefits are progressive, but a worker earning the maximum taxable wage of $118,500 still receives a benefit 3.5 times that of a worker in the bottom fifth of the earnings distribution.
"Earned benefits†unquestionably strengthen Social Security's political support, and were affordable in a time of favorable demographics. By demographics I mean not simply the ratio of workers to beneficiaries, which was much higher in Social Security's early decades than it is today, but also the fact that most households were composed of a married couple in which an adult male regularly worked.
When the population ages and the ratio of workers to beneficiaries falls -- as it has, from about 16-to-1 in 1950 to less than 3-to-1 today -- paying generous benefits to middle and high earners is expensive. Over one-third of all Social Security benefits are paid to households in the top lifetime-earnings quintile, and nearly two-thirds flow to the top two quintiles. Much of the increase in Social Security's costs comes from paying higher benefits to higher-earning households.
Just as important, old-age poverty in the 21st century has different causes than it had in the past. An individual who works at a low-wage job every year of his life -- a person who in reality is quite rare -- will retire with a Social Security benefit that, while certainly not opulent, will keep him out of poverty and enable him to maintain his pre-retirement standard of living. In reality, though, most people retiring poor today had only sporadic attachment to the labor force during their working years. The highest earning quintile of workers retires with roughly twice as many average years of work as those in the bottom quintile. As a result of their short work histories, nearly one-fifth of the poorest quintile of retirees fail to even qualify for Social Security, and nearly one-third of those who do qualify receive a benefit below the poverty line. The poorest retirees can fall back on the Supplemental Security Income program, but this means-tested welfare plan also pays a sub-poverty-level benefit and effectively prohibits recipients from working their way out of poverty.
The result is a poverty rate among the elderly of 10 percent, despite Social Security spending sufficient to pay every American over age 65 a benefit roughly 12 percent above the poverty threshold. This is a very expensive way to not protect against poverty.
So far, most presidential candidates in both parties are sticking with the old script. On the Democratic side, Senator Bernie Sanders wishes to expand Social Security, raising taxes substantially to do so. But his plan would still leave someone who had worked and paid Social Security taxes for just under ten years with no entitlement to benefits. In fact, under Sanders' plan, households in the top lifetime-earnings quintile receive percentage benefit increases almost as large as those in the poorest quintile.
As for the Republicans, the general philosophy seems to be "keep doing what we've been doing, just less of it.†Governors Chris Christie and Jeb Bush have proposed combinations of retirement-age increases, means-testing on upper earners, and adjustments to various benefit formulas, producing a system that, while more financially sustainable, would be vastly more complex and still lacking a safety net adequate to inspire confidence among Americans. And without the confidence that they will not fall into poverty in retirement, many middle and high earners will not accept the benefits reductions needed to restore Social Security to solvency.
#share#But there is a new paradigm that rejects the "program for the poor is a poor program†credo in favor of a different philosophy: that if government provides a solid, reliable safety net against poverty in retirement, retirement saving on top of that base should largely be entrusted to individuals investing in private-market accounts that they, not the government, would control.
New Zealand, the United Kingdom, and Australia have all evolved in the same direction: The government provides a guaranteed minimum retirement benefit of about $1,000 per month. New Zealand pays this benefit to all residents, the U.K. scales it based upon the number of work years, and Australia means-tests the benefit based upon other income. But in all cases, the government aims at providing a solid base income to keep retirees out of poverty, not generous benefits for middle- and upper-income households.
On top of that base, individuals participate in 401(k)-type defined-contribution retirement plans. In Australia, participation is mandatory, though only the employer must make contributions, of 9.5 percent of worker wages. In New Zealand and the U.K., workers are automatically enrolled but may withdraw if they choose. In those countries, both workers and employers contribute, and the government provides a modest match.
I have proposed a similar reform for the U.S. Social Security program. Beginning immediately, Social Security would pay every long-term U.S. resident a minimum benefit pegged at the poverty threshold of $950 a month, regardless of the retiree's work history or earnings. This minimum benefit would take the place of both the redistributive aspects of Social Security and the Supplemental Security Income program, but do so with greater protections against poverty and no prohibition on work and saving. In fact, the Social Security payroll tax would be eliminated at age 62 to encourage longer work lives.
