Social Security: Why mess with an American Success Story?
Posted: December 10, 2010 Filed under: Catfood Commission, legislation, POTUS, The Bonus Class, U.S. Economy, Voter Ignorance | Tags: Clinton Obama presser, payroll tax holiday, Social Security 54 Comments
I spent most of the day listening to the Bernie Sanders show, but stories of the joint Clinton/Obama presser that turned into the Bill Clinton show grabbed my interest. I have more than a passing interest in Social Security. I haven’t paid into it for about 15 years, but I have an exhusband who has and I have 20 years worth of dibs on his account. I’m a tailend boomer with a much smaller nest egg post Financial Crisis than pre Financial Crisis. Ex Hubby’s social security and his pension plan loom on my horizon. They stop me from having bag lady nightmares.
So, what’s all this talk about a payroll tax holiday and why, all the sudden, is the Cat Food Commission’s foray into social security creeping me out? Well, for one I think that a lot of people–including the President–don’t seem to get social security, its history, its issues, and its challenges and that always irks me. For another, I think it opens this trap door to having more of my future Shanghaied. I don’t want any more of anything related to my future going off to Shanghai.
So, since the President–among others–is spreading disinformation about the Social Security program, I thought I’d take the time to remind you that I wrote a four part series on Social Security in May 2009. If you want a little background and perspective, you can go check it out. (Fortunately, it’s here in the file cabinet portion of Sky Dancing.) It is all based on Academic work and people that do active research on the program, its solvency, and its issues.
First, here’s a list of links to those old posts of mine:
Social Security: Reform, Refund or Opt-Out (Part 1) Introduction
Social Security: Reform, Refund or Opt-Out (Part 2) Public Pension Concepts and Alternatives
Social Security: Reform, Refund or Opt-Out? (Part 3) Lessons from the World
Social Security: Reform, Refund, or Opt Out? (Part 4) What to do when Pensions are out of balance
I wanted to point these out since I don’t want to completely reinvent the conversation here. The government has a website that it dedicated solely to the Social Security Act of 1935. There are still many, many people that do a lot of research in the area. Here is a link to one of the new studies that looks at the impact of increasing the level of maximum earnings subject to Social Security and its impact on the program. This is one of the things that is being suggested to increase funding for social security. Here is a brief from the National Academy of Social Insurance that looks at various funding formulas. This group is actually associated with actuaries so it is quite statistics intensive. Findings specific to this brief are:
- The number of Social Security beneficiaries per 100 covered workers will increase from 30 in 2005 to 46 in 2030 and to 50 in 2050.
- Social Security benefits will rise from 4.3 percent as a share of the total economy today to 6.1 percent in 2030.
- When baby boomers are retired, the total number of people each worker supports(including workers themselves, children, retirees, and other nonworking adults) will not be as large as it was when the baby boomers were children.
- As a share of the total economy, spending for Social Security benefits when baby boomers are retired will grow less than spending for public education grew when baby boomers were children.
- While baby boomers may have been a surprise when they turned up in record numbers to enroll in kindergarten in the 1950s, their retirement six decades later is not. Policymakers began to plan as early as 1983, when Congress lowered the cost of Social Security benefits for boomers and later generations by raising the age at which unreduced retirement benefits will be paid.
- Workers’ wages are projected to grow in real terms (that is, faster than inflation). By 2030, real wages will increase 33 percent. Even if policymakers chose to balance Social Security’s finances solely by a tax rate increase, workers’ net wages (after paying the higher tax) would still be 28 percent higher than they are today.
- While earnings that are taxed to pay for Social Security represent 38 percent of the total economy, other national income is not taxed for Social Security purposes.
- Broadening the tax base, reducing scheduled benefits, raising the Social Security tax rate, or allocating other kinds of revenue to Social Security are ways to improve Social Security finances.
So, you can see this isn’t an urgent issue right now. I guess my point is that the ‘sudden’ urgency we seem to have with social security is not something out of the blue and it’s not something that hasn’t been discussed, planned for, or actually worked on. As recently as August, the President himself gave a speech saying just these things which is why I am so confused about the Cat Food Commission’s dalliance with the program.
President Obama said Social Security is not in crisis and only modest changes are needed to keep it solvent.
The president acknowledged at a small town hall gathering in Columbus, Ohio, Wednesday that the pension fund “has to be tweaked because the population is getting older” but said Republicans’ plans to drastically overhaul the program are wrong.
“Social Security is not in crisis,” Obama said. “We’re going to have to make some modest adjustments in order to strengthen it.”
I also wanted to bring up a little bit on the idea of Payroll Tax Holidays and that bizarre Clinton/Obama presser today. I’m even more confused by this sudden urge to create a payroll tax holiday. This is an odd thing.
