Your employer pays half of your Social Security tax.
Since 1990 the TOTAL rate has been 12.4%, with the employee paying DIRECTLY no more than half, in other words 6.2% of their income.
Yes, one could argue that without the employer paying the other 6.2% our salaries would all be higher, but I doubt by 6.2%...
And yes, current projections show that the system will be only capable of paying 75% of the anticipated promised benefits in 2047, but recall that these are made using the same methods that predicted budget surpluses until 2020. Given we have been in deficit for most of the terms of President George W. Bush, it is safe to say that the projections cannot predict the future to any accuracy when there are extraordinary events (positive or negative).
Jack Grant is completely correct. FICA max (currently $90,000) also bears mentioning. If FICA operated exactly as you described it (aggregate deduction rate of 14% and no FICA max), it would forestall default of the system beyond the current estimate.
Not only do self-employed people (and they number in the tens of millions now) but it's a shell game anyway--every employer, every one of them, factors in their "contribution" in determining what they can afford to pay people, so ultimately it's coming out of the employee paycheck anyway.
Social Security isn't immoral becuase it forces people to save. Social Security is immoral, as currently structured, becuase it forces us to retire on the backs of our children whether they can afford it or not--and the burden we're putting on our children has grown greater every single generation, and is only going to grow worse still.
What's particularly selfish, in my view, are those who refuse to support transitioning the system to individually owned accounts--which was what was proposed from the beginning. Individually owned accounts would be easy, portable, transparent--and would STOP with the hideous burden we put on young people. And despite what some people disingenuously claim, it would NOT be too dificult for most people to figure out; it's very easy to structure a system that's safe and even simpler and more striaghtforward than the (wildly popular) 401(k) programs we have now.
Making the transition toward equity accounts--which is what FDR originally envisioned--will be a short-term financial hit. Long-term it's better for everyone, and it needs to be done.
When it comes to domestic policy, this is the great moral test of our generation. Will we continue to fund our own retirement on the backs of our children and grandchildren? Or will we finally complete the promise of Social Security and move toward the system of mandatory and voluntary self-supporting equities that it was always supposed to be? Will we do the right thing, or will we continue to kick the can down the street and leave it to our children to clean up the mess?
Because there's no doubt about it: this reform is going to happen. It's a matter of "when" and not "if."
Thing is, we don't even really support ourselves on the backs of our children - if Dad didn't have his private-sector pension and wasn't "lucky" enough to be wounded in World War Two (resulting in a VA pension), he'd never be able to make it - Social Security doesn't even begin to cover his needs. In return for a heavy burden on the younger generation, we get a retirement system which would, by itself, only allow us to starve slowly. Even if we can keep it going at 100% benefits forever, its not worth the effort.
The immorality of Social Security comes, in my view, from the taking of my money with a promise to return it essentially sans interest at a later date; this is theft, pure and simple.
We're pretty much stuck for a bit - we'll have to continue to shell out for current and soon-retirees for some time to come; but the only correct thing to do economically and morally, is to set the Social Security system on the path to eventual extinction...partially privatised SS accounts are the necessary first step in this.
You just set yourself your own rhetorical trap: "set the system on the path to eventual extinction" is a good way to let the left's worst demagogues go into disingenuous overdrive.
The simple truth of the matter is that when Roosevelt proposed the system, he proposed that over the following 30 years the system be slowly devolved to management by the states with a mix of mandatory and voluntary contributions to self-supporting equities. In other words, managed like a real pension system, with stocks, bonds, t-bills, and so on, mostly managed by the state.
This is NOT "extinction of the system." In another generation or two, we will still have Social Security. It's just that it'll be a real and honest pension system and not the rip-off-your-children system we have now.
Just by saying "partially privatized SS accounts are the necessary first step" in the "eventual extinction" of the program, you have just vindicated what the worst demagogues on this say: that your real goal is to throw widows and orphans onto the streets and have old people starving. Stop saying things like this, you give the rest of us a bad name, man.
Many Democrats (including Reid) have in the past spoken favorably about private accounts. The biggest objection I am hearing from the left lately isn't private accouts directly, but the $2 trillion dollar "transition costs."
The transition cost "is a myth" according to Arizona State University professor Edward Prescott, 2004 winner of the Bank of Sweden Nobel Prize in Economics, and Lawrence Hunter, senior research fellow with the Institute for Policy Innovation.
