“unrelenting tyranny” is a bit strong; they aren’t effective enough to be unrelenting. Although they are giving it the old college try.
I used to be a Libertarian. Seriously. Then I grew up, spent some time out in the PMG REEL WORLD!!!1, and realized that economic liberty and civil liberty are intrinsically linked, and not always compatible. I choose civil over economic. Much as I’d really, really like it if the government didn’t take anybody’s money in taxes, I’d like it a whole lot more if nobody in the US died because they can’t afford to see a doctor. That’s why I vote Democratic. Added to which, it seems as though every time a Republican with an actual good idea shows up, he also carries around a lot of baggage about legislating religion, which is something I just can’t tolerate, no matter what. So that’s why I vote anti-Republican.
Just a quick point of clarification. What you’re talking about is the Social Security portion of FICA taxes, which for 2005 is capped at ~$89,700. There are two components of FICA, Medicare (~1.45% of your income) and Social Security (~6.3% of your income): the former is unlimited, while Social Security is capped at that figure (it’s upped every year).
The reason for the cap is directly related to the amount of benefits a person is expected to take in upon retiring. The Social Security Administration calculates what the approximate payout rate to retirees is going to be, and then backs into its cap. All of this is based on the principle that everyone receives the same amount of Social Security benefits. Or at least milllionaires don’t receive mammoth checks from Social Security every month. :)
Of course, raising the cap from $89,700 to whatever would equate to a middle class tax increase, so that pretty well explains why this would not be a popular solution politically.
This solution is similar to other patches for Social Security, including raising the retirement age or restricting benefits to certain incomes and so on. The key word here is “patch,” because it still relies on the existing Social Security system and does not (IMHO) address the fundamental problems of Social Security: we pay out as the money comes in, rather than actually saving the money in a bank account (or a “lockbox” if you prefer).
Neither am I.
Just a quick point of clarification. What you’re talking about is the Social Security portion of FICA taxes, which for 2005 is capped at ~$89,700. There are two components of FICA, Medicare (~1.45% of your income) and Social Security (~6.3% of your income): the former is unlimited, while Social Security is capped at that figure (it’s upped every year).
The reason for the cap is directly related to the amount of benefits a person is expected to take in upon retiring. The Social Security Administration calculates what the approximate payout rate to retirees is going to be, and then backs into its cap. All of this is based on the principle that everyone receives the same amount of Social Security benefits. Or at least milllionaires don’t receive mammoth checks from Social Security every month. :)
Of course, raising the cap from $89,700 to whatever would equate to a middle class tax increase, so that pretty well explains why this would not be a popular solution politically.
This solution is similar to other patches for Social Security, including raising the retirement age or restricting benefits to certain incomes and so on. The key word here is “patch,” because it still relies on the existing Social Security system and does not (IMHO) address the fundamental problems of Social Security: we pay out as the money comes in, rather than actually saving the money in a bank account (or a “lockbox” if you prefer).[/quote]
Many thanks for the clarification – I just pay the quarterly estimates, then think “sheesh! Where’d 28% of my income go??”
I should have been clearer: why not cap the benefits at the current highest level (and increase them as necessary to meet cost of living), but extend the Social Security tax to all income? I don’t know that I’d call $89,700 a middle class income in any part of the country (save possibly San Fran and NYC), and, even if you do consider it to be a middle class income, the tax increase is likely to be negligible (6.3% on the $30k you make above $89.700 is less than $2,000 in income.
And I agree, it doesn’t solve the fundamental problem of social security – social security is a pyramid scheme, in the end, and when the pyramid gets to the bottom, those of us down at the bottom are screwed. I’m 30 years old, and there’s no way I expect to collect anything from Social Security (and I’d be a fool to include any significant income from Social Security in my retirement plans). The only solution (which is now apparently supported by Bush, who ridiculed it in 2000) is a lockbox of some sort (whether privatized or not). the problem with the solution is the transition, which will make fighting the war in Iraq look cheap.
Ah well… A lad can dream.
