How to Change Social Security to Reduce Future Public Debt: Cut FICA

[Hannah Bell]

To get why this works, you need some background info:

1. OASDI = Old Age, Survivor's & Disability Insurance, i.e "Social Security".
2. It's actually two accounts: one is OAS, & one is DI.
3. OAS is still collecting more than it pays out & is projected to keep doing so past 2018.
4. DI is currently paying out more than it collects & is paying the difference using transfers from OAS.

http://www.ssa.gov/OACT/TR/2009/IV_SRest.html#271967

Here's the fix:

Certain opponents of Social Security claim their goal is 'sustainable solvency' which is in practice defined as reducing the flow of funds from the General Fund to Social Security over the long term. In a previous post I pointed out that straight benefit cuts do not have this effect, and rather paradoxically actually serve to increase such obligations over the long term. Which suggests that if we want to do more than shift Public Debt obligations around in time but actually seek to reduce them there is only one short term solution.

Cut FICA taxes. Give workers and their employers a mild tax break.

For example lets say we cut the current FICA tax by 0.2% of payroll and diverted 0.3% of what remained to the Disability Insurance component. The end result would be a 0.5% of payroll cut to OASI and a 0.3% boost to DI. The latter would immediately put DI very, very close to long term actuarial balance while the former would mean slowing the rate of growth of the OAS Trust Fund (which opponents believe is just a unfunded debt obligation and no asset at all). This in turn would reduce the ultimate peak point of Trust Fund balances by limiting total interest that would have accrued to the TF.

Over the short run this increases the needed draw on the General Fund in just the same way that pre-paying your mortgage does. But over the long run it saves the General Fund plenty. And the extra flow could be easily financed by a small wealth tax, or simply by tapping a little of the revenue gained from the expiring tax cuts.

If the Peter G Peterson's of this world are REALLY believers in intergenerational equity and keeping debt on our children and grandchildren to a minimum they can do so by cutting taxes paid by workers now and doing an early repayment of the money they have been borrowing. Time for the billionaires to show whether they are seriously concerned about 'fiscal responsibility' or simple welshers on their debt obligations, time for them to put up or shut up. Show that they are willing to actual share in the shared sacrifice they insist that workers should take...

This is more polemic than serious policy proposal, but it works. It fixes DI and simply brings forward the trigger for the mild increases in OAS that will still be needed a decade plus out. But the overall economic and political strain created by a bigger than necessary Trust Fund would be reduced and workers would get a small but real tax cut in the interim, so really it is kind of a win/win. For everyone but the billionaires. Which is why I don't expect it to come to pass.

http://www.angrybearblog.com/search/label/social%20security

[Sherman A1]

1. Interesting

I don't pretend to understand the math on a quick read and it is 2:45 am for me here, so that ain't gonna happen. But I suspect an idea worth discussing.

My solution is to simply cut defense by some 50%.

Regulate the banking industry (I would prefer doing so into the dirt, but that might be a bit excessive).

Revoke this corporate personhood thing that seems to have developed

Expand unions through EFCA

Single Payer Health Care for everyone.

Incentives for wind & solar power

Some big changes to our way of doing biz, but I think in the long run will make us a better nation.

[Hannah Bell]

2. The slight reduction in SS taxes & the slight increase in the portion allocated to DI

= earlier repayment of the SS Trust Fund from INCOME TAXES (60% of which are paid by the top 5%). The bonus is a reduction in future debt burden.

The writer's point is, the people pushing the "debt crisis" & "social security crisis" memes are damned liars -- their concern isn't the size of the debt.

[Scruffy1]

3. But thats not the problem

The real problem is that only a small percentage of "income" is taxed for OAS and DI. Ask yourself how much social security is paid on multimillion dollar bonuses, inheritances, dividends, interest, income over $100,000, capital gains, and perks. The correct answer is zero. This means that only 6% of the total income is taxed for social security purposes. Gee ain't it great to be in the ruling class.

[Hannah Bell]

4. which is why pressure to force CAPITAL to repay the Trust Fund is job one.

The top 5% pays 60% of income taxes, & much of it from CAPITAL INCOME.

Rescind Bush's tax cuts on the top 5% & use the new revenue to redeem the SS bonds as they come due = thirty-plus years of fully-funded SS.

[fasttense]

5. Cut taxes, cut taxes, cut taxes.

Do you people know anything else? You can NOT reduce your income and expect your expenditures to magically drop or loans to pay themselves. It is impossible to take in less and be able to continue to pay off the bills.

Just more right wing justification for a stupid idea. Leave Social Security alone. We have already paid for it and we better get it.

[Hannah Bell]

6. you don't get it. we've overpaid for 30 years. that's why we have $2.5 trillion

worth of iou's in a trust fund.

& that's why the trust fund needs to be repaid, out of income tax (60% of which is paid by the top 5%, a large % out of CAPITAL income, not wages), sooner rather than later. "Later" tends to = "never" in practice, & there are plenty of capitalists who'd prefer it not be repaid -- at least, not by them.

if you want to get your SS, you'd best support repaying the Trust Fund from income taxes at the top.

[MadHound]

7. No, we have 2.5 trillion of IOU's because starting with Reagan

There has been a concerted effort on the part of both 'Pugs and Dems to raid the SS trust fund in order to balance budgets, pay for pork and generally spend like a drunken sailor.

[Hannah Bell]

9. no. any & all social security taxes collected that aren't paid out to recipients MUST,

per the original SS legislation, be borrowed into the general budget in exchange for federal securities.

Nothing has changed in this regard since SS was created. There was no "raid".

The ONLY thing that changed was they started to tax workers WAY more than needed to fund current retirees, building up a bigger & bigger surplus every year, that, by law, HAD TO be borrowed into the general budget, in exchange for securities, which were parked in the trust fund. which ARE the trust fund.

if you don't collect the extra SS taxes, you can't borrow them.

until 1983, SS had been funded at rates that maintained about one year's surplus in the TF (also required by the original legislation, though there'd been some underfunding immediately prior to 1983, partly a result of reagan's recession = lower collections).

From reagan to bush II, that ballooned to almost five times the legal requirement. Thirty years of excess tax collections + interest.

i think what throws people is that they buy into the starting assumption that paying extra ss tax & "saving" it, as you would in a bank, is possible, or does anything at all to ensure future retirees more secure SS.

It isn't, & it doesn't. The whole idea is a scam. The only reason it's a good idea to have even one year in a "trust fund" is to ensure there's enough time for the requisite politics should it be necessary to raise ss taxes.

RETIREES ARE ALWAYS ULTIMATELY FUNDED BY CURRENT WORKERS - WHETHER THROUGH SS, PRIVATE PENSIONS, OR POOR FARMS.

An elaborate financial labyrinth has been erected to disguise reality, but this is indeed the reality.

[Statistical]

10. What? A complete misunderstanding of economics.

So SS has $2.5T fund.
What sense would it make to keep it in a lock box earning no interest?

Say we never used funds from SS

In return that $2.5T not loaned to General fund would have resulted in $2.5T MORE in general public debt.

Instead of paying interest to ourselves we would pay interest to China?

It would be like having $10,000 in checking account but $50,000 in CC debt and you don't want to pay down the CC debt because doing so would result in you losing the "trust fund". So instead you pay more in interest to CC company to keep your $10,000 earning 0% interest.

Keeping the SS as a pile-o-cash would only makes sense if US had no national debt.

[Hannah Bell]

11. kick

[blindpig]

8. Damned straight...

Gimme back my money, suckers. Now.

k&r

[Hannah Bell]

12. kik