Fund got me an email from the Fund that pointed to their thinking on
the potential approaches that will be considered when and if the
problems at Social Security come on the table.
It
is clear that there is no one solution or magic bullet to address the
continued solvency of the Fund. The solutions proposed either raise
income or they reduce expenses.
The full list of the Fund’s proposals can be found here.
Each proposal has a discussion of the results over time. In my review
there are two areas that appear to produce favorable results. Reducing
COLA and raising payroll taxes have the most significant impact.
To
have a meaningful affect on the outcome it is necessary that payroll
taxes are increased by a combined 2.2%. This graph shows the impact of
this change.
Raising taxes clearly fixes the problem. However
to do so requires an increase in payroll taxes of $110 B in 2010 and
each year thereafter (indexed higher). This is not an option that
should be seriously considered. Any proposal that results in increased
taxation on workers is just not going to fly. It would have a
significant drag on the real economy. To stimulate growth and sustain
the weak recovery requires tax decreases not increases.
To
demonstrate the magnitude of the problem consider the following graphs.
The first looks at the impact of raising the retirement age to 70 over
a period of time. The second looks at raising the ceiling on taxable income from the current level. As you can see there is very little change. These
approaches address the political issues behind the problem. Increase
tax on high earners while old people would get benefits later in life.
A grand compromise that will result in more divisions in our society
and achieve next to nothing by way of fixing the underlying problem.
Adjusting
the COLA formula has a significant impact. Reducing the COLA by 1%
annually significantly extends the life and health of the Fund. This is
just a cheap way to reduce benefits for future beneficiaries. While
this approach shows promise it will result in future retirees that
depend on SS income to starve. This just creates a future problem, the
numbers look better but the social consequences will be a disaster.
However,
this fix is the most likely one to be seriously considered as it
addresses the present and pushes the problems of an aging population to
the next generation. I hate this approach. It
encourages inflation as a government tool to reduce costs. Reducing or
eliminating COLA is a fix not a solution.
The
Fund provides a significant range of alternatives for the public to
look at. The summary of these alternatives can be found at this site. For
each alternative go to the summary and then the graph on the right that
looks like those above. If the graph shows meaningful extension of the
viable life of the Fund it is a tool that can/will be seriously
considered. While there are a number of
proposals that achieve the desired results those same approaches run
counter to the current macro economic/social picture we face and should
not be considered.
In my view the Fund has done both an excellent and a terrible job in defining and analyzing the range of options we face. I
think they have omitted the only choice that makes sense on a long-term
basis. We have to have a means test for Social Security.
The
American people and their lawmakers should be able to look at a
proposal that means tests availability of retirement benefits. There
are a lot of Lloyd Blankfeins, Larry Finks, Steve Jobs, Bill Gates’s
and yes, maybe me too who could do without the extra $15k a year that
we are currently entitled to get.
I would propose a means test on availability of $100,000 (indexed over time) in taxable income starting in 2010. If you make that much in a given year you simply do not get the retirement benefits. This
is taxing the rich. While that is undesirable, it is a far better
alternative than raising payroll taxes on current workers or cutting
benefits across the board to all retirees. The impact on those with
incomes greater than $100k would be negligible.
To the Fund: Please provide this information. We need to consider this approach. Trust
me; Blankfein, Fink, Jobs, Gates and even I will back that option. In
the long run it is the best alternative for our children, our society
and us.
The
proposals that you have put forward that are effective are at the same
time flawed. That flaw is that they will be broadly unpopular.
Washington is about to hit its citizens over the head with health care.
And then you are going to come up for discussion. By that time people
will be very angry. Those folks who came to visit your city this
weekend are part of something much bigger and troubling. The means test
narrows the scope of the hit that must come.
There's a major problem with your suggestion. Pulling money out of IRAs and 401ks (e.g., to do a Roth conversion) counts as "income". Yet the person who does this receives not a single extra penny during the year.
Folks, there ain't no easy answer for SSTF revival. I turn sixty in two weeks, I fear I will be working until I die @ least with a pencil in my hand, but I digress. A solution is in sight. BUT- and I do mean a big BUT, very few of you will like it or will laugh at it like many have in the past.
A flat tax above 50k AGI at 28%, on every thing. NO deductions, credits, or other falderal. For those between 50K and 100k with a lot of kids some tailed off exemptions. Phase in over 7 years. For business, no more depreciation, nor useful life, all exp. upfront, rate 28% too. The brainiacs out there can muffly this easily. No more deductions for corp bonds, yes you heard me, and no more esoteric lingo in the tax code. Let's have a tax code BOOK BURNING!! Simpify the excrement. More solid- less drivel!!
Repeal the income tax ASAP, otherwise we choke on our own spit.
I am with you, but while we are at it, get rid of the corporate income tax -- consumers pay for it -- but it just adds enormous lobbying pressures and torture to the tax code. All taxes should be levied on those who can vote (not entities) -- then if they don't like it they can register that opposition in their next vote. Corporations can only bribe politicians with contributions.....which of course is why they will never get rid of it......
Looking at the effect a small reduction in COLA has on the Fund, it is easy to see why the government might have a vested interest in manipulating this metric over time, doesn't it?
Or you could just audit the fed and find out who and what we really owe and to whom. And instead of spending billions to war and push people around to make it work we could just waste a few really rich people. 5 trillon of the debt gone and plenty of cash for everything.
I think they have omitted the only choice that makes sense on a long-term basis. We have to have a means test for Social Security.
I am certain that all of the money I am currently pouring into SS is going into a black hole, meaning I will never see any of it again.
I've just had a piece of this discussion with certain members of my extended family. The topic: slavery. What is slavery? Everyone would agree that an economic system that seized and redistributed 100% of someone's production was slavery. What about 60%? 40%? 25%? Once the principle of government-mandated wealth transfer is admitted, all that remains is a bidding war. How enslaved shall we be? It is well known that the average American works through May of each year just to pay taxes. How much is enough? How much is too much? Who has the right to decide? When did robbery become an important government program? These are not mere rhetorical questions, yet they are never ever discussed in the MSM.
Taking money or property by force for distribution to others is robbery. It doesn't matter whether or not the man doing the robbing is wearing a government uniform.
Means test? No. Raise tax rates? No. Raise the retirement age? No.
Terminate the program and sell federal assets to buy annuities for current retirees. Tell everyone else "sorry, we screwed up, Roosevelt was a socialist moron that thought money grew on trees."
SWR -- Thank you for the sanity. The entitlement / government dependency agenda is freightening, but the masses lap it up. I think generally we are governed by morons (this is not a 2009 event), but increasingly concerned that it actually is representative of the population.
And no one connects the dots on the MASSIVE failure of Social Security and Medicare, yet we think the federal government should take a shot at running health care. What are people thinking?
In Australia social security is means tested. The costs of administering the means testing is very high (maybe due to inefficiency). Actuarial studies have shown it would be cheaper just to give it to everyone as taxable income.
Are you suggesting 100% tax rate on SS income, if the gross income is over 100,000 USD?
I was under the impression that the SSTF was by all practical definitions already broke? Isn't it completely dependant on its ability to sell Special issue Treasuries onto the market once outflows become bigger than inflows? And how is it going to be able to compete with the US gov'ts continued flooding of the market with Treasuries?
Just some thoughts...