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Obama Wants to Cut Social Security

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Yves here. The headline is hardly news, at least if you’ve been paying attention, but this post does a great job of debunking arguments against Social Security, particularly ones designed to stoke generational warfare.

By Ben Strubel. Cross posted from New Economic Perspectives

Along with most Republicans, many Democrats, and Wall Street, President Obama wants to cut Social Security. Here is what you need to know.

What Cuts Are Being Proposed?

Obama is proposing, along with the support of Republicans and many Democrats, to change how annual increases in Social Security benefits are calculated. Obama wants to switch to a different formula, called Chained CPI. This switch would result in a benefit cut of $230 billion dollars over 10 years. All this is being done under the guise of “strengthening” the program and “securing it for future generations” (see here).

Right now, annual increases in Social Security benefits are calculated using changes in CPI (Consumer Price Index) which measures the price increases in various goods and services. Chained CPI is a twist on regular CPI in that it assumes that when the price of one good goes up people will substitute a cheaper good. For instance, if the price of steak goes up people will switch to chicken. While this makes sense for some things, it doesn’t for others. For instance, if the price of natural gas goes up you can’t just change the heating system you have. If the prices of essential prescription drugs go, up you can’t just substitute something different.

So how much would Social Security payments change under Chained CPI? At first, it doesn’t seem like a lot. Using last year’s data, the change would amount to only $3 less for every $1,000 received. The problem is that the money lost compounds over time. If someone draws benefits at age 62, then by the time they reach age 92 they will be losing a full month of income!

The changes being proposed are an insidious way of robbing the elderly as they grow older.

What makes these proposed changes even sadder is that according to surveys (e.g., 2013 NASI poll), 84%of people believe current Social Security benefits do not provide enough income for retirees, and 75% believe we should consider raising the amount of benefits paid and 68% support an outright raise in benefits.

In Washington, both sides of the aisle are hopelessly out of touch with ordinary Americans.

Social Security Is Remarkably Effective

Social Security has been a very effective program for combating poverty among the elderly. In 2012, approximately 9.1% of the population of the US age 65 and older lived in poverty. Contrast this with a poverty rate of 21.8% for children 18 and under, or 13.7% for adults ages 18 to 64. It’s also worth noting that under a new supplemental measure of poverty created by the US Census Bureau that takes into account other sources of cash payments or benefits such as SNAP (“food stamps”) and tax credits but also includes the cash cost of healthcare not covered by Medicaid or Medicare, the poverty rate for seniors rises to 16.1%.

Since the government started keeping data on official poverty levels in 1960, the poverty rate among those 65 and older has fallen from a high of 35%. Large increases in Social Security benefits from 1959 through the 1970s contributed to a steep drop in poverty rates. Poverty rates among those 65 and older continued falling but at a more moderate pace during the 1980s, 1990s, and 2000s except during recessions.

While Social Security has done well to keep seniors out of abject poverty, it is grossly insufficient to meet all income needs in retirement. According the Social Security administration, the average retiree is receiving $1,230 per month, or about $14,760 per year.

Unfortunately, due to the recession, poverty rates have started rising. Poverty rates among children have risen from 16.2% in 2000 to 21.8% in 2012. Poverty rates for working age adults have skyrocketed from 9.6% to 13.7% during the same period. Social Security has been instrumental in keeping the same thing from happening to seniors. The poverty rate among seniors was 9.9% in 2000 compared to 9.1% in 2012. Poverty rates for seniors, however, are now starting to tick higher with 2012 seeing the largest increase in poverty rates among seniors in the last decade.

For many seniors, Social Security is their only form of income in retirement, and living on less than $15,000 a year is a challenge to say the least. While programs designed to help the less well off, such as food stamps, heating subsidies, housing vouchers, and so forth, are sometimes vilified in the press and by politicians as just lining the pockets of the lazy; in fact, a majority of the benefits dispersed in those programs accrue to children, the disabled, and the elderly. In 2012, for example, 49% of all SNAP (“food stamps”) benefits went to children, 8% went to the elderly, and 20% went to the disabled. For programs such as LIHEAP, which provides cash assistance for heating bills, virtually all benefits accrue to households that contain an elderly person, a disabled person, or a child under age six. Housing assistance programs, such as Section 8 vouchers, see a plurality of their aid go to the elderly. In 2010, 49% of all Section 8 aid went to the elderly or the disabled (versus the categories of TANF recipients [those subject to work requirements], non-TANF, and others).

The fact is a very large chunk of social benefit payments are flowing to the elderly (with children being the other large demographic). In recent years, politicians on both sides of the aisle have been making cuts to many of these programs. For example, LIHEAP was funded at $4.7B which only met a quarter of the need in 2011, but Obama proposed cutting the funding to $3B for 2012. TANF (“food stamps”) have been the target of cuts, mainly from Republicans but with plenty of help from complicit Democrats, with a $5B cut coming on November 1 of this year. (Happy Thanksgiving from Washington!) Even larger cuts are being discussed.

For seniors, Social Security remains the one stalwart program that provides income they can count on. With severe cuts coming to many programs that seniors count on, they are even more dependent on Social Security to remain out of poverty. In light of the cuts made to other programs, the proposed cuts to Social Security would be especially draconian.

It’s also worth noting that this kind of spending has a positive effect on the economy. Every dollar spent by the government on Social Security, TANF, LIHEAP, or housing vouchers generates anywhere from $1.50 to $1.80 in economic activity. By way of contrast every $1 spent on something like the military generates only around 80 cents in economic activity (and if you take a look at all the defense contractors in our investment portfolio you certainly can’t call me biased!).

Not only will cuts to Social Security harm seniors, those cuts will also harm an already fragile economy. When seniors receive less income, they spend less. Since most Social Security payments are spent on necessities, payments have a high fiscal multiplier so cuts in payments cause greater harm to the economy.

Why Cuts Are Being Proposed

Three words: Wall Street + taxes.

Let’s tackle the first two words: Wall Street. Wall Street desperately wants to get their hands on your Social Security money, so they can manage it. If Wall Street were managing an investment portfolio the size of the Social Security trust fund and charging a somewhat typical 1% fee, they would make $27B per year. Wall Street desperately wants to get that money under their contact, and there are two basic ways to do it.

Option one is to convince everyone that they will magically be able grow your money beyond what you might get from Social Security payouts. Given the widespread public disdain for Wall Street and the big banks, this option has little chance of success in the near term. When the stock market does well, however, such as during the beginning of the Bush years when this trick was last tried, it has a better chance of success.

Option two is more sinister but very ingenious. You simply “break” the program so it is unappealing and appears dysfunctional (never mind that you were the one who broke it). By advocating for cuts in Social Security, Wall Street can make the program appear not to be working. If the cuts are successful, you will no doubt soon hear cries of how the low level of benefits provided is just not acceptable and we need to do something. People may become frustrated with Social Security and start seriously considering an alternative. And Wall Street will be right there waiting with the alternative: Imagine how much more money you would have if you just privatized Social Security and let them manage it! Such a strategy has been tried and completed successfully in other countries and with privatizing other social services (for example, private, for-profit charter schools as an alternative to defunded public schools).

The last word is pretty simple. Taxes. When Franklin D. Roosevelt created Social Security, he also created the bizarre, nonsensical system of accounting that the program uses for political reasons. When you and your employer pay FICA taxes, that money is nominally placed in the Social Security Trust Fund. When Social Security benefits are paid out that money again nominally is paid out from the trust fund. FDR did this for political reasons to try to prevent Social Security from ever being destroyed by politicians. He reasoned that if people believed that they were getting “their money” out of the program when they retired, then they would resist any cuts or adverse changes to the program since they viewed it as their own money rather than some entitlement program.

Because we live with this fiction that FICA taxes fund Social Security, we now have created the “problem” that in about 20 years the number written in the government’s spreadsheet for the trust fund of Social Security will be smaller than the amount of money that is being paid out in benefits. One of the ways to fix this non-problem is simply to raise payroll taxes. One widespread idea is to raise the cap on the amount of income subject to FICA taxes. Right now, only the first $113,700 of income is subject to FICA taxes. Everything after that is not subject to FICA. By removing the cap and subjecting all income to FICA taxes, the number on the government’s spreadsheet for the amount in the trust fund will be very big–big enough that the amount paid out in benefits can last another 80 years or so before the number on the spreadsheet starts getting smaller.

