Soriek
2yr ago
I agree 100% - that's part of why I'm against some theoretical unbundled system.
Soriek
2yr ago
I can't tell whether you're making a pedantic point about the payroll tax money is invested or are arguing against us having financial reserves to tap. In 1983 we reached a similar place where the trust funds were facing (much more) imminent deficits. Congress worked together and responded by both cutting benefits and raising contributions; in the years that followed we fixed the shortfall and built up accumulated surpluses (page 36) from all the boomers in the workforce. We've been currently spending down those surpluses for SS payouts but we aren't printing money or borrowing from elsewhere in the general fund (except for the marginal SSI fund).
Hey, we fixed it once, no reason we can't do it again.
Soriek
2yr ago
From my OP:
- Raise Payroll Taxes - “even a modest change, such as a gradual increase of 0.3 percentage points each for employees and employers (or less than $3 per week for an average earner), could close about one-fifth of the gap.”
Soriek
2yr ago
Because the $250,000 isn't indexed to inflation it's just a slow transition into removing the cap on taxed income while providing benefits only on the social security max income.
Yeah, the title of that section was "Raise the Payroll Cap", this wasn't hidden. Unpleasant decisions will half to be made either way, a decade and a half transition from the payroll cap that fundraises a trillion in the first decade off the top 5% of earners is one of the more reasonable ones I've seen.
It's high time for benefit shortfalls to match funding shortfalls.
Should we cut benefits by over almost a quarter? That's what we're on track to do currently.
Soriek
2yr ago
This proposal doesn't hit people making over $160k, it hits people making over $250k, about 100 stacks more and solidly in the top 5% of the nation. I empathize with their higher cost of living, but if we have a funding shortfall, who other than the most well off should we be raising taxes on first?
Soriek
2yr ago
Thanks for the context, interesting to see what the potential issues (and possible benefits) are.
Soriek
2yr ago
I absolutely promise that I don't need PrEP to be covered by my insurance, nor do I need weight loss drugs, but I actually could use significantly more coverage for sports injuries than the median person. Can't do it, all bundled, because telling homosexuals or fat people that they're higher risk and have to pay more would be discrimination.
As Scott once said, dealing with the biology side of things is relatively easy; changing human behavior is what we don't have a solution for.
Besides, pharmaceutical costs aren't really high because other people's problems are uniquely expensive, they're high because we pay for patents - about 75% of pharma costs are from on-patent drugs. From my table napkin math Truvada was about $2 billion a year when on-patent, which is about 0.34% of pharaceutical spending, or not enough to notice any difference in your premiums if you opted out.
Prep, Ozempic, and other such stuff were never even costly in the first place because lifestyle-choice preventative medicine is more expensive than any other kind of medicine; on-patent drug prices can just be raised as high as the market can bear. Truvada fell over 20x in price after generics were released and will now be a fraction of a fraction of a percent and save us significantly more in down-the-road hospital costs. Ozempic will plummet in price soon as well because Medicare has made it target #1 for the next round of price setting.
But even if you it opt them and all the other "lifestyle" stuff out of the bundle now it would still all be a drop in bucket. Make it illegal for companies to even produce that stuff and they'll just invest in different drugs you don't need and raise the prices just as high.
Soriek
2yr ago
Yes wealthy people would be paying a larger share under this sytem and the benefits would be distributed downwards, like most other taxes.
Soriek
2yr ago
Since the money is simultaneously collected and paid out, and the amount paid is currently larger, this represents money creation, as well as obviously trasfer to the elderly.
They're actually paid out of reserves that we had built up in prior decades right now, we're just running out of those reserves.
What makes you say this, based on the CBO report that raising the cap could raise an extra trillion?
Soriek
2yr ago
No worries, I chopped a bunch of stuff to make it less long. The tax increase in general is def pretty obvious, I just thought it would be helpful to give some specific proposals and estimates.
Soriek
2yr ago
Yeah I imagine we'll end up doing this. My original subtitle to that section actually said "other than the obvious stuff like raising the age or cutting benefits," just cause I felt like they didnt add any new info for people. I assume in reality it'll be a combination of both of those plus raising taxes.
