It's that time of year, acknowledge the white elephant in the room...

TankRizzo · 03-26-2008, 02:28 PM

...and then proceed to ignore it.

I think Hillary was mentioned to have a plan, but today I hear nothing about it. They're still talking about Reverend Wright though! Not that I mind, but in the context of this, it just saddens me.

Paulson: Action needed on Social Security - Mar. 25, 2008

Paulson: Social Security fix needed
Treasury Secretary says program is 'financially unsustainable.' Trustee report says government will have to pay back what it owes starting in 2017.

NEW YORK (CNNMoney.com) -- Treasury Secretary Henry Paulson, saying that Social Security is "financially unsustainable," called Tuesday for quick action to keep the system strong and released a report detailing the program's funding shortfalls.

The federal government will have to start paying back what it owes the Social Security trust fund in 2017 so the program can continue paying 100% of benefits. By 2041, if the system is left unchanged, Social Security will only be able to pay out 78% of benefits promised to future retirees.

Those are two key estimates in the Social Security and Medicare trustees' 2008 annual report.

Shoring up Social Security is one of the main economic issues that will face the next president. Most proposals involve raising taxes or reducing benefits. Democrats typically have opposed benefit reductions while Republicans have opposed tax increases.

"This year's Social Security Report again demonstrates that the Social Security program is financially unsustainable and requires reform," Paulson said at a briefing. "The sooner we take action ... the less drastic needed changes will be."

Borrowing from the future

For years, the Social Security program has been taking in more in payroll taxes from existing workers than it needed to fund benefits. The government borrowed that surplus and promised to pay it back with interest by issuing special issue bonds to the program.

But the proceeds from those bonds are finite, which is why the trustees estimate that the trust fund will run dry by 2041. Without that cushion, Social Security would only be able to pay out the money it collects in payroll taxes.

Demographics are a major reason for the funding shortfall. The number of workers, compared to retirees, has begun to shrink. That means the system will produce a smaller surplus, then none at all, and eventually it won't be able to pay out all benefits promised to future retirees.

Last year, the trustees also estimated that the government would need to start paying back the program in 2017, and that the Social Security trust fund would be exhausted by 2041.

Currently, the first $102,000 of wages are subject to the 12.4% payroll tax that funds Social Security. Typically, half the tax is paid by workers, and the other half is paid by employers.

To keep the system solvent over the next 75 years, the trustees estimated that the Social Security payroll tax rate would need to increase to 14.1%, up from the current 12.4%. Or lawmakers could bring it into balance by cutting benefits by 12%.

Neither is a popular political solution. Lawmakers and presidential candidates from both parties acknowledge that a bipartisan solution is required. But no one's expecting one this year, with a lame-duck president in the White House and lawmakers focused on elections, to say nothing of an economic downturn.

Nonpartisan experts say the pain of fixing Social Security can be lessened in two ways: Make changes soon so that they affect more people but in a less dramatic manner, and implement a combination of tax increases and benefit reductions so that neither is particularly steep.

Medicare a bigger problem

Medicare, which was also addressed in Tuesday's report, has an even larger and more immediate funding deficit to address.

The Medicare program is already taking in less than it has committed to pay out, and the trustees forecast that the Medicare trust fund will be depleted by 2019, at which point Medicare would only be able to pay out 78% of costs.

Medicare was designed to be funded by three sources: payroll taxes; Medicare premiums paid by beneficiaries; and general revenue or money from income taxes.

The payroll tax portion of that funding comes from a 2.9% tax on all wages - half of which is paid by workers and half by their employers. To make Medicare solvent over the next 75 years, the trustees estimate that 6.44% of wages would need to be taxed.

As they did last year, the trustees issued a funding warning in their 2008 report, which they're required to issue when they anticipate that general revenues will have to fund more than 45% of Medicare's total expenditures within the next six years.

Lawmakers won't be able to solve the long-term shortfalls in Medicare until they find a way to reform health care, said Paul Van De Water, senior fellow at the Center on Budget and Policy Priorities.