For many of the ultra-wealthy, however, Social Security is not part of their retirement plans. Even the worst corporate executives still receive gold-plated retirement plans and sky high compensation. For many people making a few hundred thousand a year, Social Security payments might, and probably are, part of their retirement plans. But the ultra-wealthy don’t need or particularly want Social Security benefits, so they do not care much what happens to the program. But they do care deeply about their taxes. Therefore, it is in their best financial interest to push for cuts in the program rather than take the chance of a possible tax increase.

In the accounting fantasyland of the government, there “appears” to be a “problem” with the number on a spreadsheet not being big enough. Back in the real world, Social Security is not funded by FICA taxes nor from payments from the trust fund.

How Social Security Really Works

Social Security funding works like this. Right now, the US has about 314 million people, of whom 58.6% or 184 million are currently employed in some capacity. These people generate all of the goods and services that are for sale. These people also get all of the income available in the economy. Also, the goods and services need to be purchased right away; they cannot be saved or hoarded for later. A barber can’t save a haircut for later. You either get your hair cut now or you don’t. You can’t stockpile future haircuts for when you retire. Some things might be able to be saved. You could certainly buy a car now and put it in storage to use 30 years from now when you retire. But it will lose a lot of its utility. You would have taken something worth say $30,000 and turned it into something worth maybe $1,000.

If current workers were the only ones who could buy things, what would happen? All of the workers would consume almost all of the goods and services available, since they receive all of the income. Nothing would be leftover for anyone else. But every society has some members who do not work: babies, children, disabled, sick, and elderly. Do we want to live in a world where no one in any of these groups gets anything, except what they can beg, borrow, or steal?

There are about 62 million US retirees or disabled persons. What we do is enact some type of tax on the workers that reduces their income. Now all of the workers can consume only a fraction of the total goods and services available. We also have the government pay out some type of income to the 62 million retirees and disabled persons. They can then use this money to consume the leftover goods and services that are not consumed by the workers.

It’s important to remember that the point of the tax is to reduce the demand from the workers. The taxes do not serve to fund anything. The point of the payments from the government is to ensure that all available goods and services in the economy are being purchased. If there are leftover goods and services, then the payments should be increased or the taxes decreased.

Right now, the US has around 20 million unemployed and underemployed people, and record low industrial capacity utilization. We have plenty of idle capacity to take care of new retirees. The Social Security program is not in any kind of danger of being unable to meet the demands of existing and potential retirees.

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103 comments

  1. middle seaman

    Another motivation pushes Obama and his WS bosses to reduce and even eliminate SS. These days Christian democrats, in the US – Democrats, believe in reduction of the social safety net. It’s true in the US, many European countries and beyond. Every party to the right of CD, obviously fights the safety net.

    SS and Medicare are our safety net. Although, they offer a less than minimal safety, the governing elite, who can live without a safety net, sees any penny of SS as taken from their own pockets. They want to what theirs back and now.

    1. from Mexico

      middle seaman says:

      These days Christian democrats, in the US – Democrats, believe in reduction of the social safety net.

      Well there certainly do exist Christians and Democrats who want to dismantle the social safety net.

      But if the polls are to be believed, these are certianly the exception and not the rule.

    2. sue

      “Simply break Social Security so it appears unstable”-in other words, DEstabilize=”Shock Doctrine-Rise of Disaster Capitalism”, which leads to South-Central America, 70′s-80′s formula for “privatization”.

      See republican application, Michigan:

      “Detroit’s unelected “emergency manager” wants to stiff the city’s pensioners while repaying the large financial firms that hold the city’s debts. Emergency manager Kevyn Orr unveiled the plan last Friday while announcing that the city is unable to pay its current debts.
      The proposal asserts that the funding gap for Detroit’s pension obligations is five times wider than previously thought, at $3.5 billion rather than the $644 million estimated in 2011. Reuters reporter Cate Long dug into the numbers and came up skeptical: “Orr is going to have to show math that demonstrates the pension funds are so massively underfunded,” Long wrote, calling the pensions “reasonably well-funded according to national standards.”
      But regardless of the validity of Orr’s numbers, the proposal appears designed to facilitate a bankruptcy filing. Once in bankruptcy court, Orr would no longer need public workers’ unions to sign off on a plan to renege on pension promises. Michael VanOverbeke, a lawyer for the pension fund, explained the basic unfairness of prioritizing investors over retirees: Where bond investments carry “a certain amount of risk,” he told the New York Times, “[p]lanning for retirement and working for employers was not an investment in the market. These are people who are on a fixed income…they can’t go back to work and start all over again.”
      Elsewhere, Orr’s report summarizes the barely-functioning state of the Motor City: 40 percent of its street lights are dark, two-thirds of its ambulances are out of service, and 78,000 buildings stand empty. How did Detroit get here? The fundamentals of the city’s economy declined along with the U.S. auto industry, but ill-considered debt schemes and manipulation by big international banks exacerbated the problem. Convicted former mayor Kwame Kilpatrick oversaw huge loans that went bad, including billions of dollars in the interest rate gambles known as “swaps.” But banks were rigging the rates that determine who wins and who loses on interest rate swaps like Detroit’s, as last year’s LIBOR scandal revealed. The city paid nearly half a billion dollars in fees to Wall Street firms for engineering the swaps and other financing schemes that only deepened Detroit’s debt hole.
      The combination of local corruption and bank manipulation, which leaves the public holding the bag, is something of a common feature for troubled American cities these days. But the far-reaching powers Orr has to resolve things in Detroit set it apart.
      In 2011, Michigan Governor Rick Snyder (R) signed a law expanding the powers of emergency managers like Orr, who can tear up collective bargaining agreements and sell public holdings. But because the state’s constitution protects public employee pensions, Orr will need either union consent or the help of a federal bankruptcy judge to impose the cuts on Detroit’s 30,000 current and former employees.”

      http://thinkprogress.org/economy/2013/06/18/2174741/detroit-pension-bankruptcy/

      1. John Mc

        Thanks Sue! We need to make more connections in this process, which is why I love Naomi Klein’s work.

      2. Banger

        It’s not just Detroit there are five other cities run by Emergency Financial Managers who rule by, essentially, decree. This is the model and it has public support.

        1. Patricia

          No it doesn’t, Banger. Emergency managers only have support from those who are right wing or complicit with the so-called elite.

  2. charles 2

    “Right now, the US has about 314 million people, of whom 58.6% or 184 million are currently employed in some capacity. These people generate all of the goods and services that are for sale.”

    No, these people don’t generate alone all the goods and services that are for sale. They also need physical capital. A lot of it. That physical capital can (and should) be owned by inactive people and the share of income allocated to capital (which cannot be free) is what allows them to buy goods and services. It is true that we can’t save much, but we can invest. It is hard, and taking the advice of Wall Street is a bad idea, but thinking that the government can do it for you is an even worse one.

    “But every society has some members who do not work: babies, children, disabled, sick, and elderly. Do we want to live in a world where no one in any of these groups gets anything, except what they can beg, borrow, or steal?”

    Babies and children : there is somebody called family for that,
    Elderly : they had a lifetime to accumulate physical capital that they rent and sell during their inactive years,
    disabled and sick : had to be split between predictable (essentially disability and sickness coming from the fact that one gets older) and not predictable (rare accidents). The first component must be addressed by accumulation of capital, the second by insurance. The latter can be private or public, but anyway it represents a very small part of GDP once age-related effects have been eliminated. The US has it completely backward when it mutualizes healthcare cost for the elderly -through Medicare -, which are completely predictable and has a totally dysfunctional insurance market for younger persons. Medicare for people who are LESS that 65 and only for them would be a much better proposition.

    1. Pokey

      I am always perplexed by this mentality, either oblivious or indifferent to the suffering and oppression of others. We are sending jobs abroad in return for cheap crap at Walmart, making education and healthcare unaffordable, closing the door to opportunity to the young, and now these self-reliants want to recreate the conditions of the 1930′s for the elderly. The failure of the 401K alternative to traditional retirement systems is apparent to anyone who can see. This is the instituted method for the old “to accumulate physical capital that they (can) rent and sell during their inactive years.”

      As others have suggested, we need to curtail corporate welfare, let those who lose gambling with other people’s money suffer severe penalties rather than pay themselves bonuses out of taxpayer bailouts, raise federal taxes on all income over $500,000 a year to at least 50%, eliminate the dystopic reduction in tax of capital gains, raise the income level subject to social security tax, and make Medicare available to everyone. Then we could educate our children without massive sacrifice by parents or massive debt of children, provide decent, affordable health care to most people, and put people to work repairing our crumbling infrastructure.

