[mikemike]

Anyone who thinks that social security can be fixed by just increasing the FICA taxes by a small percentage should read this article. It brings up some interesting points about why past fixes have been short lived due to rules that automatically increase the benefits, especially for higher income retirees, when SS taxes are increased.

In order to fix SS by raising taxes would require not only increasing those taxes but also convincing the american public that SS is not some form of pension that is guaranteed for all americans, but it is instead a needs tested welfare program to protect poor old people.

Do you think that it is possible to change perception about what social security is and retain the popularity the program enjoys today?

And yet it was interesting that the National Bureau of Economic Research chose the election week to release a new study on the impact of previous changes in the system on Social Security benefits. The paper concludes that a significant part of tax increases have not helped cure projected deficits because they are used to pay additional benefits — and that those added benefits go primarily to higher-income Americans.

If you look at Social Security as a pension plan, that result seems not only fair, but required. If you contribute more to a normal pension plan, you expect to get higher benefits. Why else would you contribute? And Social Security taxes are often called contributions.

Raising the limit brings in more money, of course, and gets that money from the higher-wage workers. But that comes at a cost to the system, because people who make more than the old cutoff also earn higher benefits.

But if you think of Social Security as a transfer payment system, in which taxes are transferred to the retired, it may not seem fair that the well-off get extra benefits at all.

Eventually, Congress will have to address whether to change Social Security. Politically, much of the support for the program stems from the perception that it is an earned benefit, not a welfare program. But in a time of fiscal austerity, Congress should at least consider whether it makes sense that an increase in taxes to finance the system automatically increases the benefits paid to those who need help the least.

http://www.nytimes.com/2010/11/05/business/05norris.html?_r=1&pagewanted=all

[jeffkrol]

you can't fix it in any meaningful way because of this:

Heretofore, Britain has provided cash grants for all parents; now high-income workers will not get them. There was speculation that would provoke outrage from those who are losing the benefits, but that reaction seems to have been mild. There were complaints over the way the system handled two-income couples as opposed to couples in which one parent stays home, but generally the idea seems to have substantial support.

In this country, there is no way to cut off Social Security payments to the well-off, even if it does seem a little absurd for Warren Buffett to be getting a government check every month.

will not work in our society given the attitude of the "have's"......... just ask them.
The have nots have little say..........
Talk all you want of any "fixes" but the one IN YOUR FACE one is off limits.....
If you make it a"welfare benefit" the have's will cry even more that they have to pay..... no it's not helpful. All you propose makes it easier to cut, not easier to fix.........
A soc. sec related topic........

If Congress and the media worked for the public, we would be debating Wall Street speculation taxes right now. Insofar as we need to do something about the deficit in the longer term, taxing Wall Street speculation is a far more economic desirable route than taking away the Social Security benefits that ordinary workers have already paid for. We could easily raise more than $1.5 trillion over the next decade with a broadly based speculation tax than would have almost no impact on anyone except the Wall Street crew.

Even the IMF is now pushing higher taxes on the Wall Street types, recognizing the enormous waste and rents in the financial sector. But the media and Congress do not respond to economic reality, they respond to money. And Peter Peterson and the Wall Street crew are not paying for an honest discussion of the country's fiscal and economic problems. They are financing a rigged debate that is intended to result to even more money flowing to Wall Street and less to those who work for a living.

http://tpmcafe.talkingpointsmemo.com/2010/11/09/the_wall_street_tarp_gang_wa...ake_away_your/
you really are obsessed w/ the small fish.......

[reeftool]

It's a pension system in theory. At one time, the system worked pretty well. Money was taken in, it made interest and anyone who paid into the system could rely on at least a minimum "pension" for their later years. However, like everything else the govt. runs, the money was spent on other things. They "borrowed" it so in reality, the SS Trust Fund doesn't really exist any more and soon will pay out more than it takes in. The regular payroll deductions are what now funds Social Security and barely. Our "baby boomer" generation is likely to break the back of the system in a few years unless some serious increases in taxes are put into effect or major deductions in benefits take place.

[Nesster]

The real test is whether the two parties can actually work together on this - without bipartisanship, either nothing gets done (again) or if one party is foolhardy enough to do the right sorts of things, they will be mercilessly attacked at the next election and probably punished by the voters.