The tax deal reached between President Obama and congressional Republicans could mean a higher tax bill for roughly one in three workers as a result of the Social Security tax cut Republicans pushed as a replacement for the current Making Work Pay tax credit.
The Making Work Pay credit gives workers up to $400, paid out at 8 percent of income, meaning that anybody making at least $5,000 gets the full amount — and gets as much as anybody else. Its replacement knocks two percentage points off the payroll tax cut, meaning a worker would need to make $20,000 to get a $400 break. Of the nation’s roughly 150 million workers, around 50 million make less than $20,000 and will see at least some increase as a result.
Additionally, roughly a quarter of 20 million state and local workers pay no payroll tax, because they have a separate pension system. Some of those workers with children will benefit from the extension of other tax credits, but overall will have less money in their pocket.
Rep. Raul Grijalva (D-Ariz.), co-chair of the Congressional Progressive Caucus, said many House liberals were opposed to the payroll tax cut because of its effect on the poorest workers. Progressives are also concerned that the tax cut will become permanent and undermine Social Security’s funding stream and political support over time.
Social Security is a stand alone program. Mixing it as part of a goodie bag with other tax things doesn’t strike me as a very good idea from a political standpoint. It’s not part of the general budget. It’s a form of insurance. We (or in my case, my exhusband mostly) paid into it. Why mix it up with other tax give aways?
I did go hunting about for information on Payroll Tax Holidays to see if they really could stimulate the economy effectively. One of my issues is that I know that the FICA taxes are regressive because of the maximum income ceiling so I thought that the spending impact couldn’t be very large. So, it seems like getting rid of some of those taxes really gives more to the rich than the poor. Rich folks really aren’t very reliable spenders. Turns out, my hunch was studied and released in early 2009 at CBPP. They basically say that the biggest benefits would go to workers least likely to spend the money. That also seems to be every one’s take on this program. Also, there are people like me who worked for states and municipalities that don’t do Social Security. We don’t get a thing from this.
A payroll tax holiday, however, would both be costly — a two-month suspension could cost about $120 billion, for example — and likely relatively ineffective as a stimulus measure. Public resources would be better spent on stimulus measures with a higher “bang for the buck,” such as the Making Work Pay tax cut that President-elect Obama has proposed.
Economic stimulus measures aim to encourage an immediate increase in aggregate demand by boosting consumer spending. The most efficient way to boost consumer spending is to put money into the hands of people who will spend it quickly rather than save it; tax cuts focused on moderate- and low-income households are more effective as stimulus than tax cuts that are larger for people with higher incomes, because people at low-income levels spend a larger share of tax cuts they receive than people at higher income levels do.
A payroll tax holiday does not score well on this front — too little of the benefit goes to lower-income households struggling to make ends meet and too much goes to higher-income taxpayers, who are likely to save a significant fraction of any new resources they receive. Under the payroll tax, employees pay tax of 6.2 percent on earnings up to $106,800. So, for example, a worker earning $10,000 would receive a tax cut of just $103 from a two-month payroll tax holiday, while a worker earning ten times as much ($100,000) would receive a tax cut ten times as big — $1,030. Indeed, the highest-income fifth of households could receive more than half of the benefits that would go to workers from a two-month payroll tax holiday.
So, when President Clinton got up to day in a presser with Obama to support this comprise deal, I was really confused. It seemed like a double play triangulation move with a snagglepuss type-exit stage-left by POTUS. You can say a lot about Clinton–both good and bad–but he does understand his economic theory. Why would he support this?
Clinton comfortably outlined how the pending package of tax cuts, business incentives and unemployment benefits would boost the economy – even though it included tax help for the wealthy that Obama had to swallow.
“There’s never a perfect bipartisan bill in the eyes of a partisan,” Clinton said. “But I really believe this will be a significant net-plus for the country.”
When he finished his pitch, Clinton played the role of humble guy, saying, “So, for whatever it’s worth, that’s what I think.”
So, it all boils down to what can we get something past the Republicans? This entire deal puts Social Security in an awkward light. It also uses money for a payroll tax holiday that probably isn’t as efficacious as it could be if put to other uses. It also plays into the idea that giving taxes back to rich people stimulates the economy enough (VOODOO economics). It also indicates that playing up to adherents of VooDoo economics is worth adding to the deficit and to the problems with the deficit and the challenges social security faces in the future. It sets them up to make bigger arguments down the line.
I guess after reviewing everything, I just don’t see how this is worth it. Passing all of this because it’s the best you can do given the state of the Republican Klan in Kongress just isn’t good enough for me. It opens up too many issues in other areas. However, this is the graph they’re circulating as a White House talking point to show how Obama got the better deal. This is the graph that has Charles Krauthammer’s tie in a too tight double Windsor knot so much that Clinton brought it up.
peej
Carissa
bostonboomer
ecocatwoman
mablue2
peggysue22
quixote
skydancingguestblogger
Mona (aka Wonk the Vote)
Sky Dancing 
Like Bush, I switch the TV when Obama is on. Today, when I saw Clinton with Obama, I was disappointed and still turned off the TV and turned on the radio for christmas music.
