Respectfully submitted by Lawrence E. Rafferty (rafflaw)- Guest Blogger
We have all heard the cries that so-called entitlement programs like Social Security need to be cut in order to “save” them from extinction. Now that I am 62 years of age, I have become more interested in the issue of Social Security’s solvency.
CEO’s have gotten involved in the process through the now infamous Fix the Debt campaign initiated and funded by Billionaire Pete Peterson and the parallel campaign started by the Business Roundtable. Both of these campaigns are supported by big business and CEO’s of large corporations with no concern where their retirement funds are going to come from.
“In the current budget debate, the loudest calls for Social Security cuts are coming from two lobby groups led by CEOs who will never have to worry about their own retirement security.
The report, titled Platinum-Plated Pensions: The Retirement Fortunes of CEOs Who Want to Cut Your Social Security,
points out that two organizations, Fix the Debt, a PR and lobby machine launched in 2012 and led by more than 135 CEOs of major corporations, and the Business Roundtable, a 40-year-old association made up of about 200 CEOs of Americas largest corporations, are involved in a protracted campaign aimed at cutting, and ultimately, gutting Social Security.
Platinum-Plated Pensions, written by Sarah Anderson, the Director of the Global Economy Project at the Institute for Policy Studies, and Scott Klinger, Director of Revenue and Spending Policies at the Center for Effective Government, found that the CEOs belonging to Fix the Debt and Business Roundtable are sitting on massive nest eggs of their own.” Bill Berkowitz
Maybe I am an exception, but I was amazed to read the report linked above to see just who is claiming that the only way that Social Security can be saved for us mere peons is by raising the retirement age and reducing benefits. Many of the CEO’s making this claim have millions in their own pension or retirement accounts.
“According to Platinum-Plated Pensions, The average Business Roundtable CEO has $14.5 million in his gilded nest egg, more than 1,200 times as much as the $12,000 median retirement savings of U.S. workers who are within 10 years of retirement.
Ten CEO members of the Business Roundtable (four of whom are also members of Fix the Debt) have corporate retirement plans valued at more than $50 million. Of these, three have retirement assets of more than $100 million.” Bill Berkowitz
Now, in all fairness, just because someone has no need for their Social Security benefits, it doesn’t automatically disqualify their opinions on the subject of improving Social Security for all of us. However, these CEO’s do not have a real stake in what happens to Social Security because if it exploded tomorrow, they still have millions in their own accounts.
The ideas that Fix the Debt and the Business Roundtable have offered do nothing to make it more equitable or make Social Security work better for all retirees. Their idea of a “fix” is to delay benefits and force poor and middle class workers to stay in the work force even longer.
They even claim that raising the minimum retirement age to 67 is necessary because we are all living longer. Even that claim is suspect. One economic expert has brought some sunlight to the living longer claim.
“Before I get there, however, let me briefly take on two bad arguments for cutting Social Security that you still hear a lot.
One is that we should raise the retirement age — currently 66, and scheduled to rise to 67 — because people are living longer. This sounds plausible until you look at exactly who is living longer. The rise in life expectancy, it turns out, is overwhelmingly a story about affluent, well-educated Americans. Those with lower incomes and less education have, at best, seen hardly any rise in life expectancy at age 65; in fact, those with less education have seen their life expectancy decline.
So this common argument amounts, in effect, to the notion that we can’t let janitors retire because lawyers are living longer. And lower-income Americans, in case you haven’t noticed, are the people who need Social Security most.” Paul Krugman
While I am hoping Mr. Krugman is correct that lawyers are living longer, his evidence seems to suggest that the Fix the Debt and Business Roundtable people are all wet. Could those millionaire and Billionaire CEO’s have some ulterior motive? Could the CEO’s efforts and money spent pushing their Fix actually be an attempt to prevent the country from taxing the wealthy on all of their income or reducing or eliminating many of their tax benefits that harm the economy and fatten their wallets?
I have often wondered why millionaires don’t have to pay Social Security taxes on all of their income like the rest of us who make less than the $113,700 maximum for 2013. When a CEO makes $20 million a year, that CEO pays Social Security taxes on the first $113,700. When someone makes $60,000 a year, they pay Social Security taxes on their entire income. Why shouldn’t Social Security taxes be paid on all income, no matter what the sources? Wouldn’t that be more equitable?
Mr. Krugman also suggests that part of the problem seniors are facing is that the 401k accounts that many of their employers intitiated have not earned what was necessary to retire on due to the market crash and employer greed and employees making poor financial decisions.