Like Prescott says, it matters if you us "economic jargon, not 'political accounting' jargon"
He makes a good point. It mostly is a matter of relabeling and shuffling debt that we'll be paying one way or the other.
And yeah, I love how some people were open to this idea until Bush was behind it. Talk about reactionary partisanship. It's just absurd. Especially as the administration hasn't even unveiled its specific proposals yet.
Your employer pays half of your Social Security tax.
So, if you are self-employed, BY DEFINITION, you will pay the entire 12.4% of the Social Security tax. That is what "self-employed" means, you are your own employer.
With respect to "fixing" the current system, I wrote a proposal on how to do so without incurring trillions of dollars of new debt at my weblog here.
If we're serious about creating an "ownership society" then it is time to put our money where our mouths are.
Mr. Grant,
Your point is noted. When I get up in the morning, I’ll fix this post to use your numbers. And, yes I do “Recall that these are made using the same methods that predicted budget surpluses until 2020.” In fact, it turns out that the “rosy” projections tend to more accurate reflect the way things turn out than either of the other projections. The current “rosy” projections show the economy growing fast enough that we never need to “fix” the problem-- as the problem isn’t there...
My real point with this post is to point out that Social Security isn’t going bankrupt; isn’t about to kill us all. If Dean opposes it for other reasons (he does), we need to have a common baseline for where we are...
Dean:
every employer, every one of them, factors in their "contribution" in determining what they can afford to pay people, so ultimately it's coming out of the employee paycheck anyway.
What every employer does is crunch numbers and come up with What they can expect to get from an employee. Call this number Zeta. Then the employer figures out the absolute maximum she can afford to pay for a given employee. We’ll call this number “Alpha” (This number includes the cost of Social Security contributions, medical, dental, paid vacation, and other non-salary considerations.) Then they figure out the absolute minimum a given employee will accept. We’ll call this number “Beta”
If Zeta > Alpha > Beta, The employee gets hired.
Even if the employer is relieved of their Social Security obligation, the employee has already signaled that they are willing to work for less than Beta*1.062. So the employee isn’t going to see it...
"Social Security is immoral, as currently structured, becuase it forces us to retire on the backs of our children whether they can afford it or not--"
Isn't a lot of government spending like that?
I'm not saying it's OK, but why pick on Social Security?
Theoretically, stealing from future generations might be excused because:
1) They're probably going to be living in a better economy than we do, so they can afford it
2) We spend an awful lot on our kids, so they owe us something in return
Wow, as one of those "young people" (I'm 26) I don't find 12-13% to be a hideous burden. Yes it's a noticable chunk, but it's not backbreaking. (And if it is you have money management issues beyond taxes and the Social Security trust fund.)
I think that social security is definately one of those "moral divides" between left and right. All the financial bs that both sides toss out is really only justifiation for something they believe should be done, regardless of cost.
The reason I support Social Security from a moral standpoint is the "security" end. I totally agree that people can invest better in private accounts. That's not the point. The point is that this trust fund is designed to specifically be an completely 100% conservative (as in "anti aggressive") investment, so that no matter what happens in the market or with bad luck or massive accounting fraud, that everyone is provided a minimal sustenance in their old age.
Now, that being said, I'm flexible on how that is provided. An SS style trust fund is working for now. Switching to "needs based" payments or upping the retirement age is something we can negotiate on. Or just having "welfare" regardless of age works for me as well. Though many on the right attack that, which makes me hesitant to switch to something like that.
The goal is simply "minimum standard" so that people aren't starving or homeless. I'm fine with work requirements (though some age limit on that I think would be appropriate) and various requirements and checks in place to cut down on abuse. I'm totally open to how this is accomplished, even private accounts, as long as there is a guaranteed minimum that people can live on.
The moral imperative is simply "taking care of the least among us" and "respect your mother and father". Yes there are problems, innefficiencies and abuses, but I'd fix those rather than scrap the whole thing. You can already have private accounts in IRA's, 401k's, and other investments. The purpose of SS isn't to be the best investment, only a completely secure one.
>Something to keep in mind is that if the US
>government decides not to pay off the holders of
>those treasury bills when the money comes due, the >US economy will collapse.
This is true, but only for non-US government holders of the T-Bills. For the US Government, "paying off" debt instruments is entirely an accounting issue. At the moment the Trust fund reaches its peak (ie when SS taxes equal SS payouts in 10 years or so), were the US Congress to dissolve the Trust, and roll the whole mess (SS, Trust, and all) into the general fund, and then net out the T-Bills against themselves (they would then be offsetting assets and liabilities of the general fund) it would make not a dime's worth of difference to how SS is handled going forward.
