‘It’s a formidable season over the financial situation of Social Security.
This annual event is always triggered by releases Program fiduciary report, occurred on Friday. As is typical, the release sparked a wave of journalistic and political alarm over what would happen when the program’s reserves (that is, its two trust funds) were exhausted. I was.
Trustees are now predicting it will happen in 2033. At that point, they say current income from payroll taxes will be enough to cover 80% of currently scheduled benefits, more than projected in last year’s Board report. He is one year early.
A year’s worth of variation in the reserve depletion date does not cause a warning.
Kathleen Romig, Social Security Specialist, Center on Budget and Policy Priority
This sounded dire on the surface, and major news sources piled up. “Social Security Fund Crisis Coming in 2033, US Project The Washington Post reported.Responsible Federal Budget Board descendants of late private equity billionaires and The Enemy of Social Security, Peter G. Petersonin response to the trustee’s report,Social Security is 11 years from bankruptcy.“
The annual report gave urgency to a number of proposals to “fix” Social Security. Most such proposals amount to profit cuts. It will result in measures such as raising the retirement age, reducing payments to wealthier beneficiaries, reducing cost of living increases, and recalculating lifetime earnings.
Some even advocate starting to cut benefits now, perhaps because it would be easier for retirees to put a strain on retiree households if the burden spread over a decade rather than all at once. increase. This theme was highlighted by the CRFB, who argued that “the time to save Social Security is running out.” Acting sooner or later, the commission said, “gives workers time to plan and adjust.”
So at least we need to take a closer look at what the trustees actually said so that we can better understand the meaning of the “reform” proposal. This is especially true as aspiring reformers generally glide over the surefire way the system will provide all the income it needs to fully cover its obligations. Raise Social Security taxes to wealthy Americans who receive Social Security contributions, not ordinary workers. Free pass their full duty to the system.
First, let’s examine the impact of changing the trust fund depletion forecast year by one year. As her Kathleen Romig, social security expert at the Center on Budget and Policy Priority, pointed out on twitter: “A year’s worth of fluctuations in the reserve depletion date is no cause for alarm, and vice versa no cause for celebration!”
For more than a decade, Romig said, “All Board of Trustees reports estimate reserve depletion dates between 2033 and 2035.” Most of this year’s changes are due to technical factors, not because the program’s “continued financial deterioration,” as the CRFB claims, he said.
This includes changes to the program’s forecasting methodology and updates to the evaluation period. The latter is his 75-year span over which the system’s actuary calculates its finances. Each year the period advances by one of his, thus removing low deficit years and adding high deficit years. This widens the 75-year gap, ”he wrote Romig.
Big changes come from the system’s estimates of inflation, productivity, fertility, and other demographic factors. Trustees project higher inflation, lower production and lower fertility over the next 10 years and 65 years thereafter. But these estimates are clearly speculative, as they are based in part on a snapshot of the current situation.
Excessive concern about the financial position of Social Security never ceases to generate Rococo proposals for reform. A persistent idea is to raise the retirement age.I Dismantling this plan in February, When the CRFB did so under the guise of promoting “productive aging” by removing the “work and savings inhibitors in the current programme.” (Translation from CRFB gibberish: “Making working people work longer.”)
As I wrote at the time, the proposal to raise the retirement age is based on the premise that older workers will probably continue working until they die. Treat retirement itself as an alternative. ”
This means that workers are being tricked into applying for Social Security.
However, these proposals do not take into account differences in life expectancy arising from ethnic, income, and educational factors. Simply put, they would disproportionately punish blacks, low-income, poorly educated workers, and those whose working lives were spent in physically demanding jobs. is summed up in telling others to smoke it.
Another permanent plan is to divert Social Security revenues into investments that are ostensibly more valuable than the Treasury bills that the program is legally obliged to withhold in its reserves. . Trust funds holding these reserves now exceed $2.8 trillion.
The latest iteration of this idea is being developed by a group of Senators led by Bill Cassidy (R-La.) and Angus King (I-Maine).