“Today, however, workers who have any retirement plan at all generally have defined-contribution plans — basically, 401(k)’s — in which employers put money into a tax-sheltered account that’s supposed to end up big enough to retire on. The trouble is that at this point it’s clear that the shift to 401(k)’s was a gigantic failure. Employers took advantage of the switch to surreptitiously cut benefits; investment returns have been far lower than workers were told to expect; and, to be fair, many people haven’t managed their money wisely.” New York Times
What do you think is needed to strengthen Social Security for all workers? Paul Krugman and many Senators like Sen. Elizabeth Warren agree that we should be talking about strengthening Social Security and not cutting it. Some of the CEO’s mentioned above who have millions in their own retirement accounts have actually run up deficits in their own employees retirement accounts, but yet they still claim cutting benefits and extending the minimum retirement age are the way to go.
“While gilding their personal pensions, many Roundtable CEOs have allowed massive deficits to grow in their employee retirement funds:
- Of the Business Roundtable CEOs whose firms provide pension funds for their workers, 10 have deficits in these funds of between $4.9 billion and $22.6 billion.
- The Roundtable CEO with the largest deficit in his companys worker pension fund is Jeffrey Immelt of General Electric, with $22.6 billion. Immelts personal retirement fund is worth more than $59 million, the sixth-largest among Roundtable CEOs.” Bill Berkowitz
Are these CEO’s merely doing an end run in an attempt to steer Social Security funds into the private sector? Are they trying to steer the discussion away from taxing more income to strengthen Social Security? What do you think and who do you believe?
Bettykath: Pretty much my response.
Bron says: If my factory that I expand is idle, that is a bad allocation of resources.
1) If your factory is idle, where did you get $20M in profits, so you have to spend $10M?
2) If your factory meets market demand at sub-capacity, don’t expand it. Use the money to hire sales people, perform new marketing, make your product better or cheaper, or invent a new product. Build a factory to do make something else. Sell in Europe. Find something else, take a risk on a bigger business. Buy a franchise. Try to buy your competitor, or spend to try to emulate your more successful competitor.
3) So what? What makes efficient allocation of resources more important than anything else on the planet? Efficient allocation of resources is a tool used in business to accomplish an end. If the end is “profit,” I reject the premise that your personal profits are more important than people’s lives and happiness.
Bron says: Spending for the sake of escaping taxes is as bad as stimulus spending by government.
That’s silly. If the government spends that money, it is not (typically) an investment in the future, future capacity or capability.
If you spend that money before the government gets it, you can still spend in your own best interest as long as it is a legitimate business expense, and presumably your spending is an investment. Even if you just gave it out as bonuses to employees, you build good will and loyalty and reduce turnover. But if you truly are so incompetent a businessman that, given $10M that has to be spent, you cannot find a single business to invest in that would increase your material wealth, and you cannot bring yourself to pay employees any more or provide for a better working environment, then yes — give the money to us and we will find a way to invest it on behalf of the people.
Bron says: All what you propose does is take money away from people who do want to expand their business and have the customers to support the expansion.
Bullshit. Anybody that wants to expand their business can do so tax free, that is the whole point. And if they need YOUR money to do that, the tax code should allow you to put your excess revenue (which would normally be profit) at risk in their business as a business expansion expense of your own, by some arrangement between the two of you.
Bron says: Pure and simple, it is a misallocation of resources.
Is that some religious mantra of yours?
Taking profit instead of investing in growth is a misallocation of resources; the money is better spent invested in a profit-making enterprise instead of being stacked in a bank account. (Although I must hasten to say, buying stock in a public company is not an investment in a profit making enterprise; except at the IPO, the company in question does not receive any money they can use for expansion).
A bank account or CD increases at about 1% or 2% a year. Putting your money to work in a new business can produce returns of 10% or more per year.
Bron says: Profit can and is invested to fund economic growth by others, its called capitalism.
What you call profit can rightly be “excess revenue” before it is declared profit. No sane businessman (that is already earning profits in the millions per year) would expand his business, or even start another business, with after-tax money instead of before-tax money if he can possibly help it.
And he can help it. If he has any ideas about how to invest, he has all year to dispose of a continuous stream of excess revenue by investing it in other businesses. That would be capitalism.
Even under the current tax regime, waiting until the end of the year, declaring $20M worth of excess revenue profit and then paying 30% of it to the government, and then investing $14M in a new business, is idiocy. It is throwing away $6M dollars that could have also been invested in the new business, tax free.
The entire argument that lower taxes encourages investment is bullshit, they encourage profit-taking and avoidance of investment. If my cost of profit taking is reduced (that is the income tax), and the risk of investing in new business remains static (as it would), then by the laws of supply and demand and economics 101, I will invest less and take more profit. I don’t take profit to have money to invest, not if I am already in business. I take profit for my personal use.
