Tuesday, December 11, 2007

Where Does John Edwards Stand on Social Security?

Barkley accuses John Edwards of drinking the Kool Aid, while Phillip Elliot praises Mr. Edwards for “real leadership” thusly:

Democrat John Edwards yesterday criticized rival Hillary Rodham Clinton, saying candidates who seek the White House should take strong, clear stands on difficult issues like Social Security. Clinton has said she doesn't want to put forward a specific plan now to shore up Social Security, but would wait for recommendations from a bipartisan commission because any plan will need the support of Democrats and Republicans to be enacted. Asked about her stance at an AARP-Divided We Fail lunch on health and financial security, Edwards told seniors: "If you want to be President of the United States, you should lead. Leadership means taking clear, strong positions for the American people. ... I've said very clearly what I would do, not said I'm going to wait and figure this out later."





The last quip seems to confirm Barkley’s suggestion that Mr. Edwards has fallen for the GOP spin that the Social Security system is in imminent danger. We in more of an imminent danger of a mushroom cloud over Manhattan from an Iran nuke that a Social Security meltdown.

But I’m going to try to be fair to Mr. Edwards by asking what he means by this alleged very clear statement of what he would do. It would seem his policy position is basically status quo with the exception that he’d lift the payroll caps. That’s it! And Phillip Elliot calls this leadership? Fine – Senator Clinton hasn’t exactly stated where she’d change the status quo either. OK, the GOP debates are incredibly stupid on just about every issue- but if this is all we Democrats have got, maybe I should go back to watching my Atlanta Falcons pretend to pay football. Ho-hum!

But to be fair – I’m sort of a status quo bear when it comes to this issue. Next topic – please?


29 comments:

rosserjb@jmu.edu said...

pgl,

It is unfortunate that Hillary is not just defending the social security status quo, but opening the door to doing something proposed by a bipartisan commission. That could be worse than anything Obama or Edwards want to do. Of course, both of them are pushing lifting the income cap for taxation, with Obama getting quieter and Edwards louder recently over this matter. Again, I have pointed out that one will not be able to get just an income cap lift in reality. The Republicans will demand blood.

Barkley

ProGrowthLiberal said...

Barkley - a fair point. Of course, my bipartisan committee would have Peter Diamond, Kent Smetters, Andrew Samwick, and Brad DeLong on it. If that's what Hillary has in mind, things won't go too far astray. But if it's Lawrence Lindsey teamed up with Robert (no relation to Paul) Samuelson, we're doomed!

Anonymous said...

If therre is no real crisis in regards to social security, which I aggree seems to be correct, then why is any solution an acceptable response to the issue? I'd be more impressed by a candidate that come right up front and acknowledges that the ploy is to scare the public into spending more money fruitlessly in search of a cure for what ailes social security. Nothing ailes social security beyond the political establishment that would like to see that the Trust Fund remains the means by which every other budgetary abuse is shrouded from scrutiny. The Edwards-Obama solution only further support for the misuse of social security funds
by making yet more funds available for that purpose.

Anonymous said...

samwick and diamond?

creators of rube goldberg plans to destroy social security to save it?

like i keep saying, we need some education here.

Anonymous said...

jack is right.

if it ain't broke, why fix it?

Anonymous said...

I can find no words of Sen. Edwards suggesting tinkering with Social Security and I can infer none from his stated plan for modernizing the social contract (see: http://tinyurl.com/2rsj9o). In this plan he speaks of creating universal (and portable) retirement accounts in addition to Social Security and affordable universal health insurance.

ProGrowthLiberal said...

chutedem - I think you are right. Edwards does seem to be opposed to tinkering with Soc. Sec. I'm opposed to tinkering with it to. My point is this. If (as coberly & jack say) it ain't broke - then no tinkering is needed. But then what is the big fuss about. Let's move onto other topics like how to address health care costs and the general fund deficit. In other words, drop the flying feces talking points of the GOP and move onto today's real problems.

Eleanor said...

Once again I am confused. How important is the federal government's deficit? The government ran a huge one during WWII and survived and paid off the debt. I would agree that spending money on war is a terrible waste today. Would a deficit run while rebuilding America ala the Apollo Plan be a bad idea?
The trade deficit bothers me, because it says we don't have enough good jobs in the US; and private debt is disturbing, because it says people aren't making enough money. My understanding is corporations have to avoid saving money, because money makes them attractive to raiders.
Anyway, many kinds of debt, not all the same and not all (it seems to me) equally bad.

