Tuesday, June 11, 2013

CRFB Responds to New York Times on Social Security

You can check out their detailed response here – well worth a look.


JoeTheEconomist said...

Neither side has a compelling argument. The NYT says that cuts in benfits aren't a problem so long as it isn't today. The CRFB says that cuts today aren't really cuts.

The NYT says that a 25% cut in the future is not a crisis, but a reduction in benefit grow today is.

It is laughably dishonest to say that Chain-CPI is not a benefit cut. Shifting full retirement from 65 to 67 is a cut.

The honest answer is that the system has massive financial imbalances, and benefit cuts are going to happen. Hiding the honesty in euphemism and slant, fosters a debate in which people argue about the meaning of cuts and the meaning of today.

WilliamLarsen said...

JoeTheEcnomist is correct. Any changes to current benefits/taxes are either cuts or increases.

However, the NYT does not understand the mechanics, statutes or mathematics behind social security. Junk in equals junk out.

The SSA trustees project that in 2033 the SS-OASI trust fund will be exhausted and then state that SSA can pay 75% of scheduled benefits. What the trustees do not tell you is that the payable benefit of 75% decreases with each passing year as the birth rate of 2.1 babies per woman began in the late 70's begins to reach equilibrium.

The critical worker to beneficiary ratioof 3.3 where a 10.6% payroll tax is able to pay 42% of the life time indexed wages with COLA will fall to 2.2 by 2060. In 2060 SS-OASI will not be able to pay 75% of scheduled benefits, but about 60%.

To make things worse, the COLA statute has a specific provision that reduces COLA when the trust fund to OASI expenses reach 30%. At 30% COLA is reduced and at as it approaches 20% it is phased out completely.

Legislation passed in 1984 restricts Medicare and Social Security from borrowing funds. They are restricted to spending those funds in their respectd trust funds as well as their dedicated taxes. However, they are also required to maintain the 20% ratio of trust to expenses. This means that when the trust fund reaches 20%, COLA is zero. In the next year when OASI expenses exceed the currstn trust fund ratio of 20% some of the current OASI tax revenue will be required to be deposited in the Trust fund reducing current OASI revenues to paying benefits.

The worst part is that the mentioned plans only look at 75 years and disregard what happens in yaer 76.