Soriek
2yr ago
Fair point. The regressivity is broader than just the cap, generally as you get poorer people pay a larger sharer of the income for payroll, but payouts should ofc be factored in too.
Soriek
2yr ago
I will strongly oppose any increase/stealth increase (raising the payroll cap/widening the tax base) in taxes. Raising the payroll cap is just kicking the can down the road as the CBO mentions
I'm referencing the second of the two options they describe:
The second alternative would apply the 12.4 percent payroll tax to earnings over $250,000 in addition to earnings below the maximum taxable amount under current law. The taxable maximum would continue to grow with average wages but the $250,000 threshold would not change, so the gap between the two would shrink. The Congressional Budget Office projects that the taxable maximum would exceed $250,000 in calendar year 2039; after that, all earnings from jobs covered by Social Security would be subject to the payroll tax. Earnings under the current-law taxable maximum would still be used for calculating benefits, so scheduled benefits would not change under this alternative.
Do those numbers take into account continued declines in fertility?
Social Security makes projections 75 years into the future and does take declining fertility into account:
The costs of both programs will grow faster than GDP through the mid-2030s primarily due to the rapid aging of the U.S. population, and generally continue to increase thereafter at a slower rate through 2076. This is because the number of beneficiaries rises rapidly as baby boomers retire and also because the persistently lower birth rates since the baby boom cause slower growth of employment and GDP.
Re:
What assumptions did they make about T-Bill returns or inflation?
The return on investment in the trust funds has been consistently about 10% total and 6% for OASI. Social Security payouts have a COLA increase based on inflation each year, and can sometimes adjust upward month to month based on the CPI. This is all factored into their budget & projections.
I'm sure some politicians will pat themselves on the back for yet another non-solution.
I mean it may be imperfect but raising taxes is more of a solution than hoping we have more kids.
Soriek
2yr ago
Raise the payroll cap, raise the payroll taxes, widen the tax base, privatize the system, none of it will matter.
What makes you say that? The numbers I looked at suggest those tax changes would go a very far way towards addressing funding shortfalls. Raising birthrates would be ideal but if we could do that on command, we definitely already would. Most likely we'll have a combination of raising taxes, cutting benefits, and raising the retirement age - all stuff nobody likes, unfortunately.
Soriek
2yr ago
In a manner of speaking, that's sort of already built into the system. The money a wealthier person pays in tax is then invested and helps replenish the broader trust fund which helps secure benefits for other, less fortunate people . One of the advantages of our system is that it pools risk by doing this.
Soriek
2yr ago
Interesting question. I'm not sure about deaths of despair, though I think they're hardest among the tax paying population. I had no idea about Covid so I looked it up, I think it won't change because even though more elderly people passed, the economic contraction meant we lost a lot in payroll taxes. Here's an Investopedia brief on it:
Social Security trustees have concluded that the long-range implications of COVID-19 on Social Security would be “minor,” with any pandemic-induced recession recovered by 2023 with “little permanent effect.”
What would privatizing Social Security look like?
”No one’s gonna take away your grandma’s pension.” - José Piñera, Minister of Labor and Social Security in Chile, right before he took away your grandma’s pension.
Privatizing Social Security has been a conservative pet issue for as long as I can remember, despite being politically unlikely and unpopular. Even Paul Ryan, who paid for his college tuition with SS survivor funds, still reminisced on halcyon days of planning with his Delta Tau Delta bros to privatize SS at keg parties. If it were possible, what would it even look like?
The Background
Social Security is a defined benefit, "pay-as you-go-system," funded by the $1 trillion Old-Age and Survivors Insurance and $142 billion Disability Insurance trust funds, paid via payroll taxes, plus a $63.78 billion Supplemental Security Income from the General fund.
Before FDR passed SS, senior citizens were the poorest demographic in America. Nowadays it’s one of the most popular programs and everyone wants to preserve it in some way.
Problem is, we’re going broke.
Since 2010, the fund that SSA uses to pay benefits to retirees has been paying out more money than it has been receiving in taxes. At the current rate, the fund's trustees estimate that it will exhaust its reserves in 2033 and be unable to pay full scheduled benefits.
What if Ayn Rand was Acting Commissioner of the Social Security Administration?
