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Reforming Social Security

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The Social Security trust fund is on the brink of exhausting itself. On the list of problems the government faces, this isn't a big one. But it's worth doing something about, at some point. Here's what Brad DeLong would do.

The smart thing to do would be for Congress this fall to (a) uncap FICA--apply it to all of wage-and-salary income rather than just the bottom 90%--starting in 2012 and raise the retirement age to 70 in 2030, thus hitting those born in 1960 and later (i.e., me). And then revisit the system in a decade and see what shape it is in.

Adding-on some tax-preferred properly-incentivized individual accounts as an add-on, not a carve-out would be a good idea as well.

There is an argument out there that if Social Security needs to be changed, it's better that a Democratic president makes the changes alongside a Democratic Congress. Any other configuration -- a Republican president dealing with a Democratic Congress, a Republican president working with a Republican Congress, or a Democratic president cutting a deal with a Republican Congress -- is likely to be substantially worse.

That said, I'm less convinced than some that raising the retirement age is a good idea. It's the sort of thing that tends to be championed by people who like their jobs and can do them until they're quite old. Newspaper columnists, say, or academics. Or, for that matters, members of Congress. These educated, affluent groups are also likely to live the longest and so see starting at 70 as no serious problem. They have every expectation of receiving checks for another 15 or 20 years.

But for people who have spent their whole life in a job they hate, or that's physically taxing, five more years -- particularly five more years as the body is breaking down -- can be quite a burden. The argument you often hear on this point is that we live a lot longer than we did in the 60s, and so our pensions should start later, too. But we're also a lot richer than we were in the 60s, and more leisure time in the late years of life seems like a perfectly appropriate thing for that wealth to purchase.

Correction: Retirement age for younger workers is 67. There was a time when I knew that, but that was before I began spending every waking minute thinking about Medicare, which offers eligibility at 65.

By Ezra Klein  |  August 19, 2009; 3:00 PM ET
Categories:  Social Security  
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Comments

Would be nice to see how much of the gap the tax closes vs how much of the gap the retirement age closes. I would be inclined to lift the tax cap as DeLong suggests, and tinker withe the CPI adjustment. I bet that would do the same thing.

Posted by: scott1959 | August 19, 2009 3:15 PM | Report abuse

OK, life expectancy currently is about 78 years for my generation. We get to retire at age 67. Life expectancy projections say that in 2025, the time we might phase in the new retirement age, life expectancy might be 84 (CRS report). So people might get an additional 3 years of leisure. This might be OK, except this is considered an optimistic projection (?) because obesity related diseases actually decrease life expectancy and we may see a reversal in the trend. So, if that is the case, there will be a net loss in older population, a decrease in retirement leisure, and only the well to do will enjoy the benefits of later retirement, which they enjoy anyhow.

Don't tinker with the retirement age. It was done to me, and let me tell you, I could use retirement right about now.

Posted by: carolcarre | August 19, 2009 3:28 PM | Report abuse

That's crazy talk -- lensch says Social Security is fine!

Posted by: whoisjohngaltcom | August 19, 2009 3:36 PM | Report abuse

Wouldn't leisure at the beginning of life be more useful? The main reason we need social security is so that you don't outlive your retirement. You can have a social security retirement age of 70 and still have people retiring at 65.

Posted by: CraigMcGillivary1 | August 19, 2009 3:37 PM | Report abuse

The Social Security Trust Fund does not actually exist, in that there is no pool of money for which we can tap into between 2015 and 2042. Instead, taxes will have to be raised to cover the shortfall, on top of the taxes that already have to be raised to cover the annual AMT exemption, huge structural deficits, and scheduled existing rate hikes. Obama has promised not to raise taxes at all for the bottom 95% of ordinary income households, so this means that a small section of ordinary income marginal rates will become even more confiscatory.

