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Originally Posted by
BRussell 
Nick,
here are recent projections on social security. Here's the basic figure:
What it shows is that, under the intermediate projections, we'd have to raise taxes by 1% or 2% of GDP, from about 5% to 6% or 7%, and not cut any benefits at all. Or we could cut benefits by that same amount, or meet somewhere in the middle. That's easily doable.
But there's something else that's important: It turns out that the intermediate projection (the line in the middle)
has always been too pessimistic.. The social security trustees who do these reports are notoriously conservative in their projections. Most likely, we'll be at the low end of the range, and probably lower than that. That's the bottom of the shaded area. So the most likely scenario is that social security is absolutely fine forever.
I think people like Samuelson know this, which is why they combine social security with health costs, which does need to be reformed. And we know reform is possible, because every other wealthy country spends about half of what we do.
[edit] I just wanted to add this to put the revenues into perspective: Bush's tax cuts reduced revenues by about 3% of GDP, which is
about twice as much as we'd have to raise to make social security solvent indefinitely. And that's under the usually-pessimistic intermediate projections.
First you go to Mr. Langer's website and every article, all by him state the same thing. Social Security good and this is because he believes the government will properly honor the bonds in the trust fund. How will he honor them? Let me quote him. I could get into him not believing the government's own numbers, but that can occur latter.
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Withdrawals from the trust fund are expected to start in 2015. Where will Treasury get the money? You usually hear about three possibilities--raise taxes, chop benefits or cut deeply into other spending. But there's a fourth option: the government could borrow some of the money. In fact, that's a strong argument for repaying the debt that's held by the public today. By greatly reducing what we owe, we'll be in good shape if we want to reborrow in the future.
Which one of those sounds tolerable to you? Raising the taxes insane amounts, chopping the benefits... I thought we didn't have to do that because it was sounds, cutting all other spending, or finding some more nut jobs to loan us even MORE money.
Now you claim the Bush tax cuts were 3% GDP (I've read a little over 2) and that we only need to raise taxes 2% or so of GDP to make the system sound. This presume that the trust fund actually held assets paying interest instead of government debt. The government needs to first stop spending the surplus and using it to mask to deficit. In addition to our current deficit spending ($200-400 billion a year) we HIDE another $200 billion or so by spending excess Social Security contributions by issuing bonds and spending the cash.
These little changes add up.
2% of GDP... service Social Security ($260 billion or so)
2%-4% of GDP... stop current deficit spending
1.5% of GDP...replace tax revenue for spending that is currently occurring and being funded by excess SS
1.5% of GDP...actually begin paying back bonds in trust fund.
We are talking a minimum of 7% GDP or possibly 9% GDP. None of this actually pays down the national debt. It is what is necessary simply stop accumulating and hiding the current excessive spending.
We could argue a bit about those numbers sure. Like perhaps we don't need to stop deficit spending which would knock us down to say, 5% GDP tax increase. Of course this presumes anyone politically or in reality would buy into a 5% GDP tax increase to continue to add to the national debt.
Then we could move on to Medicare which is actually around 400% worse off. This is why Kotlikoff notes that the government labels are not grounded in sound economic science.
Should we mention that 77 million or so boomers or so are moving, for the most part, off the tax rolls. They may owe some taxes which reduce their transfer payments and so forth, but their primary earning days will be over. The revenues, the massive bulge they've caused in terms of tax revenues and income will be gone as well. All these tax increases will fall on younger earners almost exclusively and there are far fewer of them.
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Originally Posted by
SDW2001
Well, the government is not a corporation. It's credit is secured by it's unlimited taxing power. So defining it as "broke" is a bit extreme.
Kotlikoff notes that the fiscal gap is 5 times GDP and 1.2 times all private sector wealth. Since they obviously cannot take 120% of all wealth for example, that is broke. If they were to take all wealth created by the economy for multiple years, much like corporations with supply and demand, people would stop generating wealth to simply have it all taken away. People would stop working if they were simply enslaved to the government.
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There is no solution? Please. There hasn't been one because we're not there yet. A solution will have to be found, unless we start selling off monuments to the Chinese. Things never get done until they have to. I don't accept that there is no solution.
No one can stop the march of time and it is entirely possible for a country, or portion of the population to put themselves into a permanently untenable position. Regardless of the government position the collective actions of the boomers have doomed them as well. As a nation they took us form net savers to net debtors. They are rolling toward retirement with fewer saved assets, owning less of their home with regard to equity and percentage, more obese and in worse health.
Kotlikoff and you I suppose note that the solution that would work would be for later generations to take on massive tax rates or to basically spend their lives and perhaps the lives of their children correcting how the Boomers lived their lives, paying their mistakes, etc. That is already highly unlikely, yet if we add to this the fact that the boomers will still hold the reins in terms of shear numbers, votes and thus government and it will become intolerable.
It would be akin to you having a mother or mother-in-law who squandered her entire ability to earn wealth and even the wealth in her home. Since her house is going back to the bank you build her a mother's quarters off the rear of your home. She declares she cannot deal with a reduced standard of living and moves you into while taking the main home. She then demands to determine that you need to work overtime to finance her continued lifestyle of living beyond her means, and finally declares herself entitled to 80% of your take home pay, all while leaving you with the bills.
How long do you think that would last? Is there a possible solution? Sure, but when the solution is "we screwed ourselves and now would like to screw you over as well." that won't fly.
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I do agree about the raiding of the trust fund. The only way to stop that is to cut federal spending dramatically. Good luck with that.
Good luck indeed.
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It could be in place. If we're going to keep the current system, we need to fund it differently.
How do we fund it differently?
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We have a Republican President in name only. He's a spending whore. As for cuts, well they may not be considered impossible once we have no other choice. That's what I'm saying.
They will still be impossible. They will simply print money. If boomers haven't been willing to confront their own lack of savings, debtor status, through their whole lives, they won't start when they are most insecure and weakest. The government will run the printing presses. They already do.
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SS is taking in far more than it pays out. For now. Granted, that surplus is being spent, which is a serious problem. But it's solvent in that it's not a debt-creating entity in itself. Not yet.
It is only solvent because the boomer bulge is paying into it while not drawing from it. The second you reverse that is the second it becomes insolvent.
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Don't be condescending. A more viable analogy would be a guy who has a negative amortization loan at $2000 a month. But that payment will double when the loan hits 125% of it's original value, making is payment $4000. He has $3000 to spend on his housing payment now, so he's fine. When the cap kicks in, he won't be fine. He either has to make more money or take other drastic action. Of course, he also has $90,000 in a home equity loan which he often uses to pay his payments on his $20,000 credit card bill. He is able to pay his other bills...for now. So yes, he's solvent. He just has a shitload of debt and big storm coming.
That analogy is somewhat accurate but let me point out the manner in which it is most inaccurate. This guy you hypothesize about, wants to keep the house and won't walk away from it. In reality, if your good analogy were real then when the shit hits the fan, he would just walk away. Boomers cannot walk away from their retirement.
Second thing is this, how does he pay for this home he wants to keep once the fan is hit, he doesn't put his kids on the title, but demands and has confiscated their earnings to make his house payment.
That is the coming generational storm. If boomers could walk away from their bad decisions and just have no retirement, that would be one thing. They will keep the house, and make their kids pay for the bad mortgage. They will vote in numbers and confiscate the earnings of their children and grandchildren.
Nick