But over several decades, the maximum Social Security benefit would be scaled down so that eventually every retiree will receive the same flat dollar benefit from the government. For the bottom third of retirees, benefits would increase, but for middle and upper income Americans, benefits would decline relative to currently promised levels. This makes sense. At any given time, higher-income Americans are less dependent upon government than lower-income households. As incomes rise over time, Americans should gradually become less dependent on the government for income in retirement and more able to build their own savings.
To ensure an adequate retirement income, middle- and upper-income Americans would need to save more on top of Social Security. Federal policies should work to help them do so. Currently, around half of employers automatically enroll their employees in 401(k) plans, a policy that dramatically expands participation. Auto-enrollment should be made universal, as a simple best practice for pension administration. To expand pension coverage by small employers, which often find 401(k)s costly to establish, Congress should allow for less-expensive "Starter 401(k)s†and multiple employer-defined contribution plans, as proposed by Utah senator Orrin Hatch. Finally, 401(k) plans should adopt auto-escalation, which gradually increases contributions over time. Again, employees can withdraw, but most don't even notice the increased contributions, and the vast majority choose not to reduce them.
This plan would not cheat Americans out of Social Security benefits they had already earned. But it would change the terms on which Americans earn future benefits, to a paradigm in which government provides a real safety net against poverty -- the ultimate "retirement crisis†-- but treats middle- and upper-income households as adults who can and should generate most of their retirement income through their own saving.
Unlike the actuarial minutiae of conventional Social Security–reform plans, this new approach would give a presidential candidate a compelling agenda to talk about in plain English that ordinary Americans can understand.
Make no mistake: This is a conservative plan, at least as far as cost is concerned. Not only would Social Security be made permanently solvent, but over the long term the program would run a substantial surplus. The reason is simple: guaranteeing Americans against poverty in old age isn't expensive, so long as Social Security doesn't also pay higher-earning households benefits that are two and three times the poverty level. A true guarantee against poverty in old age is a promise that progressives would like to make, but that only a fiscally conservative plan could deliver.
-- Andrew G. Biggs is a resident scholar at the American Enterprise Institute.
[[You want to discuss this civilly, drop the conspiracy crap. You are wrong, it’s a lie, and whoever told it to you did it to get you agitated. And it’s working.]]
There’s no ‘conspiracyu’ about it- it’s plain fact- you can look these numbers up yourself- Illegals are costing this country upwards of $600 billion dollars ever year
[[You can look at the annual report and do the calculation: the Trust fund earned 3.55% last year, consistent with US Treasury Bonds.]]
They are paying it back with borrowed money- which they pay interest on which cancels out any % earned-
And drop the idiotic accusations of ‘conspiracy’ - We’re simply talking facts here- Can you at least try to respond without constantly having to act like that? Your constant need to insult is tiring- ok?
[[The surplus over the past few decades wasn’t that large, because most of the payroll taxes collected went to the beneficiaries. And ultimately, that’s your answer.]]
Again that brings us back to the money that was taken out of SS, used for other things, then paid back with borrowed money which incurred interest penalties- You say they are buying non marketable bonds- but what are they buying them with? The money is gone- what money gets paid back with borrowed money goes to recipients, and there’s nothing left over- Something simply doesn’t seem to add up here- Are they buying bonds on credit, and then paying for it later with borrowed money which also gets penalized with interest?
The issue you and I are discussing is where the money went In the past, why it wasn’t invested like it should have been- not about the fact that the system is currently broken- that’s a given- the question is why is it broken
[[But, spare me the complaining about stuff that didn’t happen, or stuff that is irrelevant.]]
Stop with the idiotic accusations of ‘complaining’ no one is complaining- Asking questions about something and citing facts is not complaining- Everything I brought up ties into the need for the government to tap into SS and give out iou’s- tying up the money, then paying back even if with interest, but basically negating that interest by having to pay interest on the money borrowed to pay it back with- There must be a reason why, with all the people paying in, and far fewer collecting, that the system became broken- and I’ve listed a few reasons why it seems reasonable that the system became unworkable-
[[Despite attempts to raise taxes to pay for it, and accelerate that increase in the 80’s, the demographic and economic assumptions were too optimistic. They raised benefits too high,]]
Thank you- finally you provide a possible answer to the current crisis- and without an insult too- Bravo! (although it still doesn’t explain the issues mentioned above). If this is true, do you have evidence pointing to this claim? That they goofed In their figures? Surely they had the greatest financial minds working on the issue? No?