That is backed up by sociology too; the rich do not invest their personal funds in new enterprises, they invest pre-tax money of businesses in new enterprises. Their personal money is “invested,” like Mitt Romney’s, into buying existing and successful income streams (primarily public stocks) that amount to trading of existing assets, the money is not used in economic expansion at all.
As an aside; when you buy a stock on the market, the money goes to the existing shareholder and the company itself does not get a penny out of that transaction (unless they are selling their own stock, which is very seldom the case). The share of stock is just a title to an asset that already exists, and entitles you to future dividends, but your money is just in somebody else’s pocket, it is not buying any equipment, paying any salary, building or marketing or creating new value for the economy. The person receiving the money might use it to fund a business activity or buy products in the economy; but there is no guarantee, and the vast majority do not. They just use the money to buy a different stock.
If you want true capitalism, focus on the excess revenue before it becomes profit and gets taxed. Higher taxes on declared income encourage excess revenue reinvestment; the higher the tax, the more likely it exceeds the threshold of risk for reinvestment.
My proposal, by the way, was NOT that we should have 100% tax on income over a threshold. I used that only to illustrate that there is no definite limit to taxation that stifles economic activity.
Personally, if I could set the tax code, I think the top rate should be 50% over a relatively high bar. To be fair, I would also end double-taxation of dividends and treat all corporations as pass-through for that purpose (like S corps or LL entities); and consider the distribution of profits by dividends an untaxed business expense for the corporation (but taxable for the shareholders, as it is now). For large companies I would scale the threshold to a percentage of net equity of the company as well; larger companies do need larger reserves.
My 50% is not an arbitrary number; it is the generic level of risk at which reward becomes as likely as loss; and if the risk is less than 50%, then the investment should be made.
I jumped right into Bron’s assumption. Would an idle factory produce so much profit? Probably not unless its workforce was working for slave wages and no capital expenses are made and it just finished a government contract that was overpriced. But maybe the profit is down from what it was, suggesting that it could be idle in a year or so. Now is the time to get serious about the 5-7 year plan and make the necessary improvements so that the factory doesn’t go idle. If you don’t know enough about your business to know what needs to be done or who to ask for help, you have no business being in business. Pay the tax.
Interesting discussion. If I had $20M in profit and could keep only $10M of it, the rest going to taxes or to invest in my business, I’d figure out how to do it. If my factory were idle, I’d be looking at the market to figure out why. Henry Ford’s solution to selling more cars was to pay his workers enough that they could afford his cars. I’d think about that. Why don’t I have enough orders to keep the factory busy? Is my product no longer necessary? What kind of product has replaced it? What’s needed to move into that new product? Damn! Why haven’t I been spending more on R n D? Has quality dropped b/c there is too much turnover in the workforce? Why haven’t I been spending more on training, on good benefits, on pay? Maybe it’s the old, worn equipment that needs to be replaced, or retooled for product improvements? On more capital improvements?
tony c:
How does that grow the economy? All you are doing is using government to make the private sector spend money.
If my factory that I expand is idle, that is a bad allocation of resources. I need to expect a return on my money. Spending for the sake of escaping taxes is as bad as stimulus spending by government.
All what you propose does is take money away from people who do want to expand their business and have the customers to support the expansion.
Pure and simple, it is a misallocation of resources.
Profit can and is invested to fund economic growth by others, its called capitalism.
Bron: oh ok, just tax people at 100% to make them invest in their business.
Please be specific about why, if somebody could expand, they would pay the 100% tax instead of expanding. In their own self-interest.
If they did not expand, wouldn’t they pay their employees more, in order to promote loyalty and productivity? Or provide more comprehensive health care or retirement? Wouldn’t they invest in something to improve their business? Lower their prices, to earn less but promote customer loyalty? Give to charity to build good will? Again, be specific in explaining why, if given the choice of 100% tax over $10M or choosing yourself how to spend the excess over $10M, you would choose to pay the tax instead of spending it on workers, customers, replacement equipment, R&D, or something else deductible as a business expense.
tony c:
oh ok, just tax people at 100% to make them invest in their business. What if they dont need to expand their factory? What if they dont need to hire more people?
The money they would pay in taxes could be used to invest and allow other people to expand.
Ike was pure and simple a dumba$$ in terms of economics.
The reason JFK lowered taxes in the 60’s was to perk up the economy. I wonder why since the 50’s were supposed to be so good? A blind pig could have found an acorn after the entire world had been destroyed in world war ii.