      1. from Mexico

        It’s like there’s a contest on to see who can carry capitalism to its most degenerate and dystopian extreme.

      2. sue

        Pokey,

        My favorite portion of “formula”, involves scapegoating of VICTIMS of Wall Street economic disaster, just as Yves is pointing out is being done with “Social Security” benefits for retirees.

          1. James Levy

            The fact that there is no way for a family that makes less than 150,000 or so dollars a year to collect capital that can safely return a living income seems utterly lost on people like the above poster. How can any family of four possible accumulate capital that can return a meager living (say 35,000 a year for the couple after retirement) on a media family income of 49,000 dollars a year? Don’t these people crunch the numbers? Do they assume that everyone in America makes a doctor’s salary? You hear such airy proclamations all the time, but they seem completely unhinged from American reality. It boggles my mind.

            1. John

              It’s the brainwashing effect.
              People hear it, so it must be true.
              Proven that if people hear things a few times they believe them even if later they are shown they are lies.

      3. charles 2

        I just said above that taking the advice of Wall Street is a bad idea. Electing representatives that force you to do so is a bad idea too…
        The first physical capital one must acquire is one’s house. Then one should look around and see who needs capital. To take back the example, one cannot save a haircut, but one can own a part of a hairdresser salon. Of course, it supposes that one accepts risk (the hairdresser may be crap) and one looks for investment opportunities inside the community. This is hard. One has to spend time and effort. Cooperative politics is maddening at times. Still I personally believe it is more rewarding financially and humanly than giving the money to the government or wall street and watching TV shows to get busy.

        I am neither oblivious nor indifferent to the suffering of others. I am just aware that most of this suffering stems from perverse incentives. Removing responsibility for old age investment through a system that promotes impossible eternal population growth is amongst the most perverse of all.

        1. James Levy

          I’m sorry, but your formula, “If you were a smart, hard-working risk-taker like me instead of a dumb, lazy person who watches television, you’d be better off without Social Security and Medicare” is that same horseshit that you hear from the Wall Street 1%ers and their apologists and hangers-on. Where is a family of four going to get the money to “invest” in a hairdresser, and what kind of return can they expect on that investment? Enough to fund their retirement?

          If you haven’t noticed, millions of Americans can’t afford to own a home. There are not enough jobs that pay well enough. And there is this little thing called structural unemployment. And there are a fair number of people who do not have the cognitive skill-ability to function as the rational profit maximizers that you demand they be. Such people used to be able to make a living. Today, they cannot, because the decent wage jobs have gone and the rich have so bid up the costs of housing and education that they cannot effectively support a family or get their kids the education that might improve their cognitive functioning. Add environmental factors and poor diet and you get a permanent underclass. And what is your cunning plan for them?

          1. Ché Pasa

            Back in the Old Days, there used to be this thing called The Miracle of Compound Interest by which the non-elite were supposed to be able to accumulate enough “savings” over a lifetime to enable them to live comfortably in Old Age (back then, Social Security paid virtually nothing to recipients — who hadn’t been paying into it all their working lives anyway).

            Of course that’s back when bank savings rates were in the 3% to 4% range, something no American bank has paid depositors for years and years. Last time I checked, the savings rate paid by my credit union was less than a tenth of one percent, and it’s been that way for I don’t know how long.

            So this “miracle” is no longer operative. As for C2′s recommendations for accumulation, good luck has more to do with success in his endeavor than hard work. He wants you to play the casino… if you win the crapshoot, who’s to complain?

            If you lose, too bad, so sad. Shoulda been smarter, right?

            1. Walter

              I think Charles is dishonest in is argument, and most progressives do not understand him. What the Randian types like, what turns them on, is Social Darwinism. Its not enough to win, others must loose. The suffering of the poor is not only acceptable but moral. Morality, in their eyes, is determined by the ability to survive in the dog eat dog world of free market fundamentalism. If an individual does not have the skills to be a successful psychopath, then said individual has no moral right to a safety net, and his or her destruction is desirable.

            2. Moneta

              I was a young teen when I heard about the boomers and the baby bust that followed. It’s always been clear to me that for a decade or 2, there would not be enough “producers” to cope for the ageing population.

              I have been expecting this for 30 years and we are here now. I am not a genius and I try to understand why I am one of the only ones who expected this to happen.

              The numbers were all there for everyone to see. If you want food, you don’t bake bricks.

              I knew everyone would be angry. How sad.

          2. Procopius

            Where is a family of four going to get the money to “invest” in a hairdresser,…

            Why, they can borrow it from their parents, obviously.

          3. charles 2

            As the irish joke says : “I wouldn’t start from there”. The family of four you refer to should be a family of two (or one if you are thinking about a single parent with three kids). If one cannot afford to put a down payment on a home, why take the much bigger responsibility to have a child ? A commenter below says I am a psychopath. Well, for me, the psychopaths are the ones who have kids while expecting that strangers or the “miracle of perpetual compounded interest without risk” is going to give them a future.

        2. Pokey

          “Removing responsibility for old age investment through a system that promotes impossible eternal population growth is amongst the most perverse of all.”

          Now, that’s perverse. How does an old person trying to escape poverty promote population growth? Oh. I get it now. The poor old bastard is breathing too much of your air and needs to die.

      4. Moneta

        This is the hot potato.

        There has been malinvestment for over 30 years which has drastically accelerated over the last 10-15. Malinvestment guarantees that some group WILL end up with the short end of the stick.

        Many here seem to believe there is some magic formula that can offer a win-win solution. Well, the world is not currently structured like that. It is currently skewed, meaning some group will have to sacrifice some wealth for the betterment of society. But many that could help still don’t see a problem.

        Who will it be?

      5. Kokuanani

        ***The failure of the 401K alternative to traditional retirement systems is apparent to anyone who can see.
        ****

        I think it will take only a few more years for folks to realize what a colossal failure 401(k)s and their ilk are: once people actually have to withdraw $$ from those funds and attempt to live on it.

        Even if people continue to work and “contribute,” they need to DO THE MATH: even if folks were so fortunate as to have $500,000 in an IRA [more likely $100K or $200K] that amount is NOT going to generate enough money to live on in retirement, even if we’re lucky and social security is still around.

        Also don’t forget that money pulled out of an IRA is taxable, so don’t think you’ll be getting that full $10,000 or so.

        However, I fear it’s going to take far more people living under bridges before anyone wakes up to this. And, wait, even more bridges will have collapsed by then as well.

    2. Foy

      “Babies and children : there is somebody called family for that,
      Elderly : they had a lifetime to accumulate physical capital that they rent and sell during their inactive years,
      disabled and sick : had to be split between predictable (essentially disability and sickness coming from the fact that one gets older) and not predictable (rare accidents). The first component must be addressed by accumulation of capital, the second by insurance.”

      That is the coldest paragraph I’ve read in a while… basically saying if you didn’t make it in life (for whatever reason) like I have, no excuses, join that scrap heap over there and starve…

    3. Foy

      Here’s one small problem (among a number) with that whole argument. Given that a level of unemployment is effectively forced by The Fed through its use of an unemployment buffer to moderate inflation (its faulty NAIRU policy), for some portion of the population it will be impossible to get a job at any point in time – the jobs simply can’t exist. And the longer you’re unemployed the harder it is get a job again. Then you’re marginalised.

      Very hard to accumulate capital when you are in this unfortunate position. But sorry, us successful accumulators are throwing you on the scrap heap regardless.
      And I’m not sure how much capital one can accumulate on $7.25 per hour minimum wage these days either…sorry for you too, your scrapheap is over there as well…sigh…

      Silly me, I mistook this jungle that we apparently now live in to be a society.

  3. Adriannzinha

    SS has been probably the most successful government program in contemporary history benefiting those in the greatest need. That of course guarantees that it must be gutted and raided by wall street.

    I know some here are not inclined to spend time listening to financial pundits and the other clowns on say, CNBC, but it’s well worth a look. You’ll hear commentator after commentator make overt references to the need for ‘fiscal and entitlement’ reform.

    There is a well-advanced agenda for this and we’ve already seen trial balloons to push it going back to Bush II. It is happening even now in incremental steps the latest of which is turning SS into a poverty program in the spirit of welfare by the use of means testing.

