Increasing the cap is not a great way to do this because it will increase benefits at the same time that it increases contributions. They'd probably have to do something more extreme like add another bend point to increase redistributive effects.

Means testing is just taking benefits away from people that were previously promised benefits. It also punishes those that saved for their own retirement and provides handouts to those that do not save for retirement at all, which is one of the bad outcomes that having SS is supposed to prevent.

The idea of increasing the retirement age is not going to work out as planned. Despite all the advances in medicine that have extended lifetimes, there hasn't been a commensurate increase in the age to which people can work effectively. That is, the aging process still will drive many people out of the workforce by 65 whether they can afford it or not. Pushing back the SS retirement age is going to create a lot of people that are too old to work in their late 60s but without sufficient means to live. Again, this is one of the bad outcomes that having SS is supposed to prevent.

The myth of the surplus is relatively easy to explain. SS is a giant Ponzi scheme. It has had a "surplus" in the sense that demographics allowed it to take in more money from young workers than was needed for old folks who didn't use to live to 90 as often. The surplus money is never invested in the traditional sense, where one might expect to legitimately earn the 5.5% interest promised by gov't IOUs. The money is flushed down other government programs. Now, demographics is changing the viability of the scheme and there is no actual nest-egg, like one planning for retirement would have if they actually invested money for years.

In order to compensate, gov't will have to either raise taxes or cut (already insufficient) benefits.

I think it's more that *everyone* agrees that national security is a legitimate function of the government. That's not the case for SS/Medicare.

The benefits are only insufficient if you take the view that SS is a savings program. If you view it as a wealth transferring mechanism that moves money to the poor, it is not bad (the pensions provided to the working poor aren't generous, but they're not a huge drop from what the poor are taking in while working so in that sense it at least meets their basic retirement income needs).

**

A really great general thinking tip is to ask oneself, "What is really meant when we say _________ ?"

"National security/defense" in Ameri-speak seems to mean occupying 100+ countries, toppling foreign leaders, secret torture expeditions, and all that fun stuff.

I'm not so sure about this. If the "progressive taxers" were with it they should just cap income at $250K for all and make a mandatory $50K "living wage" right? What could go wrong with that?

I mean it is insufficient when you compare SS income to what could be had by investing the stolen money in actual investment vehicles. SS's ugly twin brother Medicare is just as "insufficient", cf. Medigap plans.

Not for the people in the lower income levels. Because their pension is larger (proportionally) than their contributions, the implicit "return on investment" is not that bad. Of course, it's not really a return on investment, it's a transfer from the contributions of higher earners, but still. People with lower incomes definitely wouldn't get as large a pension if they saved in low-risk investments and purchased fully inflation indexed, lifetime annuities at retirement.

Yep, we do it best.

What you are saying runs counter to most of what I have read. In fact, real investment returns far eclipse gov't handouts.

Now, I guess you are talking about "low-income" people, but what percent of SS recipients is this? Do you have some sort of study or figures to back up what you are talking about? Some of these people might have no pension at all, failed to save for their own retirement, etc. So yeah, anything is better than nothing you can claim. This is why SS gets called "social insurance". It's the same boondoggle as forcing shared risk pools in health insurance now.

I'm certainly willing to listen. I mean, I'll admit, I think I've kind of staked my position on the matter, that it's wrong to count deficits and ignore surpluses, so I don't know if I'll be convinced, but let me read what you've got to say.

You can just link to your other post if that would be easier.

There's no surplus dude. The "surplus" went to offset $580 toilet seats for the pentagon.

So are FICA taxes earmarked for SSI, or not? Because if they are, then the fact that it went to "$580 toilet seats" isn't a deficit in SSI, it's in the toilet.

And, also, too: Warning, Paul Krugman ITP

It all comes down to the way that the "surpluses" are determined from an accounting standpoint.

Suppose that you and I have a deal. I agree to give you $10 in 10 years time, you will give me $1 year for each of the 10 years. Suppose for simplicity that we live in a 0% interest rate world with no inflation.

Suppose the auditing firm comes along in 5 years time and asks me to provide an assessment of our arrangement, as it pertains to my financial situation. I say "Great! I've been running a surplus for 5 years, and have got an accrued $5 surplus that I'm holding on my balance sheet." What do you think of my reporting to the auditor?

