March 24, 2005
From the desk of Jane Galt:Fun with numbers
This Matthew Yglesias post arguing that the Social Security deficits aren't really getting bigger is more than a little confused:
So the 75 year deficit increased from $3.83 trillion in 2005 dollars in 2004 to $4 trillion in 2005 dollars in 2005, an increase of $170 billion and not, as The New York Times reported, an increase of $300 billion. But! There's a catch. The reason you see the $170 billion increase is that the 2004 75-year projection covers different years from the 2005 75-year projection. The 2005 report cans one surplus year (2004) and adds one deficit year (2080), leading to an increase. If you do a proper apples-to-apples comparison -- holding the years analyzed constant and using real dollar figures -- there's no increase.
This is true, but only in a wierdly trivial way. The problem is that, just like the Social Security Trustees' forecast, we as a nation have lost one year of surplus, and gained one year of deficit. We will continue to do this each year until the surplus years are all gone. It would no doubt be an interesting academic excercise to issue annual reports showing what the financial position of the social security system would be if we had somehow frozen time in 2004, but unless Mr Yglesias has found a way to actually do so, this would not give us a very good picture of the current financial health of the system. Posted by Jane Galt at March 24, 2005 11:42 AM | TrackBack | Technorati inbound links
I assume his point is that things are not getting worse, but that this estimate is roughly in line with prior estimates. Presumably, this is to preempt Republicans from claiming differently. Also, I'm not sure in what social-statistic world 75 yr estimates aren't a bit "academic exercise-y" themselves.
This whole debate is based upon a lie - that SS is a pension program. It is not.
Look at it this way - same arguement, different program: the Defense Dept, having no dedicated tax to support it, is running a $400,000,000,000 deficit each year, which is covered in part by SS taxes. After 2017, when the SS surplus ends, Defense will need to be cut by $170,000,000,000, or income taxes raised by the same amount.
Money is fungible. Tax money is particularly fungible.
As taxes go, I find the Social Security tax particularly odious due to its regressive nature.
That being said, I'm in favor of forced savings for retirement. If everyone started saving at age 25, poverty among the elderly would become rare and SS spending would be reduced by 90% - 'cause who would be willing to save at 2% and be taxed at 5% to give the money to a bunch of millionaires?
OT - for some reason my post was rejected due to the underscore in my email addresss: daviddriscoll_75 at hotmail.com
We already do give the money to a bunch of millionaires. I know some retired real estate developers in Boynton Beach who endorse their SS checks and toss them in the poker pot. I also know some developers or "farmers" who take their subsidy checks up to the indian casino to play the slots.
The key date, because that is when the real political competition, and thus the political discomfort, begins when S.S. taxes become smaller than S.S. benefits.
> the political discomfort, begins when S.S. taxes become smaller than S.S. benefits.
Why? As the SS "surplus" goes down, govt will start borrowing. Since that interest must be paid instead of stockpiled, the discomfort will start then and steadily increase. The day when SS can't pay its own way won't be notable - it will just be another day of more borrowing.
Im sick of this debate. The Bush plan doesnt address solvency, and imo this debate doesnt need to happen. SS will always exist, unless AARP is destroyed, and Americans find old people starving and homeless acceptable. The fix is simple, we raise the age, we raise SS withholding, and we means test the program.
Andy, government is already borrowing, although at a much lower rate than would be the case if SS taxes were not so much greater than SS outlays. As that gap starts approaching zero, or a net negative, the amount of borrowing will increase, all other factors remaining equal. Now, of course, all other factors will not remain equal, and it is possible that economic growth could be so robust as to make the narrowing gap irrelevant as to borrowing needs. Absent that, however, and assuming that there is not an infinite capacity for the U.S. to issue more debt without other adverse effects, the narrowing gap between SS taxes and SS outlays creates more pressure to address the dichotmy between the the desire for lower taxes, and the desire for more government services.
Look at it this way - same arguement, different program: the Defense Dept, having no dedicated tax to support it, is running a $400,000,000,000 deficit each year, which is covered in part by SS taxes. After 2017, when the SS surplus ends, Defense will need to be cut by $170,000,000,000, or income taxes raised by the same amount.
Or borrowing from the public will increase by $170B per year. I suppose that's a bad thing but if you are going to borrow it is better to do it later rather than sooner so Social Security will have done a good thing delaying $170B a year borrowing for the next decade and then some.
Speaking of which, 'gaining' a year of projected deficits has to be discounted by the uncertainity of trying to project 75 years into the future. In other words, these are just projections and the more you go out into the future the less reliable they become.