[[If you don’t like the truth, please spare me the outrage.]]
Oooopsie- you blew it again- and here I thought you could finish your response without some childish insult- but nope- I was wrong
one more point I forgot to mention- from what I’m reading, had the full amount of the 1983 tax hike been deposited and NOT touched, into the trust fund- Full benefits would be available to everyone collecting benefits until the year 2037 or thereabouts- As for the iou’s beign worth something- even the social security trusties disagree
“The Social Security trustees that the ious’ were essentially worthless by declaring:
“Neither the redemption of trust fund bonds, nor interest paid on those bonds, provides any new net income to the Treasury, which must finance redemptions and interest payments through some combination of increased taxation, reductions in other government spending, or additional borrowing from the public.—
We can call it ‘borrowing’ if we like, but if a neighbor ‘borrowed money out of you account, then gave you an iou, kept the money for awhile, then had to borrow money to pay you back, charging you the money to pay the interest on the borrowed money, and you didn’t get any interest from the money like you could have had IF the money had remained in your account to begin with, I don’t think you’d think that that would be very good or fair to you (but again, I may be mistaken about this because you claim the government has paid back with interest, or dividends, or whatever- but I note that the social security trustees don’t even state that the government did because it doesn’t provide any ‘new net income’ to the treasury- which is odd- and must mean that something is offsetting the interest somehow- no?
one final point- from what I understand, the 1983 overhaul/substantial tax increases were meant to change SS to a system that only paid for previous generation’s benefits, to one where the present generation, the baby boomer generation, was also to be paid for by increasing the taxes- or rather partially funded
The whole idea, from what I understand was to increase the taxes enough so that the money would go into a trust fund, where it would be invested and saved, In order to build up enough revenue to cover the baby boomer generation, and then some- by building up a large enough reserve to cover the increased costs of more retirees- The money however did not stay In the trust fund, nor did it get invested for the most part, like it was supposed to - you claim it did invest- (others claim they didn’t) but even if that is the case, we’re back to where it was paid back with the borrowed money and interest rates o n that borrowed money- etc- being a problem
And, that's the end of our discussion.
I've told you over and over: Social Security financing is completely independent of the federal budget. I provided plenty of citations for you.
But, you are so caught up in your pre-conceived notions of what's wrong, you refuse to listen. And that's why I'm done with you.
I realize that it's really difficult to accept who is really responsible for the problems with Social Security: your parents and grandparents. But, if you aren't willing to make the necessary sacrifices to fix it for your own children, you're going to be surprised when you have no choice.
Good bye, and good riddance.
[[I’ve told you over and over: Social Security financing is completely independent of the federal budget.]]
Yep- the gubmint says they don’t touch SS and by golly that’s good enough fer you- Except that they do- as admitted over and over again by those in government- Stomp your foot and run away- that’s fine, but the facts don’t support what you claim
[[But, you are so caught up in your pre-conceived notions of what’s wrong, you refuse to listen.]]
You are so caught up in your preconceived notion that the government doesn’t misappropriate SS funds that you refuse to listen to anything that shows otherwise- Let’s see what the actual folks in government have to say about this issue:
FEDERAL “BORROWING” OF SOCIAL SECURITY FUNDS
The following excerpt is from the 1998 Senate Budget Committee session. Note the underlined portions.
BEGIN EXCERPT
U.S. FEDERAL RESERVE BOARD CHAIRMAN ALAN GREENSPAN: .....making sure that surplus is there.
U.S. SENATOR ERNEST F. HOLLINGS (D-SC): Yeah, making sure that surplus is there. I’m telling you, Dr. Greenspan, that’s music to my ears.