David,
TEFRA was crap…. He sold it as tax reform…. Number 1, he pushed obligations back to the states. And 2), he actually increased the taxs in essence after he limited the deductions…….such as municipal bonds…. Getting rid of arbitrage was a good thing…. But, limiting the amount of tax free municipal bonds income to a person is stoooooopid….. It’s like 35k a year….. Historically municipal bonds pay for the infrastructure of the country…. At a lower than average return…..
DavidM says: All the ones you want to tax more are the ones investing their money in businesses which creates jobs and new products and services. So by increasing tax rates, you decrease jobs and overall economic activity.
That is patently false. Taxes are on income. Any business with a significant income can invest in new businesses, create jobs and new products and services, with tax free dollars, all that investment counts as a business expense. By increasing tax rates, you increase jobs and overall economic activity, by encouraging businesses to reinvest their profits before they get taxed.
Entrepreneurs with average incomes, saving up to open a store or something, are a different story; but we don’t have to increase income taxes on people earning less than $250K. So we would be better off economically if we increased income taxes for business incomes over $1M a year or so; pushing them to expand and reinvest, tax free, rather than lose their money to taxes.
Correction – Reagan’s tax reform Act did not get rid of ALL tax loopholes, just many of them. So it lowered the tax rate without losing taxes.
BFM: I should mention the point of that high income tax is NOT to increase revenue for the government; it might in fact decrease it. The point is to force corporations to push their “profits” back into the economy instead of declaring them and pocketing them.
In this sense, the Laffer curve is a moot point. The peak of revenue for the government is immaterial, the reason it declines after that is not because the rich stop earning money, it is because they reinvest the money and therefore have less taxable income; they are taking their “profits” in material wealth (or intellectual property) instead of cash. That is their alternative route to increasing their wealth; owning more valuable assets.
BFM: There is a limit on how much we can tax without stifling economic activity – but we are no where near it now.
I disagree. Eisenhower had a 95% income tax on business income over a threshold, and seriously proposed making it 100% over another threshold, specifically to increase economic activity.
The plan then, which would still work now, is that normal business expenses for payroll, purchasing, expansion in general, are tax free.
Only declared profits are taxed; if you take “excess revenue” and use it to expand your business, those are legitimate business expenses you deduct from revenue, so you pay 0% income tax on them.
Higher taxes, Eisenhower knew, would incentivize businesses to take the risks of expansion; a 100% income tax over $10M in income would force them to pay people more, compete, buy land and build factories, etc.
They were doing that because buying equipment and building factories still built “wealth,” it just wasn’t cash wealth.
The lower the income tax (15% for capital gains these days) the more incentive there is to take the excess revenue as profits and bank them. The higher the income tax, the more incentive there is to reinvest excess revenue in one’s business to make it larger. Where that line is drawn depends on the business and their particular risks of attempting expansion, but certainly at about 90% income tax on anything over a threshold, you might as well give expansion a shot — And that means creating jobs, buying goods and services, doing research and development, maybe building factories. Economic expansion.
At least, that is true if we do not allow the corporations to evade the high income tax. Which I think is an achievable goal.
DavidM says: it will be harder and harder to fund because it is setup like a Ponzi Scheme.
That is a lie. It is not a Ponzi scheme, or “like” a Ponzi scheme, it is not a fraud. You are a liar.
DavidM says: What tax rate for you would be too high to keep Social Security solvent? Would it be 10%, 20%, or 30%? How about 60%?
Considering it is currently 6.2%, this is just alarmist crap. The bogus projected shortfall (which will never come to pass) is that taxes will cover 75% of expenditures in 2034, and we have an excess until then, in fact the Trust Fund will grow until 2021.
So
A) We don’t have to do anything for at least 8 years, and then the Trust Fund will be over $3T and slowly depleted over the next 12 years. Which means really, we don’t have to do a damn thing for at least 15 years, by which time our options, due to science and technology, will have expanded considerably. Our computational power alone will have increased 1000 fold, and with it new applications in AI, biotech, farming tech, transportation of goods, expansion of services, and more.
B) If we went ALL THE WAY to 2034, the tax increase then to cover the shortfall would be from 6.2% to 8.27%, IF the limits stayed the same.
Pardon me for not worrying about a 2.07% payroll tax increase 21 years from now; but I will pledge right now, if that is actually necessary, I will donate 25% of my SS retirement income to the homeless shelters you imagine will proliferate like wildfire over that 2.07% tax increase.