While we are on the subject Brad De Long has an intersting post on productivity estimates. The last few years have seen excellent productivity increases of around 3% yet that hasn't altered the Trustees projections. Why? Well the Trustees only average productivity from one recession to the next so the current years of above average productivity will not get averaged in until another recession.
Nonetheless, we know that productivity increases is the magic bullet that allows SS revenue to increase faster than benefit outflows. While we may have gained one year of projected deficit in 2080 that is highly uncertain by definition we have also gained a year of productivity growth that is far above what is needed to keep the system not only in balance but surplus.
> Andy, government is already borrowing, although at a much lower rate than would be the case if SS taxes were not so much greater than SS outlays. As that gap starts approaching zero, or a net negative, the amount of borrowing will increase,
The borrowing increases as soon as the gap decreases, regardless of the value of the gap. As far as borrowing goes, there's nothing special about a 0 or negative gap.
If the gap has already started decreasing, the borrowing has already started increasing.
> The fix is simple, we raise the age, we raise SS withholding, and we means test the program.
While severing the link between contributions and benefits, turning SS into nothing more than welfare for old people, and a 13% tax increase on a lot of people may be "a fix", it is likely to have interesting blowback.
A Freeman, Im don't know what the increase on SS tax will be, it depends on what you raise the age to and the level of means testing. The link between contribution and benefits wouldn't be severed, I don't think means testing would require a single rate of payout for SS. I use to always hear that SS was a kind of insurance, if you look at it that way, the people means tested out of SS aren't entitled to the benefit because America has already provided them the means to financial success. The reality of welfare reform is that many of the former welfare recipients are now SSI disability recipients, so SS and welfare are already pretty closely linked.
Yes, Andy, and although I worded it poorly, improperly implying that the outlay/inflow balance point was especially significant, the political pressures start becoming much harder to ignore far before the projected trust fund exhaustion date. As SS benefits begin to match SS taxes, the competition with other factions that wish to get their snout in the trough heats up.
> The link between contribution and benefits wouldn't be severed, I don't think means testing would require a single rate of payout for SS.
With no means testing, SS would have only one rate of payout. With means testing, the rate of payout varies. That's another way to say that the link between contributions and payout is severed, as single rate of payout is that link.
> the people means tested out of SS aren't entitled to the benefit because America has already provided them the means to financial success.
No, they merely took advantage of opportunities that were available to others as well.
Andy Freeman, what I meant by means testing is a cutoff rate where a person couldnt collect. I don't see why that would eliminate the tiered system in place today for those below the cutoff rate.
Your comments on the clipped quote of mine are fair. But you lose my context when you eliminate my insurance analogy.
> what I meant by means testing is a cutoff rate where a person couldnt collect.
That cutoff is what severs the link between contributions and payout.
> I don't see why that would eliminate the tiered system in place today for those below the cutoff rate.
What "tiered system" are you talking about? The connection between {contributions,time} and the monthly checks is somewhat complicated, but it is roughly an interest rate and compounding. Those who contributed more, get more.
If there's a cap on benefits but not a cap on contributions (or the cap on on the former starts before the cap on the latter), it's just another tax for folks whose benefits are capped below what their contributions would have otherwise got them.
The fact that the cap doesn't affect people below that threshold doesn't change the fact that the threshold severs the link, a link that social security advocates have tended to find essential.
They've found it essential because SS as welfare isn't a political winner.
Feel free to believe that raising taxes by 13% on the upper middle class is a political win.
A Freeman, means testing that cuts off the most well off doesnt make SS equivalent to welfare. Beyond the differing rates of payout, only the retired can qualify for full SS, welfare pays out to any who financially qualify.
I didn't agree or disagree with your 13% raise on taxes. It could be more then that, or less then that. It all depends on the ceiling on the means teasting and the increase in eligibility age.
> Beyond the differing rates of payout, only the retired can qualify for full SS, welfare pays out to any who financially qualify.
Like I wrote, welfare for old people.
> I didn't agree or disagree with your 13% raise on taxes.
It doesn't matter whether you agree or disagree. If someone pays more and doesn't get more, it's a tax increase. Since the SS tax rate is 15%, it's a 13% tax increase.
Since Social Security pays out everything it takes in (well not right now but it will eventually) then how can it fit Andy's definition of a tax increase?
> Since Social Security pays out everything it takes in (well not right now but it will eventually) then how can it fit Andy's definition of a tax increase?
The federal govt also pays out everything that it takes in and when it increases its take, I call that a tax increase too. What definition should I use?
SS is currently a somewhat crude time-shifting device. The only way to "save" SS by increasing the cap is to eliminate that characteristic. When a significant part of someone's "contributions" won't come back to them, that part is basically welfare.
But, don't let that stop you. Push for a 13% increase and see how well it plays when folks figure out that they'll really never see that money again.
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