I'm not sure what we call it makes much difference - increase in contribution percentage and/or maximum, means testing or other limitations on benefits (it could be as simple as: yes you have to pay in more but not get proportonally the same in return), increase in retirement age... I think all of these to one degree or another should (normally) find some common ground between the parties.

Well, the 'tax increase' part may be anathema to the Republicans... [One of the mysteries of the Republican mind for me is this: "means testing" and other such benefit reductions seem to be an OK way to "soak the rich" but a 2 point increase vs current in the marginal tax rate is not.]

[MRRiley]

Yeah... blame the boomers again... If the government wasn't raiding the fund there would be ample money in it to cover the payments due to all of the boomers... and interest earned on those deposits should have more than paid for future COLA increases...

Mike

Yeah... blame the boomers again... If the government wasn't raiding the fund there would be ample money in it to cover the payments due to all of the boomers... and interest earned on those deposits should have more than paid for future COLA increases...

Mike

This is exactly why the Govt should not be trusted with even a coca-COLA.

[cardinal43]

This is exactly why the Govt should not be trusted with even a coca-COLA.

So, do you think privatizing it will be any better? Specifically how would it be better?

[JohnInIndy]

Face it. In any way shape or form SS is the largest, legal, government run Ponzi scheme.

[mikemike]

Well, the 'tax increase' part may be anathema to the Republicans... [One of the mysteries of the Republican mind for me is this: "means testing" and other such benefit reductions seem to be an OK way to "soak the rich" but a 2 point increase vs current in the marginal tax rate is not.]

I think to someone who is able to fulfill their needs (for retirement, healthcare, education, etc.) through the private sector and is exceptionally satisfied with the results they are getting, the problem is being forced into a public system that clearly underperforms the private options. There is little objection to doing right by the needy who cannot help themselves, just look at the amount of charitable giving that is done by people of all political affiliations, the objection is to government mandating participation in plans which aren't well suited to the affluent and don't meet their expectations requiring them to pay substantially more and limiting their resources to utilize private options which they prefer because the public system requires more and more patches.

[jeffkrol]

I think to someone who is able to fulfill their needs (for retirement, healthcare, education, etc.) through the private sector and is exceptionally satisfied with the results they are getting, the problem is being forced into a public system that clearly underperforms the private options. There is little objection to doing right by the needy who cannot help themselves, just look at the amount of charitable giving that is done by people of all political affiliations, the objection is to government mandating participation in plans which aren't well suited to the affluent and don't meet their expectations requiring them to pay substantially more and limiting their resources to utilize private options which they prefer because the public system requires more and more patches.

Up until "now" it was the stability issue....... sort of like .01% savings accounts vs investing in commodities... Voluntary withdrawal may be an option worth looking into but unfortunately we all know what happens w "capitalism gone wild" ........
Nope still a bad idsea... just consider your investment in SS as an under-performing asset...

[reeftool]

I wasn't laying the blame when I mentioned boomers, just stating a fact. The Govt. raided SS for years. Our generation also paid more into the system than any other generation. We got robbed. I'm getting very close to retirement age and probably won't be able to. The Wall St. thieves stole everyone's 401k money. The Republicans won't go for raising the SS tax. They remember Bush Sr. all too well with his "read my lips" statement about raising any taxes and how it was used against him when SS taxes had to be raised to keep the system solvent. The Democrats will not go for any cuts in benefits. An alternative would be to allow retirees to earn more money working part time without loosing benefits. One can always work under the table anyhow but make it legal.

[raz-0]

Ok, just thinking on the subject of how to reform it in an environment that won't allow decreasing benefits.

Here's the rough outline of what I was thinking.

1) Actually protect the SS fund form raiding.

2) In order to do this, you need to remove the requirement to only invest it in federally backed securities. (seriously, what are you servicing the interest on those securities with? Regular old federal tax money)

3) Do NOT put it into the private market. It's just too damn volatile.

4) Instead, put it into tax free municipal bonds. They have most of the same protections built into them as federal securities, and their yield is often higher and term shorter.