But first I will agitate and if possible vote to increase SS revenue 52% by taxing all earners on 100% of their income, instead of just the 92% of the poorest and giving the richest 8% a free ride.
DavidM says: Do we just keep doing more of the same,
Yes, David, we do. The limit is not a number, the limit is that nobody starves or goes homeless or dies unnecessarily to serve your greed. That cannot be an infinite limit; you are screaming about fantasies you are telling yourself.
I know, you want “personal responsibility.” That is not human nature, it never was, it never will be. Twenty year olds cannot stick to a plan for when they are 80 or 90, there are too many immediate and pressing financial concerns. Neither do 30 year olds, dealing with children, Neither do 40 year olds, dealing with college financing, and neither do 50 year olds, dealing with new health issues and a looming retirement they never could afford to do a damn thing about.
That is why, in one modern country after another, the country handles it for you and makes it mandatory so you can’t backslide. People ARE willing to accept that. It isn’t a Ponzi scheme, the retirees are entitled to be supported by workers because as workers they supported retirees their entire life. Humans, everywhere, discount future concerns a great deal, and more heavily the further in the future those concerns are. That is our nature and the nature of time itself, we prioritize immediate problems because they have to be solved or they amplify into disasters, and there is always another waiting in the wings. By making the deduction mandatory and automatic, we don’t just pay the $500 for the car repair, we get a loan. Or wait till payday. Or do without the Playstation for another two months.
In short, if the responsible thing is to have the iron will to deny one’s self 12.4% of income and put that into retirement and never, ever touch it no matter what; then the government is helping us act responsibly, because really nobody can do that on their own.
So you get what you want: Everybody is responsibly giving up a percentage of their pay, like clockwork, and while that is not a savings account or investment, it IS a mechanism that ensures they will have at least a survival income when they retire. Responsibility and self-reliance accomplished, with a little help from our friends.
@Davidm2575 “We keep raising taxes and raising taxes claiming that this one more time we raise it and all will be fine”
Actually we have been lowering and lowering tax rates – which are no where near what they were in the 1950’s and ’60’s.
We could probably double marginal tax rates on business and still be no where near the rates of the ’50’s and 1960’s when the economy was doing better than today. I will have to check to be sure, but those high tax times were also the longest peace time expansion in history.
There is a limit on how much we can tax without stifling economic activity – but we are no where near it now.
And the idea that government programs continue to grow and grow is a fiction not supported by data. Many ideologues who claimed that a few years ago were acutely embarrassed when there examples of outrageous growth in government programs were revealed to be temporary increases due to the census or appropriate responses to economic conditions (read recession ) by safety net programs.
How we should shore up Social Security is a reasonable debate.
But there is no doubt that the economy can meet the social commitment it has to assure a safe retirement for elders.
bigfatmike wrote: “Actually we have been lowering and lowering tax rates – which are no where near what they were in the 1950′s and ’60′s.”
Tax rates are not the same thing as tax amount paid. There were many loopholes. Reagan’s tax reform act of 1986 lowered the tax rates but got rid of all the loopholes. As a result, the economy started booming again after the dismal Carter years and the actual tax revenue to the government went up instead of down as a result of lowering the tax rates.
Raise the tax rates now, and I predict the economy will plunge into another recession.
All the ones you want to tax more are the ones investing their money in businesses which creates jobs and new products and services. So by increasing tax rates, you decrease jobs and overall economic activity.
BFM: Agreed.
I just calculated, using US Census bureau tables, that if we removed the limit we would put 52% more into Social Security than we currently do.
That would not only make up for the bogus projected shortfall, but could actually reduce the size of the tax needed to apply to all, by a total of 12.5% or so. If we gave that to employees, their SS tax could decline from 6.2% to 4.7%, a 1.5% increase in pay.
And that would be more equitable; let everybody pay on 100% of their income.
davidm2575: “But from the perspective of a business ensuring you an income for retiring, there must be a mechanism in place, and that mechanism is an investment that will pay an annuity.”
No. You are quite simply mistaken. You’re confusing and conflating two separate financial products; insurance and annuities. An insurance payout does not automatically presume or require annuity-style payouts; in fact, most states prohibit insurance contracts that require payment over time of earned insurance proceeds; that prevents, for example, State Farm being able to collect interest on your homeowner’s policy when your house burns down by paying you your benefits due over a 10- or 20-year term. Some insurers will try to *convince* you to accept such arrangements; one particularly egregious example involves the bereaved families of military servicemembers being given ‘checkbooks’ they could write drafts against their SGLI benefits; this allowed the insurer to retain, invest and wrongly profit from due and payable insurance proceeds belonging to beneficiaries. So no, insurance does not automatically imply or include an annuity mechanism.
