Thursday, October 9, 2014

FactCheck: Joni Ernst and ‘Privatizing’ Social Security

Social Security has played a big role in the Iowa Senate race between Republican Joni Ernst and Democrat Bruce Braley. weighs in on some of the claims. Check it out here.


WilliamLarsen said...

Private Accounts will Save Social Security?

In general private accounts allow a worker to divert some percentage of their Social Security taxes to a private account. In exchange, the individual's Social Security benefit would be reduced by the value of the equivalent annuity of the diverted tax dollars plus interest at the Treasury rate. This is referred to as the "Offset" condition

The Social Security benefit formula would also change. Currently previous year’s wages are indexed by the change in the US Average Wage Growth, but now would be indexed by inflation. In addition the number of work years averaged would increase from 35 to 40. This would reduce current promised benefits by up to 30%.

All private accounts do is repackage the problem. It reduces the problem by legislating nearly a 40% benefit cut on those who retire in the future. They all fall far short of yielding the promised Social Security benefit under current law. 44% of your benefit comes from an 8.6% Social Security tax while 56% of your benefit comes from your diverted 2%. Theoretically diverting four percentage points could reduce your social security benefit to zero.

One must pay particular attention to the terms "payable benefits" and "promised/scheduled benefits." Payable benefits are generally equal to 60% to 70% of promised benefits. It is important to note what reference base is being used when evaluating private accounts. The only way payable benefits can equal promised benefits is for the combined assets of the trust fund and private accounts to total $33 Trillion by years end. The moral is "You cannot get something from nothing."

The legacy debt is the problem. All those decades of boomers paying payroll taxes were not set aside for their future benefits, but used to pay current beneficiaries. Many call this a pay-as-go, but it still does not change the fact the fund is short $33 Trillion and growing by over $1 Trillion a year.

When a Ponzi Scheme collapses, it hurts those that were in it. In this case nearly every worker is going to get hit.

Another thing to ponder is; with all the smart people, fast computers and out of the box thinkers, would not think there would have been a fix in the past 50 years that would have been implemented if it would work?

I searched for different variable combinations that would solve the OASI problem for years. I must have ran well over 10 million iterations. I never found one where there was not a lot of pain!!! Now that we have let those that created the problem collect and pass on, we have only ourselves to blame.

JoeTheEconomist said...

Andrew you ought to check out the Des Moines Register. It's coverage is very good for a local paper. They have had a number of articles, one of which said that neither candidate has really said anything. Each attacks the flaws of the opposition, while avoiding any position of their own.

It is a disturbing trend considering that people who are 66 have a longer life expectancy than Social Security is expected to pay full benefits.