Uncapping the payroll tax is not an accurate way to describe what you are proposing. FICA taxes are tied directly to later-life social security benefits. It would be non-sensical to confiscate tons of money from high calendar-year ordinary income households today, multiply it many times over as the social security benefits equation currently requires, and then hand out massive social security checks to rich families once they retire. Instead, this FICA tax increase won't be tied to benefits. Thus, there will no longer be a relationship between the payroll tax and social security benefits, unlike what has been the case since social security began. What Klein and Delong are proposing is instead a massive, massive income tax hike. Once we account for local taxes, reduced deductions, less benefits, and higher dividend and capital gains taxes for higher ordinary income households, we will soon be entering a world where many non-rich households will face 70%+ marginal rates on ordinary income. Not only is this unfair, but it will drive bizarre and undesirable economic behavior. It would be far better to lower entitlement benefits, broaden the tax base, and reduce marginal rates, as the IMF always advises in debt-stricken countries.

Posted by: Dellis2 | August 19, 2009 3:54 PM | Report abuse

You state "The Social Security trust fund is on the brink of exhausting itself. On the list of problems the government faces, this isn't a big one. [...] That said, I'm less convinced than some that raising the retirement age is a good idea. [...] But we're also a lot richer than we were in the 60s, and more leisure time in the late years of life seems like a perfectly appropriate thing for that wealth to purchase."

Huh?? So, you say that (1) a bankrupt safety-net program isn't a big concern, (2) longer life expectancy shouldn't imply additional years of civil productivity, and (3) a safety-net program should allow those 'on the dole' to spend the money of working taxpayers on 'fun stuff'.

Your position as a spendthrift liberal is certainly reinforced.

On a related note, I see today an AP story entitled "Getting stoned still popular with baby boomers", which describes continuing and rising illicit drug use by those born between 1946 and 1964 and stating "SAMHSA Acting Administrator Eric Broderick said the continued drug use 'is likely to put further strains on the nation’s health care system.'"

By providing a little extra cash for the baby boomers -- by being enablers -- we're feeding their illicit drug habits. I wonder if similar behavior might occur in other demographics as we expand a health-care safety net.

Posted by: rmgregory | August 19, 2009 3:59 PM | Report abuse

Means test it! There's no reason to send checks to wealthy people - no checks for anyone making income over $200,000.

Posted by: eddiefast | August 19, 2009 3:59 PM | Report abuse

This borders on criminal. Social Security can pay for itself till around 2017.

So he wants to uncap contributions now, and then use them to gloss over current deficits?

This way, when Social Security really does need the "lockbox" there will only be that many more IOUs in the box. What a fraud.

And the libs just swallow this nonsense, all the while marveling at the deception. Barf!

Posted by: whoisjohngaltcom | August 19, 2009 4:06 PM | Report abuse

"more leisure time in the late years of life seems like a perfectly appropriate thing for that wealth to purchase"

I'm glad that you're willing to make that decision for everyone, and force all of us to pay for it. How much of your own money are you donating to fund more leisure time for people aged 65-70?

Posted by: ab13 | August 19, 2009 4:19 PM | Report abuse

"Means test it! There's no reason to send checks to wealthy people - no checks for anyone making income over $200,000."

Yes, there is: once you means-test something, then you turn it into "welfare", and welfare is a big fat political target. Means-testing eliminates the main reason that SocSec is the third rail of American politics.

Posted by: pseudonymousinnc | August 19, 2009 4:25 PM | Report abuse

The trust fund is not on the brink of exhausting itself - that won't happen for 30+ years.

Even if it were, though, I agree - don't raise the retirement age. Lower the payroll tax slightly and apply it to all income (including capital gains whoa).

Posted by: Drew_Miller_Hates_IDs_That_Dont_Allow_Spaces | August 19, 2009 4:38 PM | Report abuse

Uncap FICA!!!

And include cap gains!