This isn't relevant. Even if all the funds went into a trust fund, they surpluses would still be phony.

This seems like a poor example. Wouldn't it be more accurate if I were giving you $5 every year, and you gave me $1 in the first year, $2 in the second, $3 in the third and so on? Then, in the fifth year, where you're paying out as much as you're bringing in, you claim to be broke, despite the fact that you still have $10?

Edit: Just to be clear, I'm not trying to say that, as currently structured, that SSI won't eventually burn through its accrued surplus, and run a real deficit. But, that won't happen for 27 years, and, is easily fixed.

I don't follow what you are talking about sorry.

The actual cash flows don't matter, the point isn't to match cash flows to SS. My example was picked for simplicity because there is a transparently obvious answer in that the cash flows in and out over the lifetime of the arrangement completely net out and at every point across the whole ten years this arrangement should be booked as a net $0. To claim surpluses early because you have taken in more than you have paid out, with no regard for what will be taken in and what will be paid out, is clearly misleading and inappropriate.

Read my example. The fact that the money in is traded for IOUs and spent is a problem, but there is another problem with the "surpluses" apart from that.

Then I think that we're talking about different things. As currently structured, I am not now, nor have I ever, tried to argue that SSI won't burn through its surpluses. There clearly needs to be a change.

What I'm trying to argue against is this pervasive argument I seem to see coming up all the time that SSI is broke right now because it is currently taking in less money than it is paying out.

Or, to quote from the PK post I linked to above:

Oh. That's fine, they obviously are taking in more money than they're paying out currently. That doesn't mean that calling it a "surplus" is meaningful or reasonable or appropriate, and it also doesn't mean that SS as it currently stands isn't a major drain on the financial position of the US. They should stop calling it a surplus because that suggests assets in excess of liabilities, which is most certainly not the situation that SS is in.

OK, I think that I see what you are saying now.

V short version:

For a long time, the annual revenue from social security taxes was much larger than the annual expenditures of benefits, since there were more people of working age than there were retirees. This created a surplus of cash sitting in government accounts.

The government took this spare cash, and bought Tbills with it. (IIRC, I believe this was required by various accounting rules).

When the SS fund bought these bonds, this created immediate revenue for the treasury, as well as the future obligation of repaying the bonds. The Fedgov spent the cash it got immediately, and now is stuck with the obligation to repay those bonds.

So instead of having cash sitting around marked "SS surplus, do not spend until 2030", there are bonds instead which say "US Treasury will pay you X$ on Jan 1 2030". The Fedgov took the cash it got from selling these Tbills, and spent it immediately.

If you look at the SS trust fund as an isolated entity, the surplus still "exists". On one side of its balance sheet, social security has the liability of paying Y$ over the next several decades in benefits. On the other side, it has assets saying "US Treasury owes you X$". These balance out, which is is while people often say "Social Security is solvent."

This is circular, the SS fund is owed money, but it is owed money by another arm of the US government, and it can only repay the SS fund by borrowing more money and going further into debt.

This is more or less where Al Gore's "lockbox" idea came from, which he was unfairly maligned for. Al Gore was essentially saying "We have this SS surplus. Let's put it in a lockbox, where no one can touch it, and in 20 years we will pay SS benefits with it." Instead, we spent it immediately.

Ok maybe that wasn't short. And it is possible that SS is still running a "surplus" right now, if so far in 2010 the amount of revenue collected via SS taxes was greater than the amount of SS checks written out. But this should describe the basic mechanic of why the SS surplus or trust fund does not meaningfully exist.

I think SS will be harder to fix than it appears on the surface. By 2035 it is expected that there will be 2 workers for every beneficiary. An average worker will be funding half of a person's SS check. Taxes alone won't get the job done.

Means testing will help but it creates powerful incentives to move assets into another person's name.

Raising the retirement age would work, except as another poster mentioned many older people will be competing for a small supply of jobs that can be done by older less able workers.

What you say is correct, social security can be made sustainable through those fixes, but the level of benefits provided won't look much like what retirees today receive.

You can think about the contradictions of generational "savings" in abstract as well. I'm not a finance whiz, but to my understanding the actual financial maneuvering the government does isn't really very important.