Furthermore, it appears that you are mistakenly presuming that any financial product aimed at retirement has to provide some sort of predictable and regular income. That’s simply not so, either. A self-managed IRA or 401(k) program isn’t going to provide that mechanism, and furthermore, IRAs and 401(k)s don’t even possess an annuity mechanism at all. In the case of Roth IRAs, you’re not even obliged to take annual Required Minimum Distributions like you are from other sorts of individual retirement plans. But even so, there’s no mechanism forcing a retiree to make RMD withdrawals — the retiree will simply pay an IRS penalty if he or she does not meet RMD requirements.
I should point out that there are plenty of financial corporations that will gladly receive your capital — including retirement assets — and write you an annuity contract, either deferred or immediate, for your retirement needs. That said, the fact that you apparently *think* that there must be an annuity mechanism in place for any form of retirement income-preservation program to call itself such does not create such a requirement. And, in fact, no such requirement exists.
“Social Security does not have this kind of investment in place.”
Irrelevant. Neither do IRAs or Roths. Is it your position that those financial products therefore cannot possibly be retirement-income-producing?
“They present it fraudulently as if you do, but the truth is that it is a pay as you go system. You keep comparing it to fire insurance, but it is nothing like that.”
Negative. OASDI is most certainly a form of insurance. And insurance itself is a pay-as-you-go system. Insurers must retain minimum statutory reserves, but at its core, commercial insurance products operate in much the same manner as OASDI.
Bartleby wrote: “You’re confusing and conflating two separate financial products; insurance and annuities. … insurance does not automatically imply or include an annuity mechanism.”
I never said it did. Tony said Social Security was about insuring an income to people when they retire. I replied to that comment with the idea that when a business tackles this retirement problem, they usually do so by providing an investment that will eventually result in some kind of annuity begin paid out. That is what the prospective retiree is looking for. That is usually through a interest bearing savings account or a pension. The Social Security Administration is causing the confusion, not me, by making Social Security look like a savings account or pension that pays an annuity and calling it insurance when in fact it is not a pension and only quasi-insurance. In other words, on the surface, Social Security looks like the normal pension plans of businesses, but the way it actually works is very different. It is a quasi-Ponzi Scheme, a pay-as-you-go type of system, and payouts are not guaranteed to the person who thinks he is investing in his retirement. He is not investing anything. He is paying for the retirees and disabled people receiving the benefit at the time he makes his payment. Even funds that go into the Social Security Trust Fund are not paid real interest, even though it often is called interest. I posted on that up thread somewhere. The more one looks at Social Security, the more smoke and mirrors are used to make it look like something that it is not. This is what causes all the confusion when it is talked about using the real facts about Social Security.
The most common definition of insurance is the following from the OED:
Insurance:
“A practice or arrangement by which a company or government agency provides a guarantee of compensation for specified loss, damage, illness, or death in return for payment of a premium.”
The government does not guarantee any compensation (see Flemming v. Nestor) and taxes are paid instead of premiums. People never make an insurance claim for Social Security benefits. They APPLY for Social Security benefits. For these various reasons, I call Social Security a quasi-insurance program while you and the government continue to call it insurance.
Bartleby wrote: “it appears that you are mistakenly presuming that any financial product aimed at retirement has to provide some sort of predictable and regular income.”
No, I make no such assumption.
DavidM wrote: “Social Security does not have this kind of investment in place.”
Bartleby wrote: “Irrelevant. Neither do IRAs or Roths.”
Yes they do. IRA’s are special interest bearing savings accounts, often mutual funds which invest in business enterprises. This is exactly why the Democrat President FDR who started Social Security and modern day Republicans want to modify Social Security to have this type of investment part of the Social Security program.
Bartleby wrote: “… insurance itself is a pay-as-you-go system. Insurers must retain minimum statutory reserves, but at its core, commercial insurance products operate in much the same manner as OASDI.”
Retaining minimum reserves is not the same thing as a pay-as-you-go system. To my knowledge, most insurance is NOT pay-as-you-go. Please provide some links to major insurance products that are setup as pay-as-you-go systems like Social Security. Please do not give me examples of usage based insurance. I’m talking about a true pay-as-you-go system. Most businesses who have setup models like this, from Charles Ponzi to Bernie Madoff, have been shut down.
DavidM quotes: given current law and actuarial projections, total revenues will not be sufficient to fund all the benefits anticipated by 2034.”
And I told you: Do you think that will actually happen? Do you think the entire country must stand by for 21 years and watch SS fall off a cliff, watch the payments suddenly stop cold?