Without the Trust, we would, after that date, be paying for SS by cutting benefits, raising payroll taxes, issuing debt to private parties, or raising other taxes. With the trust, we would, after that date, be paying for SS by cutting benefits, raising payroll taxes, issuing debt to private parties, or raising other taxes. In 2015, if payroll taxes come up 10 billion short of paying for SS, with the trust, SS cashes in 10 billion in T-Bills by trotting over to the general fund and asking for 10 billion. Without the trust, SS covers its debts by trotting over to the general fund and asking for 10 billion. SS could be "saved" by raising payroll taxes - without the trust, just increase the existing tax; with the trust, create a "Trust fund solvency surcharge" which goes into the general fund and is then used to retire debt from the Trust. From the perspective of the taxpayer - same difference.
Greenspan's "plan" assumed that the government wouldn't just crank up spending on other programs to offset the additional revenues, and thus that the debt would be lower when SS when negative than it otherwise would have been. It failed, out of naiveté - government follows a "see cash, spend it" philosophy of financial management - the fiscal equivalent of the see-food diet. The only way to control it is to prevent it from seeing the cash in the first place. (A constitutional amendment requiring a popular vote for tax increases or new debt issues, like many states and localities have, would be a great first step to fiscal control.) Preventing SS from spiralling out of control requires the same - deny government access to the money - private accounts, whatever their flaws, do that. As for the real problem, Medicare, I don't have a clue on that one. Prescription drugs wasn't a step in the right direction, though.
Social Security, as presently implemented, is a (very slight) variation on a Ponzi scheme, and can't be "fixed" (even with that variation.) That the working population is falling, the retired population is growing, and that the Feds are trying to spend more and more are other factors that don't help.
What to do? Remove the caps on the amounts that can be invested in IRAs and 401Ks, for starters. Perhaps combine them into a "Human account", where you can deposit -- pretax -- what you like, invest it as you like, withdraw as you like, and pay taxes as you withdraw as if the proceeds were ordinary income, taxable in the year of withdrawal. Remove the "employer part" of the FICA, have it paid by the employee (who gets the offsetting raise.) There will be loud screaming from those who didn't know, and that's how it should be.
We need some kind of gradual transistion from Social Security to Human Account retirement; fifty years ought to suffice, gradual reductions in payments, starting in (say) twenty years, ending at zero in seventy years (two percent per year, not compounded, of the othersise payable benefit.) Excess income to Social Security (if any) over this seventy years can be used to retire a part of the Federal Debt.
Your employer pays half of your Social Security tax.
Since 1990 the TOTAL rate has been 12.4%, with the employee paying DIRECTLY no more than half, in other words 6.2% of their income.
Yes, one could argue that without the employer paying the other 6.2% our salaries would all be higher, but I doubt by 6.2%...
And yes, current projections show that the system will be only capable of paying 75% of the anticipated promised benefits in 2047, but recall that these are made using the same methods that predicted budget surpluses until 2020. Given we have been in deficit for most of the terms of President George W. Bush, it is safe to say that the projections cannot predict the future to any accuracy when there are extraordinary events (positive or negative).
So...
Be very careful when using "very rough" numbers.
Social Security isn't immoral becuase it forces people to save. Social Security is immoral, as currently structured, becuase it forces us to retire on the backs of our children whether they can afford it or not--and the burden we're putting on our children has grown greater every single generation, and is only going to grow worse still.
What's particularly selfish, in my view, are those who refuse to support transitioning the system to individually owned accounts--which was what was proposed from the beginning. Individually owned accounts would be easy, portable, transparent--and would STOP with the hideous burden we put on young people. And despite what some people disingenuously claim, it would NOT be too dificult for most people to figure out; it's very easy to structure a system that's safe and even simpler and more striaghtforward than the (wildly popular) 401(k) programs we have now.
Making the transition toward equity accounts--which is what FDR originally envisioned--will be a short-term financial hit. Long-term it's better for everyone, and it needs to be done.
When it comes to domestic policy, this is the great moral test of our generation. Will we continue to fund our own retirement on the backs of our children and grandchildren? Or will we finally complete the promise of Social Security and move toward the system of mandatory and voluntary self-supporting equities that it was always supposed to be? Will we do the right thing, or will we continue to kick the can down the street and leave it to our children to clean up the mess?
