Mathematics of the Social Security "Crisis"

ScottyB writes "Here's a good start for reading into the economics and history of the much-discussed 'crisis' in Social Security. It's from the NY Times magazine, so you know the drill...'A Question of Numbers.'"

Comments

You can always invest in Treasury debt

[j. andrew rogers]

Seriously, if people are so concerned about investing in the stock market, there is nothing to prevent them from investing all the money in their private accounts in US Treasury debt like it is now. They could simulate their own private Social Security Administration, only better.

No additional risk, and with some obvious added benefits. I'd welcome any extra freedom the government threw my way, even if I did not take advantage of it. Not that I personally would invest in US Treasury debt.

Re:Gah!

[multiplexo]

Social Security could be put on a sounder financial basis by eliminating the portion of the tax paid by corporations, increasing the amount of income subject to FICA witholding and applying FICA witholding to all income including short and long term capital gains, interest income, etc. Right now SS acts as a brake on employment, it's a "payroll" tax, and the percentage paid by corporations works to discourage them from employing people and it also really screws over the self-employed.

The idea that SS taxes shouldn't be applied to capital gains and other forms of income is basically a huge giveaway to the rich. Now I know that some /.'er is going to talk about how we are in an ownership society and lots of people who aren't rich own stock and blah, blah, fucking blah, but if you look at the numbers you'll see that the people who make most of the money from capital gains and the like are pretty damned wealthy. I see no reason why they should enjoy a separate tax system designed to shield their gains while those of us who take home a paycheck as our primary source of income have an entirely separate tax system.

Why this is a horrible horrible idea

[nightsweat]

We aren't savages.

If we were, then the idea of privitizing Social Security would be no big deal. If someone misinvested by putting all his retirement money into Tyco or Enron stock, fine. We let him die broke and impoverished and that's that.

But we're not savages and we won't do that. If a person screws up and loses all their retirement we'll cover them some other way via state or local government instead of via the Feds. You'll still pay for that person's retirement, just not in a predictable way, and it'll be more expensive as more poverty retakes America's elderly.

Social Security is the SINGLE most effective government program ever. Elderly poverty was endemic in the 1930's and before. Unless you were really rich, you stood a really good chance of dying poor and dragging your children down with you. Now, that's much less prevelant.

You object because you want to invest in a free market? Great. Most investors lose money, but if you really want to invest outside of the SS program, what's stopping you? Go ahead. You just can't risk this small percentage of your earnings. That goes to make sure you won't be too much of a burden on the rest of us when you get old.

Make a simple graph

[Solandri]

The x-axis denotes tax rate, the y-axis denotes tax revenue.

If we tax at 0%, revenue is $0.
If we tax at 100%, revenue is $A (where A > $0 - this is basically Communism)
If we tax at something in between, let's say 50% for the sake of argument, revenue is $B (where B > A - this is Capitalism).

Ok, now draw a single line connecting those points. Obviously you can't do it with a straight line, it has to be curved. And therein lies the heart of the matter.

If the tax rate is below a certain point, cutting taxes decreases revenue.
If the tax rate is above a certain point, cutting taxes increases revenue.

You cannot argue that cutting taxes always decreases revenue. You cannot argue that cutting taxes always increases revenue. What's arguable is whether we're currently above or below the point where it switches from one to the other.

The big problem is borrowing against SS

[tf23]

Congress issued bonds against what was the big Social Security cash hoard a while back, no?

So those bonds (or loans, if I'm thinking incorrectly) will come calling sometime in the 2030's?

I think that is the point where many analysts are saying that SS will be calling for the replayment on that.

But who pays it?

The US Taxpayer. Somehow, somewhere, the $ to repay the $ which was taken against the social security funds will need to be repaid.

I think THIS is the bulk of the problem.

Solve this, and make it so that we can't pass expenditures that aren't already funded.... basically cut those government credit cards up.

Re:Gah!

[John Newman]

As things stand right now, there's at least 30 years - at least seven presidential terms - between now and when those people start collecting. Chances are some politician is going to wreck social security between now and then even if the gloom and doom predictions don't come true.

Funny thing is, Barry Goldwater and Ronald Reagan - speaking for the nascent conservative wing of he Republican party - were saying the exact same thing forty-one years ago. Social Security was one of the central themes of the 1964 campaign. Glance over the bits about SS in Reagan's televised address in support of Goldwater. If you adjust the numbers for inflation, and didn't know the context, you'd think it was a GWB stump speech. The rhetoric is exactly the same today as it was then. Except, of course, SS has done just fine over the last 41 years, and after the Reagan/Greenspan reforms in the 80s it will do just fine for about the next forty or fifty years.

SS is not in crisis - not within any reasonable horizon, and probably not at all. The general budget deficit, our foreign debt, and our current accounts deficit are all very serious crises, right now. Crises that are already imparing the national security of the United States, and that run a real risk of substantially affecting our standard of living in the near future. Why can't we, for once, focus on actual problems and have real discussion about them, rather then descending into ideologically-driven drivel?