The upshot is the fedgov stops directly servicing interest on SS from regular tax revenue. Munis, will now have more competition for their debt. This means rates drop. (i.e. no more tax free 14% interest panic borrowing by state and city governments). With the fedgov competing for the municipal bonds, less tax paying individuals earning money solely from investments get the tax free break of muni-bond income. Even if they still invest at the same levels, they earn less, so they still reap less tax benefits. So federal and state tax revenue should rise assuming investment income based incomes still seek out maximal earnings as some investment dollars will have to be shifted to taxable investments. Federal and state budgets should shrink slightly as they have to service less interest payments. Best of all, the fox stops guarding the henhouse.

Additionally, it could help stabilize the current bond market by providing a large investor intending to get the long term earnings of a full term investment, rather than trying to trade securities and guess the effective yeild of bonds not held to maturity by a single investor.

[Nesster]

The size of the U.S. municipal bond market is US$2.7 trillion.

Roubini Global Economics - The U.S. Municipal Bond Market


And there are issues with the muni bond market.

The public debt crisis that first appeared in Greece may blow through Portugal, Spain, Ireland and France—and right into Illinois, California, New York and Pennsylvania.
There's growing anxiety about the health of the $2.8 trillion municipal bond market, because issuers are facing a drop off in tax revenue, rising social services spending, and the prospect of higher interest rates at some point in future. Warren Buffett warned Congress and the public on June 2 that the municipal bond market faced a "terrible problem," although it might not manifest itself for as long as five to 10 years. Buffett has reduced his muni bond exposure from $4.7 billion to less than $4 billion. (A video of Buffett's testimony can be seen here. He addresses the muni bond market toward the end of the video, which is more than two hours long.)
The city of Harrisburg, Pennsylvania is considering a bankruptcy filing and Central Falls, Rhode Island has turned its finances over to a receiver. But the pressure is mounting even on solvent borrowers, who are paying higher muni bond rates.

Muni Bond Market May Be Next Phase Of Financial Crisis - Daily Brief - Portfolio.com



The idea that the Trust Fund has been ‘raided’ is debatable:

Social Security taxes are paid into the Social Security Trust Fund maintained by the U.S. Treasury (technically, the "Federal Old-Age and Survivors Insurance Trust Fund", as established by 42 U.S.C. § 401(a)). Current year expenses are paid from current Social Security tax revenues. When revenues exceed expenditures, as they have in most years, the excess is invested in special series, non-marketable U.S. Government bonds, thus the Social Security Trust Fund indirectly finances the federal government's general purpose deficit spending. In 2007, the cumulative excess of Social Security taxes and interest received over benefits paid out stood at $2.2 trillion.[74] The Trust Fund is regarded by some as an accounting trick which holds no economic significance. Others argue that it has specific legal significance because the Treasury securities it holds are backed by the "full faith and credit" of the U.S. government, which has an obligation to repay its debt.

Social Security (United States) - Wikipedia, the free encyclopedia)


Note that the cumulative excess thus invested is $2.2 trillion. This amount is nearly the total size of the municpal bond market. Note further that purchasing these bonds will have a few other effects: due to demand, will states now be tempted to issue more debt? And in bad economies, state revenues decline and there's default risk in munis. Who steps in to back the states up? The Federal government, of course.

[Capslock118]

A solid and brief overview on social security then and today:

http://www.nytimes.com/2010/08/16/opinion/16krugman.html?partner=rssnyt&emc=rss

About that math: Legally, Social Security has its own, dedicated funding, via the payroll tax (“FICA” on your pay statement). But it’s also part of the broader federal budget. This dual accounting means that there are two ways Social Security could face financial problems. First, that dedicated funding could prove inadequate, forcing the program either to cut benefits or to turn to Congress for aid. Second, Social Security costs could prove unsupportable for the federal budget as a whole.
...
So where do claims of crisis come from? To a large extent they rely on bad-faith accounting. In particular, they rely on an exercise in three-card monte in which the surpluses Social Security has been running for a quarter-century don’t count — because hey, the program doesn’t have any independent existence; it’s just part of the general federal budget — while future Social Security deficits are unacceptable — because hey, the program has to stand on its own.

[mikemike]

just consider your investment in SS as an under-performing asset...

That is how I view it, that is also why I don't want to double down on a loser via higher FICA taxes.