Alan Simpson: A Man Who Intensely Wants to Cut Social Security
It is not good news that President Obama picked former Senator Alan Simpson as one of the co-chairs of his deficit commission. Simpson is not just your run of the mill Republican. He is an extreme foe of Social Security.
One anecdote from his days as a senator should give a flavor of his hatred for the program. Back then, the preferred method for cutting Social Security among the Washington elite was to claim that the consumer price index (CPI) overstated the true rate of inflation. This matters for Social Security because the annual cost of living adjustment (COLA) is based on the CPI. If the CPI was overstating the true rate of inflation, the DC elite argued that we were overcompensating Social Security beneficiaries.
The plan was to cut the size of the annual COLA to 1 percentage point less than the CPI. This may sound trivial, but it would add up over time. Someone who was retired 5 years would see their benefits cut by roughly 5 percent, 10 years by 10 percent, and 20 years by 20 percent. This is real money.
There were two basic problems with the story. The first is that there was not much evidence for the claim and much of the evidence that did exist was 30 years old at that point. Usually economists like to base important policy decisions on more substantive and recent evidence.
The other problem was a logical one. If the CPI really overstated inflation then people were getting wealthier much quicker than anyone could imagine. The point here is simple. If nominal wages rise by 4 percent and the CPI shows a rate of inflation that is 3 percent, then real wages are rising 1 percent a year. However, if the CPI overstates the true rate of inflation by 1 percentage point, then the true rate of inflation is just 2 percent. This means that real wages are rising by 2 percent a year. If this is true, then our children will be far richer than anyone could imagine. This also means that our grandparents grew up in poverty, since if real wages have been rising much more rapidly than the official data show, then people were poorer in the recent past than implied by the official data.
This point is about as simple and straightforward as it gets. That is why I was very impressed to be on a radio who with Senator Simpson, who was arguing that we absolutely had to reduce the annual COLA by at least 1 percentage point below the rate of inflation shown by the CPI.
Simpson wasn't content to argue that the CPI overstated inflation by 1 percentage point. He told listeners that many economists tell him that the overstatement is at least 1.5 percentage points and that some tell him that the overstatement could even be as much as 2 percentage points. He then told listeners that soon our grandchildren will be living in chicken coops.
Of course the logic runs the other way. If Mr. Simpson's economists were correct and the CPI overstates the annual inflation rate by 2 percentage points then we are getting richer at a fantastic pace. (4 percent nominal wage growth would translate into 3 percent real wage growth in the story above.) This would mean that our grandchildren will be hugely wealthier than we are and that the current generation of Social Security beneficiaries grew up in extreme poverty. Why would anyone want to cut benefits for people who grew up in poverty to make our rich grandchildren even richer.
But, Senator Simpson didn't care about logic, his agenda was cutting Social Security. And that is who President Obama picked to co-chair his deficit commission.
Another point about SS payments relative to CPI: The fastest rising cost in the economy is health care and drugs which the elderly and disabled need to consume much more of than the rest of the population.
Figures don't lie but liars figure.
February 17, 2010 5:53 AM | Reply | Permalink
The Bureau of Labor Statistics computes an experimental Price index weighted by consumption patterns of the elderly called CPI-E:
http://www.bls.gov/news.release/cpi.br12396.a06.htm
February 17, 2010 11:49 AM | Reply | Permalink
The intergovernmental debt of the US government is $4.5 Trillion.
Since most of this is money Congress has "borrowed" from the Social Security Administration, getting rid of the Social Security program would automatically get rid of 1/3 of the national debt.
.
February 20, 2010 7:55 PM | Reply | Permalink
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December 17, 2010 5:01 AM | Reply | Permalink
Except if you are collecting SS, you are also on Medicare and often Medicaid as well, so most of your medical expenses are covered - especially Prescription Drugs.
Still - those only on Medicare without medicaid would see their purchasing dollar drop for the portion of medical costs they have to cover out-of-pocket.
February 17, 2010 6:19 AM | Reply | Permalink
thats not true that you are "often on medicaid".
February 17, 2010 9:00 AM | Reply | Permalink
About 20% of medicare enrolles are eligible for medicaid, too. Most (60%) are in long-term care. You can pay long-term care out of pocket or exhaust your assets and then Medicaid pays. Medicare does not pay for long-term care.
February 17, 2010 11:55 AM | Reply | Permalink
Someone who was retired 5 years would see their benefits cut by roughly 5 percent, 10 years by 10 percent, and 20 years by 20 percent. This is real money.