In subsequent thinking, I find it amusing that Obama had to get Clinton in to make his argument. That is a clear admission that in addition to the Republicans getting Obama boxed in, he could not explain himself our of a paper bag. I could not help but being reminded on how Clinton turned the tables on the Republicans. He had the benefit of having Newt Gingrich who was a policy wonk want to be. I do not remember the details, but Clinton got the Repulicans into the box of shutting the government down and Clinton called them on it and won. Do we think Obama has that spine?
A similar stage was set here, with a bunch of Republican legislator want to be’s and they rolled Obama. More over Obama had to get Clinton in and stand with him to make the best case for a bad deal.
In the end the deficit and debt continue to drastically increase and now it is the Obama and Democratic debt also. Before this it was clarly the George Bush debt because Clinton had the deficits down to near zero and things went to hell in a handbasket as soon as Bush took office.
Clinton developed a plan to recovery and it worked despite the Republican Congress. Do any of us think Obama has a plan? Will he be able to sell it to the Republicans? I think not, because up to now they just have to say “Boo” and Obama folds.
Shouldn’t that “Payroll Tax Holiday” in the blue column really belong over in the Red column? Along with part of the “Making Work Pay” section?
Since working Americans will get the short end of the stick on those if this thing passes. Or am I confused?
That’s what got me about the entire damned chart. It seems to me that the ethanol subsidies belong there too and earned income tax credit AND the equipment expensing. I noticed the ethanol corn grower subsidies were referred to as ‘renewable energy grants’.
Yea, right, did you see who in congress gets subsidies? I forget where the video was, but it might have been on the TYT.
That’s a hell of a way to define “renewable energy.” {{{spits}}}
yup, ‘grants’ is the DCspeak for Pork, I guess
I am confused about the Payroll Tax Holiday thingie. When this was first announced everything I read indicated that employees (only) would get the 2% reduction on their deposits to SS, but employers would still have to pay the full 6.2% on wages.
Tonight Chris Matthews said twice during his show that the employers “will use their 2% savings” to hire more employees or purchase equipment, etc. The general conversations I am hearing now seem to be indicating that both employers and employees get the 2% discount.
I feel this will blow a giant hole through the entire SS program.
Does anyone know for sure if employers also get the 2% discount?
Exactly! Then they will call for and END to social security and blame everything on it. I still say, if they want two WARS, then pass a WAR TAX! The wars are causing great harm to our economy and it is getting us more hate, than it is doing anything positive in my humble opinion.
That small amount wouldn’t cause a business to hire someone. If they want to help business, then they should look at the Public Option (only plan that will be competitive and bring health insurance cost down and keep them from sky rocketing) and at the high cost of worker’s comp.
http://www.huffingtonpost.com/miles-mogulescu/you-gotta-know-when-to-ho_b_795078.html
The AP is saying the add-ons are turning the tax cut bill into a christmas tree
http://news.yahoo.com/s/ap/20101210/ap_on_re_us/us_tax_cuts_219
It doesn’t apply to employers. Chris Matthews is an idiot.
The first time Tweety said it I just thought he was wrong. But when they didn’t speak in his ear and tell him he screwed up and then he subsequently repeated it I thought maybe I was wrong.
I am an “employer” but for the long term health of SS I don’t want employers to get the 2% off. The 2% for employees will create enough of a problem for the program.
The only employer stuff I see is from the hire act
BB,
Check this out:
In a book about Sumerian culture it mentioned an ancient society/culture in the area, and said some migrated North. Any hoo, I thought it might interest you.
I’m very confused too. According to this article as the GDP grows it’s suppose to help everybody, giving more money to hire people, and having more money to spend.
http://www.businessinsider.com/deutsche-bank-explains-why-the-payroll-tax-holiday-is-a-game-changer-and-could-push-gdp-to-41-2010-12
yes, it does … but the income it generates doesn’t always impact every one the same
And no prizes for figuring out what group ends up with the most money!
Yup, the way we’ve set things up now, the money doesn’t go to labor, it goes to capital and it goes to the sr. management. That wouldn’t happen if we had really competitive markets instead of government setting up protection for oligopolies and creating monopolies.
Okay, has anyone found an actual copy of the Tax Deal? I found a summary but I am curious if a copy has been presented to the public. (I have been away from the house all day so I may have missed it.)
The deal was just a “framework” according to Obama. I don’t know if anything has been written down yet.
So then we really don’t know what is in there then? The summary I saw has been updated…More Tax Deal Details | Jamie Dupree Washington Insider
I think some of it is still in flux because the dems in congress have issues.