    Obama has made gutting entitlements one of his most sought after prizes, if not the outright biggest one.

    Which is why friends, I believe we’ll go with door # 2: Wall Street will get it’s grubby paws on SS within 15 years.

    1. AbyNormal

      its simple really…the CPI cunnilingus proves corporates desire for more welfare. let ‘fiscal and entitlement’ reform begin with THEM:

      “direct and indirect subsidies to large corporations take $6,000 a year out of the average family’s bank account.
      The payments to big businesses from the average household making $72,000 a year include:

      $870 worth of direct subsidies and grants to companies. The figure is based on work by the Cato Institute. This is cash directly paid to corporations by the federal government.

      $696 in “incentives” that state and local governments give to large corporations. The incentives are mostly tax breaks for everything from movie production to building big box stores. This estimate is based on a New York Times investigation that found corporations received $80.4 billion worth of such incentives. Times reporters believe the actual value of such incentives is much higher.

      $722 in interest rate subsidies for banks (which already receive 83 billion in taxpayer funding as reported by Anthony Gucciardi)

      $350 in bank fees related to retirement funds.

      $1,268 because of needless price increases on prescription drugs. The price increases are created by patent monopolies granted to large pharmaceutical companies that stifle competition.

      $870 in additional taxes to make up for tax breaks given to large corporations.

      $1,231 to make up for tax revenues companies and wealthy individuals didn’t pay because they keep money overseas in so-called tax havens.

      The really bothersome aspect to this story is that Bucheit’s estimate is probably too low. The actual cost of corporate welfare could be much higher because he only counts direct and indirect subsidies.

      He doesn’t add government contracts, government purchases of goods from corporations, low fees on mining claims and government services, and free services the government provides to business. Nor does he mention corporations that benefit from welfare programs, such as retailers whose low-paid workers receive food stamps.

      The true cost of corporate welfare is high and growing every day. Unfortunately, Congress doesn’t seem to be dedicated to curbing this outrage only in giving more of our money to big business and the rich.
      http://www.storyleak.com/corporate-welfare-costs-average-american-family-6000-year/

      “Power is every stealing from the many to the few.”
      Wendell Phillips

      1. from Mexico

        Yep.

        When the anti-government crowd talks about “drowning the government in a a bathtub,” they certainly don’t have in mind euthanizing that part of government which lavishes such bountiful largess on transnational corporations.

      2. Chauncey Gardiner

        Aby,

        Thanks for Phillips’ quote: …”Power is every stealing from the many to the few.” Agree. Their efforts to gradually undo the Social Security and Medicare social contract are just one of their many lines of attack in the class war they have initiated.

        There are many accounts of tools being used in the massive ongoing thefts perpetrated by a very small segment of our society. Some of the effects of their related subsequent imposition of Austerity policies they have to used to deflect attention from their crimes, cover their tracks, and consolidate their wealth are linked below:

        http://www.theguardian.com/commentisfree/2013/nov/04/great-austerity-shell-game

        http://www.marketwatch.com/story/i-was-right-under-obama-spending-has-been-flat-2013-11-06

        http://www.occupy.com/article/ellen-brown-bank-guarantee-bankrupted-ireland

        Besides increased government fiscal spending (including Social Security outlays), suggested political solutions include taxing them of their enormous ill gotten personal financial gains, appropriating funds in their offshore accounts, imposing capital controls to deny them funding to further corrupt our legislators and to neuter their political power, reinstating the Glass-Steagall Act, and enforcing the rule of law and regulations including criminal prosecutions where racketeering, control fraud, securities fraud, price fixing, predatory lending, etc. have occurred.

        Clearly We the People need to recapture political control to implement these measures. To succeed in this we need assistance of key constituencies. Who will they be?

    2. from Mexico

      Adriannzinha says:

      Which is why friends, I believe we’ll go with door # 2: Wall Street will get it’s grubby paws on SS within 15 years.

      Do you think we will make it another 15 years without another leg down on the Great Recession?

      If we do experience another leg down, I think all bets are off, both economically and politically.

      1. Procopius

        Maybe so. I’ve been surprised at the ability of the 0.01% to keep the suffering on the current leg so well hidden. If you go back and look at the newspapers in 1930-33, they were filled with stories about soup kitchens, guys selling apples on the street, bank runs, Wall Streeters jumping from tall buildings (oh, how I wish…). None of that since 2008. The classic movie Treasure of the Sierra Madres was about American guys who GO TO MEXICO TO FIND WORK! Granted, it was made in 1947, but I was 10 years old then and believe me memories of the horrors of the Great Depression were still vivid. I’ve come to the conclusion that the frayed remains of the measures FDR and his people put in place have worked well enough to prevent an equivalent amount of suffering. And that’s what we need, an equivalent amount of visible suffering. Something so bad that people will once again say to their friends, “Why don’t you stay for supper? We can put some more water in the soup.” Maybe the next leg down will provide that, especially as the elite continue working to destroy the safety net that protects them from “social unrest.”

    3. Alexa

      Agreed.

      But don’t think that it will take that long.

      Senator Harkin has hatched up an “opt-out” retirement account (for individuals not already enrolled in an approved retirement plan).

      Which is not to say that I don’t want to see everyone have a retirement plan, outside of Social Security.

      But please, after the ACA fiasco, could Democratic Party Elites really be serious about mandating (even partially) another program? Jeeeezzzzz!!!!!

      So, I’m left ‘wondering’ if there is a two-prong, or track, process for “going at Social Security.”

      Cut Social Security benefits, at the same time that you set up a “new” type of federally mandated retirement program (for some).

      Remember, the Democrats have gotten by with many of their more conservative agendas by being “pragmatic” and “incrementalists.”

      http://www.huffingtonpost.com/2013/01/26/tom-harkin-retires_n_2558619.html

      From HuffPo:

      He told The Des Moines Register he hopes Democrats pick a nominee who is “smart, savvy, knows how to put together a winning campaign and is a good pragmatic progressive.”

      Apparently, Senator Harkin is calling for a “pragmatic” successor–just what we need!

      ;-D

  4. grayslady

    The author mistakenly equates TANF with food stamps. TANF is Temporary Assistance for Needy Families–the program that Bill Clinton brutally savaged when he was President. If Clinton had done the same thing to food stamps (which the Republicans seem anxious to do), we would have millions of Americans starving right now.

    1. Klassy!

      More accurately, he brutally savaged AFDC and replaced it with TANF which placed lifetime limits on benefits and made it a more onerous process to collect benefits.
      For what purpose? And why did Americans believe that this was going to help them? It’s obvious that the less generous the safety net, the less bargaining power workers have.

  5. Bkrasting

    Lots to disagree with here.

    Yves says:

    “Wall Street desperately wants to get their hands on your Social Security money”

    For many years SS ran big surpluses, and Wall Street surely wanted to get its hands on that savings. George Bush tried to make this happen and failed.

    But that was then, now we have SS that will run a cash deficit in 2013 of $75 Billion! Yves, there is no more surplus that Wall Street can raid. That went away in 2010. So not to worry about Wall Street – it wants nothing to do with SS and its big deficits.

    Yves want to “preserve” SS by raising the cap on earnings:

    “One widespread idea is to raise the cap on the amount of income subject to FICA taxes”

    Sorry Yves, that does not work. There is a formula for what is paid by SS, it is driven by what one contributes. The more you pay in, the more you get out.

    When you raise the cap it increases revenue, but it also increases future liabilities. The numbers are about 2 to 1. For every dollar one puts in, they get $2 back. So when you raise the amount paid, it actually causes SS to get more imbalanced.

    The solution is simple. The cap must be raised AND the formula for benfits must be changed. But if the benefit formula is changed, then SS becomes another wealth transfer mechanism. Should that happen, the popularity of SS will fall in a matter of years. (Check with Coberly on this if don’t believe me).

    I favor the increase in the Cap AND the change in the Formula. I also favor means testing for benefits. But my support for these steps is driven by my conclusion that when these steps are taken, the SS program will lose its legs. So what Yves wants to see happen is exactly the same as what the Koch brothers want to see happen.