Your math is wrong here.
February 17, 2010 7:34 AM | Reply | Permalink
Didn;t even notice that, but it is fairly close.
Assuming a base of $1000 a month, in 10 years at an annual increase of 4%, your ending rate would be $1,480 a month. And at 3%, $1,344 a month. A difference of $137 - or almost exactly 10%.
February 17, 2010 7:43 AM | Reply | Permalink
Close enough for firedoglake, but this is tpm, and we is eductucated. Try an assumption with varying COLAS.
(You got lucky with the magic numbers you used.)
February 17, 2010 7:52 AM | Reply | Permalink
All right - here it is for 6% and 5% respectively:
6% = $1791
5% = $1628
Difference: $163
Again - almost precisely 10%
:D :D
February 17, 2010 8:03 AM | Reply | Permalink
I ran this with a $1000 base in 1990, using actual COLAS for 20 years to 2009. After 20 years, there was a 16% lower payment for someone whose annual increase was 1% less ($1657 vs $1390).
February 17, 2010 12:53 PM | Reply | Permalink
I don't understand the point of this post - is it to say that Obama showed bad judgement in choosing Simpson or is it to say that Simpson won't play ball with the kabuki theater known as the deficit commission?
February 17, 2010 8:19 AM | Reply | Permalink
I'm pretty sure most Democrats (and a majority of Independents) do NOT want to see Social Security benefits LOWERED through some inane reliance on a measure of inflation that is used for everything else BUT SS.
In fact, choosing someone who thinks that COLAS are OVERESTIMATED by the CPI does not belong on this commission.
In fact, I have long advocated that the annual COLA be tied exclusively to FOOD/SHELTER/UTILITIES/HEALTH/ENERGY costs but NOT to 'energy costs' which are not passed along to consumers.
February 17, 2010 8:35 AM | Reply | Permalink
I'm sorry but you've lost me. Please explain the difference between ".../ENERGY costs" and "'energy costs' which aren't passed on to consumers." And be gentle as I'm not up on the archainia of this stuff. As the guy in the movie said, "Explain it to me like I'm a six year old."
February 17, 2010 9:05 AM | Reply | Permalink
LOL
good one!
That executive order almost had me fooled!
February 17, 2010 9:38 AM | Reply | Permalink
dont know why this showed up here it was a reply to Lalo:)
the site is messed up today..........
February 17, 2010 9:44 AM | Reply | Permalink
It's a fine line.
If an energy cost is applicable to ALL recipients of Social Security or SSI or any other COLA'ed government benefit, then I can see using it in figuring yearly cost-of-living adjustments.
But if you include energy costs that do NOT impact many recipients directly, how is that fair?
For example, a MAJOR reason for the no COLA this year was the drop in price of gasoline for automobiles. Yet I do not own a car. And while fuel costs may have dropped for grocers, etc, FOOD PRICES DID NOT DROP ONE CENT. In fact, they went up - as did shelter costs, medical costs, etc.
So while some recipients who saw savings in their fuel bills benefitted, MANY who had no such costs (and did not see those savings passed along to them in other areas) saw their expenses rise 3-4% with no COLA.
Which is why I think the ENERGY component should be strictly for home heating and electricity - and not gasoline prices (which are not universally impactive on people and which are passed on or not at the whim of businesses.)
February 17, 2010 11:45 AM | Reply | Permalink
Thank you
February 18, 2010 4:53 AM | Reply | Permalink
The CPI, being a single number, is intended only to represent the average cost of living for typical consumers living in major metropolitan areas, so unfortunately it doesn't necessarily represent the experience of any actual individual or family. As the Bureau of Labor Statistics says:
You can get an overview of what the CPI is, how it is determined, and what it's good for here: http://www.bls.gov/cpi/cpifaq.htm
CPI isn't the perfect measure for every individual, but it's a reasonable estimate of the average and that makes it a pretty good number to use when we're trying to calculate an appropriate benefit increase for a large population.
February 18, 2010 7:15 AM | Reply | Permalink
there is no question obama wants to cut SS and do away with medicare,or you wouldnt be seeing this comm. stuff.
i predicted he would do this because everyone knows there are trillions of looted dollars that the government has no intentiuon of paying back to SS.
and the republicans want this too so it is going to happen.
they are just trying how to figure out to make sure democrats get blamed for it.
and because the dems are so inept they will get blamed and this part of the perfect storm will lose them power for 25 years after 2012.
what a disgrace!
