Observations on life

Why Social Security taxes are not sufficient to pay full benefits …sort of …

This is one of the most incredible statements I have ever read about Social Security.

What kind of thinking would draw this conclusion? Here is an example of the difference between common sense and academia sense or lack thereof and playing the inequality card.

Back in 1983? Unless my math is pathetic, that was thirty-five years ago. Who cares what the actuaries did not anticipate in 1983 (assuming her claim is correct given benefits increase at the rate of wages). If wages were diverted to pay health insurance from those who have employer coverage, so were the wages credited for SS benefit calculations.

The main reason Social Security taxes aren’t sufficient to pay full benefits is that the system did not anticipate the extreme growth of inequality in earnings and how much of wages would be diverted to pay health insurance back in 1983 when the Social Security tax was last raised by Congress and the President. Teresa Ghilarducci

Economics professor, The New School for Social Research writing in Huff Post Jan 2018

Here is what the Trustees said in their 2017 report:

Projected OASDI cost increases more rapidly than projected non-interest income through 2037 primarily because the retirement of the baby-boom generation will increase the number of beneficiaries much faster than the number of covered workers increases, as subsequent lower-birthrate generations replace the baby-boom generation at working ages. From 2038 to 2051, the cost rate (the ratio of program cost to taxable payroll) generally declines because the aging baby-boom generation is gradually replaced at retirement ages by historically low-birth-rate generations. Thereafter, increases in life expectancy cause OASDI cost to increase generally relative to non-interest income, but more slowly than between 2010 and 2037.

Here is the real amazing thing about the professors claim.

Nothing but Congress ignoring every Trustee report since 1983, each warning, each plea for action, each clear explanation of the degree of the shortfall in terms of percentage of payroll has caused the Social Security taxes to be insufficient to pay benefits.

Social Security payroll taxes are insufficient because politicians haven’t had the guts to take action and tell Americans the truth. Every other factor is irrelevant.

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2 replies »

  1. it is important to remember that government elitists believe the 1983 Social Security Amendments Act was an exceptional piece of legislation. They essentially got to say that they “saved” social security while allocating the burden to others, particularly future, unborn generations, as a means of continuing to buy votes.

    Read the review in today’s WSJ of a book written by Alan Blinder. It states, in part: “Mr. Blinder cites two measures to show what can be accomplished when economists and politicians work together. In 1983 the members of a social Security commission put forward a bold and sound idea: gradually raising the retirement age to 67. While such an idea would typically be a non-starter politically, it won bipartisan support, Mr. Blinder says, because implementation wasn’t slated to begin for an additional 17 years. ” Yes, economists and politicians want to work together to buy votes using your tax dollars.

    But, of course, today we know that this was the wrong “tax and spend” medicine for the funding “illness” we faced.

    Because American workers and retirees were never clearly informed of the looming $200+ Trillion in unfunded entitlement promises, the elitists never considered truly effective solutions that would stop the vote buying. See:
    https://www.realclearpolicy.com/blog/2012/12/01/economist_laurence_kotlikoff_us_222_trillion_in_debt_363.html

    Tell Ghilarducci and Romig we don’t need new tax “solutions” where they get to decide – “solutions” which are just as unlikely to succeed as the 1983 Amendments to properly fund future entitlement promises. Ask them to confirm how Clinton’s 1993 changes, changes that removed the cap on wages subject to Medicare Part A (HI) taxes effective January 1, 1994, succeeded in properly funding the Medicare Hospital Insurance trust – which, according to the trustees, will run out of assets before Social Security? .

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  2. I could not figure out how those three things, social security, wage inequality, and healthcare insurance had in common.

    Turns out Ghilarducci cites a report done by Kathleen Romig. In Romig’s report titled “Increasing Payroll Taxes Would Strengthen Social Security” 9-26-16, she writes that the wage cap subject to social security tax needs to raised. She also writes that compensation subject to social security taxes need to be expanded (employer sponsored health insurance and flex spending accounts are not subject to being tax). She also said the tax rate for social security needed to be raised. Her other works include the same quotes that are often written here from the trustee reports for social security.
    https://www.cbpp.org/research/social-security/increasing-payroll-taxes-would-strengthen-social-security

    Teresa Ghilarducci on the other hand grew up poor and on government assistance and earned her Ph.D. at U.C. Berkeley.. She believes retirement plans and 401Ks should be replaced with a government run retirement plan. In USA Today, Emily Cadei called Ghilarducci “the most dangerous woman in America” .
    https://www.usatoday.com/story/money/2015/03/16/ozy-teresa-ghilarducci-revamp-retirement-savings/24842705/

    I agree that payroll taxes are insufficient. But social security is a Ponzi scheme. It depends on current workers to pay for older workers. Since the birth rate in America has declined, the only other choice is to raise the social security tax to equal money in and the money out to pay for the benefits as they currently are.

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