    Technical note: Yves says there are 184m people working today and contributing to SS. That is not correct. The number of workers who paid SS taxes in 2012 was 153,632,290. A big difference from the 184m. This number comes from SSA. The link is here:

    http://www.socialsecurity.gov/cgi-bin/netcomp.cgi?year=2012

    I wrote about the report from SSA:

    http://brucekrasting.com/americas-income/

      1. from Mexico

        Now that Bruce Krasting has arrived, the orgy of distortions, half-truths and outright lies can begin in earnest.

          1. Thisson

            Please – this article is not to be taken seriously. It has many errors of omission. For one, the article attempts to justify SS based on the purported fact that many SS dollars go to the disabled. HOWEVER, the article fails to mention that disability fraud is running rampant, and many of those who are receiving this money are thus NOT truly disabled individuals that we should feel compassionate about helping.

            For another thing, the article fails to mention that the actuarial value of benefits typically received is 3x the magnitude of the actuarial value of the contributions.

            And as another point, the article assumes that there is no charity in society other than that compelled by laws such as those implementing SS.

            I was hoping Bruce Krastling would show up to bring some facts into the discussion. His blog has some excellent coverage of the topic.

            Reasonable minds can differ on whether we should have a SS program, and on how to calculate contributions and benefits, but the current system is not sustainable and it’s important to reach agreement concerning what the FACTS are before we argue over how to overhaul the system based on those facts.

            1. Martin Finnucane

              And by “facts”, you mean “lies.” The “disability is rampant with fraud” theme is just that – a big fat lie. But since it’s a lie that only harms the weak, poor, and vulnerable, it is a lie that the likes of Ira Glass can get behind. That’s this American life for ya – crummy and vicious in equal measure. Add crummy and vicious, and you get neoliberalism.

            2. Banger

              I think the issue of disability fraud is extensive and getting worse. Whole economies in rural Kentucky, West Virginia, Tennessee, for example, are fed by false disability claims particularly chronic pain. Gov’t pays for the hillbilly heroin, the doctors prescribe it to people who have no hope of employment to ease their pain (this features in the Hedges/Sacco book Days of Destruction, Days of Revolt). The benefits pay for drugs, groceries and TVs and the funerals of early deaths. I’ve talked to people who live there and that’s what they tell me.

              Fraud and corruption is very deep in this country–much deeper than almost anyone can fathom and it starts at the top and is spreading throughout our culture.

              1. telee

                Once people are placed on the disability roles the are off the unemployment roles. That is one reason the government is encouraging enrollment for disability. Lawyers are advertising for clients to help them get disability in return for payment per person enrolled.

          2. Martin Finnucane

            True, but the mansplanation sounds more robust if the mansplainer can call out a chick by name. Part of the rhetoric of Libertardianism.

        1. craazyboy

          There’s the scary $75 BILLION CASH DEFICIT ! again.

          The SS Trust Fund gets about 4% interest on $2.7 Trillion.

          That calcs out to $108 Billion in interest payments to the fund.

          So for starters, the ex hedge fund manager/ bond guru is deeply concerned that the fund is earning a return on capital. haha.

          Then of course popularity of SS would wane if we took the cap off – among the 1%. We know how they are the only ones that matter.

          1. Bkrasting

            Yes, SS will earn 100b+ in interest. So what?

            The fact is it will run a $75B net cash deficit this year. Do you doubt that?

            The cash deficit wil grow every year for the next 20. It will exceed $200b a year by the end of the decade and then start rising very rapidly. The cash deficit will total $3.5T in less than 20 years. Every penny of this will have to be funded by issuing Debt to the Public. At the end of the 20 years the SSTF will be broke, and at that time all benefits will be cut, across-the board, by 25%. That’s a plan that has warts all over it.

            Is this “scary”? It doesn’t have to be, but it will be unless something is done about it.

            1. skippy

              Bruce its so easy mate… cut the fraud $ boondoggles out of DOD expenditures. Whilst were at it, shit can all the hugely expensive private Army’s.

              Fraud in SS claims… Bawhahahaha~~~ Mate your myopia is showing again. A guy that committed fraud is complaining about fraud – ethics and morality in the neoliberal world sure are fuzzy.

              Skippy… One of the last things that’s not a complete fraud – you want – to turn it into – by privatizing it – BARF~~~.

            2. craazyboy

              “The fact is it will run a $75B net cash deficit this year. Do you doubt that?

              Dunno. You seem to be making up your own financial terms.

              Here’s the 2013 OASDI Trustees Report and it shows an increase in fund assets over the past year.

              I’ll leave it to you to “go figure”.

              http://www.ssa.gov/oact/tr/2013/III_A_cyoper.html#186812

              As far as the “actuarial” projections, SS payments as a percent of GDP go from 5% now to 6% over the next 75 years. The size of the problem is 1% of GDP.

              1. skippy

                As GDP looks to go the way of the dodo, per IMF even, how many years can you even project with it?

                1. craazyboy

                  Yes, well, if the economy collapses permanently, all bets are off.

                  The other criticism of the 10 year CBO forecasts is they have NEVER forecasted a recession.

              2. Bkrasting

                Yes, the problem is about 1% of GDP. But think what you are saying. 1% of GDP is $170 Billion.

                What you suggest is that we raise taxes someplace by another $170B (forever)and the problem is solved. That’s voodoo economics. No one would opt for that big a tax increase to bail out the Baby Boomers.

                1. craazyboy

                  Your so called “red ink” is part of the $100 Billion interest payment to the Trust Fund. The trust fund is still getting larger year over year.

                  As far as the $170B goes, the defense budget alone is $650 Billion. Corporate tax has dropped in half as a percent of overall income tax receipts over the last couple decades. The temporary Bush income tax cuts are still in place for over $400K in income/ year. (I paid the old rate, even made it to 33% for a few years)

                  Whom is bailing out whom?

                  Yes. No problemo I say.

    1. John Mc

      When someone I do not know tells me: “The solution is simple”, I think to

      1. reach for my wallet
      2. turn off the infomercial
      3. tell the child go to bed, we’ll discuss it in the morning
      4. check their credentials against a criminal registry
      5. let the blowhard spill his simple wisdom, it will soon end

    2. curlydan

      I figured Bruce would show up as well, but I’m actually a little shocked that I’m in partial agreement with him. The cap does need to be raised (at higher rates than it currently rises) and some of that increase should flow back to those upon whom the increased cap hits–just make it so that its a net positive for the trust fund.

      I think the cap and formula can be altered enough to make the trust fund by 2030 or 2035 or around then to reduce to nearly $0 but not negative. Bruce’s idea that this undercuts the program and will raise a protest I think will not happen. The current cap only affects at most 6% of contributors (see http://www.ssa.gov/cgi-bin/netcomp.cgi), and changing the cap has the most marginal of effects on take home pay. E.g. increasing the cap $1,000 more each year than currently planned only reduces take home pay by $60 in a single year.

      Basically, it’s a better idea than chained CPI because chained CPI is a real cut while altering the cap and the benefit payout formula can maintain payment levels while just turning the screws slightly on our wealthy friends (OK, me too) at the margins.

      The idea that the cap can be completely lifted (even with payout formula changes) needs to be recognized as a non-starter. That simply won’t fly because it’s an effective 6% tax increase on anyone making $115K+ and probably is more than is needed.–Let’s save that tax increase for Medicare for All (a guy can dream, right)

      1. James Levy

        Curlydan, I had not been able to glean what the proposal to “save” Social Security on offer is here. All I ever hear are cries to cut funding, which is tantamount to hurting poor people. I hear the critique–what is being put forward as the alternative?

        1. curlydan

          I can only summarize the plan of the “Powers That Be” and mine.

          The Powers That Be want to use Chained CPI that reduces the annual cost of living adjustments, compounding over time to reduce payouts by billions. This “saves” Social Security by cutting benefits and hurting those heavily reliant on the program.

          My alternative is to raise the cap on the withholding tax at faster rates than is currently occurring (e.g. take next year’s adjustment and add $1,000 for a number of years) and rebate a bit of the gain back to those paying in. In this way, the Trust Fund has a longer life, the rich are marginally affected (e.g. the compounding hits them bit by bit instead of hitting seniors), the Trust Fund stays positive much longer, and the current CPI adjustment stays the same to maintain current benefit levels. So Social Security is saved by bringing in more money faster from the top earners.

          In ’82 when Greenspan led the commission to “fix” or save Social Security, the wages subject to Soc Security withholding were (I believe) 90% of national income. Today, that figure is at 80% as income has moved from wages to capital gains and other forms of income. So we need to get Social Security back to a state where 90% of income is subject to withholding. Another idea could be adding a Soc Sec withholding tax to non-wage forms of income.