February 17, 2010 8:58 AM | Reply | Permalink
Hold your horses.
The New York Times comes to the rescue by laying the groundwork for progressive to realize that the real purpose of the commission is to recommend that Obama breaks his campaign promise and raises taxes.
So he can point to them and say it was the bi-partisan commission that made him do it.
February 17, 2010 9:20 AM | Reply | Permalink
LOL
good one!
That executive order almost had me fooled!
February 17, 2010 9:43 AM | Reply | Permalink
I think you've got it figured out...
February 17, 2010 2:45 PM | Reply | Permalink
Something I posted a while back:
Dems are better Republicans than Republicans at this point. Watch Obama may make privatizing SS a reality if the HCR debate is any blue print. Next the wealthy will threaten the unemployed with their standing private army the US armed forces. They already harass us with the MSM memes. Their cries of socialism reveal their greatest fear is not terrorist from the middle east, but redistribution of the wealth they've accumulated and in some cases stolen from the lower class. They own the gov., the MSM and they keys to enterprise. They have much to loose so the fear will grow, and so will the pain for the rest of us. We all know where this is going just can't bring ourselves to say it out loud.
February 17, 2010 2:48 PM | Reply | Permalink
i agree on your views.
its depressing as hell to realize the average american hasn't got a clue and has no real desire to get one.
things will need to get much worse before they wake up and things will get much worse.
i feel like a prisoner to the masses.
February 18, 2010 11:25 AM | Reply | Permalink
I might be a good thing to have an unabashed supporter of policies which the GOP writ large strongly, yet quietly, favor (i.e., if called upon, feel strong pressure to acknowledge; but would much rather not be called upon).
February 17, 2010 9:43 AM | Reply | Permalink
Gak!
Real wages have absolutely nothing to do with inflation.
If inflation is 6% and real wages rose 2% then the average wage rose 8% in inflated dollars but onlt 2% in real purchasing power.
February 17, 2010 10:57 AM | Reply | Permalink
More better reading, Abdul Abulbul Amir.
February 17, 2010 11:29 AM | Reply | Permalink
A less dickish explanation than Ellen offered is as follows:
"Real" wages="nominal" wages-inflation
We observe "nominal" wages. This is what you actually get paid. We measure inflation (after the fact). "Real" wages are only observed as the residual. Over time rising real wages are what raise standards of living.
February 17, 2010 12:00 PM | Reply | Permalink
If I'm in my late 20s, tell me again why I should care about Social Security? People in my generation are already getting screwed enough as it is. We are the ones that are going to have to repay both bailouts. We are the ones that are going to pay for any health care reform.
We also pay our share in taxes to help fund Social Security, a program that will be long defunct by time we retire.
Perhaps the time has come to grandfather this dinosaur out.
February 17, 2010 11:30 AM | Reply | Permalink
The golden rule according to Gettysburg: "Do unto others."
When you retire, where do you think the resources for retirement will come from if not workers?
If you concerned about generational equity then you should be advocating raising taxes today. Older folks have a lot more taxable income and taxable assets than young folks.
February 17, 2010 11:46 AM | Reply | Permalink
Yes, every man for himself.
That's how the union was saved, come to think of it.
February 17, 2010 11:48 AM | Reply | Permalink
You should care because we were all in our twenties once and didn't care about SS. It was just a pesky tax we could have used better on say beer. Then you'll turn around and you'll need it.
Fight for it guy. It is yours. You are paying for it.
February 17, 2010 4:03 PM | Reply | Permalink
Speaking of grandfathers, when I graduated from college in 1973 and start paying meaningful taxes, my grandfather, born in the 1880's was still collecting social security even though he was nearly as old as I am now when the original bill was passed.
I am still paying in for my 88 year-old widowed mother.
I will not start collecting for nearly a decade.
But you think you've had it too tough and want to screw folks who have been paying in for 40 years?
You are a real prince.
February 17, 2010 6:20 PM | Reply | Permalink
Except that you haven't been "paying in." No; you've been spending those FICA payments buying things.
And now, you can look forward to enjoying your retirement traveling to far off places by air and by sea.
February 17, 2010 8:10 PM | Reply | Permalink
Actually, I have no problem with a system that SLOWLY weans people to a 50/50 mix of private investments or resources and public funding (with full coverage for the disabled and the truly needy).
We could reduce state benefits by 1% a year over two generations - until the system was retooled to work on some optimal private/public mix - thus reducing the need to prohibitively raise taxes over the short haul - and provide lots of time for the cultural 'norm' to be readjusted.