Anonymous said...

pgl

maybe i am not keeping up, but it seems to me one of today's real problems is republican talking points.

Bruce Webb argues quite well that the "need to fix Social Security" will so completely vanish in a year or two that the problem will just go away.

i tend to believe the big liars will either just work twice as hard to "fix" social security before then, or go on with their lies after then:

i don't see much evidence that the congress will do anything rational, unless the people force them to.

that means either the people need to understand there is no problem, or they just need to be emotionally aroused about the theft.

as for edwards obama and hillary... who knows what they are up to?

Eleanor said...

On another topic, it's nice to see what the blog members look like, but I miss Joan Robinson and Karl Marx. Marx, because you don't see that kind of uncompromising beard these days, and Robinson because she's a woman and (apparently, I don't know enough to be sure) a remrkable economist.

Bruce Webb said...

Well Coberly covered the bases.

I remain frankly baffled at the deference Andrew Samwick gets on this topic. I understand professional courtesy and he seems like a nice guy but his Social Security plan is profoundly anti-worker. Moreover he is selling it with a false premise.

My first encounter with Prof. Samwick was at DeLong's place in 2005. He laid out a version of the Liebman-MacGuineas-Samwick Non Partisan Social Security Plan that started with the plain assertion that Social Security faced a 3.5% payroll gap. Which was a little baffling to me given that the standard 75 year window showed a 1.92% gap. I challenged him with the immortal words "Whence 3.5% Samwick?" and he in comments and Brad by e-mail explained that he was referring to the gap over the Infinite Future Horizon. Well I was gobsmacked, in years of reading the Reports I had never heard of such a thing, but sure enough on going back to the Reports I found that this new measure had been slipped into the 2003 Report. It had never previously been necessary to view solvency in the light (or lack thereof) of heat death of the sun, yet suddenly that became the proper perspective, so much so that you didn't even have to qualify it. Nope the payroll gap simply was 3.5%.

And a little poking around revealed why. Samwick's (and Obama advisor Liebman's) Social Security plan called on workers to make a total of 5.2% in concessions in the face of a 1.92% current payroll gap and didn't promise a materially better result (see Table 1). How could you possible sell LMS given those numbers? Well it would help if you could restate the gap to 3.5% by introducing a new measure. At the time Infinite Future made its way into the Report Samwick was serving as Chief Economist on the Bush Administration Council of Economic Advisors ("where his responsibilities included Social Security") and as such had the means, motive and opportunity to introduce this profoundly misleading statistic into the record. And DeLong seemed to be in on the con.

Infinite Future is the equivalent of fortune telling, there is simply no utility to trying to project economic performance to the 33rd century and beyond and you can only conclude that this measure was put in place so as to allow 'reformers' to use scary numbers like 3.5% of payroll and unfunded liability of $14.7 trillion instead of the standard 75 year window 1.92% (then) and $4.7 trillion.

"Of course, my bipartisan committee would have Peter Diamond, Kent Smetters, Andrew Samwick, and Brad DeLong on it. If that's what Hillary has in mind, things won't go too far astray"

pgl I haven't laughed so hard in days. Indeed why not turn over custody of the hen house to the foxes?

In seriousness my reading of Hillary's proposal was that she actually has a grasp of the numbers in play and was proposing a commission to examine the financing of the so-called 'entitlement' programs and the general fund in context which would reveal that Social Security was fine, that the problems with Medicare were shared with the overall medical care system and that we need to address the General Fund on its own. Which would be hard to explain in the context of a 10 second answer in a debate that was playing under 'gotcha' rules.

LMS would achieve some worthy policy goals but all financed out of the pockets of workers with most benefits flowing to the interest of capital. It is manifestly inequitable. I for one will agitate to keep both Liebman and Samwick as far away from this particular policy table as possible. And that might include DeLong who is a little soft on this to start with.

J.Goodwin said...

The discussion of whether we should be using a 75 year or infinite timeline to assess the solvency of an income redistribution program is ridiculous.

Social security as a program was intended to redistribute current income from current workers to current non-workers.

