The Mercatus Institute’s Chuck Blahous, one of Social Security’s Public Trustees, has a new article with some hard facts on Social Security’s future. Check it out here.
Thursday, March 24, 2016
Subscribe to:
Post Comments (Atom)
Occasional comments on the economics and politics of Social Security policy by Andrew Biggs.
Blog Archive
About me
- Andrew G. Biggs
- I am a Resident Scholar at the American Enterprise Institute in Washington, where my work focuses on Social Security policy. Previously I held several positions within the Social Security Administration, including Deputy Commissioner for Policy and principal Deputy Commissioner. Prior to that I was a Social Security Analyst at the Cato Institute. In 2005 I worked on Social Security reform at the White House National Economic Council, and in 2001 I was on the staff of the President's Commission to Strengthen Social Security. My Bachelor's degree is from the Queen's University of Belfast, Northern Ireland. I have Master's degrees from Cambridge University and the University of London and a Ph.D. from the London School of Economics and Political Science. I can be contacted at andrew.biggs @ aei.org.
Posts
Don't miss a single fascinating post!
Blog links
4 comments:
A. J. Altmeyer testified in 1943 that if the payroll tax was not immediately raised to 6-7% that future workers would pay more for their benefits than they were worth.
This would mean those receiving benefits then were collecting far more than their payroll taxes could support.
"Ida May Fuller worked for three years under the Social Security program. The accumulated taxes on her salary during those three years was a total of $24.75. Her initial monthly check was $22.54. During her lifetime she collected a total of $22,888.92 in Social Security benefits.
Charles Blahous mentions increased life span at age 65, but does not identify that the the retirement age already has increased to age 67, the payroll tax increased from 2% to 10.6 and now to 10.03% and the base from $3,000 to $118,500. An increase in retirement age alone of one years requires the person live an additional 2.5 years in order to recoup the additional value of payroll taxes and time value of the delay on past payroll taxes.
Charles Blahous also mentions paying out of the general fund when Social Security payroll taxes and trust fund cannot pay scheduled benefits. The last time the General Fund had a surplus was in 1957. Is this guy for real? I think he may be a part of the greatest generation that invented kick the can and now they have applied been applying it to social security for decades.
Wake up folks, the game is up. Bernie Madoff has now been surpassed as the biggest con artist. Maybe it was FDR?
"Altmeyer testified in 1943 that if the payroll tax was not immediately raised to 6-7% that future workers would pay more for their benefits than they were worth."
No, Congress was deferring the planned increases which would not get to 6 percent until 1948. Altmeyer testified that if they continued to defer the planned increases until they actually needed the money, future beneficiaries would be better off with market insurance. Per the 1944 report, signed by Altmeyer, the 6 percent rate might or might not be enough that trust fund interest would be able to fund benefits indefinitely (as benefits were defined at that time).
Congress did not trust government to manage such a large trust fund and in their lack of self trust they then demonstrated that they were not trustworthy by failing to understand what Altmeyer was telling them and deferred raising the rate to 6 percent until 1960.
Even though the effective IQ of Congress remains far below that of A. J. Altmeyer, Social Security has been and can remain effective. Unfortunately, it will always need Congress to make periodic adjustments as demographics and the economy evolve. I suggest that a rule that increased payroll taxes and Normal Retirement Age together when the program fails to meet the short-range test of financial adequacy would have an adequate effective IQ.
Congress needs to be advised by people who understand the requirements to make a Pay As You GO system work. Supporters like to stick to the "I paid for my benefits" view of SS, but it really is about providing for those of our previous generations who outlive their retirement savings. Detractors like to think everyone should succeed at saving enough for themselves, but we have a long history of willingly taking care of not just our parents, but of all our elders.
" the 6 percent rate might or might not be enough that trust fund interest would be able to fund benefits indefinitely "
Sorry, not well written. The 1944 report assumed that rates would be increased to 6 percent (3 from employee and 3 from employer). It said that payroll taxes in combination interest would (if projections were consistent with the "low example") be enough "forestall, perhaps indefinitely" needing to raise taxes or liquidating the trust fund. In the "high example" it would merely defer needing more income (such as more than 6 percent payroll tax).
Much has changed since 1944. Although the Trust Fund does provide significant income to SS, it is nothing like an endowment that I think Altmeyer wanted to see.
Blahous: "Today's is larger on its face (2.7 percent of taxable worker wages vs. 1.8 percent)"
Given that Congress solved the problem by cutting benefits AND increasing taxes from 9.35 to 15.3 percent, I find the 1.8 percent number a bit suspect.
Even if the gap were closed entirely with tax increases, per the trustees economic projections, the median earner of 2035 would still have more disposable income than the median earner today. Too many people ignore the fact that future generations will need to save more for retirement because they will live longer. A balanced PAYGO SS program as part of retirement insurance is entirely workable.
Post a Comment