More personal responsibility and control while maintaining a healthy public input for those who cannot help themselves or who, through no fault of their own, cannot amass enough to cover their retirement expenses.
February 17, 2010 11:55 AM | Reply | Permalink
You might add a provision for not laying off people as soon as they hit 50 denying them employment in the years when they should have maximum earning and saving potential. Funny how the folks in their twenties who don't want to pay in to social security never refuse to take a job away from those over 50! If people are going to save privately for retirement they need secure employment. That's going to be even less likely in the future.
February 17, 2010 6:36 PM | Reply | Permalink
Agreed. :D
February 18, 2010 6:41 AM | Reply | Permalink
Dean,
Is your point that Alan Simpson is a liar or just stupid?
February 17, 2010 12:01 PM | Reply | Permalink
I assume that Senator Simpson is perfectly capable of understanding the issues here. The point is that he was so determined to cut SS, he didn't care to think about what he was saying.
February 18, 2010 6:03 AM | Reply | Permalink
Yes, willful ignorance is endemic to too many politicians.
In some ways I think this is the advantage of a commission. Certainly Erskine Bowles understands the math and the public forum provides at least some hope for public education. Or else it could just be yet another ideological food fight. We'll see.
My reading of why Simpson was appointed is to undermines the excuse from the right wing if they refuse to participate. No one is going to argue that Obama is stacking the deck with RINO shills, the way Bush did in his Social Security Commission that only invited members who believed in private accounts.
Anyway, the commisson is going to recommend raising payroll taxes (hopefully by raising the taxable maximum) and raising the retirement age. There is probably some sentiment for some kind of means testing (so-called "progressive price indexing") although I think that comes at the price of raising minimum benefits or benefit levels for those beyond some age.
February 18, 2010 1:09 PM | Reply | Permalink
This all sounds very similar to the nickel and diming that has been going on for so long that has wage earners suffereing a net loss in real purchasing power over several decades.
The thing is somebody has pocketed the differential and in all likelihood has used those funds to influence our lawmakers and worsen even further the plight of workers.
This makes me consider that there are at least two real world perspectives on what is termed as the race to the bottom.
February 17, 2010 1:36 PM | Reply | Permalink
Social Security is a demographic pyramid scheme and always has been, at least to-date. I am not in favor of scrapping it, but if its hard-core defenders want to encourage honesty on the part of its detractors they should try being honest themselves, and stop the decades-long charade of denial. Honesty here means admitting that our economy is not growing as fast as it used to, and our population is growing more slowly than ever, or at least since the days of Sir Walter Raleigh, and hence some mixture of Social Security tax increases and benefit cuts is inevitable. We should not deny the Holocaust, global climate change, or the fact that Social Security needs fixing and doing so properly will eventually cost us all, no matter what. No stupidity from Simpson or any other Republican fossil can excuse such ostrich-like denial from Democrats.
February 17, 2010 4:42 PM | Reply | Permalink
Back in the 1980's we accepted your idea - we began paying increased FICA because it was possible that in the distant future the SS program would run short of money. Apparently we get no credit at all for the 20-30 years of overpayments we made. So, now you advocate repeating that process - pay higher taxes for SS because sometime in the distant future SS may run short of money. Just how stupid do you think we are?
Logically we wait until the projected FICA collections are insufficient for that year's SS payments, and only then increase the tax rate to avoid that shortfall, repeating this every time a shortfall is upon us.
Of course Wall Street can't collar even more of the national wealth if we follow my plan, where if we follow yours there is a golden brick road right their for their use. Is that a good reason to follow your plan?
February 17, 2010 5:46 PM | Reply | Permalink
But Hoppy, how are we going to fund the free wars?
February 17, 2010 6:37 PM | Reply | Permalink
Back in the 1980's . . . we began paying increased FICA because it was possible that in the distant future the SS program would run short of money. Apparently we get no credit at all for the 20-30 years of overpayments we made. . . . Just how stupid do you think we are?
The question sort of answers itself, don't you think.
February 17, 2010 7:38 PM | Reply | Permalink
The flip side of tha question strikes me as more pertinent: how clever did they (G.O.P. geniuses and Nude Democrats) think they were bein’ when they raised taxes on the Bad Poor rather than on themselves?