Details of Cassidy-King’s proposal are scarce, but what is known is that it would involve about $1.5 trillion in borrowed funds to invest in the stock market, real estate, and other investments currently closed to the system. including creating a “sovereign wealth fund” of
Theoretically, these investments should, over time, generate enough income to repay the loans with interest and contribute the remainder to the Social Security Reserve.
Fans of investing in the social security stock market are rule of thumb and in the long run the market produces an average annual inflation rate of over 8%. Over the past 100 years, the benchmark Standard & Poor’s 500 Index has returned an annualized rate of 7.51%, while the system’s most recent purchase (June 2022) was a US Treasury with an average yield of 3%.
So the proposal looks simple. In the real world, it’s nothing. It’s all too easy to be fooled into believing in the ‘free lunch’ fantasy of the stock market. National Commission to Maintain Social Security and Medicare.
first, As I have pointed out in the past, the stock market’s actual yield over a period of less than a century is highly volatile. The S&P 500 has a 45-year consecutive inflation-adjusted compound annual growth rate ranging from 4.57% (1964-2008) to 8.27% (1975-2019).
Then there are the political implications of investing government money in corporate stocks. At a hearing in 1937, Senator Arthur Vandenberg (R-Michigan) told Social Security official and future Commissioner Arthur Altmaier to invest in the reserve, which was then expected to grow to $47 billion. I asked how you proposed
“You can invest in US Steel And some of the big companies,” suggested Altmeyer.
“He just threw up his hands in holy terror,” Altmaier recalled years later. “That’s socialism!” exclaimed Vandenberg.
In today’s volatile political environment, investments in the stock market are likely to be overseen and questioned by the busy legislature.
Does the investment manager consider “ESG” in its selection? (These are the environmental, social and governance criteria some fiduciaries use to judge investment prudence. ) Red State politicians are so campaigning against the very idea that this is happening that they have boycotted the management companies that use them.potential cost of hundreds of millions of dollars in revenue.
The truth, as almost all social security professionals know, is that you don’t need any elaborate schemes to achieve yield. The thing is simply to remove the payroll tax cap and apply it to investment income.
This year, the tax will be capped at 12.4% of total wage income, up to $160,200, taxing employers and employees equally. Investment income such as capital gains and dividends is fully exempt. This is an underappreciated workaround enjoyed by the 1% of people who, on average, receive about half of their annual income from these sources.
To see how this works, consider that this year’s maximum payroll tax (taking into account both the employer’s and employee’s burden) is $19,864. For example, for her 1% who collects $600,000 in wage income, that tax is only his 3.3%, not hers 12.4%. That he said if $600,000 was only half of the taxpayer’s income and the rest came from investments, the effective tax rate would be just 1.66%.
This represents the most effective means of strengthening social security. Removing the wage cap and adding his 6.2% tax on investment income would eliminate the entire projected earnings shortfall. According to the American Academy of Actuaries.
In fact, these changes provide enough headroom to accommodate some long-overdue improvements. Specifically, it raises the living spouse’s benefits from 50% of her current to 75% of her deceased spouse’s benefits, which counts as eligible income for five years of childcare. Currently counted as zero revenue.
There’s a reason such obvious solutions are discounted by policy makers. Because it takes a toll on the congressional patrons where they live. It is much easier to push the burden of retirement benefits onto the middle- and low-income earners. They don’t have a political megaphone like the wealthy.
The most offensive of the reform bills swirling in Washington is that America’s working class is easily fooled into thinking these solutions are painless. Gradually raise the retirement age — why is everyone living longer, what’s wrong with that? Invest Social Security in the stock market? Wealth will just flow in. Start cutting your profits now. who will really notice?
Let’s not miss that the promoters of all these proposals promise to affect only young workers. where’s the justice in that?
There is only one basis for reducing Social Security benefits. It’s all about building walls around the wealth of the rich and making everyone else pay.
This story originally appeared los angeles times.