          1. James Levy

            Thank you. It would be better, I think, if we just admitted that we are transferring money to our elderly to support them in their old age. I fear the idea that we owe it to the people who brought us into the world, built everything around us, and kept it from being grabbed by outsiders to take care of them when they are old is passé.

    3. Jerome Armstrong

      “But if the benefit formula is changed, then SS becomes another wealth transfer mechanism. Should that happen, the popularity of SS will fall in a matter of years.”

      But then how does means testing, which you support, not also fall into that trap? I think it does, which is why I wind up being against it too.

      1. Bkrasting

        Means testing does fall into the same trap.

        But what else is being proposed here? Nothing? Just stick your head in a hole and hope it all works out?

        I advocate changes that would take $25,000 out of my pocket for the next (I hope) 20 years. My plan puts $500k of money on the table. I think that money should go to my peers who are not well off.

        And for that view I take grief? Egad…

    4. damian

      Bruce Krasting is a paid promoter for Peterson Foundation who has been bashing SS for years and spewing Peterson paid for think tank research grounded in selective facts and subjective interpretations to reach Peterson conclusions.

      1. Bkrasting

        Sorry pal, I’ve never met Pete, and don’t take anyone’s money. I’m talking my own book here.

        Think what you will (and make up stuff as you please).

  6. TomDority

    Taxes are meant to inhibit an activity.
    Wealth can only be created with labor.
    Money is not wealth.
    Economic rent takes from labor and real capital (machines, paintings, housing etc.) and gives it to rent seekers who are not labor or labor employers (rent seekers do not create wealth!!!!)
    The tax burdens have been shifted to labor, the products of labor(wealth) and real capital. To tax these things is to inhibit these things.
    Taxes have been reduced from economic rent seekers, unearned income, predatory incomes, allowances for tax havens etc. These activities have become de-taxed and thus, less inhibited.
    Therefore and, by this unjust revenue system, money flows into the hands of those who seek economic rent. Change the Tax system to favor wealth creating activities and to de-favor economic rent seeking and, you will have the simple solution to our economic woes, income inequality and other mega-disrupters to life on this planet.

    A ‘Free Market’ (lest we forget) is a market free of economic rent.

    1. from Mexico

      You’re singing my tune, you and Michael Hudson.

      The question still remains though: Is financial capitalism always the natural end-state of capitalism? Wasn’t that what Marx alleged? It’s not a baseless allegation.

      1. Massinissa

        Mexico, Marx never said that, did he? Financial capitalism didn’t exist for pretty much a century after him. He never foresaw that Industrial Capitalists would be supplanted by an even more vulturous group of capitalists.

        What he said was that capitalism would destroy itself. I don’t remember any mention of ‘finance’ capitalism, which did not yet exist.

        But fM I may be wrong?

        1. Ellis

          Marx certainly discusses the role of banks and financial capital. But the domination of financial capital over industrial capital happens at the end of the 19th century. Engels sees it happening, and he discusses the domination of the stock markets.

          Lenin gives a full analysis of this in his book “Imperialism,” which was written in 1915. The book is extremely rich in lessons for today.

        2. from Mexico

          And I suppose it should be added that even the old-guard Keynesians like John Kenneth Galbraith — who “came to save capitalism, not bury it” — acknowledged how inextricably intertwined productive capitalism was with finance capitalism, this from the very birth of capitalism in the 16th century:

          Discovery and conquest set in motion a vast flow of precious metal from America to Europe, and the result was a huge rise in prices — an inflation occasioned by an increase in the supply of the hardest of hard money. Almost no one in Europe was so removed from market influences that he did not feel some consequence in his wage, in what he sold, in whatever trifling thing he had to buy.

          [....]

          The message from the Americas was not one that brought uniform joy. In Spain the new wealth led also to a bidding up of wages; there wages seem to have kept pace, more or less, with prices. Elsewhere in Europe they lagged far behind, differences in population growth being a possible influence. The figures available show only orders of magnitude. Also, in those times, workers, and most notably the many in agriculture, had income that was not part of their money wage. Nevertheless, in England, in the decade from 1673 through 1682, when prices were around three-and-a-half times the pre-Columbian level, it seems probable that wages were only about twice as high. There was a similar discrepancy in France and, it may be assumed, also in the trading cities of the Low Countries and northern Europe.

          Not for the last time — and probably not for the first — inflation had a profound effect on the distribution of income, with a particular tendency to punish most those who had least. The loss of those who received the lagging wages was in turn the gain of those who paid them and received the high and increasing prices. The result was high profits, and the further result was a general quickening of commercial and, in more elementary manifestation, industrial capitalism. Historians have for long talked, often with more grandeur than personal comprehension, of how the American treasure financed, lubricated, stimulated or otherwise enhanced the early development of European capitalism. In one view it was the gold and silver per se that nurtured that capitalism. In fact, it was not the metal but its consequences, and these were not at all mysterious. The high prices and low wages meant high profits. From the high profits came high savings and a strong incentive to their investment. Additionally the rising prices made it easy to make money; to the natural rewards of shrewd trading or efficient manufacture was added the gain, with the passage of time, from the ability to sell the same thing for more. Inflation does lubricate trade but by rescuing traders from their errors of optimism or stupidity. Finally it may be assumed that the easy profits gave easier opportunity to new entrepreneurs who were, as is often the case, more energetic, aggressive or imaginative or less deterred by the impossible than those already in the field. It was thus that American money and the resulting inflation assisted at the birth of European capitalism. Doubtless it would have been born anyway. But there can be no doubt that the assistance was real.

          https://anonfiles.com/file/7401950f3b2717503553dcfb8b51d10a

      2. Banger

        It has to be the end of capitalism–not because of anything Marx said but because this version of financial capitalism adds no value to society. Any system that adds no value cannot last long because people will search elsewhere for value.

        1. Procopius

          Saying finance capitalism adds no value to society is like saying used car salesmen add no value to society. That’s clearly false — they move used cars to people who value them. I believe they do that in ways that often border on the fraudulent, as does finance capitalism, but apparently society finds some net value in what they do.

          1. NotTimothyGeithner

            Much of the financial sector has long since left the realm of used cars.

            Used car salesmen may nab suckers occasionally, but many of them do try to put you in the right car for a reasonable price for a variety of reasons. The financial sector is nothing more than a kleptocracy.

    2. Montanamaven

      I think this is the song I want to sing too. But I’m not clear on all the words. Can I say to people that it makes more sense to tax wealth i.e. assets rather than labor income? Before the “income” tax didn’t we raise revenues through tariffs? What if we created a national bank that loaned out money at nominal interest purely for the making of things that benefited the general welfare like building hospitals and bridges and providing health care. If we got rid of taxes of income, wouldn’t we and the Tea be on the same page?

    3. sue

      Kevin Phillips shows (Nixon’s economist) 2001, “financial services” accounted for 19% of U.S. economy-last year, for nearly 50% of. This is economics based upon paper debt, as Michael Hudson has also noted-Yves posted here.

      As Phillips also shows, economics historically, based upon “paper debt” shuffle,
      is unsustainable-previous historical examples, Netherlands, Spain, Britain, failed economically within 75 years.

      Shift to economic system based upon debt favors only Wall Street banks, who control debt-profiting from; whether using to speculate (securitized) and or “leveraged” or monopolized.

    4. Thisson

      I agree with you to the extent that your argument is that one form of income (rentier income) should not be privileged by the tax code over another form of income (wages from labor).

  7. Ellis

    Social Security benefits are already being cut. First of all, the famous “reform” enacted under Reagan and Tip O’Neill is raising the age for full retirement from 65 to 67. This cuts benefits for everyone by a lot. If you take early retirement, your benefits are cut by as much as one-third. Or else, you have to work an extra two years to get full benefits. The other big way has been all of the previous “adjustments” to the cost of living formula. And there are a lot of other ways. For example, they now tax benefits if you make more than $25,000 per year. People also have to wait six more months before they get their cost of living adjustments, etc.

    All of this money that is taken from seniors is being handed over to the capitalist class in the form of more tax breaks, subsidies, etc.

    In 2011, Obama cynically spelled out how he wanted to carry out the latest attack: “The way to do it is similar to the way Ronald Reagan and Tip O’Neill fixed Social Security back in 1983. They said, ‘Okay, we’ll make some modest adjustments that are phased in over a very long period of time. Most folks don’t notice them.’”

