In 1983, Alan Greenspan negotiated a deal to fortify Social Security (slightly-longer lifetimes than planned due to lower infant mortality were weakening the program) by raising payroll taxes. In exchange for providing more money to the government while the Baby Boom was in its working years, the Baby Boom would be able to draw money from general governmental revenue after 2011, once that generation began to retire. It was understood at the time that that process would require a tax hike after 2011 in order to cover the additional expense.
But after having squandered that extra revenue in the intervening 28 years on the Iraq War, and various useless armaments, the American rich are balking at the understood tax increase. The American people did their part - they worked hard these last 28 years - but the rich want to welsh on their obligation, and they'll do anything and say anything to shirk their duty. Examples abound:
On his New York Times blog, Paul Krugman dissects the Catch-22 logic behind the Post’s bogus crisis. You can’t simultaneously argue “that the trust fund is meaningless, because SS is just part of the budget, then claim that some crisis arises when receipts fall short of payments, because SS is a standalone program.” For practical purposes, it’s got to be one or the other.
So is Social Security a “Ponzi scheme”? No, it’s group insurance, not an investment. You die young, somebody else benefits. Its finances have been open public record since 1936. Do fewer workers support each beneficiary? Sure, but who cares? It’s denominated in dollars, not a head count. The boomers were nearing 40 when the Reagan administration fixed the actuarial tables. No surprises there.
Are longer life expectancies screwing up the numbers? Not really. Most of the rise is explained by lower infant and child mortality, not by old-timers overstaying their welcome. Kevin Drum points out that gradually raising the payroll tax 1 percent and doubling the earnings cap over 20 years would make Social Security solvent forever
We keep hearing that the process of drawing money from governmental revenue is a fatal catastrophe that will destroy Social Security, when, in fact, it was planned a long time ago, and isn't fatal at all. So, in response to this supposed crisis, Obama lowered payroll taxes, which really does threaten Social Security! Like, WTF!
It's like the pilots on Air France 447, back in 2009, who misinterpreted the signals they were getting from their aircraft, and caused them to take a perfectly-functional airliner and force it into the Atlantic Ocean. If we don't get a grip, we'll do that to Social Security too! And it will all be totally unnecessary, and helpful only to handful of rich people on Wall Street! It will mean the end of the American middle class too, as collateral damage. We'll be ruled no different than Banana Republics after that.
Here is a link that gets it partly right and partly wrong: part of the real problem these days:
Last year, as a debate over the runaway national debt gathered steam in Washington, Social Security passed a treacherous milestone. It went “cash negative.”
For most of its 75-year history, the program had paid its own way through a dedicated stream of payroll taxes, even generating huge surpluses for the past two decades. But in 2010, under the strain of a recession that caused tax revenue to plummet, the cost of benefits outstripped tax collections for the first time since the early 1980s.
Social Security, until now a huge lender to the government, will begin demanding repayment to its trust fund to cover the shortfall. If fully repaid, the trust fund can fully finance benefits until 2036, when people currently about 40 years old will begin to retire. Once the trust fund runs out, monthly benefits will decrease by about a quarter.
...Now, Social Security is sucking money out of the Treasury. This year, it will add a projected $46 billion to the nation’s budget problems, according to projections by system trustees. Replacing cash lost to a one-year payroll tax holiday will require an additional $105 billion. If the payroll tax break is expanded next year, as President Obama has proposed, Social Security will need an extra $267 billion to pay promised benefits.
...Social Security is hardly the biggest drain on the budget. But unless Congress acts, its finances will continue to deteriorate as the rising tide of baby boomers begins claiming benefits. The $2.6 trillion Social Security trust fund will provide little relief. The government has borrowed every cent and now must raise taxes, cut spending or borrow more heavily from outside investors to keep benefit checks flowing.
... A spokesman said Reid stands by his comments and his view that Social Security is entirely self-financed. But Reid’s position has frustrated some Democrats who argue that fixing Social Security — the government’s single-largest program — would go a long way toward restoring confidence among future retirees and the nation’s investors.