"Medicare's long-term financing problems are due to the sharp rise in health care costs, not to structural problems particular to Medicare." To top of page

How anyone can be for socialized healthcare is beyond me.

motivez · 03-26-2008, 02:30 PM

Wouldn't social security be financially stable if we raised the cap on what portion of income was taxed?

I don't see any reason someone making 50 million a year should only have the first $X dollars taxed, when people making significantly less have their entire income taxed.

TankRizzo · 03-26-2008, 02:33 PM

Originally Posted by motivez

Wouldn't social security be financially stable if we raised the cap on what portion of income was taxed?

I don't see any reason someone making 50 million a year should only have the first $X dollars taxed, when people making significantly less have their entire income taxed.

I'd be willing to cut my losses if they just stopped taking it from me.

WickedLou9 · 03-26-2008, 02:44 PM

Originally Posted by motivez

Wouldn't social security be financially stable if we raised the cap on what portion of income was taxed?

I don't see any reason someone making 50 million a year should only have the first $X dollars taxed, when people making significantly less have their entire income taxed.

They also cap the payout too though right? So the person earning 50 million and the person earning 170,000 or whatever, they both draw the same payment after retirement. So in that sense it's "fair".

But yeah I agree that they should remove the cap on contributions. I think they should retain the cap on payout too. Call me a socialist but if you have earned upwards of 6 figures a year for 30 years, you would have so much saved up by the time you retire that you would probably use social security checks to wipe your ass with. It's a waste.

7960 · 03-26-2008, 02:47 PM

Originally Posted by WickedLou9

Call me a socialist but if you have earned upwards of 6 figures a year for 30 years, you would have so much saved up by the time you retire that you would probably use social security checks to wipe your ass with. It's a waste.

Did you just say that the rich are contributing to something that they won't actually realize a benefit from?

A_C_E · 03-26-2008, 02:47 PM

I wish everyone would stop saying it's such a huge problem. It isn't

When they do their projections, they use the most conservative growth estimate on GDP possible (almost zero). But as we all know, trend GDP growth tends to be around 3-4% per year. So if trend GDP keeps growing, then aggregate household income keeps growing, and more money keeps getting paid into the system--plenty of money to keep it sustainable.

I wish they would actually use an accurate estimation instead of being doomsday sensationalists all the time.

motivez · 03-26-2008, 02:49 PM

Originally Posted by 7960

Did you just say that the rich are contributing to something that they won't actually realize a benefit from?

No rich person in the history of rich people has ever gone bankrupt and lost their wealth I guess?

WickedLou9 · 03-26-2008, 02:50 PM

Originally Posted by TankRizzo

I'd be willing to cut my losses if they just stopped taking it from me.

My selfish side would love that too. If I could divert every dollar I ever paid or ever will pay into SS and instead invest it in the market, I would be a very rich man when I retire. In my opinion SS is a sort of welfare system for people who were unable to save enough for thier retirement. I'm not planning on getting much from it so I am saving on my own. I am sure there are some people who can't save anything. They will need it. I dunno. The whole system is just broken.

A_C_E · 03-26-2008, 02:51 PM

EPI has a solid article on income growth and the long-term viability of the SS system:

Productivity growth and Social Security's future

7960 · 03-26-2008, 02:52 PM

Originally Posted by motivez

No rich person in the history of rich people has ever gone bankrupt and lost their wealth I guess?

if you have earned upwards of 6 figures a year for 30 years, you would have so much saved up by the time you retire that you would probably use social security checks to wipe your ass

not according to lou

David Octavius · 03-26-2008, 02:52 PM

Originally Posted by 7960

Did you just say that the rich are contributing to something that they won't actually realize a benefit from?

Fuck social responsibility right?

I mean the only thing this country ever did for them was have liberal laws that protect investors and producers better than most other countries and our efficient labor force that helped them attain such wealth, I mean they owe nothing at all. And all that crap about us being united as a country and community is just for words, not when it comes to money right?