The original performance costarred Neocomrade Senator D. P. Moynihan and Alan bin ‘Ayn al-Feddí, so plainly there was no lack of neocleverness on Day One. The trouble is largely that the rest of the TopPercenter classes couldn’t count straight and decided to kill their golden goose well before it had stopped layin’ eggs for them. All the efforts of militant extremism to smash Social Security durin’ the reign of George XLIII were outrageously premature. It is not just that the attempts failed, but that they would have been dumb and self-defeatin’ had they succeeded.
The smart thing to do, obviously, was to wait patiently until ‘entitlements’ started costing more in benefits than they brought in as general-purpose revenue, and only then do the Great Smash. That would, as I recall from c. 2001, been sometime around the year 2016 or 2017. No doubt the Crawford Crash has brought that date forward to some extent, and perhaps we have even passed the tippin’ point by now. It hardly makes much difference, though, since even with their new 41% majority, they cannot actually do any serious smashin’ until they get rid of President Summers and Mr. Obama.
The previous miscalculation appears to have been based on the wannabe smashers takin’ Neocomrade K. C. Rove’s word for it that their Party neocomrades and fellow-travelers were in power for good like McKinley or Flynn. What proves to me clearest of all that they really are mostly dumb-dumbs is that they didn’t draw the exact opposite conclusion from Lord Karl’s "WE are an Empire now..." moonbattism and decide that obviously they could afford to wait.
As to WHY they behaved like that, I can’t do better than guess that the Kiddie Selfservative Movement is radically hormone-based: instant gratification of their cravin’ to stick it to the Bad Poor completely swamped rational and long-term cost accountin’. [1] But Father Zeus knows best.
Healthy days.
___
[1] The stuff one can read in certain Chicagonomics for Dummies types about "rational interest" has laughably little to do with the behavior of militant extremist Republicans. Almost without exception, they are as sentimental as the day is long--a fact which is admittedly to some extent camouflaged by their near-exclusive predilection for nasty sentiments.
February 18, 2010 9:07 AM | Reply | Permalink
Who said never waste a crisis? Also Naomi Klein has made the point over and over again in "Shock Doctrine". Namely, use the current credit crisis caused by the banks as an excuse to strip the American worker of their pension. These are dangerous times, we have to watch this commission like a hawk.
February 17, 2010 8:06 PM | Reply | Permalink
don't you think it's time we do more than sit back and watch? maybe a little action is in order. Wall Street is buying guns in anticipation or a rebllion again them.... yet none ever comes. They know what they are doing... Do you?
February 17, 2010 9:02 PM | Reply | Permalink
Old timers (who remember the 1980s) can afford to take a "who cares what happens after I'm gone" attitude towards the Social Security challenge. The younger generation cannot. The token drop in the bucket FICA adjustments of the past were never going to be enough to put things on a sound actuarial basis.
Social Security's troubles are not some invented plot of Karl Rove (unlike a lot of other idiocies of the recent past). The whole world faces the same basic demographic challenge, and it does not require rocket science to grasp (unless you are a PC "progressive" ex-hippy who slept through high school math in a pot-haze): global population growth is slowing dramatically, and there are going to be far fewer working people in relation to retirees.
Enough of this New Age conspiracy theory crap. Go back to New Math, or even Old Math, from grade school and review fractions!
February 19, 2010 6:26 PM | Reply | Permalink
fpie,
The difference between your generation and mine is that yours is 4 times the size. Since the 1960s, the Federal government has been able to over-indulge itself in the practice of deferring Congressional expenditures.
Why?
Because the overwhelming size of your generation ensured that the workforce would be well supplied for the next 40-50 years.
The obvious problem right now is that Congress continues its practice of "spend now, pay later" despite the fact that the Boomers are at or near retirement age. My generation (Y) along with the previous generation (X) combined equals about half the number of your generation.
It doesn't take a mathematician to figure out that something's gotta give. And, no offense, your generation, as a whole, has done a piss poor job of saving money. Then again, the economic meltdown of the last couple years has also hurt tremendously.
I will not fight for Social Security quite simply because Social Security will not be around when my generation is at or near retirement age. Given the size and discrepancy in numbers between the Boomers and Gens. X & Y, the problem facing the system is insolvent.
A true single payer health care system, like they have in Great Britain, would actually go a long way toward making Social Security irrelevant. Moreover, the modest size of my generation will not lead to the elevated sense of Social Darwinism that your massive generation was subjected to. With Gen. X & Y there simply are not as many piglets fighting for teats.
February 18, 2010 12:37 AM | Reply | Permalink
My generation (Y) along with the previous generation (X) combined equals about half the number of your generation.