It should be said that the freest of free market solutions here still imagines coercion of mandatory contributions. Still, the position advocates switching to a privately managed, defined-contribution system, which would get a higher returns by investing in the private market instead of government securities.
Because these are personal accounts, hopefully you fix the problem where an increasingly smaller working population pays for swelling retirees. In reality, those old obligations don't disapear:
Social Security has accumulated trillions of dollars in liabilities to workers who are already retired or who will retire soon. To make room for a new private system, policymakers must find funds to pay for these liabilities while still leaving young workers enough money to deposit in new private accounts. This requires scaling back past liabilities – by cutting benefits – or increasing contributions from current workers. Most large-scale privatization plans also involve major new federal borrowing.
Given that this transition would be pretty expensive and the main benefit is getting to invest in the private market, the counter is: why not just let the government invest in the private market? Such a case is made here.
More Consumer Choice?
A privatized system should give individuals more control over their investment decisions. It’s hard to weigh that benefit against the risk of dumb people ending up with less retirement savings than they get under the current system.
Would Management Costs be Lower?
Surprisingly hard to figure out! SS obviously has no marketing costs and boasts astoundingly low administrative costs of >1%. However, some admin work is outsourced, ie employers and the IRS collect the funding.
But hey, the government’s gonna keep doing all that stuff anyway; a privatized system would just have to duplicate them elsewhere, plus means testing, plus marketing costs.
Costs in proposed plans vary a lot:
In some privatization plans, contributions would be collected by a single public or semi-public agency and then invested in one or more of a limited number of investment funds…By pooling the investments of all covered workers in a small number of funds and centralizing the collection of contributions and funds management, this approach would minimize administrative costs, but it would limit workers’ investment choices.
Another strategy is to allow mutual fund companies, private banks, insurance companies, and other investment companies to compete with one another to attract workers’ contributions in hundreds or even thousands of qualified investment funds. This strategy would permit workers unparalleled freedom to invest as they chose, but administrative costs might be high.
But forget all these technical hypotheticals. The question we’re all wondering is, what does this look like in practice what would a South American military dictatorship do?
El Ladrillo
The largest scale example of a country privatizing its retirement system is under the Pinochet dictatorship in Chile. Initially their rollout was a big success with high returns. However, even Niall Ferguson, a prominent advocate for their system, notes many of the downsides I wondered about above:
There is a shadow side to the system, to be sure. The administrative and fiscal costs of the system are sometimes said to be too high. Since not everyone in the economy has a full time job, not everyone ends up participating in the system. The self employed were not obliged to contribute to Personal Retirement Accounts and the casually employed do not contribute either. That leaves a substantial portion of the population with no pension coverage at all…
On the other hand the government stands ready to make up the difference for those whose savings do not suffice to pay a minimum pension, provided they have done at least 20 years of work. And there is also a Basic Solidarity pension for those who do not qualify for this.
That public pension was in fact created by a socialist government specifically to make up for extremely low coverage under the neoliberal system. I find it pretty damning that the most extreme example of a privatized retirement system ran into all the problems its critics said it would, and handled it in the same way every public system does - through backup government funding. If we’re going to end up doing a mixed market system anyway, it might behoove us to keep our publicly managed system but give them leeway to invest privately, rather than pay a ton to transition to a privatized system then pay more later to fix the holes that left:
Chile’s system hasn’t worked as promised or expected. The creators anticipated that the average worker would save enough to earn 70% of their salary in retirement; the reality has been closer to one-third. They thought the new system would expand the number of workers with retirement funds; instead nearly 40% of Chileans have nothing to fall back on. Rather than improve the lives of Chile’s elderly, most pensioners live on less than the minimum wage...
The private system hasn’t let the government off the financial hook either. The transition period was always going to be expensive as the government footed the bill for those retiring on the public dime without receiving payroll taxes (as these contributions all headed to private accounts). But the government has also had to backstop far more of the new system’s retirees than expected. Officials thought less than 10% of wage earners would rely on public largesse for a minimum pension. Today, more than 40% need the government to step in.