Posted by: AZProgressive | August 19, 2009 4:48 PM | Report abuse

As several people have pointed out, the age at which one can draw full Social Security benefits has been raised already for those getting ready to retire. The extension is really more like 3 years. It is still psosible to take a lowered beenfit, starting at age 62. This helps those who hate their jobs or whose jobs are physically demanding (or both). And then there's the benefit. It isn't completely tied to how much you paid in. There is a boost up for the lowest earners to make it a "liveable" benefit and a maximum benefit that is less than what people paid in at the wage cap. And then there are the cost-of-living adjustments (until this year, when we didn't get one).

So there are several moving parts to adjust. Postpone early retirement by a few months or a year, reduce the percentage of the benefit early retirees get, lower the maximum benefit, reduce the COLAs, raise the wage cap a bit. All are possible and all can be phased in so as to have less of an impact.

This isn;t really the year to do iot, though, because people have lost too much out of their retirement. I'd rather see the Bush tax cuts expire, especially the preferential rate for dividends, and some sort of millionaires tax, before higher taxes on those making above $125,000 gross, which is what raising the wage cap means. And before an increase on those with AGI of over $250,000, which is what raising the marginal income tax rate is.

Posted by: Mimikatz | August 19, 2009 4:48 PM | Report abuse

Just a reminder that the wage cap has been increasing steadily for decades. It has more than doubled since 1990. If you include Social Security taxes, which wingnuts never do, somebody making in the high 5 figures has had a net tax increase over the last decade or two, Bush tax cuts notwithstanding.

Posted by: tl_houston | August 19, 2009 5:10 PM | Report abuse

Could you please substantiate your statement that the Trust Fund is "on the brink of exhausting itself"? That doesn't square with anything else I have read, nor with the findings of Greenspan Commission. Admittedly the whole "Trust Fund" concept is a bit of a dodge, but try to make today's wageearners pay _twice_ for the same Social Security contributions and you will see some real anger.

sPh

Posted by: sphealey | August 19, 2009 5:14 PM | Report abuse

Listen Shankapotomous, IS THIS YOUR NEW JOB? SHILLING FOR THE DINO'S?

TRILLIONS OF DOLLARS HAVE BEEN RAIDED FROM THE SOCIAL SECURITY TRUST FUND SINCE 1960. The Supreme Court ruled that government can take money from it any time they want.

So stop lying. People deserve the money they put into it with interest.

Some things DO NOT NEED TO PAY FOR THEMSELVES. If this were the case, THERE WOULD BE NO MORE WARS.

If this is your new idiot job, you suck at it and I am not reading you except to criticize.

Posted by: tropicgirl | August 19, 2009 6:02 PM | Report abuse

Ezra, you really should have left this one alone. Ditto Brad.

As others have noted, Social Security is nowhere near exhausting itself. Yes, its trajectory shows some mild sustainability issues in far-out years, but these are easily solved by tweaks that many have suggested, and that are easily sell-able.

But you and Brad have stirred up the "lock box" kooks with your stream-of-consciousness. For the record, Social Security is a pay-as-you-go system. Money paid in this year goes to pay out benefits to those who should receive them this year. There is no savings account that your taxes "pay into" until you retire. All the calculations for what you "should" receive exist only on paper. Demographics and the structure of the inputs and outlays will eventually reach a point where money paid in that year don't cover what has been promised to be paid out. In that year, or with minor effort and foresight, some prior year, that problem can be solved with a variety of methods to raise more revenue or redefine/adjust benefits, or both. That time is quite a ways off.

Posted by: Rick00 | August 19, 2009 6:44 PM | Report abuse

Is there any difference between raising the retirement age and cutting benefits? The official "retirement age" is now 67, but people can choose to retire and start receiving SS at any age from 62 to 70, they just get lower benefits if they retire earlier and higher benefits if they retire later (with the amount set to be actuarially fair). If we "raised the retirement age" then what would change? People would still have a choice of when to retire, but at any age they'd get lower benefits than they would under the current system. (Maybe you could also change the range of ages at which people can retire, but that shouldn't have any effect on Social Security's finances as long as the amounts are set to be actuarially fair.)