By 2019 Baby Boomers (33 million) will be 65 and over. They (and the rapidly declining Silents) will be supported by Generation Jones (49 million), Gen X (41 million), and the Millenials (71 million), the youngest of whom will be 25 years of age.
Not quite as bad as you seem to fear.
February 18, 2010 1:21 AM | Reply | Permalink
Hi Gettysburg- Single payer health insurance sure would go a long way to making planning and saving more predictable.
You seem to be thinking in the big picture about SS but life happens personally. My sister just turned 65 last year. Her husband had a masters and was a pioneer in computer animation. He got sick, went blind and couldn't work from his 50s and died in his mid 60s. They had three sons one severly autistic. My sister has no income but SS.
My sister and mom moved in togeather. My dad worked for almost forty years and payed into his pension but the corporation declined and took most of that savings down the toilet with them. Now what was supposed to be a livable income for my mom barely pays for her suplimental insurance and she pays for Medicare out of her SS plus living expenses.
These are the visitudes of real life visited on members of the two most productive generations in the countries history. While you may consider your employer's SS contribution part of your salary I guarentee that if it is eliminated you won't see a dime of it.
Even if you are lucky enough and diligent enough to stay healthy and have a nest egg by the time you are 65 there will be so many folks that don't. Do you really want to live in a place where desperate people are living in the streets with nothing to lose? Even an old duffer with a gun can waste you.
In our twenties 65 looks forever away and we all have great plans but life is what happens while we are busy making those plans. We are all in this togeather wheather we like it or not.
What America needs is not to give up on a Social Security system that has been functioning and serving our people well for over half a century but to bring back it's wealth creating manufacturing sector. That can be done the same way it was created: by good old fasioned protectionism and governmet support of vital industries. That's how all these "miracle" economies are doing it and kicking our butts. The problem isn't the work force it's the trade deficit caused by a lack of trade policy.
Oh yeah! MAKE RICH PEOPLE START PAYING THEIR FAIR SHARE OF TAXES!!! Those leaches have been freeloading for thirty years now and all they've done with the loose money is pump up bubles and wreck the economy.
Don't buy the GOP hog wash. It's the same crap they've been selling for over a century and in all that time it hasn't worked. They've been intentionally wrecking our government for thirty years just so they can say,"See it doesn't work." After all that time it will take some time to fix it but that is always what the Democrats do after the people wise up and throw the GOPers out of the driver's seat. That's why the Dems are so boring to listen to. They are like repair mechanics talking about gear ratios and oil viscosity while the GOPers are like demolition derby drivers. Demo derby drivers are more flashy but I would rather give my car to a good mechanic.
February 18, 2010 5:59 AM | Reply | Permalink
In no way am I advocating for the immediate abolition of Social Security. In my first post I suggested that it ought to be grandfathered out. I am fully cognizant of the fact that Baby Boomer's have been contributing into the system for their entire working lives. Thus, they have every right to collect their benefits on the back end.
I get that and am not suggesting it should be otherwise.
But nor do I accept that the Social Security crisis is merely Republican scare tactics. When the system was first devised as part of Roosevelt's New Deal, the notion of grossly lopsided generation numbers was unheard of. Until the post-war boom, never before in modern history had their been a single generation that was several times larger than the parent generation.
I understand the need to curtail the outsourcing of jobs, but the Bush administration had reasons for taking a hands-off policy on that and now the Obama administration, too, doesn't seem to want to touch it with a ten foot pole. The shame, of course, is that the Obama administration COULD take a stand on that issue.
The Tim Geithner faction of the cabinet has already been painted as pro-Wall Street and pro-Bank by many administration critics. For his part, Obama could silence those critics by attacking the outsourcing of American jobs. That would let everyone know that he's not totally pro-Big Business like Bush and the Neocons were. But, alas, that doesn't seem to be on his agenda.
On top of outsourcing you have the automation of society taking away jobs as well. Quite simply, many of the jobs that have been lost due to the recession will never again be filled. Additionally, many of the jobs vacated by retiring Boomer's will also never again be filled.
Unless the FICA tax withholdings are substantially raised to a point of ridiculousness, the Social Security system cannot survive.
It's a lot like the budget crisis in California. Because the illegal immigration problem is so severe here, and because nobody in the state government wants to acknowledge it, there are far more people collecting benefits than there are people actually paying into the system. Obviously that creates an unsustainable budget shortfall.
So it goes with Social Security.