The only thing such projections do is warn people that incremental changes will be necessary to keep Social Security functioning as we want it to function.
Social Security is not going bankrupt. It will never go bankrupt. It is perfectly fine with me if the projections say it WILL go bankrupt, that is evidence it is working properly: It is not a business, it should be a break-even government program, and as such, it should always look as if it is operating on the edge with thin margins. That is a sign of health, not illness. You still do not comprehend the most basic principles, David, we do not want SS to make a profit for the Government, we want it, and all of government, to provide services without earning any profit from them. That is what minimizes the taxes we must collect to pay for those services.
Further, technology, life expectancy, and living costs will all change in the next 20 years. Any projection more than FIVE years from now is suspect. There is a very good chance that by 2025, a full 9 years and two presidential terms before this projection would come to pass, SSA overhead will have been drastically reduced by automation, fraud will be nearly non-existent due to AI monitoring, and both the economy and legislative environment will have changed. Does the current projection include any increases to the minimum wage? Removing the cap on earnings for which SS is collected? No, they only consider, as your quote says, current law.
Do they say SS will go bankrupt? NO, they say total revenues will not be sufficient to fund all the benefits.
Even their projections, for 2034, say payroll taxes as they are now, with salaries as they are now, would cover 75% of SS benefits as they are now. Do you think we will just choose 3 out of 4 people at random to pay? Do you think we cannot deny benefits to the top 25%, or progressively scale benefits depending upon personal solvency? Do you think we cannot raise SS taxes by 25%, do you think we cannot borrow money until the Baby Bust has entered retirement and pay it back with the 2nd boomers?
Your Chicken Little scenarios will never come to pass, people will demand a solution and politicians will supply it. Period.
If the projection was that SSA would be actually out of all money in the next five years, that would be cause for concern to the Congress. As it stands, the computation can only be regarded as positive, because any extrapolation twenty years into the future is too far to raise any flags. Too much will change between now and then, or even now and the next ten years, to take any action to fix it. The world will change, the minimum wage will change, other taxes will change. The rate of return on Treasury Bonds may increase, or the Treasury could just increase the rate of return for those that can invest two trillion or more (The trust fund is $2.7T right now, and expected to grow at current interest rates until 2021).
You are just being ridiculous. This is not a Ponzi Scheme, or Pyramid Scheme, and you are lying to try and make it one because you so desperately want it to be a fraud that it is not.
@Tony C. “Even their projections, for 2034, say payroll taxes as they are now, with salaries as they are now, would cover 75% of SS benefits as they are now. ”
As David has pointed out again and again, Social Security is not an investment program – although there are analogies to such a program. Therefor the rate of return on Social Security funds is totally irrelevant to the question of solvency of Social Security.
The insurance in Social Security derives from the commitment of society to provide for elders just as they provided for those who went before them.
Similarly, the solvency of Social Security arises from the determination of society to meet its commitment to elders.
The current issues of insolvency in Social Security are due solely to artificial limits we place on the tax base (term?) we use for Social Security.
As I pointed out some time ago the ability of society to provide for elders is related to our production of goods and services, not the number of workers or what we tax each worker.
In 2012 we only taxed each worker up to a maximum of approximately $110,000. As a result we only taxed about 5,5 trillion dollars in income – the goods and services produced by society.
But in 2012 are actual production of goods and services was about 17 trillion dollars.
One possible solution to the solvency issue is simply to remove the artificial limitation and tax more income. If we taxed 17 trillion dollars rather than 5.5 trillion dollars Social Security would be flush. That is not the only solution and perhaps not the best solution.
But there is absolutely no question that our society produces enough to assure a safe retirement for its elders. The only question is whether we have the political will to honor our commitment.
bigfatmike wrote: “One possible solution to the solvency issue is simply to remove the artificial limitation and tax more income. If we taxed 17 trillion dollars rather than 5.5 trillion dollars Social Security would be flush.”
Our taxes are too high and oppressive already. The “flush” result from raising taxes will be temporary. We keep raising taxes and raising taxes claiming that this one more time we raise it and all will be fine. But it isn’t fine. Eventually, we will not be able to raise taxes anymore, and if we have a lot of debt when that happens, the entire country will go the way of Detroit. It will not be pretty. It is the reason why so many in this country are stocking up on guns, to be ready for the chaos when it hits. In the end, nature will cause self reliance to be forced upon everyone, or a new government with a new Constitution will be implemented by brave citizens ready to take up arms to secure a new government. This is what history teaches us.
Tony C wrote: “Do you think the entire country must stand by for 21 years and watch SS fall off a cliff, watch the payments suddenly stop cold?”