Why are we asking current workers to pay for future non-workers who may not ever exist?

This isn't a retirement plan, there are no defined benefits and no defined contributions, this is pay as you go. Each year an assessment is made of what the required benefits are to provide for the welfare of current non-workers, and an accompanying assessment should be made as to how to best provide for that need from the current earnings in the common weal.

Talking about it as if it were a retirement plan, acting as if we need to use actuarial accounting to deal with "problems" on a distant horizon is all just part of the scam to pervert the system and turn it into a tool to redistribute current income from the lower and lower middle class (in this society that considers those who earn from 50k to 500k a year to be middle class) to corporations and other top end earners who receive the lion's share of the benefit from current federal expenditures.

Tell me again, how can I pay to upgrade my television remote that doesn't properly function as a beard trimmer? My beard might get completely out of control in the next 75 years, so clearly this is a pressing matter.

rosserjb@jmu.edu said...

pgl,

Your "ideal bipartisan commission" amounts to the gang that testified before Congress in 2005, none of them really willing to say that there is no problem. Rather they all had their pet plans to "fix it." I would agree that their plans, like the lifting the income cap proposal of Obama-Edwards, are not necessarily terrible. But, again, just because something comes out of a bipartisan commission (and I think Samwick is the only GOPster in that group) does not mean it will get through
Congress without revision, and, again, the GOPsters there want blood.

More realistically, any bipartisan commission will have some people from Congress on it, including GOPsters. That is just the way these things work. And, of course, Kent Conrad has already been cooking up his own such commission, to be stacked with people who all think that "there is a crisis; we must do something."
Bah!

To several folks regarding Edwards. I have not read his website, and maybe there he is proposing not to do anything to ss. If so, then why is he blasting Hillary for not proposing something, and is he or is he not pushing lifting the income cap for taxation like Obama is?

Eleanor,

Sorry our beards are so wimpy. My youngest daughter commented on how similar so many of us look. I can tell you that Sandwichman used to have a fuller more Marxish beard. Not sure what made him cut it back...

As for Joan Robinson, well, they ain't makin' 'em like her anymore.

Bruce Webb said...

In reference to coberly's rather cryptic comment.

I just put up three posts with tables showing how you would have to adjust Intermediate Cost assumptions to maintain 'Crisis'. The variable selected was Real GDP with the assumption being that other variables would track or stay constant. The methodology is a little crude but I think sound. It assumes that better than projected growth in any given year can be offset one for one by subtracting equivalent points from future years. In fact I believe this understates the effects because of the compounding effect of the extra interest on the greater than expected surplus. However I wouldn't think that effect would be significant over the period shown.

The three models show the effects of four years of Real GDP growth at 3.0% (the average since 1985), at 2.8% (a substantial slowdown from the last ten years), and 3.3% (the actual 2006 number). Given the bearish noises coming from the Fed 3.3% for 2007 and 2008 are admittedly optimistic, then again who was predicting the screaming number we have for Q3?

The point is to show that the current Intermediate Cost alternative has Real GDP dropping off so steeply that growth anywhere near trend simply erases the problem over the next five years. Which means if Democrats can get the White House next year Social Security 'Crisis' will over the next term be deemed 'Quaint'

I finally enabled comments, if I bumbled somehow I would appreciate somebody setting me straight.
http://bruceweb.blogspot.com/

Anonymous said...

j.goodwin

in the end i couldn't tell what your point was. but here is a little thought on "intended to redistribute current income from current workers to current non-workers."

How do you suppose the stock market works?

you, presumably a worker with extra cash, buy a piece of paper called a stock, that contains no guarantee of repayment whatsoever. the person you buy it from uses the money for purposes of his own... very likely the purpose of financing his non-working retirement.

years later, perhaps, you desire to retire yourself, become a non worker. then you sell your stock... take money from a working person... or you collect dividends... which are money that comes from workers who otherwise could be paid more for their work or could pay less for what they buy from the company paying your dividends.

you rely upon those future workers being willing to give their money to you in return for either a shiny new widget, or a job making shiny new widgets.

social security works exactly the same way, except that the product future workers will by buying... giving you their money for... is exactly the same deal you got: their money is guaranteed to come back to them come hell or high water with an interest rate that at least compensates for inflation. that is a deal you can't count on from any private market i know of. and it's a deal i would definitely "buy," for at least a hedge while i went out and did riskier things with my other money in hopes of higher returns.