Believe me, this is NOT a case of a guy in his late 20s not being able to comprehend life 40 years down the road. My mother and father are in their 60s. This is simply a case of simple math. Like I said in my previous post, the massive government expenditures of the past 15-20 years have not been re-paid. PAY-GO sounds like a great idea in practice, but in reality, it is Generations X and Y that are going to have to repay the costs for the wars in Iraq & Afghanistan, for the 2 bailouts, for the auto bailout, and for any health care reform. Not to mention the pending jobs bill.
One of the reasons why I so greatly prefer a single payer health system is that, while the tax code would have to be completely re-written in this country, much of the costs would be paid for in real time. This is in great contrast to the "spend now, pay later" mantra of the government for the last 40 years.
February 18, 2010 1:53 PM | Reply | Permalink
As I recall, Reagan and Tip O'Neill came to a compromise that did "save" or extend the solvency of SS back in the early 80s. Unfortunately, the money raised was used for other purposes instead of being put into a "lock box."
I can't cite you chapter and verse, but when Bush was trying abolish SS, a lot was written on how the doomsday numbers were by no means a certainty...how it wouldn't be that hard to fix whatever problems there were through gradual tax increases...and how transitioning to a private accounts system, even a partial one, was going to cost about a trillion...money that could be used to shore up the system.
The real problem appears to be Medicare and Medicaid.
If we were REALLY thinking long-term, we'd also say that this great Boomer bulge is just that, a bulge. After we, the bulge, pass through the snake, the demographics, I believe, are likely to return to more manageable levels, where the ratio of workers to retirees is more in balance.
February 19, 2010 9:41 AM | Reply | Permalink
The bulge, however, will consume the entire purse of money. As you say, the system can be fixed with sizable tax increases, but doing that all but negates the benefit. In short, people in my generation will be asked to increase our contribution to the system during our working years, but our benefit on the back end (in retirement) will decrease. Thus, the system becomes more of a hindrance than a benefit.
February 19, 2010 10:57 AM | Reply | Permalink
Your generation has had some pretty good sized tax cuts, and those of your generation who make over $100,000 per year are paying a smaller percentage of their total income than my generation did during my last working years. You can just as easily afford to pay more FICA to cover the future needs of Social Security as my generation could afford to pay the high income tax rates we had.
By far the biggest difference in our generations is that my generation was willing to pay our share of taxes without the constant whining. Yours isn't.
February 19, 2010 10:47 PM | Reply | Permalink
Hoppy,
When you were in your 20s, you could buy a house for $30,000.
I know that's true because that's what my parents bought their first 4 bedroom house for in a Minneapolis suburb in the early 70s.
Today, you can easily add another digit onto that price tag. Ditto for the price of a college education. Or quality health care.
Even taking inflation into account, my generation faces infinitely more challenges than yours did at a similar age. With all due respect, your generation was born with a silver spoons in mouth. If you are a Boomer, then you know that you came into this world at a time when the United States was at its apex of its power. We had huge amounts of domestic manufacturing and production, low health care costs, low unemployment, and we were the technological epicenter of the world.
Flash forward to today, and we are a country with exploding national debt, jobs being outsourced to other countries (with no corresponding reduction in the price of goods), health care costs bordering on the absurd, a volatile housing market, and last but not least, a country that produces and manufactures less durable goods than it did 100 years ago.
Yep, I'm a whiner alright.
The irony, of course, is that the Baby Boom generation is solely responsible for the demise of this country. The World War II generation (my grandparents generation) were the ones who allowed us to reach our height as a world superpower. Your generation, meanwhile, has managed to piss it all away. All of it.
Not you, per se, but your generation.
February 20, 2010 3:02 AM | Reply | Permalink
Sorry, I'm not a baby boomer.
Yes, everything was much cheaper when I was in my 30's, but my pay reflected that. In my 30's a $20,000 annual salary for an experienced engineer was pretty good pay, and we paid income taxes on that, at a pretty stiff marginal rate. No complaints from me then.
I think you fail to acknowledge just how much farther ahead of the game your generation is, and how little you have to pay in taxes to take part in the game. Of course today's workers face problems, but every generation does.
February 20, 2010 10:48 AM | Reply | Permalink
If you believe that Raygun and Tippy came to a compromise that saved Social Security, there is a bridge in Brooklyn on hold for your purchase, if Ross Perot's Easter Bunny doesn't buy it first.