Of course not, but this is where we are at right now. We have to evaluate the program based upon history and where we are headed. When Social Security started, it took only a 1% tax. We have already raised the retirement age to make it solvent, and we have raised the tax rate many times over to make it solvent. Do we just keep doing more of the same, telling our children and grandchildren who will be paying for this, that somehow with some magic bullet the Social Security system is just going to start running along smoothly without a need for higher taxes and higher retirement age? All the mathematical models show that as the system matures, it will be harder and harder to fund because it is setup like a Ponzi Scheme. What tax rate for you would be too high to keep Social Security solvent? Would it be 10%, 20%, or 30%? How about 60%? This is in addition to all the other taxes we pay. How much expansion will you do to the program considering that it cannot pay for itself already?
I read this month an article about how some Russians are calling our entire economy a Ponzi Scheme. Some of them are trying to pass a law to make it illegal for any companies to take U.. dollars as a form of payment. They see our rising debt, and they say to themselves, “Ai-yi-yi! They are running Ponzi scheme!” They reason that because we borrow money excessively to pay obligations, we are heading toward financial ruin like all Ponzi Schemes which do not rely upon economic activity in order to meet obligations. If their companies are holding U.S. dollars when our economy collapses, they will be holding worthless investments. It could devastate their economy. One lawmaker there actually predicts that our economy will collapse in 2017. Obviously others are rather skeptical about the early date for this prediction, but never before in history, has the American dollar been in such disrepute. We should not stick our heads in the sand and claim all is well. We should look the truth straight in the face and do something intelligent about it.
David,
Keep using the proper definition of fraud within the context of legalism considering this is a legal blog?
Don’t mind if I do, Oh He Who Does Not Understand “Or”.
DavidM says: Such would reveal how many do not understand Social Security.
Sure. But their misunderstanding is not due to the Government (or SSA) lying to them about how it works, their ignorance about how the SSA functions is entirely their choice in a free society.
You know what else could happen, and is about as likely? Our government could rescind the Right to Bear Arms, ultimately with a final stroke of the pen. Or the Right to Free Speech. Such would reveal how many people do not understand how Constitutional Amendments work, wouldn’t they?
DavidM says: I have said that the way it is presented to people
Presented by WHOM? Not the SSA, they never present themselves in that way; and anybody that cares enough to find out does find out, from their first brochure for laymen on how Social Security works and in every document they produce to address what happens to the tax revenue.
It is not a fraud because somebody else is lying to employees about how it works.
DavidM says: Notice this last sentence! The government admits that the decline in solvency of Social Security is a natural and anticipated consequence of the maturing of a pay-as-you-go system.
No it doesn’t. Learn to read. an “implicit rate of return” reduction does not say anything about solvency. You are lying again.
DavidM says: This is exactly one of the criticisms of Ponzi Schemes.
No, it isn’t. A Ponzi scheme isn’t just some form of “bad investment,” a Ponzi scheme is a FRAUD based upon a LIE to investors.
The Social Security system does not lie, as the report says, it has been explicit all along. A reduced internal rate of return means if you compare SS as if it were an investment, which it explicitly is not, then the “implied” rate of return is low. But positive. That does not imply insolvency in any way.
As for people’s perceptions, the SSA can talk about them, but it is now, and has always been, explicit about how the tax revenue is used and if idiots keep insisting it is a savings account, what do we expect the SSA to do other than say, four or five times per page, it isn’t that at all?
It is the equivalent of an insurance program. Premiums in are spent to fund claims coming in, or restore or build up reserves. It never claimed to be anything else; EVER.
If somebody else makes claims about you, why should I believe them, if they have no proof and you vehemently deny them? That is the situation here, you are lying about the SSA, you have no proof whatsoever they have ever claimed to be anything other than what they actually are and do, and you expect ME to believe you, despite the ton of evidence (including the report you cite!) that you are wrong.
Again, you are blinded by your hatreds to the point you no longer care if you lie, or abandon moral principle, in order to make your lying claims.
Tony C wrote: “No it doesn’t. Learn to read. an “implicit rate of return” reduction does not say anything about solvency. You are lying again.”
You are truly unbelievable. You ask for a link to a government site, then you do not take time to read it. The context of all of this is the insolvency of Social Security. Your pretension that Social Security is solvent as it now stands is nothing but grandstanding to your constituents. People who have enough interest to look at the facts will see the truth.
From the previous link that I gave to you:
“… given current law and actuarial projections, total revenues will not be sufficient to fund all the benefits anticipated by 2034.”