as for " future non-workers who may not ever exist?" i hope to be one of those future non workers. and since the time of moses at least, the wise men of society have recognized a need to provide for those future non-workers, out of the product of the future workers... recognizing that we will each have our turn at both roles.

the fallacy you, perhaps, but certainly others, commit with respect to "workers paying non-workers" is more or less the same kind of fallacy as the old zeno's paradox, about achilles never catching up to the tortise. it involves creating a conceptual straight jacket for yourself. trust me on this: achilles can catch the tortise. and you will get your own money back from Social Security.

If, of course, you can keep the Big Liar from talking you out of putting any in.

Anonymous said...

Bruce

I hope I am not being cryptic. I believe you. I just have no faith that however good Social Security looks in the next few years that the bipartisan liars won't find a compelling reason to fix it.

And the non liars mostly don't seem to be able to understand that it doesn't need fixing. What they "know" is what has been drummed into their heads for the past twenty years. The sky is falling.

ProGrowthLiberal said...

Barkley raises an interesting point. Whatever the commission recommends, we'll have to deal with what Congress ultimately does. Good reason to pay attention to those Congressional elections and where each candidate stands. Now if the Dems can do in 2008 what they did in 1964 ...

Anonymous said...

coberly/Goodwin,

No my friends, social security is not redistribution of wealth in any way, shape or form. Even arguing that it is in some way similar to the sale of investment instruments is a bit off the mark, and can only lead to a continuation of a false argument.

We've all been paying an excess amount of payroll tax since the mid-80s, when the old crisis was being used to scare everyone into paying that extra amount. OK, the scare worked and we've been paying into a "Trust" Fund in addition to funding the social security payment to the elderly from the mid 80s to now. If Trust is the right word for that Fund it will be supplementing our social security income over the next 30-40 years. After that we boomers will likely be dead and no longer a drag on the working population.

So what's the BS with redistribution of wealth? The only direction such redistribution takes in the good old USA is in the
direction of workers to owners. Let's try to make certain that the Fund that has been helping to reduce the taxes of the rich actually gets paid what it is owed, maybe by the heirs of the rich.

J.Goodwin said...

My view is, and will continue to be that there is no trust fund. The trust fund is a backdoor current period regressive tax that is used to fund federal projects that overwhelmingly benefit the rich at the expense of lower and lower middle income workers.

The idea that somehow the government is putting money aside in its little sock drawer and that somehow it is earning interest is ridiculous.

The government does not need to pay interest to itself. The government does not need to set money aside for a rainy day. All that the government needs to do is to finance current expenditures with current revenues.

I don't have a problem with the idea of helping people who are non workers pay for their food and housing etc. I support programs that do that, including subsidized housing, subsidized healthcare, and income redistribution.

But the current "solution" to the "crisis" is all dependent on some sort of perverse view that in the future the government what, won't have the authority to tax? Why in a future period would it be impossible to raise the funds necessary to pay then current retirees? How does contributing excess funds to the overall government coffers now help that future scenario?

What portion of GDP are transfer payments expected to be in the most expensive year on the 75 year timeline? I have some interest in finding out, and I doubt that it is significant.

Anonymous said...

jack

hard to tell what you mean here. my comparison of SS to securities was strictly to make the point that SS robs from the young to support the old is nonsense.
pay as you go seems to be too difficult a concept for some people to understand.

as for the Boomers "paying an excess amount," that depends on what you mean by excess. The large boomer population has been paying more money per capita than reqired to support the smaller pre boomer population. But this was an effort to equalize the per capita cost of SS across unequal sized cohorts. in the end you have not been paying an excess amount: you have been paying more or less exactly what you will get back from SS. and that will be true whether the Trust Fund is paid back or not.

if the Trust Fund were to be kidnapped by a flying saucer, the only difference it would make would be that the post boomers would have their payroll tax go up by a small amount a little sooner than it would have otherwise. but they, in turn will get back more or less exactly what they put in...because they will be living longer than the boomers.

when you do the arithmetic you can see how these things all balance out close enough so you'd have to be insane to complain about 'generational inequity' or 'legacy debt.'

J.Goodwin said...

For the record, I'm a post boomer.