A_C_E · 03-26-2008, 02:54 PM

Originally Posted by WickedLou9

My selfish side would love that too. If I could divert every dollar I ever paid or ever will pay into SS and instead invest it in the market, I would be a very rich man when I retire. In my opinion SS is a sort of welfare system for people who were unable to save enough for thier retirement. I'm not planning on getting much from it so I am saving on my own. I am sure there are some people who can't save anything. They will need it. I dunno. The whole system is just broken.

All the money paid into the SS system IS invested....just in the lowest-risk area possible--government debt securities.

It's essentially a way to make sure that people who want to retire without enough savings, for whatever reason, don't have to work until the day they die. As must people become useless in the economic marketplace after a certain age, the system has its uses, whether you agree with them or not.

Phantom · 03-26-2008, 02:55 PM

Originally Posted by motivez

Wouldn't social security be financially stable if we raised the cap on what portion of income was taxed?

I don't see any reason someone making 50 million a year should only have the first $X dollars taxed, when people making significantly less have their entire income taxed.

I think most rich people would and do get around that easily since they are not compensated so much in wages.

They take their cash in capital gains/shareholder distributions which are not taxed like wages - they only pay ordinary income tax or capital gains tax on that money earned. So if I own a McDonald's, I might pay myself $40,000 per year in wages, but take home $200,000 extra in distributions based on profits.

WickedLou9 · 03-26-2008, 02:55 PM

Originally Posted by 7960

Did you just say that the rich are contributing to something that they won't actually realize a benefit from?

no, they do get a SS payout right now. But the payout is capped at a certain level comensurate with the cap on taxes on your income. YOu are only taxed on the first, what, 90k of your income for social security? After that it's not taxed. So whether you earn 90k or 390k, you pay the same SS tax. On the back end, whether you made 90k, or 390k, both people would draw the same payment from SS because both made the same contributions. I was saying that the person who earned 390k will have so much saved on thier own, that the check they get from social security will be a cute little joke that they laugh about every month. They simply don't need it and there is no benefit on a societal level when they get the cute little check. The original idea was to allow people to continue to participate in the consumer economy after they retire. That is SS's main purpose. So these wealthy people will be participating in the economy, SS check or not.

7960 · 03-26-2008, 02:55 PM

Originally Posted by David Octavius

Fuck GOVERNMENT MANDATED social responsibility right?

:fixed: so I can say YES.

WickedLou9 · 03-26-2008, 02:58 PM

Originally Posted by 7960

not according to lou

That's why I think SS should be need based. It should not be a government funded retirement plan. Everyone pays in, just at a much much lower level than they do today. Then when people retire, if they have a need for government assistance, they can get it. That way everyone pays less, we all can save more on our own, and the people that fell into some sort of financial disaster at or near retirement can still get help from the government. Obviosuly it would have to be a bit more complex than this. I mean we don't want people blowing all of thier savings in 2 years and then relying on government checks after that.

Phantom · 03-26-2008, 03:03 PM

Originally Posted by WickedLou9

That's why I think SS should be need based. It should not be a government funded retirement plan.

I tend to agree. Let's throw in the towel, admit that it's a program for the redistribution of wealth, and limit it to those who need it. This "government retirement program" business isn't fooling anybody and it just raises the administrative costs by having soo many participants.

TankRizzo · 03-26-2008, 03:08 PM

Originally Posted by WickedLou9

My selfish side would love that too. If I could divert every dollar I ever paid or ever will pay into SS and instead invest it in the market, I would be a very rich man when I retire. In my opinion SS is a sort of welfare system for people who were unable to save enough for thier retirement. I'm not planning on getting much from it so I am saving on my own. I am sure there are some people who can't save anything. They will need it. I dunno. The whole system is just broken.

The ungodly amount of money they take combined with the pittance they wind up giving you and the absurd age you have to be (that's always being pushed back) to collect it just enrages me. It's not doing anybody any good. The whole thing is pretty much pointless right now.