I guess NASCAR is getting some sort of benefit for this…
Sec. 738. 7-year recovery period for motorsports entertainment complexes.
Not sure what that is all about…
I don’t think Bill was thrilled with the bill, but he seemed to be saying that it’s the best that can be done now, and if we wait until January, what gets passed will be even worse for working people. If the Dems had come up with something when they had a majority, before they were lame ducks, maybe we could have had a better bill. He also seems to be saying that it’s a good idea to bank some bipartisan good will now, before the Republicans take over the House.
If the Dems lose more and the presidency, these abominations will be made permanent.
http://www.financialfeed.net/tax-cut-deal-favorable-for-high-income-households/851068/
From the same source (accountants basically)
Maybe He’s tweety’s talking about the HIRE act?
The Estate Tax Bill has been introduced.
“Estate Tax Bill Introduced, Containing More Pleasant Surprises for Rich”
un fuckin’ believable
http://www.elderlawanswers.com/resources/article.asp?id=8822&Section=4&state=
Get a bucket to throw up in before you read this.
Oh, that’s the most outrageous part to this deal as far as I’m concerned. One out of four children require food stamps in this country but lil Paris Hilton can get more money for her cocaine and designer shoes habit.
The retroactive provision should be referred to as –
“The George Steinbrenner Provision”
They should just call the whole bill –
“The Death but No Taxes Bill”
Hey Dak, I have a question about the SS thing. What do you think could happen to it, are you talking privatizing it? Who would benefit if they did do privatize Social Security? I mean, if the HCR that Obama passed enriches the Insurance Co. then it would not be much of a leap for him to do what the GOP has wanted to do for a long time.
Has this been brought up already? Tax deal like a bait and switch mortgage – The Hill's Congress Blog
If it has, sorry…
And then I found this from back in Aug. Privatize Social Security–Who Wants That? | The Atlantic Wire
I think they have to sneak privatization in a backdoor some where since the issue looked dead even with dubya pandering for it a few years back. The wall street crash should kill the notion that the privat sector can deliver consistent good returns. My links discuss some of these issues. Especially part one.
From a political standpoint don’t you think that soon after January of 2011 the Repubs will begin to hammer on the income redistribution aspect of SS?
I don’t think most people are currently aware that although regressive on the front end it is progressive on the back end. Frank Luntz can provide them with the catch phrases that will whip up some nonsense that will help them with their objective to take down the program.
OTH – if they push to privatize a percentage of the fund then it seems they would not want to deplete it.
Yes. Unless this sudden change of strategy by the Democrats has made them all find their spines.
Thanks, I am glad you kept them in the file cabinet…
I tried to put most of them here that were related to economics. I’m glad I did too. It’s weird to go back to see what I wrote that long ago.
I just did a quick review of the (4) posts that dak wrote back in May of 2009. They are really informative and, as usual for dak, written in such a way that even I can understand.
Thx. They come from a lit survey I wrote then broke apart for my students.
OT: Senators introduce new bill to end 'don't ask, don't tell'
“Initiated by Sens. Joseph I. Lieberman (I-Conn.) and Susan Collins (R-Maine) a day after supporters of repeal saw their efforts defeated for the second time this year, the new bill uses the same language that had been tucked into the defense authorization bill.”
I found the press conference unsettling. There is just something not right about a president abdicating the podium for an ex-president and then leaving the room.
Yup, and Gibbsy couldn’t get Clinton away from the microphone. It was very very odd.
Yea, it was weird. Wonder if we are going to get government by proxy, like when Reagan started to get ill.
Even the Republican blogs are blinking. I just got tweeted this HOT AIR headline from a big Democratic Donor! (sigh)
check to see if Leonard Nimoy has a goatee please!!!
And the excuse he gave…doesn’t want to keep Michelle waiting…talk about being “whipped.”
Great post Kat!
ty
The entire thing was extraordinary! I think it was a huge mistake on Obama’s part. I know we’re going to see it in political ads and hear snarky remarks in debates as well. This guy can’t even lead his own party, he surely cannot lead the country.
Too add to the total weirdness..after I moved back to federal service along with my partner our income will go up by almost 5K just by this tax relief. To be honest I have no intention on spending it, but plan to add it to the IRA account or increase our contribution to the tsp account.
I don’t really see this bill is as stimulative except for maybe China or more jobs without benefits at Walmart..
It doesn’t do anything for me.
Hey Dak, The Associated Press: Add-ons turn tax cut bill into 'Christmas tree'
“In the spirit of the holiday season, President Barack Obama’s tax-cut deal with Republicans is becoming a Christmas tree tinseled with gifts for lobbyists and lawmakers.”
Don’t forget those lumps of coal for the rest of us!