Taxes will go up in the future, yes? Or do you expect the general budget to be cut to the point where all of those trust fund bonds will be able to be paid out of general receipts at some point down the road?

It's either that or default on the bonds.

One way or another, when we get to the future, we'll be paying as we go because there is no money there. Right now that money is being used, and it's not being used to pay retirees. I view this as a dishonest shell game as a result.

I'd far rather stop "solving the problem", and just tell the truth, we're using the money that we claim we are setting aside, and when we need the money that we've already spent, we'll have to collect it again if we intend to actually pay anyone with it.

rosserjb@jmu.edu said...

j. goodwin,

Ah, another person who does not know about how bogus the scary intermediate projection by the Social Security Trustees is. Reality has been better than what has been forecast over the past decade by the "optimistic" low cost projection. If reality remains even somewhat worse than it, the system never runs a deficit and never has to cash in any bonds. The whole issue of the existence or lack thereof is moot, other than the system collecting interest on its bonds. You are needlessly worried, just like the suckers that Obama and Edwards are playing to, not to mention all those Republicans calling for privatization.

Barkley

Anonymous said...

goodwin

such a mix of confusion and insight.

first: answer to your question: SS is currently about 4% of GDP. It is projected to go up to about 6%.

That's mostly because life expectancy after retirement is expected to go up a similar 50%: from about 13 years to about 20 years.

the future will certainly be pay-go... or should be as far as i can tell from here. why would you expect it to be anything else? the Trust Fund (in its size) was an artifact created with the intention of evening out the per capita costs between the boomer generations and the pre and post boomers. nothing nefarious in that. nothing nefarious in lending the fund to the general coffers either. you CANNOT set aside money on that scale. it ceases to be money. you MUST use it for other purposes. nor is it a case of uncle sam borrowing from himself, paying interest to himself. the payroll tax payers are a definite subset of the population, partly but by no means entirely overlapping with the higher end and corporate taxpayers who pay the bulk of the general taxes. even if they were all the same class of taxpayers, one generation lending money to another is more or less what investment is all about. when i lend money to build a factory, it is the people who come after me who use the factory to make money to pay me back.

nor would there necessarily be a need to either raise taxes, cut spending, or default on the bonds.
a general rise in productivity would provide more money at the same tax rate to pay the bonds while continuing to pay for the regular budget. this is the basic principle of capitalism.

meanwhile SS is not welfare. not "subsidized" anything. people put their own money in, and later take their own money out magically protected from inflation by the magic of pay as you go.

but you are right, contributing more money to the Trust Fund now won't help things....at least not more than the presently scheduled surplus.

probably some errors in the above, but should be a good starting place for the kind of thinking that will clear up the confusion.

Anonymous said...

Fellas, there is a distinction that I wish would be kept in mind when discussing things like social security income, Trust Fund, payroll taxes and income taxes. Coberly broaches the point when he notes that the payroll tax payer is a sub-set of all tax payers. That is, most of us pay both payroll and income taxes, but some very few pay only one or the other. More importantly the distinction has to do with the rates attached to each form of taxation. The payroll tax is far more regressive given that it is not applied to all income. It has a cap, as we all have been hearing. So those people in the highest income levels are paying only a very small rate when measured against total income, while the vast majority of the tax payers are paying the full rate. Up to that point one might be able to justify that regressive aspect of the tax, arguing that payers will collect based on total contributions and that lower income payers will be more in need of those payments. Though from another perspective it could be argued that the regressive character of the payroll tax is further exaggerated by the fact that the wealthiest collect the same amount as those at the upper edge of the income cap level.

Where the regressive nature of the social security program really begins to stand out is in regards to the manner in which the government has been using those "invested" funds to bail out the general tax system. Call it borrowed or "just so many IOUs," that money is being utilized to support the general budget. Yes, it has to be paid back, but it has to be done so through the general income tax, or maybe estate taxes, or maybe even corporate taxes. When that is made to happen we need to be vigilant in assuring that our esteemed representatives in the government see fit to make those taxes real and progressive. Let's not allow this to become Robin Hood in reverse.

Bruce Webb said...

Jack a couple of points.