And I agree, it doesn’t solve the fundamental problem of social security – social security is a pyramid scheme, in the end, and when the pyramid gets to the bottom, those of us down at the bottom are screwed.
The defining characteristic of a pyramid scheme is that you eventually run out of new members to pay off previous members. Applied to the Social Security system, that means the human race will go extinct. Right?
On a more serious note: the health of the social security system is simply health = spending - taxes, with the side note that if taxes get way too high (30%? 50%?) things start to go to hell.
Breaking things down:
spending change = population growth + benefit growth
taxes change = income growth = population growth + productivity growth.
Subtract out, and you get “the health of the social security system is defined by the difference between productivity growth and benefit growth.” There is no social security crisis; the entire system can be fixed by adjusting the retirement age to provide a retirement period that’s a constant percentage of lifespan. As an initial approximation, bump the retirement age a couple years - problem goes away.
And the high tax rate thing? Doesn’t happen; no evidence of significant problems at the tax rates we’re talking about.
Privitization doesn’t change a whit of this.
Your a Schwarzaneggerian Republican. :P
A tax hike is a tax hike is a tax hike.
$2K on ($89.7K + $30K) = is only a 1.6% hike on gross income, but it’s not immediately clear what kind of financial impact that would have. Don’t forget, the higher you go up incomes, the fewer and fewer people you have to pay for those increases.
Plus, employers do contribute (if not match) Social Security withholdings, so raising the limit would have both a consumer and business impact.
I believe Gore’s point was that he’d place our Social Security taxes in “lockboxes” which would guarantee their availability when we retired. Bush’s position rests on removing the lockbox and using private accounts (stocks, bonds, CDs, etc., etc.) for individuals to save without government assistance. In other words, it would guarantee the effect of interest (or, the time value of money) so that even at 2%, the savings would grow exponentially over the course of say, 30 years.
Although I’m not totally onboard with how you treat the change in taxes (productivity is inherently based on population size - how fast can 1 laborer create 1 unit of output?) and I don’t think you can dismiss population changes in a pay-as-you-go system, your idea that the system can be patched is worth analyzing.
If I understand your idea correctly, the retirement age (or at least the age at which Social Security benefits would begin) would be based on a fixed percentage of lifespan. So a U.S. male born today would live to ~ 77 years of age. At today’s retirement age (65, right?), that would be 12 years of Social Security benefits, or a percentage of ~84%. So if the life expectancy went up to 79, we would change the retirement age to: 79 x 0.84 = 66.
Some problems:
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Inflation and increasing benefits aren’t considered. Even if the number of payments is fixed, the payments themselves are not because of the effect of interest. The SSA always make some sort of cost of living adjustment.
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Productivity does not always increase. Obviously, it declines in periods of a recession. Even if it does increase during a recession (such as with this most recent recession), it forces the shedding of jobs and higher unemployment rolls because less people are needed to do a job that is in less demand. (Also, remember that the definition of a recession/downturn is linked directly to GDP, which is a pretty direct measure of productivity.)
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Life expectancy measures do not change rapidly, and are far outpaced by things like interest and population swells. According to this table (NCHS - 404 Error - Resource Not Available), life expectancies only changed 1.6 years (2.1%) from 1990 to 2000. In comparison, real GDP (which includes interest) grew from $7.1T to $9.8T in 2000 dollars. That’s a change of $2.7T (38%).
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Ultimately, this isn’t terribly different from the existing system. If it is different, then you’re forced to begin bumping up the retirement age. Moving up the retirement age isn’t a terrible idea, but at what point do you begin to get caught up on the Social Security? And because it’s only a patch, not a fundamental fix, you’re left to solve things by pushing up the retirement age: given that inflation completely outpaces life expectancy, you’re only delaying the insolvency of Social Security. One could conclude that you’d soon have a retirement age equal to your life expectancy.