Because there's no doubt about it: this reform is going to happen. It's a matter of "when" and not "if."
That should have read, "not only do self-employed people PAY THE FULL AMOUNT..."
Thing is, we don't even really support ourselves on the backs of our children - if Dad didn't have his private-sector pension and wasn't "lucky" enough to be wounded in World War Two (resulting in a VA pension), he'd never be able to make it - Social Security doesn't even begin to cover his needs. In return for a heavy burden on the younger generation, we get a retirement system which would, by itself, only allow us to starve slowly. Even if we can keep it going at 100% benefits forever, its not worth the effort.
The immorality of Social Security comes, in my view, from the taking of my money with a promise to return it essentially sans interest at a later date; this is theft, pure and simple.
We're pretty much stuck for a bit - we'll have to continue to shell out for current and soon-retirees for some time to come; but the only correct thing to do economically and morally, is to set the Social Security system on the path to eventual extinction...partially privatised SS accounts are the necessary first step in this.
The simple truth of the matter is that when Roosevelt proposed the system, he proposed that over the following 30 years the system be slowly devolved to management by the states with a mix of mandatory and voluntary contributions to self-supporting equities. In other words, managed like a real pension system, with stocks, bonds, t-bills, and so on, mostly managed by the state.
This is NOT "extinction of the system." In another generation or two, we will still have Social Security. It's just that it'll be a real and honest pension system and not the rip-off-your-children system we have now.
Just by saying "partially privatized SS accounts are the necessary first step" in the "eventual extinction" of the program, you have just vindicated what the worst demagogues on this say: that your real goal is to throw widows and orphans onto the streets and have old people starving. Stop saying things like this, you give the rest of us a bad name, man.
Social Security needs to be FIXED, not DESTROYED.
The transition cost "is a myth" according to Arizona State University professor Edward Prescott, 2004 winner of the Bank of Sweden Nobel Prize in Economics, and Lawrence Hunter, senior research fellow with the Institute for Policy Innovation.
Like Prescott says, it matters if you us "economic jargon, not 'political accounting' jargon"
And yeah, I love how some people were open to this idea until Bush was behind it. Talk about reactionary partisanship. It's just absurd. Especially as the administration hasn't even unveiled its specific proposals yet.
I accept my rebuke from the Politiburo and will stick to the Party Line.
:o)
Your employer pays half of your Social Security tax.
So, if you are self-employed, BY DEFINITION, you will pay the entire 12.4% of the Social Security tax. That is what "self-employed" means, you are your own employer.
With respect to "fixing" the current system, I wrote a proposal on how to do so without incurring trillions of dollars of new debt at my weblog here.
If we're serious about creating an "ownership society" then it is time to put our money where our mouths are.
Your point is noted. When I get up in the morning, I’ll fix this post to use your numbers. And, yes I do “Recall that these are made using the same methods that predicted budget surpluses until 2020.” In fact, it turns out that the “rosy” projections tend to more accurate reflect the way things turn out than either of the other projections. The current “rosy” projections show the economy growing fast enough that we never need to “fix” the problem-- as the problem isn’t there...
My real point with this post is to point out that Social Security isn’t going bankrupt; isn’t about to kill us all. If Dean opposes it for other reasons (he does), we need to have a common baseline for where we are...
Dean:
What every employer does is crunch numbers and come up with What they can expect to get from an employee. Call this number Zeta. Then the employer figures out the absolute maximum she can afford to pay for a given employee. We’ll call this number “Alpha” (This number includes the cost of Social Security contributions, medical, dental, paid vacation, and other non-salary considerations.) Then they figure out the absolute minimum a given employee will accept. We’ll call this number “Beta”
If Zeta > Alpha > Beta, The employee gets hired.
Even if the employer is relieved of their Social Security obligation, the employee has already signaled that they are willing to work for less than Beta*1.062. So the employee isn’t going to see it...
Wow! You're strict - I was thinking that I was at risk of becoming and unperson and getting exiled to Cleveland....
Speak for your self kimo sabe. I'm 37. This is not my generation's test. It's the baby boomer's moral test.
We're not even close enough to the reins power yet. ;-)
Isn't a lot of government spending like that?
I'm not saying it's OK, but why pick on Social Security?