February 19, 2010 6:30 PM | Reply | Permalink
Let's say we did get rid of Social Security, what then? Company pensions are dying quickly. So most people are stuck with just a 401(k) balance. And the median 401(k) balance for 50 and 60 year olds is somewhere well south of $150,000. Do you think you can live for twenty or thirty years on $150,000? Pretty damn tight, I'd say . . . and a lot of people are retiring with mortgages still unpaid and large health care expenses . . .
So what happens if Social Security goes away? Here's a hint: If you really think Social Security is going to end in the United States, I'd strongly suggest you move to a more civilized nation while you still have a chance.
February 18, 2010 7:35 AM | Reply | Permalink
Purple State,
I don't actually think Social Security will ever be terminated. It is one of those benchmark programs that has made the United States stand apart from other nations. Consequently, our government would never willingly end the program, even when the day comes when Social Security becomes more of a hindrance than a benefit. Not unlike daylight savings time.
The truth is, however, that day WILL come.
February 19, 2010 1:29 AM | Reply | Permalink
I hate to break the news, but what will really come is a conversion to a far more socialistic economic system, just as the rest of the world has done. I think it is inevitable that our country will eventually recognize that people are more important than wealth or property, and that means a shift to a lot more socialism. For that I say, thank God, better late than never.
February 19, 2010 10:51 PM | Reply | Permalink
Does not this 401k you speak of comprise a "private" investment toward your retirement? Which for many participants takes a slice that can be as almost as big as FICA?
How's that 401k been working out these last couple of years?
Yeah, mine too.
I started working for money in 1984 - at the time I was young enough that the FICA increase didn't register. But over the intervening years I have become increasingly aware that I've contributed to every annual Social Security surplus that has existed in the past 40 years. And I'll continue paying those rates after the surplus is gone, in some 15-20 years. Maybe we need a FICA-like levy against capital gains?
August 25, 2010 6:21 PM | Reply | Permalink
Government pension plans are in the exact same situation. The biggest Federal government expenses are (in order)
1. Medicare/Medicaid ($760 Billion/year)
2. Social Security ($680 Billion/year)
3. Military ($660 Billion/year)
4. Interest on Debt ($390 Billion/year)
5. Federal Pension Plans (about $190 Billion/year)
They almost all revolve around health care and pension (even Military, a huge portion of the Military is health care expenses for the VA,etc.
This means that most of us are going to have to be vigilant since no one's retirement is safe.
Here is something to think about. The deficit will go down as the Boomers draw their pensions, since a lot of the deficit is caused by what is owed in the future to those listed above and the boomer employees not included above.
February 18, 2010 1:38 PM | Reply | Permalink
The "deficit" is an annual computation -- the fiscal year's income (taxes and fees collected) minus the fiscal year's outgo (payments made). "What is owed in the future" is never part of the computation.
February 18, 2010 7:24 PM | Reply | Permalink
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February 19, 2010 6:36 PM | Reply | Permalink
["Federal government expenses"] almost all revolve around health care and pension (even Military, a huge portion of the Military is health care expenses for the VA,etc.
I assume the "Military" expense you are listing references the budget of the Department of Defense (2010 - $688 billion).
The budget of the Department of Veterans Affairs (VA) -- $124 billion in 2010 almost all of which goes for medical care, disability compensation and pensions -- is not included in DoD's budget.
February 18, 2010 8:23 PM | Reply | Permalink
Obama himself gets four more picks for this Commission. The four he chooses should be interesting. Maybe a few guys from Goldman Sachs.
February 18, 2010 3:53 PM | Reply | Permalink
"What is owed in the future" is simply a liability, whether funded (as Social Security should be) or unfunded like the derivative slop bucket that was massively shifted to future taxpayers over the past year and a half.
February 19, 2010 6:35 PM | Reply | Permalink
There were two basic problems with the story. But one great news is choosing car shipping rates to have his car transported. Which he knew it was awesome. But the first problem is that there was not much evidence for a claim and much of the evidence that did exist was about 30 years old at that point. Economists like to base important policy decisions on more substantive.
June 25, 2010 12:17 PM | Reply | Permalink
It's the same over the pond. The Conservative UK Gov't is now spinning up "scroungerphobia" ... basically blaming all it's ills on the benefit fraudsters.
Of course the banks stole BILLIONS but hey .... let's worry about the 100,000's that these poor retches 'steal'.
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November 2, 2010 4:28 PM | Reply | Permalink
The point is that he was so determined to cut SS, he didn't care to think about what he was saying the future to those listed above and the boomer employees not included above.
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