Privatization addresses the fundamental problem of Social Security my moving it away from the pay-as-you-go system. Using the benefits of interest (even default-proof 30-year bonds earning 4% outpace the 0% you get from Social Security), privatization alleviates the constant pull of increasing benefits and longer life expectancy.
I acknowledge the significant hurdles in transitioning such a plan, but Social Security is broken and needs to be fixed dramatically.
Actually, productivity is measured per hour - dollars output per hour of input - so it’s independent of population size.
- Inflation is irrelevant as it changes both sides of the equation. “Increasing benefits” I included in the equation as the change in benefits per worker.
- Productivity does not drop in recessions - it actually increases a little, hilariously, as they fire marginal workers. Productivity, historically always goes up from technical innovation and learning by doing You’re thinking of income.
- You need to factor out population growth out of GDP if you want to compare income growth per-worker to population growth. Income goes up more, but population growth is non-trivial.
Privatization addresses the fundamental problem of Social Security my moving it away from the pay-as-you-go system.
No, it doesn’t, unless by “addresses the fundamental problem” you mean “throws a ton of money at it.” To privatize the system, you have to pay a transition cost of a few trillion dollars. For the same price, of course, you could also fix the current system pretty much indefinitely.
Oh, I don’t want to be cranky, but your basically reciting AEI talking points, which are wildly inaccurate.
Obviously not (although with this administration, you never know…) :) However, as the percentage of the population above the retirement age expands, the burden on those of us still working gets larger and larger, on a per-worker basis.
While the easy answer of making the retirement age higher obviously makes sense intellectually, it doesn’t fly politically. At all. Complete lead balloon. Ask anyone close to retirement – and the old geezers like Jeff do vote in high percentages – about pushing back their retirement, and they’ll laugh in your face.
Also, I haven’t seen anything written on this, but what impact would extending the retirement age by a few years have on unemployment? A fair number of jobs are created by folks who are retiring (and new folks being hired/promoted into their place). Wouldn’t extending the retirement age bring a big bubble in unemployment where X number of jobs suddenly wouldn’t be coming available for however many years you extended the retirement age by?
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Erm, the entire point of adjusting the retirement age is to keep the retired section of the population constant.
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Oh yes, Reagan was actually thrown out of office for raising the retirement age back in the 1980s and the GOP suffered massive electoral losses for coming up with it then. Very difficult.
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There’s not a fixed number of jobs to go around, you know.
Jason, these are my own ideas.
Actually, productivity is measured per hour - dollars output per hour of input - so it’s independent of population size.
You’re right: productivity is indepedent of productivity. However, I think you’re confusing efficiency with productivity. Productivity is the measure of how many units of a good a laborer can produce, while efficiency is a measure of how much cost is necessary to produce a unit of goods.
Productivity is something like this: in 2003, Jason McCullough produced 1,000 posts on Qt3 in 500 hours, but in 2004, Jason produced 1,000 posts on Qt3 in 250 hours. Jason’s productivity doubled.
Efficiency would be: in 2003, Jason McCullough produced 1,000 posts on Qt3 at a cost of $3000, or $3 per post, but in 2004, Jason produced 1,000 posts on Qt3 at a cost of $1500, or $1.50 per post. Jason’s efficiency doubled.
Responses:
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Inflation is relevant. Remember, makes adjustments yearly for the cost of living (inflation): $1 taken from me to give to my grandpa will not be worth the same as $1 given back to me when I retire in 40 years. If you factor in inflation through increasing benefits, that’s fine.
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Productivity is an odd little duckling that’s more closely correlated to technology shifts than it is to economic/business cycles. From shortly after WW2 to 1975, productivity grew at a nice 2.7%. From 1975 to the Internet boom of the mid 90s, productivity slowed to 1.7%. You’ll also note that productivity was moving nicely until just this past quarter, when it dropped to 1.9% from previous highs of 3% to 4%. Yet most economists see this economy as growing.
Even when productivity improves during times of recession (as I acknowledged earlier did happen in the 2001 recession), the shedding of marginal jobs results in higher unemployment, thus depressing Social Security revenues. Your model does not account for these changes.