First many of the wealthiest among us will collect no Social Security at all. If your wealth derives from inheritance or you formed a start up at age 23 and paid yourself with options and the business takes off you may never in fact gain the 40 quarters needed to qualify. The idea that Social Security is regressive is only true to the extent that you think disability and retirement insurance are something that needs to be provided by the entire population set. We could conclude that it is such a thing, but if so there would be no good reason to tie it to income, just eliminate FICA and give everyone an equal government paid pension. Otherwise you have a government financed program that rewards economic winners and penalizes economic losers. That doesn't make a lot of logical sense.

For the umpteenth time Social Security is worker funded insurance for workers. Seen as such the premium/payout balance is actually progressive, lower income workers getting a slightly larger slice of future productivity than a strict calculation of their contribution would render. Social Security is fire-walled by the cap, attempts to introduce some faux-progressivism (because a cap raise give the very wealthiest a free pass, not drawing their wealth from wages to start with) just risks breaching that wall.

Plus people seem to have the hardest time understanding that Social Security and its Trust Fund are real right to the degree that people believe they are real. Arguments from theory about whether the government can borrow from itself and hence owe itself, and lectures that point out that in reality all future benefits have to be paid from current productivity become meaningless in the light of policy judgements and future politics. If we can convince people at large that the government has incurred a liability of $2.2 trillion dollars plus accumulating surplus's and interest and that they will need to pay it back if and when, then the Trust Fund is real as real.

In reality we could replace the 'Trust Fund' with a spreadsheet, the Special Treasuries are in some contexts purely symbolic. But the fact that in some point they have little existential reality (it really being just a file cabinet), doesn't really matter. Elected representatives made a series of promises and we'll enforce those promises in the American Way, we'll throw the bums out.

Opponents of Social Security knew they couldn't make a straightforward attack, instead they decided to create a theoretical superstructure of bluster and bullshit to undermine confidence, and frankly did a very fine job. Otherwise intelligent and thinking people simply got baffled by bullshit and bought the intellectual con.

J.Goodwin said...

Ok, I can at least read what you've posted most recently and respond to it Bruce.

I don't regard the trust fund as real. The government can't borrow money from itself, it raises revenues, and it spends them. That's what governmental entities do. That comes from an accounting background, so maybe those who regard themselves as coming from an economics background will see it differently.

Therefore, I see current revenues coming from a specific mix of slightly progressive income taxes, regressive payroll taxes, fees, excise taxes, and increasingly limited wealth taxes. The mix of revenues is becoming more targeted toward the lower and middle class, and part of that is due to the "trust fund" and "saving social security."

There are some graphs on Angry Bear today that show the rising portion of the three middle quintiles' tax burden (shown as the gap between their pre and post tax share of national income).

The largest changes in that gap appear to have been timed approximately to the points where changes were made to payroll taxes for the purposes of "saving social security."

I think that the idea that someone is "getting their own money back" is a lie. You can believe it if you want to. This isn't a savings account. People pay in who never receive a dime, and others pay relatively little in and get a lot back (for instance those who earn a full share of credits and become disabled, then live a long life). There is no significant correlation between what you pay in and what you get out, so the statement is at best a canard and at worst a bold faced lie. I don't see the point in repeating it.

I don't see any valid reason for there to be a direct worker --> former worker transfer in any case. When the top echelons of society are taking record portions of GDP as profits, I think they should help pay to keep the old and disabled off the streets. Those former workers made their lives of luxury possible, and any society that wouldn't acknowledge that isn't worth keeping.

Right now, people who do pay payroll taxes on their whole income are taking it up the ass because someone decided it would be a good idea to take more money from them today, under the guise of protecting their future, when that future doesn't need protecting.

rosserjb@jmu.edu said...

j. goodwin,

This last is fairly reasonable. I have argued for some time repeatedly that what happened in terms of taxes under Reagan was not that they were cut, but that there was this major shift from more progressive income taxes (which were both cut and had their progressivity reduced) to more regressive payroll taxes. The latter part of this was indeed done in the name of saving social security for the baby boomers, and has been noted, it worked in the crude sense that the fund has been running a surplus ever since, nominally lending money to the rest of the government.