“It’s the one thing I’ve had the most difficult time grasping,” said Erskine Bowles, the former Clinton White House chief of staff who co-chaired Obama’s fiscal panel with former GOP senator Alan Simpson.
The Bowles-Simpson plan would have righted the system’s finances with a combination of payroll tax increases and reductions in scheduled benefits, mainly years down the road. It would have hit upper-income workers while raising benefits for the most needy, those with average lifetime earnings of less than $11,000 a year. “By making these relatively small changes, you make it solvent and you make it be there for people who depend on it,” Bowles said. “I thought that’s what we as Democrats were supposed to be for.”
Just as the GOP has rejected any form of tax increase to contain the debt, however, Reid and House Minority Leader Nancy Pelosi (D-Calif.) have ruled out any reduction in government retirement benefits. Last week, Reid softened his stand, backing a Democratic proposal to the supercommittee that included the change in the Social Security inflation index. In return, however, Democrats demanded $1.3 trillion in new tax revenue — which Republicans instantly rejected, leaving the ideological divide as wide as ever.
Even that modest change to Social Security is drawing fire, however, from a powerful network of organizations representing the elderly, unionized workers and traditional liberals. For years, these groups have cast any proposal to trim the growth in retirement benefits as unnecessary — and as a mean-spirited attack on the elderly.
In recent weeks, AARP, the nation’s largest and most influential seniors organization, has been airing television ads in which an older man warns viewers that “some in Washington want to make a deal cutting the Social Security and Medicare benefits we worked for,” instead of cutting “waste and loopholes.” AARP’s legislative director, David Certner, said the ads reflect the popular view that Social Security should not be dragged into a separate debate over the nation’s escalating debt.
“We paid into these programs all our lives,” he said. “This is our money. Congress has no business cutting into this program.”
...Created during the Great Depression, Social Security grew in popularity as Congress repeatedly raised benefits through the 1950s and 1960s and then, in the 1970s, set initial benefits to rise automatically with wages and with inflation thereafter.
Those changes made the program vastly more expensive than the “old age and survivors” insurance originally envisioned by President Franklin D. Roosevelt. He wanted to protect workers and their families from financial hardship due to death, disability or aging. Retirement benefits were available at 65, at a time when life expectancy was significantly lower than today.
“The American social insurance plan works on the assumption that I will work, make meaningful contributions and, if I face one of these common tragedies of life — unemployment, disability, impending death — collectively we’re going to pool the risk together,” said Andy Achenbaum, a University of Houston professor who has written extensively about Social Security. But, he said, “I really was expected to work as long as I could contribute.”
That began to change as the concept of retirement gripped the public imagination, Achenbaum said. In the 1950s, financial executives began trying to persuade people to “invest” in their retirement, making it something to save for, like a new car. The 1960s gave rise to the “Golden Years,” a concept popularized by housing developer Del Webb, who broke ground for his first leisure community in Sun City, Ariz., in 1961.
Congress aided the transformation, enacting an “early eligibility age” that permitted qualified workers to claim Social Security benefits at age 62.
Retirement was no longer viewed as a brief period of rest at the end of life. It became an integral element of the American dream, said author Marc Freedman, who has studied the cultural history of retirement. “People scrimped and saved and deferred gratification to get to it as soon as possible — not even 65 or 62, but in your 50s,” Freedman said. “That became the definition of success: Whoever gets there first, wins.”
The average age for claiming Social Security benefits dropped from 68 in 1940 to 63 in 1980, where it remains. Meanwhile, average life expectancy has risen by five years. The average worker spends 20 years drawing benefits. A quarter will see their 90th birthday.
As a result, the average retirees have gotten back far more in federal benefits than they paid into the system during their working life, according to research by Eugene Steuerle, a senior fellow at the Urban Institute. That return is diminishing, in part because people today have paid more into the system than previous generations. But a two-earner, middle-income couple retiring this year can expect to get $913,000 in Social Security and Medicare benefits over their lifetimes, in return for $717,000 in payroll taxes.
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