GREENSPAN: Well, I remember you taking this song a long way over recent years, and I must say, Senator, a number of us were skeptical that was even discussable, figuring we would never get to unified surplus that we said which you were preaching was very interesting, scientifically sound, but unrealistic. I apologize.
HOLLINGS: Well that’s all right, because your Greenspan Commission report in section 21 says just exactly what you’re saying here. That was in 1983; here now, in 1999, on page two, “simply put, enough resources must be set aside over a lifetime of work to fund retirement consumption.” Now that section 21 said set it aside. President Bush, in section 13 3 01 on November the 5th, 1990 signed that into law. And we making headway. Let’s understand, though, that we’re still running deficits. ‘Cause I’m not going along with this monkeyshine about unified. ‘Cause unified is not net, the debt still goes up, is that correct?
GREENSPAN: If you’re...it depends on whether or not you wish to create the savings...
HOLLINGS: I’m not asking what you’re trying to create. The simple fact is the debt has been going up at least $100 billion for the last several years.
GREENSPAN: Outside, on budget, that is correct.
HOLLINGS: That’s right, on budget, you’re spending a hundred billion more than you’re taking in.
GREENSPAN: Correct.
HOLLINGS: And this president’s budget spends another hundred billion more than we take in.
GREENSPAN: I haven’t seen it yet.
HOLLINGS: You haven’t seen it? You’re testifying about it now.
GREENSPAN: I haven’t seen the budget. You haven’t seen it either.
HOLLINGS: Well, you know his plan. Look you think he’s going to spend less than a hundred billion more?
GREENSPAN: I will wait to see what the numbers look like.
HOLLINGS: Well, the truth is...ah, shoot, well, we all know there’s Washington’s math problem. Alan Sloan in this past week’s Newsweek says he spends 150%. What we’ve been doing, Mr. Chairman, in all reality, is taken a hundred billion out of the Social Security Trust Fund, transferring it over to the spending column, and spending it. Our friends to the left here are getting their tax cuts, we getting our spending increases, and hollering surplus, surplus, and balanced budget, and balanced budget plans when we continue to spend a hundred billion more than we take in.
That’s the reality, and I think that you and I, working the same side of the street now, can have a little bit of success by bringing to everybody’s attention this is all intended surplus. In other words, when we passed the Greenspan Commission Report, the Greenspan Commission Report only had Social Security in 1983 a two hundred million surplus. It’s projected to have this year a 117 million surplus. I’ve got the schedule, I’ll ask to put in the record the CBO report: 117, 126, 130, 100, going right through to 2008 over the ten year period of 186 billion surplus. That was intended; this is dramatic about all these retirees, the baby boomers. But we foresaw that baby boomer problem, we planned against that baby boomer problem. Our problem is we’ve been spending that particular reserve, that set-aside that you testify to that is so necessary. That’s what I’m trying to get this government back to reality, if we can do that.
We owe Social Security 736 billion right this minute. If we saved 117 billion, we could pay that debt down, and have the wonderful effect on the capital markets and savings rate. Isn’t that correct? Thank you very much, Sir. Thank you, Mr. Chairman.
END EXCERPT
On October 13, 1989, Senator Ernest Hollings:
““Of course, the most reprehensible fraud in this great jambalaya of frauds is the systematic and total ransacking of the Social Security trust fund in order to mask the true size of the deficit…The Treasury is siphoning off every dollar of the Social Security surplus to meet current operating expenses of the Government…The hard fact is that, in the next century, the Social Security system will find itself paying out vastly more in benefits than it is taking in through payroll taxes. And the American people will wake up to the reality that those IOU’s in the trust fund vault are a 21st century version of Confederate banknotes.’ “
“We have stolen $2.6 trillion from it. We put paper money in there. The problem is, we spent the money – we didn’t just take it, we took it and spent it,†Congressmen Coburn said Thursday on MSNBC’s “Morning Joe.†“Social Security ran about a $53 billion deficit last year – it’s projected to run a continuous deficit.”