Theoretically, stealing from future generations might be excused because:
1) They're probably going to be living in a better economy than we do, so they can afford it
2) We spend an awful lot on our kids, so they owe us something in return
Wow, as one of those "young people" (I'm 26) I don't find 12-13% to be a hideous burden. Yes it's a noticable chunk, but it's not backbreaking. (And if it is you have money management issues beyond taxes and the Social Security trust fund.)
I think that social security is definately one of those "moral divides" between left and right. All the financial bs that both sides toss out is really only justifiation for something they believe should be done, regardless of cost.
The reason I support Social Security from a moral standpoint is the "security" end. I totally agree that people can invest better in private accounts. That's not the point. The point is that this trust fund is designed to specifically be an completely 100% conservative (as in "anti aggressive") investment, so that no matter what happens in the market or with bad luck or massive accounting fraud, that everyone is provided a minimal sustenance in their old age.
Now, that being said, I'm flexible on how that is provided. An SS style trust fund is working for now. Switching to "needs based" payments or upping the retirement age is something we can negotiate on. Or just having "welfare" regardless of age works for me as well. Though many on the right attack that, which makes me hesitant to switch to something like that.
The goal is simply "minimum standard" so that people aren't starving or homeless. I'm fine with work requirements (though some age limit on that I think would be appropriate) and various requirements and checks in place to cut down on abuse. I'm totally open to how this is accomplished, even private accounts, as long as there is a guaranteed minimum that people can live on.
The moral imperative is simply "taking care of the least among us" and "respect your mother and father". Yes there are problems, innefficiencies and abuses, but I'd fix those rather than scrap the whole thing. You can already have private accounts in IRA's, 401k's, and other investments. The purpose of SS isn't to be the best investment, only a completely secure one.
>government decides not to pay off the holders of
>those treasury bills when the money comes due, the >US economy will collapse.
This is true, but only for non-US government holders of the T-Bills. For the US Government, "paying off" debt instruments is entirely an accounting issue. At the moment the Trust fund reaches its peak (ie when SS taxes equal SS payouts in 10 years or so), were the US Congress to dissolve the Trust, and roll the whole mess (SS, Trust, and all) into the general fund, and then net out the T-Bills against themselves (they would then be offsetting assets and liabilities of the general fund) it would make not a dime's worth of difference to how SS is handled going forward.
Without the Trust, we would, after that date, be paying for SS by cutting benefits, raising payroll taxes, issuing debt to private parties, or raising other taxes. With the trust, we would, after that date, be paying for SS by cutting benefits, raising payroll taxes, issuing debt to private parties, or raising other taxes. In 2015, if payroll taxes come up 10 billion short of paying for SS, with the trust, SS cashes in 10 billion in T-Bills by trotting over to the general fund and asking for 10 billion. Without the trust, SS covers its debts by trotting over to the general fund and asking for 10 billion. SS could be "saved" by raising payroll taxes - without the trust, just increase the existing tax; with the trust, create a "Trust fund solvency surcharge" which goes into the general fund and is then used to retire debt from the Trust. From the perspective of the taxpayer - same difference.
Greenspan's "plan" assumed that the government wouldn't just crank up spending on other programs to offset the additional revenues, and thus that the debt would be lower when SS when negative than it otherwise would have been. It failed, out of naiveté - government follows a "see cash, spend it" philosophy of financial management - the fiscal equivalent of the see-food diet. The only way to control it is to prevent it from seeing the cash in the first place. (A constitutional amendment requiring a popular vote for tax increases or new debt issues, like many states and localities have, would be a great first step to fiscal control.) Preventing SS from spiralling out of control requires the same - deny government access to the money - private accounts, whatever their flaws, do that. As for the real problem, Medicare, I don't have a clue on that one. Prescription drugs wasn't a step in the right direction, though.
What to do? Remove the caps on the amounts that can be invested in IRAs and 401Ks, for starters. Perhaps combine them into a "Human account", where you can deposit -- pretax -- what you like, invest it as you like, withdraw as you like, and pay taxes as you withdraw as if the proceeds were ordinary income, taxable in the year of withdrawal. Remove the "employer part" of the FICA, have it paid by the employee (who gets the offsetting raise.) There will be loud screaming from those who didn't know, and that's how it should be.
We need some kind of gradual transistion from Social Security to Human Account retirement; fifty years ought to suffice, gradual reductions in payments, starting in (say) twenty years, ending at zero in seventy years (two percent per year, not compounded, of the othersise payable benefit.) Excess income to Social Security (if any) over this seventy years can be used to retire a part of the Federal Debt.