Robert Reich: How to Fix Social Security Permanently

[flpoljunkie]

Budget Baloney: Why Social Security Isn’t a Problem for 26 Years, and the Best Way to Fix It Permanently

WEDNESDAY, FEBRUARY 16, 2011

New Jersey Governor Chris Christie, a Republican presidential hopeful, says in order to “save” Social Security the retirement age should be raised. The media are congratulating him for his putative “courage.” Deficit hawks are proclaiming Social Security one of the big entitlements that has to be cut in order to reduce the budget deficit.

This is all baloney.

In a former life I was a trustee of the Social Security trust fund. So let me set the record straight.

Social Security isn’t responsible for the federal deficit. Just the opposite. Until last year Social Security took in more payroll taxes than it paid out in benefits. It lent the surpluses to the rest of the government.

Now that Social Security has started to pay out more than it takes in, Social Security can simply collect what the rest of the government owes it. This will keep it fully solvent for the next 26 years.

But why should there even be a problem 26 years from now? Back in 1983, Alan Greenspan’s Social Security commission was supposed to have fixed the system for good – by gradually increasing payroll taxes and raising the retirement age. (Early boomers like me can start collecting full benefits at age 66; late boomers born after 1960 will have to wait until they’re 67.)

Greenspan’s commission must have failed to predict something. But what? It fairly accurately predicted how quickly the boomers would age. It had a pretty good idea of how fast the US economy would grow. While it underestimated how many immigrants would be coming into the United States, that’s no problem. To the contrary, most new immigrants are young and their payroll-tax contributions will far exceed what they draw from Social Security for decades.

So what did Greenspan’s commission fail to see coming?

Inequality.

Remember, the Social Security payroll tax applies only to earnings up to a certain ceiling. (That ceiling is now $106,800.) The ceiling rises every year according to a formula roughly matching inflation.

Back in 1983, the ceiling was set so the Social Security payroll tax would hit 90 percent of all wages covered by Social Security. That 90 percent figure was built into the Greenspan Commission’s fixes. The Commission assumed that, as the ceiling rose with inflation, the Social Security payroll tax would continue to hit 90 percent of total income.

Today, though, the Social Security payroll tax hits only about 84 percent of total income.

It went from 90 percent to 84 percent because a larger and larger portion of total income has gone to the top. In 1983, the richest 1 percent of Americans got 11.6 percent of total income. Today the top 1 percent takes in more than 20 percent.

If we want to go back to 90 percent, the ceiling on income subject to the Social Security tax would need to be raised to $180,000.

Presto. Social Security’s long-term (beyond 26 years from now) problem would be solved.

So there’s no reason even to consider reducing Social Security benefits or raising the age of eligibility. The logical response to the increasing concentration of income at the top is simply to raise the ceiling.

Not incidentally, several months ago the White House considered proposing that the ceiling be lifted to $180,000. Somehow, though, that proposal didn’t make it into the President’s budget.

[crazylikafox]

damn right

[crazylikafox]

1. damn right

[tweeternik]

2. Bingo!! We have a winner!! n/t

[LiberalFighter]

3. Why even have a cap?

I've been advocating eliminating the cap for over 25 years.

[polichick]

4. Why does the president continue to ignore Reich and Krugman??

[Poiuyt]

6. Exactly right

Those two, along with a few others, make more sense than most of Washington.

[nichomachus]

7. Because . . .

he's in bed with the people who want to destroy it?

[flpoljunkie]

8. President does not consider Social Security part of the deficit problem he focusing on right now

I do believe that he does favor lifting the cap.

[ThomCat]

10. Presidents only listen to Yes-men. You have to fail your way up

to the top. Only economists who are always Wrong, by saying whatever politicians want to hear get to advise politicians. Their job is to say whatever it takes to justify whatever politicians are going to do anyway.

Economists who say what is true get ignored by important people because important people are used to everyone listening to them. Krugman and Reich aren't bending and twisting truths to justify whatever someone is already going to do.

[Enthusiast]

17. Because he is ideologically

in the opposite camp?

[FSogol]

5. K & R. n/t

[demigoddess]

9. If a worker earning 30 or 40K can get along without the few

dollars that he contributes to SS every payday, why is it that someone earning more than 106K will miss his or her contributions to SS????? Seems to me that someone earning that much would miss it even less than the lowly worker making 30K or so. We should raise the cap to something like 500K at least. After all most of those SS contributions are used to cover the deficit and pay for the tax cuts for the rich. When we get down to it, it is wealth redistribution from the poorest to the richest and we have to protest this one of these days. We might have to occupy the Capitol building in DC.