    That’s exactly what they are doing.

    1. Jagger

      I just looked it up. You are right about the change to 67 for full SS benefits. People born in 1960 or later who claim SS before 67 will only receive a percentage of their full benefits. That is so screwed up.

    2. Kokuanani

      Another element of the “full retirement age” trick is that the effect is another windfall for the rich, who need it least.

      Under current rules, you can begin claiming your social security benefits “early,” i.e., before your “full retirement age,” BUT you are penalized in that you don’t get 100% of what you’d be entitled to if you waited.

      OTOH, if you wait until a year or two AFTER your full retirement age, your benefits are boosted.

      Think about it: who needs to claim social security benefits “early:” those in stressful jobs, in which they may have been disabled or injured; those who’ve lost their jobs and can’t find another at age 60, so feel lucky to grab those benefits at 62. But they get less than “full” benefits.

      Who can afford to wait and NOT claim benefits until 69 or 70 [and thus take advantage of the increased amount]? Rich guys who don’t need the money. So they get MORE, based solely on their financial good fortune.

      1. John Yard

        …. if you wait until a year or two AFTER your full retirement age, your benefits are boosted.

        Not really. Remember , if you die before taking SS at this later age, you have lost those years of income. The potentially lost income and the income ‘gained’ by waiting
        some number of years, exactly averages out.

        The potential gain is exactly offset by the potential loss.

  8. Craig Jackson

    Hi. This is my first post on your site though I have “lurked” for a few years. I have what I consider to be a sound proposal to “save” Social Security. It involves a series of steps. 1) Make the SSA a quasi-governmental agency similar to the post office but with one difference. It has the authority to print money in the amount equivalent to the SS benefits prescribed by the US Congress, plus a small fixed percentage management fee set by Congress. 2) Cancel the intragovernmental debt between the SSA and federal government. 3) Congress then sets the benefits “in stone” based on expected retirement needs. 4) Rescind SS taxes. In one fell swoop SS is placed on a firm footing, and 1/3 of the government debt is wiped out.

  9. Jim

    You have forgotten the 2 for 1 sale. For every dollar spent of social security the elderly create two dollars of benefit. A quote from the SSA.
    So killing SSA is a benefit for the folks of Wall Street. 7%. well, whatever would “have to be invested” since banks do pay minimum interest. And you may be the one to cash out before the street goes bust again. Ah, gambeling with a future again.

  10. ep3

    Yves, I believe you forgot to include another reason why cuts happen. Everyone receives SS. But say that we impose a cap on who can receive those benefits. We start the cap really high, to affect those persons that wouldn’t need SS anyway. But over the course of years, we lower that cap slowly so that in 30 years, incomes below that 2% start getting hit. They start to say “well this doesn’t benefit me anymore so the only ppl getting this are lazy ppl”. This group of upper top middle income earners starts to use their financial political power to fight against the benefit. This campaign influences the lower tiers (mostly your working poor conservatives) who then go along with this con. The cap is lowered even more. And on it goes. The cap is lowered and the benefit requirements are restricted until the only persons who benefit are the ones who don’t work. Then the program is put to the chopping block.
    Just look at food stamps and unemployment. People using those programs have to meet such strict income requirements that they cannot work and then supplement their meager wages with the benefits. So these folks don’t work. But they are criticized and called “lazy cadillac queens”. I know Americans like to be able to see that they get some benefit from a program (except new roads). yet they never appreciate that the program may need to help them someday.

  11. allis

    Could someone explain how Social Security works? It seems to me that our SS taxes, above those used to pay current retirees, are placed in the Social Security fund. This fund is invested in government bonds. As long as current SS taxes are sufficient to pay out current benefits there is no problem. But once the fund itself, paid for by the excess SS taxes of previous years, has to be used, then what? It seems to me that when government bonds in the Social Security fund will be redeemed, then taxes must pay for this redemption. Wouldn’t using the Social Security accumulated funds (government bonds) to pay out current benefits require tax increases to redeem the bonds? Is this analysis wrong? And if so, how?

    1. Moneta

      What’s in the fund does not matter. What matters is what is getting produced in the economy that those SS benefits are going to buy.

      If they print money in such a ways where no one feels like working, there won’t be 1 chicken in every retiree’s pot.

      IMO, our leaders should have thought of that 20-30 years ago. Instead they focused on McMansions and cars.

      Even if they start investing properly now, the fruits of our labor won’t sprout for another decade. And IMO, they are still far from making efficient investment decisions because the banks have not been cleaned out yet.

      As long as we’re focusing on paper wealth, we’re stuck.

    2. Jeremy Grimm

      Every time I write a comment I envy Yves Smith’s facility and skill at writing. A few lines are Herculean labors to me, not to mention my own limitations in understanding much of the complex information she presents.

      1. Jermey Grimm

        @allis How does SS work? It’s a transfer fund to those no longer working (who reached retirement age which seems ever increasing even as more and more jobs deliberately shed their employees over 40). Where does the $$ come from? In a fully employed economy the funds come from a nominal tax on those employed. The tax only impacts the income below that level needed to support a middle class life style, anywhere except in an extremely low cost area of the United States. However, when this tax was created, its purpose was not really to fund social security. Then as now, and as in far too many years we have enjoyed far less than full employment of people and capital, so that the tax served the purpose of creating a seeming tie of ownership between recipients and the funding of social security, a proprietary interest so to speak. Social security served our interests in keeping our elderly out of the work force, ‘reasonably’ (where the term reason must be given a very broad meaning) supported and not incidentally helping to boost the demand for goods and services thereby helping to maintain employment. A further good derived from SS is that those of us with elderly parents aren’t so heavily burdened with supporting them in addition to supporting our children, two concerns that seem to grow in weight quite out of proportion with inflation.

        When there’s not full employment then what? Well the contention of MMT theorists (and I agree 110%) is that there are plenty of unconsumed goods and services in the economy and the elderly and those who cannot (and in some cases really should not) be employed receive a nominal level of support from the otherwise wasted capacity in our economy — no taxes or SS ‘savings’ required. [If I may digress -- I have relatives on SS, earlier than retirement age that should not be employed -- unless you enjoy the kind of service Obamacare might postchild for. They are nice people but I wouldn't want them doing any work that might affect anything outside the office where they might be employed and I shudder to think of having to deal with them over a service counter of any kind.] I have absolutely no problem with supporting these people from the unused surplus in our current economy (may help keep me employed) and at much higher levels than they are currently. For those more and more infrequent times when we have full employment, I cannot grudge helping the elderly and infirm. I pity the soul of anyone who could. [As for those in the upper income levels so intent on not supporting, indeed on exploiting our elderly -- well are there no prisons?]
        Anyway — that’s how I understand social security.

    3. Jeremy Grimm

      One more try — FYI be absolutely sure that your Name, email, and website are correct or your comment may be lost.

      How does SS work? It’s a transfer fund to those no longer working (who reached retirement age which seems ever increasing even as more and more jobs deliberately shed their employees over 40). Where does the $$ come from? In a fully employed economy the funds come from a nominal tax on those employed. The tax only impacts the income below that level needed to support a middle class life style, anywhere except in an extremely low cost area of the United States. However, when this tax was created, its purpose was not really to fund social security. Then as now, and as in far too many years we have enjoyed far less than full employment of people and capital, so that the tax served the purpose of creating a seeming tie of ownership between recipients and the funding of social security, a proprietary interest so to speak. Social security served our interests in keeping our elderly out of the work force, ‘reasonably’ (where the term reason must be given a very broad meaning) supported and not incidentally helping to boost the demand for goods and services thereby helping to maintain employment. A further good derived from SS is that those of us with elderly parents aren’t so heavily burdened with supporting them in addition to supporting our children, two concerns that seem to grow in weight quite out of proportion with inflation.

      When there’s not full employment then what? Well the contention of MMT theorists (and I agree 110%) is that there are plenty of unconsumed goods and services in the economy and the elderly and those who cannot (and in some cases really should not) be employed receive a nominal level of support from the otherwise wasted capacity in our economy — no taxes or SS ‘savings’ required. [If I may digress -- I have relatives on SS, earlier than retirement age that should not be employed -- unless you enjoy the kind of service Obamacare might postchild for. They are nice people but I wouldn't want them doing any work that might affect anything outside the office where they might be employed and I shudder to think of having to deal with them over a service counter of any kind.] I have absolutely no problem with supporting these people from the unused surplus in our current economy (may help keep me employed) and at much higher levels than they are currently. For those more and more infrequent times when we have full employment, I cannot grudge helping the elderly and infirm. I pity the soul of anyone who could. [As for those in the upper income levels so intent on not supporting, indeed on exploiting our elderly -- well are there no prisons?]

