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Hullabaloo


Thursday, April 25, 2013

 
Do you think $15,000 is real money?

by digby

So, they've crunched some real numbers and determined exactly how much money the average Social Security recipient can expect to lose if the Chained-CPI is implemented. I'm going to assume that if someone told you that the government was going to seize $15,000.00 from your 401k you'd think it was a cut:



Cognizant of the harm this benefit cut would do to seniors and people with disabilities over time, the Administration has proposed cushioning the effect by providing a partially compensatory bump in benefits from age 76-85 for retirees (or in the 15th-24th year of benefit receipt for people with disabilities). Yet for the average worker, this "benefit enhancement" never restores one's annual benefit to what it would have been without the switch to the stingier COLA. And what is more, the bump does not return to the elderly the income they will lose between retirement and their 76th birthday -- represented by all the space between the black and red lines above (for more detailed analysis, consult our fact sheet). Benefits decline steadily again from age 86 onward, when the vast majority of seniors have exhausted their savings and ability to work, and may have lost their partner as well.

To rich people, 15 grand amounts to tip money so they cannot see why average Americans shouldn't be willing to give up such a paltry sum especially if it will "save" Social Security for their grandchildren.

Funny thing about that --- it won't. Save Social Security, that is. The green line is the present course of the trust fund. The dotted blue line is with the Chained-CPI:




As you can see, it adds about two years to the trust fund. If this so-called "shortfall" is the problem they seek to solve by switching to the Chained-CPI, I think we can agree that it's a pretty pathetic solution. (And certainly, if we continue on the bipartisan path that says the only option is to cut the program, I'm going to guess all you young people will see an age 75 retirement age and a tiny, withered welfare program instead of this universal one when you get old.)

The only rational way to shore up the Social Security trust fund is to raise the cap on how much income is subject to the SS tax. In fact, there's no good rationale not to at least go back to the Reagan standard in which 90 percent of wages were subject to SS taxes. Today only 83% of wages are subject to it because the the 1% hogs so much more of the nation's wages.  And the rest of their bounty from investments isn't subject to the payroll tax at all.That would mean that $200,000 of its wages would be subject to the tax this year instead of $110,100. Honestly, I'm hard pressed to see why this is off the table ( especially considering that the Chained-CPI also raises taxes!)

And look at it this way, once the deadbeat baby boomers have finally shuffled off their mortal coils, the whole system will stabilize again and you can even talk about lowering the retirement age and the level of taxation back to where it was before all of us losers agreed to pay for the mistake of being born between 1947 and 1964 by retiring later and paying more all of our adult lives. It's win-win.

Personally, I'm for Bernie Sanders' plan to raise the cap on income above 250k. I happen to think that President Obama's apparent desire to create a Grand Bargain to fix all fiscal and funding problems for all time is tilting at windmills at best (and hubristic nonsense at worst.)  But if he really wants to do this, Sanders' plan solves SS funding for at least 75 years, which would make a hell of a run at it. Barring that, we can at least go back to the Reagan era funding levels before we start chopping away again at benefits.

If you want to really educate yourself on the history of the Trust Fund  and how it works, this document from the Social Security Administration is invaluable. I think this is particularly important:

The sustainability of the current structure of benefits and financing of the OASDI program is not an issue directly addressed in the trustees report. This consideration is more political in nature, in that it depends on the wants and desires of the American people, as reflected by the actions of their elected representatives in the Congress. It is clear that modifications of the program benefit and tax levels can be made within the current program structure to restore sound financial status. But it is up to each generation to come to a consensus on the tax levels it is willing to pay and the benefit levels it wants to receive. Even the form of benefits and mode of financing, historically defined as monthly benefits financed generally on a PAYGO basis, are open to consideration by the American people and future Congresses.

The trustees report does, however, provide insight into the sustainability of currently scheduled benefits by providing a comparison of program cost and scheduled tax revenues, expressed as percentages of the total output of goods and services in the United States—our gross domestic product (GDP).
Projected OASDI cost is expected to rise from about 4.5 percent of GDP since 1990, to about 6 percent of GDP over the next 20 years, and to roughly stabilize at that level thereafter (see Chart 5). Although an increase in the cost of the program from 4.5 to 6 percent of GDP is substantial, the fact that the increase is not projected to continue after this "level shift" is important. Chart 5 focuses on the question of whether the level of benefits scheduled in current law should be maintained for future generations, at the price of higher taxes, or whether scheduled benefits should be reduced to levels affordable with the current taxes in the law.

This is a political choice. It's not some law of God or nature that demands human sacrifice over which we have no power. We can choose to fund this program if we want to. This is a very wealthy country --- a military superpower. We have all the resources and capital we need to take care of our elderly and sick population. If we choose to.

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