[rasputin1952]

23. While agree the ceiling needs to rise...

there is a shadow in this assumption...it means that companies will have to fork over an equal amount, there's the rub. Lets say that on 180,000, some $13000 is paid by the worker, it is matched by the employer, (the full amount is paid by the self-employed). while the increase is actually minimal to the worker, say the employer has 50 employees, that means that the business's fixed expenses rise a percentage and has to be multiplied x50, that could have a dramatic impact across the board. To make sure the payments could be made, prices would rise, and/or there would be layoffs. It is not individuals that are will cry against the raise, but the shadow, business.

Something else to consider, after a few years collecting SS, one is paid far more than they put in. People in their 80's have received checks far and above what they put into the system. Initially, my father put less than a dollar a week into SS, (there was no Medicare initially). When he died, my mother received checks for my brothers and I, as well as survivor checks for herself. This went on until each of us reached our 19th birthday, got married, or a few other things that would have stopped the payments.

There are other aspects to SS, it is not a cut and dried situation, but raining the ceiling would help immeasurably to keep SS solvent. One thing that needs to be done is to stop the outflow of funds. We can count on the R's to keep stripping cash out of the fund, (D's have done it as well)...but all things considered, I don't see much happening before the next election.

[old mark]

11. K&R- The House GOP passed a bill last month cutting funding for Social Security's

operating budget. If it passes, it will close the agency for at least a month, laying off workers and stoping any payments as well as adding to the tremendous backlog of work.

Fuck the republicans. Every last one.

mark

[guruoo]

14. Can you imagine the backlash?

[wiggs]

12. Or...change the trend of 30 yrs of stagnant middle class wages. Better middle

class = more social security revenue, right?

This is related to health care reform, of course. If insurance or health care costs went down, more of the cost of employment would go to wages and therefore social security revenue would increase.

[Bake]

13. Reich makes economics understandable and damn, he makes sense!

Smart man.

Bake

[Overseas]

15. K&R and Many Thanks !

We're drowning in piles of baloney!

Come On, Democratic National Senators-- Stand Up! Fight Back!

[Enthusiast]

16. I do not expect this to ever

make it into the President's budget. If Obama was interested in preserving social security he would never have agreed to reduce FICA contributions.

[polichick]

18. True - starving the system makes it look to be in trouble. nt

[RoadRage]

19. I have a question though...

If you're currently paying at the top end of the SS amount ($106,000) doesn't that just mean that you will collect that same portion when you retire?

IE - if you make $40,000 per year - you collect that equivelant per month
if you make $200,000 per year - you still only collect the equivelant of the $106,000 per month payment at retierment?

So, if they increase the cap to $180,000 per year.. does that mean that the payouts increase for those making up to $180,000 per year at retierment? If so - how does this really effect the problem much? Or - are we saying we now tax up to $180,000 but keep the payment locked down at the $106,000 type level?

In that case.. i disagree. I know many here think that people who make $100,000 - $200,000 per year are "rich".. but they're not. They're middle to middle-upper class. This still leaves the "UBER RICH" - those who make Millions off the hook.. because the difference for them between $106,000 - $180,000 in SS tax difference is frankly pennies. To a family of 6 who are trying to pay a mortgage and put 4 kids through college though.. the few thousand dollar difference has a big impact.

[flpoljunkie]

20. The maximum monthly individual Social Security retirement benefit is $2,366.

What is the maximum monthly Social Security retirement benefit?

The maximum benefit depends on the age a worker chooses to retire. For example, for a worker retiring at age 66 in 2011, the amount is $2,366. This figure is based on earnings at the maximum taxable amount for every year after age 21.

http://ssa-custhelp.ssa.gov/app/answers/detail/a_id/5/~/maximum-social-security-retirement-benefit

[RoadRage]

21. Thank-You!

But, I think that supports my point as well. Right now if you contribute $106,000, the max you can get per month when you retire is $2,366. If they increase the amount that they will tax up to $180,000 per year in salary, then I assume they would increase the monthly retierment payment for those who paid in at the higher amount. And, if that is the case.. it still doesn't seem to fix the problem on a large scale.. if you're taking out more at the top end, but paying more to those same people when they retire.

[flpoljunkie]

22. If anyone needs higher benefits, it's those at the bottom. Sen Sanders want to raise ceiling higher.

Bernie Sanders said he supports boosting the ceiling to $250,000. Good luck with that with a Republican House and a Republican filibustering Senate.