Posted by: you-dont | August 19, 2009 7:20 PM | Report abuse

I agree with Rick00. This is a subject that really gets the bats flying out of the belfery. I agree with what he said, but I would just point out that the SS projections rely on 14 unknowable assumotions that depend on future events, and that these projections have been way off in the past.

Posted by: lensch | August 19, 2009 7:28 PM | Report abuse

Really, Ezra, once in a while you disappoint me. You have no damn business talking about this, you have no clue. It discredits you. Go to Angry Bear, read and rewrite. We'll wait. http://bruceweb.blogspot.com/2008/08/angry-bear-social-security-series.html

There is no problem with social security. You would know that if you had researched at all. It has 30 more years of money, even forecasting slowing population growth and 1% overall growth over 30 years. So the best thing is to do nothing and wait ten years and see if we beat 1%.

And raising the cap to infinity is a huge, regressive middle class tax hike, specifically in the income segment Obama pledged not to tax. DOA, I repeat, DOA.

So take your job seriously. Do a bit of research. This was an embarrassment, and I do expect a correction and an update.

Posted by: Dollared | August 19, 2009 8:11 PM | Report abuse

Rick00
"that problem can be solved with a variety of methods to raise more revenue or redefine/adjust benefits, or both. That time is quite a ways off."

Unless, of course, you (or your kid) are one of the targeted sources of revenue, in which case every dollar stolen by the government today will be billed directly to your income taxes at some point in the future.

The lockbox works exactly as conservatives describe it. It is an accounting trick -- nothing more, and nothing less. Conservatives know how it works, and they know how you think it works, too. The only difference is that they are not fooled by the trick. You, however, are simply fooling yourselves.

Posted by: whoisjohngaltcom | August 19, 2009 8:28 PM | Report abuse

The idea that we're living longer is extremely misunderstood.

100 years ago there were no good antibiotics. Many people died young.

50 years ago there were no good blood pressure medicines. Many middle aged people died of heart attacks and strokes.

Naturally average longevity has increased, but the longevity of the elderly really hasn't changed much. Something to think about.

Posted by: bmull | August 19, 2009 10:10 PM | Report abuse

More brilliant commentary from whoiisjohngalt...why are dollars taxed "stolen" by the government? The Social Security system is pretty straightforward in how it is funded generationally.

Again, no solutions, just incendiary language straight from Glenn Beck.

Posted by: scott1959 | August 19, 2009 11:54 PM | Report abuse

Okay Scott, I'm typing real slow. Try to keep up:

If the government takes too much money in the name of Social Security, and then spends the surplus on the general budget, it sounds like it's "borrowing" from Social Security.

But what the government's really doing is advancing itself a tax increase to buy something that's not currently funded.

Later, when Social Security "redeems" its IOUs, the government will claim to be raising revenue it "owes" Social Security, but all it's really doing is raising taxes to cover what it bought for itself, and using its obligation to Social Security as justification for the hike -- never having to justify the boondoggle it spent the money on in the first place.

Now, of course, you've got an alternate vision of this process, and I'm sure you think it gives you some moral equivalency -- a sort of two sides of the same coin, he-said, she-said dispute. You simply "choose" to look at it a different way.

But between us two, only one of us is honest enough to call it what it is, to be able to look at both explanations and say which account is a fictional contrivance; which explanation is merely a rationalization for something dubious.

The other one of us is a slave to political correctness -- a shill for the scammers.

Do I have to tell you which one is you?

Posted by: whoisjohngaltcom | August 20, 2009 2:05 AM | Report abuse

Let us be clear (some definitions might help).

First: "The Social Security trust fund is on the brink of exhausting itself." Meaning:
Social security is getting much closer to running a deficit when outlays exceed revenues. Meaning: There will soon be no surplus (which has been dumped into general revenues, substituting somewhat for the Bush tax cuts).