Quote: “It has been clear for quite some time that the trust fund contained no real assets”. David Walker, Comptroller General of the GAO, stated on January 21, 2005, “There are no stocks or bonds or real estate in the trust fund. It has nothing of real value to draw down.â€
“The myth of the Social Security trust fund,†which included the following statement:
A lot of people speak of those IOUs as if they can be pulled out and exchanged for money to pay benefit checks. They can’t. As the Clinton administration budget of 2000 explained, the securities in the Trust Fund ‘do not consist of real economic assets that can be drawn down in the future to fund benefits. Those special-issue bonds can only be redeemed by raising taxes, cutting spending elsewhere, or borrowing — exactly what the government would have to do if the Trust Fund didn’t exist. The Trust Fund, said the Clinton budget message, ‘does not, by itself, have any impact on the Government’s ability to pay benefits.”
[[Social Security financing is completely independent of the federal budget.]]
you have no proof of that statement=- none- and infact the facts of the case, and confession of those in government and of the social security committee itself, indicate just the opposite- but by golly you now better than them all because a government website tells you so
[[Social Security financing is completely independent of the federal budget.]]
Really? Hmm:
http://www.nber.org/feldstein/wj020199.html
“To keep Social Security on track through 2055, the president arbitrarily transfers another $2.8 trillion—the remainder of the $4.5 trillion surplus—from the Treasury to the trust fund over the next 15 years. The president described this as equal to 62% of the projected budget surplus but it is not part of the surplus at all. The entire surplus is already spoken for by the new spending, the savings accounts and the automatic additions of Social Security surpluses to the trust fund. This $2.8 trillion is a completely new additional grant of money from the Treasury to the trust fund. The Treasury credits the Social Security account with $2.8 trillion and debits the governments general revenue account $2.8 trillion. This permits the trust fund to acquire $2.8 trillion in additional government bonds. Cashing in these bonds between 2032 and 2055 will pay for the projected benefits in those years. Magic!
The issue isnt just transferring money from general revenue to the trust fund. Its double-counting. The trust fund accumulates the $2.7 trillion of regular Social Security surpluses. The same $2.7 trillion is then counted again in the $4.5 trillion the president uses to finance his $2.8 trillion to Social Security. Thus the president raises the Social Security trust fund by $5.5 trillion while spending nearly $2 trillion on other things, all out of a total surplus of $4.5 trillion.
This amounts to the biggest and most creative budget sham Ive ever seen. If the government gave $2.8 trillion to private individuals, it would create $2.8 trillion of budget deficits, and the national debt would rise by $2.8 trillion. But since the Social Security trust fund is part of the government, this transfer of money (and the bonds that are bought with it) does not count as deficit or add to the national debt.”
The money is gone- and it has been spent on a vast array of things- but if you want to bury your head In the sand then have at it. Most people understand that when the government tells them with a straight face that they are on the up and up- that is a lie- but whatever- Had the money remained in the trust fund and sued the way it was intended to be used, instead of used for things that way it has been, We wouldn’t even be having this debate- obviously there’s something wrong- but by golly the gubmint swears it isn’t doin nuttin wrong so that’s good enough for you-
[[Social Security financing is completely independent of the federal budget.]]
Independent of federal budget? Really? How do you figure that when they have to borrow money to pay back what they’ve spent? It’s a pretty click trick to claim borrowed money isn’t part of, and figured in to, the federal budget-
[[Social Security financing is completely independent of the federal budget.]]
Really?
Yesterday, I explained that, contrary to what OMB director Jack Lew claims, Social Security is in fact contributing to the deficit. The main reason, I argued, is that the Social Security Trust Funds are required by law to invest in Treasuries. The payroll-tax proceeds collected to pay for future benefits are thereby handed over to the federal government, which then spends it. Each time the program runs a cash-flow deficit, it redeems some of its trust-fund IOUs, and the government then has to borrow money, which adds to the deficit . In other words, while it’s not really Social Security’s fault, the reality is that the program contributes to the deficit.
[[I realize that it’s really difficult to accept who is really responsible for the problems with Social Security: your parents and grandparents.]]
Yep- they are responsible for the government Mismanaging social security funds- By golly you got us there!
[[Good bye, and good riddance.]]
Ditto! Like I said- it’s obvious you are incapable of having a civil discussion on the issue, and are simply only interested in stomping your foot and running away when facts don’t support your claim
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