MaxedOutMama
Monday, May 09, 2005
Pulling That Lever
You don't want to miss the Coyote Blogger's post on private Social Security accounts. He quotes Brad Delong and waxes eloquent upon the farce of the trust fund, asking the question "Can the government be trusted with our retirement funds?" To answer he quotes Brad Delong:
At least the old ladies in Reno have to take a break to visit the facilities every now and then.
The real reason Congress doesn't want to do the inevitable - actually start saving the money - is that it would force spending constraints now. However relatively small hard choices now are better than much larger hard choices later, when our retirees are expecting the money and 2.6 workers will have to pay for the for each retiree.
The problem is simple; see the intermediate 2005 table estimating the change in the ratio of workers to beneficiaries. Right now 3.3 workers pay for each beneficiary. By 2025 2.3 workers will be paying for each beneficiary. How much do you want Grandma to be getting to pay for her Alpo? Social Security taxes are 12.4% of wages, the average salary is somewhere around $36,000.00, and the average Social Security recipient receives less than a $1,000.00 monthly. Today's 3.3 worker pay in 12.4% of $108,000.00 or $14,731.20 for Grandma. Grandma only gets about $12,000.00 per year, so the rest of the money goes for other government uses. If we had the worker/benefiiciary ratios of 2025 now, 2.3 workers would be paying 12.4% of $82,800.00 or $10,267.00 ($855.60 monthly) Either Grandma gets less or the worker pays more ( 14.5% payroll tax).
Both are suffering, as is the budget because there is no longer a surplus.We will have to find some way of increasing retirement income anyway, because the premiums that retirees pay for Medicare are scheduled to rise rapidly thus taking a larger chunk out of retiree's Social Security checks and placing an additional burden upon taxpayers, at the same time that the taxpayers' share of the cost rises even more rapidly. How much of a burden? I urge you to read this NCPA report published in October of last year:
This is not a subtle problem that can be safely ignored. It is one of the most significant threats to the US and the citizens of the US. You will feel the effects of this growing now and in every future year. By 2015 our budget deficit will be forced much higher by these pressures. Furthermore, raising taxes now will worsen the problem, because we spend every last penny of revenue and save nothing. That is what Greenspan has being saying, over and over again. Congress does not listen.
...If we just raise Social Security taxes, Congress will treat these taxes as general revenue and spend them. Only by funneling Social Security contributions into some vehicle that Congressional representatives cannot interpret as a resource available to fund current spending can we raise the national savings rate. And private accounts are the best vehicle we can find to (a) accumulate contributions without (b) allowing Congressional representatives to seize them as resources available to fund current federal spending.Yes indeed. It turns out that once your representatives get addicted to the Social Security tax as an stealth income tax (and a profoundly regressive one at that) they just can't quit. Representatives of both parties just stand there, year after year, pulling the lever of the payroll tax slot machine while happily listening to cheerful clatter of coins pouring out of payroll tax receipts. Then they scoop up the coins and trot off to spend them on their pet programs.
At least the old ladies in Reno have to take a break to visit the facilities every now and then.
The real reason Congress doesn't want to do the inevitable - actually start saving the money - is that it would force spending constraints now. However relatively small hard choices now are better than much larger hard choices later, when our retirees are expecting the money and 2.6 workers will have to pay for the for each retiree.
The problem is simple; see the intermediate 2005 table estimating the change in the ratio of workers to beneficiaries. Right now 3.3 workers pay for each beneficiary. By 2025 2.3 workers will be paying for each beneficiary. How much do you want Grandma to be getting to pay for her Alpo? Social Security taxes are 12.4% of wages, the average salary is somewhere around $36,000.00, and the average Social Security recipient receives less than a $1,000.00 monthly. Today's 3.3 worker pay in 12.4% of $108,000.00 or $14,731.20 for Grandma. Grandma only gets about $12,000.00 per year, so the rest of the money goes for other government uses. If we had the worker/benefiiciary ratios of 2025 now, 2.3 workers would be paying 12.4% of $82,800.00 or $10,267.00 ($855.60 monthly) Either Grandma gets less or the worker pays more ( 14.5% payroll tax).
