Social Security contribution is a percentage of WAGES

[cthulu2016]

Last edited Fri Apr 12, 2013, 07:09 PM - Edit history (1)

It is possible that one of those things FDR "never expected" was a thirty five year real-dollar wage freeze. People not getting paid is surely as relevant as people living somewhat longer, for instance.

Social Security is a bootstrapping program... it relies on a growing population and a growing economy. It cannot survive long without a growing economy and growing real wages. Even with a surplus and a trust fund, the program ultimately relies on current workers paying for current retirees.

(For instance, here is a very stark and simplistic hypothetical: say every employed person has always made exactly $40K and every retiree gets benefits based on their former wage of $40K. Now cut the wage all working people make to $20K. The current retirees benefits stay the same while the incoming funding is cut in half. The $20K contributions could pay for $20K based benefits 30, 40 years down the road, but where is the money for the current retirees supposed to come from?)

It is possible that the biggest planning error in Social Security in our lifetimes was the failure to anticipate that the average slob would, unlike 1945-1970, not move forward along with the upper few percent.

Perhaps folks did not take into account that as inequality grew the percentage of all wage dollars in America exempt from SS taxation (over-cap) would grow and grow. (If you halve Charlie's wage and double Fred's wage that might work out the same on average, but if Fred's doubled wage is over the cap then the amount paid by the entity Fred&Charlie goes down.)

It is possible that nobody accounted for a population that would line up around the block to vote for their own serfdom. (the election of 1984 comes to mind)

If that is all true... is the problem really Social Security?

We have LOW wages. We have HIGH unemployment. Social Security is wage-based and is only as healthy as the workforce itself.

It seems like the pending SS shortfall is just one of many symptoms of the effects of generationaly mushrooming inequality. If current workers made more money then cash-flow into SS would be higher.

[Wounded Bear]

1. True that.....

Much of the SS "problem" would be solved simply with full employment and normal wage growth that at least tracks inflation.

We have neither, and it isn't really an accident.

[SammyWinstonJack]

2. rec

[roomtomove]

3. The future of SS is bleak

SS wages, as they are shrinking with the ecomony and shrnking wages, spell further doom for future generations, just because SS is tied to wages. My widowed mom, who is 95, receives a meager SS check, because of the low wages she earned, and because the SS increases never kept up with inflation. The poor will get poorer.

[FBaggins]

4. except that benefits are tied to wages as well. nt

[cthulu2016]

6. Benefits are based on old wages

Incoming money is based on new wages

[FBaggins]

9. old wages?

they're based on your wages.

If a minimum wage worker made more money, she would pay more in SS taxes, but also receive more in benefits.

[cthulu2016]

11. No current retiree's benefits are based on MY wages

There is a large "pay it forward" component to SS financing.

The fact we currently have a surplus seems to confuse people. That is a one-time thing we did vis-a-vis the baby boomers.

In general terms, current benefits are funded by current wages, and if wages decline then the system collapses.

If (hypothetically, using round numbers and a stark scenario) everyone used to make $40K and suddenly everyone was cut to $20K then the incoming money would be cut in half, but the outgoing money would still be based on that old $40K and there would be no money to pay current retirees.

[Cal Carpenter]

5. You make a great point

And I think that's why there is such a backlash against those talking about this issue and studying it - because the dots start connecting so easily. The real depths of the systemic economic problems become apparent while the policy solutions being offered are crumbs at best.

It's possible the Chained CPI won't even end up in the budget, but the discussion of it sure has opened up a big can of worms.

The rapid concentration of wealth and growth of inequality in the last several decades is alarming. And the impacts run far and wide - as you point out - less income during our working years means less SS regardless of the CPI or anything else. It also means less, if any, other savings. And less, if any, equity in a house. And more likelihood of medical debt. And so on...

[Triana]

7. Damn valid point.

It most certainly is part of the problem if not a huge chunk of it or all of it.

[Yo_Mama]

8. Main problem is lower birth rate

Not inequity in wages.