The more recent hysteria has come from folks forecasting that this might come to an end, and that the nominal balances accumulate might be used up at a later time, which you are accurate in pointing out is in some sense not that big of a deal. This has led to all these calls for either increases in the FICA tax, cuts in future benefits, or some kind of privatization scheme. Of course, as I have noted all this is based on overblown negative projections about the future that seem not all that likely to come to pass. Even though spending on recipients will rise as a share of GDP almost certainly, the at least nominal funding of this by FICA taxes is likely to be fully sufficient with no changes at all, with the fund continuinng to accumulate these nominal balances and "lend" to the rest of the budget.

Barkley

Bruce Webb said...

Goodwin the point is that of all possible places we could direct progressive taxation Social Security is the very last place to start. It works in the present. It is likely fully funded going forwards. The current cap provides a carefully calculated political firewall. In short its not broken and doesn't need fixing, particularly by people who in their hearts want to destroy it. (Dean Baker makes this point eloquently in the first four paragraphs of Social Security: the Phony Crisis, intro avail through this link).

I am all for restoring progressivity to the tax code, if you made me tax king for a day all capital gains would be taxed as regular income and we would be back at Clinton era top rates. But that has no particular connection with Social Security. On the other hand it would have a lot of connection with Single Payer.

As to this: "When the top echelons of society are taking record portions of GDP as profits, I think they should help pay to keep the old and disabled off the streets." Well Social Security as currently established does a pretty fine job at that. Where we are lacking is in areas like health care and physical infrastructure, If you, like me, are an admitted tax and spend liberal you would want to first direct your attention to where the current needs are. There is an argument to be made over the long term for converting Social Security from its current insurance model (whose returns (despite your denial) are linked to contributions) to a full fledged National Pension plan disconnected from income. But first we need to totally smash the frame of 'Crisis'.

And while I don't share Coberly's formulation and say that 'getting your own money back' is the right way to describe the system, it is hardly a lie, still less a bold faced lie, it is a reasonable description of what the typical recipient would experience over a lifetime of contributions and benefits. Certainly some people lose out by dying before the collect any benefit, and many before they would get a total offset, but that is a feature and not a bug of an annuity based system or indeed most insurance plans. What do you call someone who paid for car and homeowners insurance for a lifetime and never made a single claim? You call him 'Lucky'. I am not suggesting that someone who takes early retirement at 62 and gets run over by a bus on his 63rd birthday is a lucky ducky, but generally speaking his last thought wouldn't be 'Where am I going to find enough money to buy dinner'. The adjustment for Real Wage has meant that the Social Security benefit slowly but surely results in higher standards of living for retirees.

And I don't understand your last paragraph. In what sense is this true? "when that future doesn't need protecting." Who is exactly the protector here? Are you simply counting on the milk of human kindness?

Bruce Webb said...

"Why are we asking current workers to pay for future non-workers who may not ever exist?"

Absent a comet strike that wipes out all life on earth this doesn't on the face of it makes much sense. The current set of workers overlaps with the future set of non-workers for at least the first half of the seventy five year actuarial window and our children and grandchildren overlap the rest. I know who that future non-worker would be, I look at him in the mirror each morning. Certainly this is a good argument for junking projections over the 'Infinite Future Horizon' but it doesn't mean we shouldn't have a plan for the demographic challenge ahead of us. It turns out that Nothing is shaping up to be a perfectly fine plan, and that future adjustments to FICA are more likely to be downwards than upwards, but that doesn't mean we should not keep an eye on Long Term Actuarial Balance. On paper we don't have it and until we do leaving FICA at current levels is the prudent thing to do. The existence of the Trust Fund, whatever its level of existential reality, gives retirees of the future a legal claim for the return of those excess contributions. That this claim is unenforceable in the courts doesn't make it any less real, and in any event it is fully enforceable at the ballot box.
_______________
And for anyone interested I posted some tables at my site that attempt to test Intermediate Cost 'crisis' at varying levels of short term Real GDP numbers. I assumed that efforts would be made to keep the current depletion year constant. It turns out, (other things like Real Wages and employment tracking) that three years at 2.8% or two years at 3.0% break the model, the growth rates need to maintain crisis get ridiculous within the term of the next President. And while at present hardly anyone would confidently predict 3.3% Real GDP over the next two years (although 2006 came in at 3.3% and 2004-2006 averaged 3.4%, so it's not crazy talk), if it happens it smashes the crisis model beyond repair by 2010. The methodology is a little crude but I think fundamentally sound.