Second: The trust fund. Simply, there will be none. Zero. Actually, you can consider this a huge debt that can only be repaid with future taxation. Conservative politicians have been more honest about representing it this way. But, seeing it realistically, they have been absolutely irresponsible by leaving us in a worse position to deal with it. On the other side, liberal politicians, just as irresponsible, have tended to delude themselves and us into thinking that the problem is much further down the road. But the problem rears its ugly head as soon as SS begins running a deficit which is coming much sooner than earlier projected as a result of this sick economy, as revealed in the graph.

Retirement age. I praise Ezra for pointing out the problem for people that are still doing the work that Americans "won't do anymore". Yes, they are sacrificing their bodies and reducing the number of golden years. I feel the pain. I am one of them. In my later 50s, the toll on the body is heavy. With each of manual labor, I wonder, "Can I keep doing this until 65?". And then I hear stories about guys who have retired and started SS benefits at 62 and are now regretting the decision because of the serious reduction in benefits compared with waiting until 65 or 70. Yep. Sucks especially for those who have been seduced by the thrill of living for today which our economy has supplied in spades.

Thanks for touching on this untouchable. We ain't even seen the foothills of this big mountain of hurt coming. Sadly, attempting the ascent may just get us much further under that mountain. People, we need a big vision change.

Posted by: upchitscreek | August 20, 2009 6:20 AM | Report abuse

upchitscreek - A few points

1. 16 time in the past, SS ran a deficit and had to cash in some of the Trust Fund. No problem.

2. Even if you believe the SS projections, we are not going to need all the money at once. We will need smaller amounts over a long period of years so we will have time to deal with the problem if there is one.

3. As I remarked above, there really is no reason to believe the projections which are based on wild guesses and have not even been consistent, let alone accurate. In fact there are 3 projections made by SSA; people usually only mention the middle one, but the high one has been consistenly more accurate in the past. It forcasts that the Trust Fund will never go to zero in the next 75 years and that there will be a huge surplus then.

Posted by: lensch | August 20, 2009 7:39 AM | Report abuse

whoisjohngalt...you are obviously such a genius on matters of policy, economics, healthcare and the like that I can not understand why the rest of the country has not ceceded to your Randian view of the world. You are so smart, the rest of us so dumb. I bow before you.

Posted by: scott1959 | August 20, 2009 8:22 AM | Report abuse

Scott, it's not about smart and dumb. It's about being honest and lying. We see the same injustices, but you look for ways to tell yourself they're okay.

I find it a little harder -- impossible, even -- to lie to myself in order to justify things that we would never tolerate if we were honest about them.

What I say about these things is completely accurate. It's just not the way you look at them. I can see them in both lights for what they are. You however, can only permit yourself to see them in a particular light, because otherwise you would have to face your own dishonesty. You know better than to steal money from your own children for your retirement, but by funneling the crime through "government" it's somehow not stealing anymore. You're rationalizing; lying to yourself. We see exactly the same thing, except that I'm honest about it and for some reason you are not.

Posted by: whoisjohngaltcom | August 20, 2009 11:49 AM | Report abuse

There is no problem with social security. You would know that if you had researched at all. It has 30 more years of money, even forecasting slowing population growth and 1% overall growth over 30 years. So the best thing is to do nothing and wait ten years and see if we beat 1%.

-----------

You've always gotta love these gross simplifications. Yes, things are going swimmingly except for the fact in a few years the actual cash coming in to pay benefits won't be sufficient and taxes will have to be raised one way or another to cover the shortfall because, well, the 30 or so years of money mentioned above exists . . . on paper, that is. All the while we have deficits running to the moon in the years ahead, making for a perfect environment to tap taxpayers to fund what they'd thought they'd already paid for, forget the fact they'd been told their taxes wouldn't be raised.

So absolutely, this is a piece of cake . . .

Posted by: JamesSCameron | August 25, 2009 7:56 PM | Report abuse

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