There used to be 5 or 6 workers for every person on SS. We are rapidly getting to close to 2 workers for every beneficiary. That's the problem right there.

[cthulu2016]

10. Since we don't have jobs for the folks we have...

We could get the under-65 to over-65 ratio fixed in a week simply by allowing anyone from Mexico to become a citizen, no questions asked.

That would not, however, create 100 million jobs for the new would-be contributing workers.

You are right that there is a demographic bulge, but until the economy is booming like crazy there is no plausible way to increase the labor force dramatically.

IMO.

[Nye Bevan]

13. That's a good argument for allowing more skilled immigration (i.e. raise the H1 visa cap) (nt)

[cthulu2016]

14. An H1 doesn't really create a new job slot

An H1 allows an existing job slot to be filled for less wages

[Nye Bevan]

17. Ah, the "lump of labor" fallacy rears its head again.

http://en.wikipedia.org/wiki/Lump_of_labor_fallacy

[cthulu2016]

19. A fallacy is only a fallacy when it is fallacious

You commented about Visas of a sort that are issued for existing jobs. The lump of labor in that case is an actual discrete lump.

You we would have to assume that these existing job slots would cease to exist at any high wage than the employer finds convenient. If the frustrated employer ends up having to pay a higher wage to a current American resident that does not inhibit SS cash flow. Quite the opposite.

Now, as to whether simply opening the Mexican border would improve the situation for SS, by suggesting that it would not I was avoiding hyper-literalism and some tedious caveats.

Yes, opening the border would ease SS funding--but not enough to make it useful policy. I was responding to someone who was speaking practical, and replied in practical terms. Domestic unemployment is, and should be, a factor in immigration policy, despite the fact that jobs are not a fixed quantity. They are not fixed, but they are tethered to reality.

A huge influx of immigrants into a system with current high unemployment would not add the entire incoming immigrant population to the unemployed population. That would be the fallacy to which you refer -- to think that jobs are static in the context of population change/available labor.

There would be some economic growth and the total number of jobs would increase. The total number of unemployed would increase a lot more because our economy is not growing much at all. That is not static--there have been plenty of times when we were able to fully absorb huge numbers of immigrants.

The total sum of wages paid would also increase, but less so because the wages of almost everyone would be under pressure due to the huge and sudden rise in the unemployed population.

And it is true that mega-immigration would improve SS cash-flow by increasing the total of aggregate under-cap wages paid. But since it would overburden to the point of destruction hundreds of other government programs and functions it is probably not a good idea.

But yes, in a single-factor world where the only question is incoming SS funding, mega-immigration would improve that single factor.

[madrchsod]

12. yup.....

those in their 50`s are going to be screwed...

[MineralMan]

15. It is, except for the self-employed. For them,

it is a tax on profits. It works out much the same, of course, except that the self-employed pay the entire percentage, instead of just the part not paid by the employer.

It's a serious tax for the self-employed, that is often hard to pay. And yet, the self-employed get SS benefits on retirement, too.

[truebluegreen]

16. Good post.

BTW, that "people living longer" meme is one of those zombie lies: the correct comparison is not average life expectancy compared to the 1930s, because the figures from that era were skewed by a much higher infant mortality rate.

The right question to ask is, what is the average life expectancy after age 65, compared to the 1930s? And the answer is that there is hardly any difference, maybe 1.5 years at most.

Doesn't stop them from wanting to raise retirement age to 70 of course...but what they really want to do is avoid paying back the 3 trillion dollars the general fund has "borrowed" from SS.

[FogerRox]

21. Correct. Expectancy at age 65 for the bottom 50% of income eaners is flat

10 years ago Age 81, now 81.1, and if you break it down to bottom 40%, or Women, or minorities, expectancy is declining.

[kentuck]

18. Good point!

And true, in my opinion.

[FogerRox]

20. 100% accurate.

There simply nothing wrong with SS that a good economy wont fix.