- The U.S. population grew 13% from 1990 to 2000. GDP was nearly triple that.
On privatization, let me re-quote myself:
Jason, it appears you and I disagree on the correction solution to fixing Social Security. I acknowledge the risk and significant cost of changing Social Security, but I believe it’s the best solution to correct it. I suppose we’ll have to agree to disagree.
Practical men, who believe themselves to be quite exempt from any intellectual influences, are usually the slaves of some defunct economist.
Yeah, I’ve got to stop posting drunk, productivity uses output.
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Inflation is not relevant - it adjusts both sides of the equation, remember? As long as the SS benefits are COLA-adjusted it’s basically real-dollar constant from year to year.
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I have a hard time believing you’re serious about the recession thing. “Total social security revenues drop a bit in recessions” is not a refutation of generational timeframe model.
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If you GDP by population, you get that 1/3rd of the GDP gain in that time period came from population growth, 2/3rds from per-capita income growth. Which was my point - population growth is significant.
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The asset you buy with social security taxes is the tax revenue from tomorrow’s workers - basically, a constant percentage of output in 30 years. In a privatized system, the asset you buy with your investments is…a constant percentage of output in 30 years.
There’s no “hurdle”; it’s just inaccurate math. The existing SS system would look pretty good if you dump a few trillion dollars in “transition costs” on it, and then don’t include those costs in the future rate of return.
Practical men, who believe themselves to be quite exempt from any intellectual influences, are usually the slaves of some defunct economist.
Thank you Mr. Keynes.
I’m a liberal (Fear me!), therefore I tend to vote for democratic candidates.
I don’t want to be limited to or by established, traditional, orthodox, or authoritarian attitudes, views, or dogmas. Now that’s a liberal stance.
I believe in tolerance of and respect for other ways of thinking, living and practicing religion besides my own. I am always open to new ideas for progress, and tolerant of the ideas and behavior of others.
I am broad-minded.
I believe that church and state should be completely separate and that a party should not endorse, whether overtly or implicitly, one religious belief or religious values system over another. No money connections of any kind should exist between religious groups and government.
I believe in religious syncretism as opposed to exclusivity. (“our gods are actually the same god with different names” vs. “our god is the only god and your prophet is false -your group are idol worshippers”)
I believe that abortion is a fact of life. People who want to curtail it or eliminate it are not considering the realities of why abortions are performed.
I believe that, when one feels it necessary to do so, questioning authority or petitioning against a part of “the system” which isn’t working (or has failed or is producing more negative results than positive), in any fashion short of violence, are not only constitutional rights but responsible acts of civic duty.
I believe that environmental concerns (conservation, preservation, protection, etc.) come before the concerns of businessmen who would exploit the wilds for profit. I believe that necessity, not greed, should dictate how we use our own natural resources.
I believe that America should lead the world, but by peaceful example and economic example and creative example, not by flaunting military strength. I believe that a “preemptive strike” war/geopolitical policy is dark age thinking. When we lean towards the former, we improve and shine. When we lean towards the latter, we regress.
I actually have the audacity to believe that health care should be free for all Americans. Short of that, I will vote for the party who seems most dedicated to meeting the health care needs of citizens rather than the business/profit concerns of drug companies and insurance companies.
I feel that the republican party has become one of arrogance and hubris and in falling into that trap they have lost their soul. I believe that democratic party has become lazy and that they have let their core principles become diluted by time, fuzzy debate/argument and inattention. The party of democrats has very nearly lost its soul as well.
Nevertheless, democratic candidates tend to stand for the things that I believe. We don’t always agree, as platforms shift and issues come and go, but there is little question which party I will vote for when it comes right down to it. (Btw, I have voted “independent” a couple of times.)
In spite of my support for Kerry, I am not a democrat. This past election was particularly polarizing, so I think it’s a mistake to make guesses about peoples’ political leanings based on who they supported. Kerry is the first Democrat that I’ve ever voted for on a presidential ballot.