Both are suffering, as is the budget because there is no longer a surplus.We will have to find some way of increasing retirement income anyway, because the premiums that retirees pay for Medicare are scheduled to rise rapidly thus taking a larger chunk out of retiree's Social Security checks and placing an additional burden upon taxpayers, at the same time that the taxpayers' share of the cost rises even more rapidly. How much of a burden? I urge you to read this NCPA report published in October of last year:
Some argue that the financial problems of elderly entitlements will not arise until the distant future. In reality, we are dealing with those burdens right now. This year, for the first time in recent memory, Social Security and Medicare combined will spend more than the programs take in. This will require a transfer from the Treasury of 3.6 percent of federal income tax receipts. That figure will grow rapidly:Got that? In 2020 25% of all federal income tax will be used to cover Medicare and Social Security. In 2030 more than 50% will be used to cover Medicare and Social Security. What, you expect Grandma to pay for this out of her $1,000 a month? There is always some error when projecting into the future, but no small tweaks will wash away funding gaps like these. It is absolutely crucial that we start saving now so that there will be larger payouts to beneficiaries (not funded by the future workers, but from beneficiaries' savings) so that more of the cost can be paid by the beneficiaries.
* In just 15 years, in the early stages of the baby boomers’ retirement, we will be transferring more than 25 percent of federal income tax revenues to cover the funding needs of Social Security and Medicare.
* By 2030, if current laws remain unchanged, more than half of all federal income tax revenues will be required to pay projected benefits.
* By 2040, the figure will be two-thirds, and by 2069, funding shortfalls will exhaust all federal income tax revenues. [See the figure.]
This is not a subtle problem that can be safely ignored. It is one of the most significant threats to the US and the citizens of the US. You will feel the effects of this growing now and in every future year. By 2015 our budget deficit will be forced much higher by these pressures. Furthermore, raising taxes now will worsen the problem, because we spend every last penny of revenue and save nothing. That is what Greenspan has being saying, over and over again. Congress does not listen.
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Speaking as a corporate litigation attorney (meaning I deal mainly with corporate fraud), do you really think wall street is more trustworthy than Washington?
If you think so, I invite you to spend a day in my job, or, even better, a couple of hours at the "pussy cat club" down on Rector street between the hours of 4:30 and 6:30pm so you can see where those wall street "management" fees are really going.
If you think so, I invite you to spend a day in my job, or, even better, a couple of hours at the "pussy cat club" down on Rector street between the hours of 4:30 and 6:30pm so you can see where those wall street "management" fees are really going.
Dingo, it's not that I think they are more inherently trustworthy, it's that they are more constrained by law.
I think that all human institutions must have checks upon them. The check on Congress is supposed to be the courts (no help here) and the will of the people. However the people can't effectively restrain Congress unless they understand the import of what Congress is doing, and there has been no willingness in the press to confront the reality of our retirement economics.
However, by employing private accounts to supplement savings the people would be doing something fundamentally different than our current system does - saving. And if people chose to invest a part of the savings in stocks they would be benefiting from the system of constraints our law provides upon private industry. There is nothing we can do that would have a worse outcome than what we have done.
I think that all human institutions must have checks upon them. The check on Congress is supposed to be the courts (no help here) and the will of the people. However the people can't effectively restrain Congress unless they understand the import of what Congress is doing, and there has been no willingness in the press to confront the reality of our retirement economics.
However, by employing private accounts to supplement savings the people would be doing something fundamentally different than our current system does - saving. And if people chose to invest a part of the savings in stocks they would be benefiting from the system of constraints our law provides upon private industry. There is nothing we can do that would have a worse outcome than what we have done.
I don't disagree that there is possibility for greater gains, but that also means the possibility of greater loss. The higher rate of return something pays, the higher risk there is built into the system.
As for control? Who do you think you have more control over, your congressman, or Ken Lay? This is shown by where the "restraint" of laws comes from. Why did we have a flood of new laws regulating the securities market? because people like you and me were pissed off and put pressure on our congressmen to protect our money more. Restraint of the vote created the restraint of law. With keeping SSI within the government, you are cutting out a step that can only bring more risk. If you think this last round of corporate fraud will be the last, I have some land in Florida I would like to sell you. Laws get lax, regulators get lax, it will happen again.
As for control? Who do you think you have more control over, your congressman, or Ken Lay? This is shown by where the "restraint" of laws comes from. Why did we have a flood of new laws regulating the securities market? because people like you and me were pissed off and put pressure on our congressmen to protect our money more. Restraint of the vote created the restraint of law. With keeping SSI within the government, you are cutting out a step that can only bring more risk. If you think this last round of corporate fraud will be the last, I have some land in Florida I would like to sell you. Laws get lax, regulators get lax, it will happen again.
Dingo - it turns out to be a lot easier to exert pressure on Congress to control corporate fraud than control Congressional spending.
We have to save. Congress won't. If Congress would pass laws putting the money in individual accounts with ownership rights to the individual that would be one thing. Those are private accounts. But this is exactly what Congress does not want to do.
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We have to save. Congress won't. If Congress would pass laws putting the money in individual accounts with ownership rights to the individual that would be one thing. Those are private accounts. But this is exactly what Congress does not want to do.
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