      Anyway — that’s how I understand social security.

  12. JTFaraday

    I don’t think these appalling rates of elderly poverty are any kind of support for the contention that SS was “effective.”

    Are we sure the author is not in denial? Because, honestly, reading this unsubstantiated cheerleading for everyone’s favorite public policy is getting a little surreal.

    1. James Levy

      Here are the numbers you are looking for:

      http://www.nber.org/bah/summer04/w10466.html

      As you can see, poverty among the elderly has gone down, and they have not been hit with the upsurges in poverty that children and the poor suffer through in economic downturns.

      Tip of the hat to from Mexico for forcing me to get a hold of such numbers.

  13. djrichard

    The Fed Gov has taken a position regarding the deficit and that is that it’s “bad news” – deficit spending is a bad thing and increasing debt is even worse. Part of this is driven by bad economic thinking. But I think a larger part of this is the powers that be welcome this “bad news” in that it can be used as a club to legitimize decisions on who loses.

    So if your ox is gored, “too bad, but how else are we going to deal with this band news”?

    And if your ox gets blessed, “that’s because of legitimate reasons withstanding the bad news”.

    Take away the “bad news” and government has a harder time justifying that there needs to be losers. [And if we all win, then everybody loses, right? People keep saying that, so it must be true.]

    1. Banger

      I believe the agenda of the ruling elites is to avoid the innovation that would occur if capital was available. I believe that capital would be used to dramatically increase energy efficiency, scientific research, implementation of “smart” technological solutions in all industries thus creating a boom in innovation and wealth for all of us.

      The world the current elites want is completely different. They don’t want people liberated from fear, poverty, stress they want a stable steady-state feudal system that rewards the already rich and limits innovation as much as possible to keep the lower orders cowed and willing to do “anything” to please their masters. Innovations like the iPhone are the tip of the iceberg in what is possible to do with todays rapidly maturing technologies most of which are being repressed or ignored.

      1. Jeremy Grimm

        I second that!!!!! Every time I hear about how the US is an innovation nation I feel sick. My employer makes claim over all my intellectual property, with no reservations. I wasn’t paid to invent or create and for the most part those activities are harshly discouraged. Indeed independent thought is punished to the full limits. Innovation poses a threat to capital, to existing ways. It’s only welcome after all the physical capital has played out and the past costs of invention are fully amortized.

      2. charles 2

        Actually, you can separate the elite in two groups. One is exactly how you describe it, and the other is keen on developping all the wonderful technology you refer to, but with a twist : What they are seeking is that the “people” that is needed by the first group to produce the goods, is not even needed by the second. It is not their intention to give wealth to all because at 5.8 billion and counting, the earth cannot carry it.

  14. optimader

    For instance, if the price of steak goes up people will switch to chicken. While this makes sense for some things, it doesn’t for others.

    The chicken and steak example is a fairly bad meme. The enemy of fixed income is inflation.

    The price of chicken and steak (or pork, fish) is not necessarily a zero sum equation. If the cost for the factors of production inflate (feed, fuel, production infrastructure) its reflected in the cost of both chicken and beef. Chicken/beef arbitrage is pretty much limited to opportunities of market production miscalculation, no?
    Ultimately the real alternative for fixed income is katfood

  15. Moneta

    There are about 62 million US retirees or disabled persons. What we do is enact some type of tax on the workers that reduces their income. Now all of the workers can consume only a fraction of the total goods and services available. We also have the government pay out some type of income to the 62 million retirees and disabled persons. They can then use this money to consume the leftover goods and services that are not consumed by the workers.
    ———
    Ok. So you have students who are full of debt, underemployed and can’t default. Obamacare set to bleed the young and healthy so the sick and elderly can get care. And taxes should go up to pay for SS…

    All in the goal of creating jobs for the young while everyone skims their earnings?

    Ya. Right. That’s all going to work out. LOL!

    http://newsfeed.time.com/2013/10/22/japans-hottest-new-sex-trend-is-not-having-sex/

  16. NoGig

    Are we poor and hungry enough yet? Are there any particularly good reasons not to get the revolution underway?

  17. bluntobj

    I noted that everyone accepted the premise of the article that the social security trust fund could be taken over and managed by wall street.

    The “Trust Fund” is a filing cabinet of non-redeemable, not transferrable treasury notes that cannot be sold or traded on the market. They aren’t really debt of the Treasury yet.

    The “deficit” in social security would be covered by taking those special notes, transfer them to the fed, then have the fed exchange them with the Treasury which would issue T-bills, bonds, notes, etc., which would then be sold on the open market for cash, which would then go to the fed to pay social security payments. (I may not have the exact mechanics down, feel free to correct, but it gets to the same place.)

    In short, you would have to take the entire SS trust fund, convert it into treasury debt, and sell it on the open market before it would be “privatized.”

    Such an action would look awfully like global thermonuclear financial warfare, I think. Even if it was performed over time, it would take years, effectively doubling QEnfinity amounts. After all, what’s another $100 billion or so a month, eh?

    It might prove keynes was a complete ass if it was done all at once, and krugman as well, for that matter.

  18. washunate

    Yves, very thought provoking piece. I’d offer up a couple additional/different perspectives:

    1) The fundamental problem is not public opinion about Social Security. The broad concept of a safety net that provides unemployment insurance, retirement, and health care is quite popular, across ages and political affiliation. Rather, our problem is precisely the opposite – our political class doesn’t represent the public.

    2) Our current system involves tremendous fraud, waste, and oppression. This must be changed or the only possible outcome is ‘generational warfare’, because the young are already being preyed upon, in aggregate, by the old, from wage stagnation to massive inflation in higher education, housing, and healthcare to the overt authoritarianism of the two-tiered justice system.

    3) The complexity of the programs shows why a streamlined system would be much better. The more alphabet soup of programs that exist, from TANF to SNAP to LIHEAP to Medicaid to Section 8 to SHP to HVRP to LIHTC and so on, the harder it is to ensure a fair and efficient system. Replacing our entire system of “welfare” and “tax credits” with universal unemployment insurance and universal health insurance would be vastly superior.

  19. ScottB

    “Chained CPI is a twist on regular CPI in that it assumes that when the price of one good goes up people will substitute a cheaper good. For instance, if the price of steak goes up people will switch to chicken.”

    No, no, no. Go to bls.gov and read the methodology. This is a gross misstatement.

    Does that mean chained CPI should be used? No, we need a deflator that measures what is happening with the cost of living for the elderly.

    And to “rescue” Social Security? If wage growth had kept up with productivity increases, we wouldn’t be having this conversation. Re-regulate the financial sector, enforce anti-trust laws, support the growth of unions, change trade pacts, and maybe we’ll see real wage growth again.

  20. Teejay

    By keeping unemployment as high as possible and wages and
    hours worked per week (eg. Aetna is hiring more part time temps) as low as possible helps starve the SS “beast”.

  21. Harry Bassett

    It seems like almost no one remembers that Social Security retirement had its COLA “fixed” during the Clinton admin. In 1995 republicans in Congress were concerned that the annual cost of living adjustment for Social Security threatened the Social Security trust fund balance due to the ever escalating cost of benefits.

    President Clinton brought in Michael Boskin, an economist, to analyze the SS cost of living adjustment. The Boskin Commission was formed to study the problem of reducing the cost of living measurement. The commission developed the concepts of substitution, weighting and hedonics to juggle the items in the CPI market basket to understate inflation in the US economy.

    The new CPI calculation methods in the Boskin Commission’s final report were approved by Congress and adopted by the BLS and SSA in 1996.  For the past 16 years the annual Social Security COLA has been understated by about 3% each year.  This affects both current retirees and workers who will be starting their SS retirement benefits in the future.
    Applying another round of voodoo economics to the COLA calculation would be another step toward the new feudalism for retirees and working Americans.

    See http://www.ritholtz.com/ blog/ 2010/ 01/ why-michael-boskin-deserves-our-contempt/

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