A broader review of the other countries that followed suit seems similarly disapointing:
Starting in Chile in the 1980s, and then in Mexico, Peru, El Salvador, Colombia, Argentina, and Bolivia in the 1990s, countries turned to systems where contributions would be deposited directly in workers’ individual accounts...
the system has done little to stimulate voluntary savings; few workers have channeled additional resources to their accounts. Further, the market for workers’ individual accounts has been far from competitive. On the demand side, workers as consumers of financial products for retirement had difficulty comparing the various combinations of fees and investment options offered by pension fund administrators, particularly when the “product” that workers were buying (or rather, were being forced to buy) would be delivered many years from today. On the supply side, there were few private firms competing, partly because the presence of economies of scale in the administration of funds naturally led to a monopolistic market structure.
Less Radical Funding Solutions
-
Raise Payroll Taxes - “even a modest change, such as a gradual increase of 0.3 percentage points each for employees and employers (or less than $3 per week for an average earner), could close about one-fifth of the gap.”
-
Raise the payroll cap - The payroll tax is actually regressive, exempting incomes over $160,200. “The Congressional Budget Office estimates that subjecting earnings above $250,000 to the payroll tax in addition to those below the current taxable maximum would raise more than $1 trillion in revenues over a 10-year period”.
-
Widen the tax base - “In 1982, 90 percent of earnings were subject to the Social Security tax, but by 2017 the share had decreased to 84 percent.” “Including employer-sponsored health insurance premiums could close over one-third of Social Security’s solvency gap; including other fringe benefits could close one-tenth.”
Soriek
2yr ago
All, like, 300 of them? They're mostly pretty ordinary career military folks, same as happens every time under every administration. The idea that not having administrators is better than having Democrat-favored administrators (as has happened under every administration) is better for national security is a stretch.
This is certainly not the view of most Republicans. The leader of the Senate Republicans, Mitch McConnell, has indeed pressured him to let through and publicly condemned the holdup. Even among Tuberville's own constituents, where a majority oppose the DoD policy, still:
58 percent of Alabama voters think Tuberville has “made his point” with his hold and that he should “now allow senior military promotions to move forward.”..
55 percent of voters said the blocking is hurting “national security,"
Soriek
2yr ago
I think you might have the OOO mixed up, most of the bills were never taken to the floor for the Democrats to vote for or against either way. First the majority party agrees on a "rule" which is where the hold up was. To my knowledge it's unheard of for the Speaker of the House to ask the opposition party for help getting bills to floor, and McCarthy certainly didn't do that.
McCarthy has shown to be a good faith partner
?
He pushed spending bills that were significantly lower that what he committed to in the debt ceiling negotiations and then even after the Democrats saved him, he did a public press conference blaming them for the hold up, even though he's admitted countless times it was the Freedom Caucus. This is most certainly not good faith.
Soriek
2yr ago
The United Kingdom
The Tories are having an annual Conservative Party Conference. Remarkably, Liz Truss seems to be still advocating for more tax cuts (specifically corporate taxes), despite the fact that the country’s pension funds got margin called and she lost her position as leader of the nation the last time she tried that. Priti Patel has been beating the same drum lately.
Mr Sunak has declined to say if taxes will be cut before the next election and said his focus is on cutting inflation. His chancellor Jeremy Hunt has ruled out tax cuts this year.
Other issues PM Sunak has yet to give a final response on are whether construction of the HS2, or the high speed rail line between Birmingham to Manchester, will go ahead. The idea as I understand it is to try to fight concentration of wealth and jobs in London and invest more in the poorer North, though it comes at apparently very high cost. Speaking on transit drama, following cost saving staff cuts, thousands of members of the Rail, Maritime and Transport (RMT) union were planning a large scale strike. Apparently negotiations were successful on working conditions and the strike has now been called off. A separate strike by Aslef train drivers seems to be still in motion.
The Guardian asks “Who would replace Rishi Sunak as Tory leader if he loses the election?” and offers short snippets of the maneuverings as of late done by Suella Braverman, Priti Patel, Kemi Badenoch, Penny Mordaunt, James Cleverly, Tom Tugendhat, and…Liz Truss, still trying I guess.
Fair counterpoint. OTOH, raising retirement ages probably also has some effect on the job market & wages as well, in terms of decreasing potential promotion opportunities. No idea how large that would be either and I assume in reality we'll do a mix of everything, maybe raise taxes slightly plus raise retirement ages and reduce benefits.
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