Our Social Security System is in trouble

[tonado]

Our Social Security System will belly up when we retire.

 

 

 

--------------------------------------------------------------------------------

Greenspan urges Congress to deal with deficit by cutting future Social Security benefits

By Martin Crutsinger, Associated Press, 2/25/2004

 

WASHINGTON (AP) -- Federal Reserve Chairman Alan Greenspan urged Congress on Wednesday to deal with the country's escalating budget deficit by cutting benefits for future Social Security retirees. Without action, he warned, long-term interest rates would rise, seriously harming the economy.

 

In testimony before the House Budget Committee, Greenspan said the current deficit situation, with a projected record red ink of $521 billion this year, will worsen dramatically once the baby boom generation starts becoming eligible for Social Security benefits in just four years.

 

He said the prospect of the retirement of 77 million baby boomers will radically change the mix of people working and paying into the Social Security retirement fund and those drawing benefits from the fund.

 

"This dramatic demographic change is certain to place enormous demands on our nation's resources -- demands we will almost surely be unable to meet unless action is taken," Greenspan said. "For a variety of reasons, that action is better taken as soon as possible."

 

But while Greenspan urged urgency, Congress is unlikely to take up the controversial issue of cutting Social Security benefits in an election year.

 

Greenspan, who turns 78 next week, said that the benefits now received by current retirees should not be touched but he suggested trimming benefits for future retirees and doing it soon enough so that they could begin making adjustments to their own finances to better prepare for retirement.

 

Greenspan did not rule out using tax increases to deal with the looming crisis in Social Security, but he said that tax hikes should only be considered after every effort had been made to trim benefits.

 

"I am just basically saying that we are overcommitted at this stage," Greenspan said in response to committee questions. "It is important that we tell people who are about to retire what it is they will have." He warned that the government should not "promise more than we are able to deliver."

 

While the country is currently enjoying the lowest interest rates in more than four-decades, Greenspan warned that this situation will not last forever. He said financial markets will begin pushing long-term interest rates higher if investors do not see progress being made in dealing with the projected huge deficits that will occur once the baby boomers begin retiring.

 

"We are going to be confronted ... in a few years with an upward ratcheting of long-term interest rates which will be very debilitating for long-term growth," Greenspan told the committee if the deficit problem is not addressed.

 

Greenspan suggested two ways that benefits could be trimmed. He said that the annual cost-of-living adjustments for those receiving benefits could be made using a new version of the Consumer Price Index called the chain-weighted index, which gives lower readings on inflation.

 

He also said that the age for retirement should be indexed in some way to take into account longer lifespans. He noted that presently the age for being able to get full Social Security benefits is rising from 65 to 67 as one of the changes Congress adopted in the mid-1980s, based on recommendations of a commission Greenspan chaired. In his testimony, Greenspan said Congress should go further and index the retirement age so that it will keep rising.

 

As he has in the past, Greenspan called on Congress to reinstitute rules that require any future tax cuts to be paid for either by spending cuts or increases in other taxes.

 

While that would erect a high hurdle to President Bush's call for making his 2001 and 2003 tax cuts permanent, estimated to cost at least $1 trillion over a decade, Greenspan again repeated his belief that spending cuts rather than tax increases were the best way to deal with the exploding deficit.

 

While not ruling out totally the use of tax increases to deal with at least part of the looming surge in spending on Social Security, Medicare and other entitlement programs, Greenspan urged caution in increasing taxes.

 

"Tax rate increases of sufficient dimension to deal with our looming fiscal problems arguably pose significant risks to economic growth and the revenue base," Greenspan said. "The exact magnitude of such risks is very difficult to estimate, but they are of enough concern, in my judgment, to warrant aiming to close the fiscal gap primarily, if not wholly, from the outlay side."

[warpedbored]

Very sobering reading. To think that just 4 years ago we had a balanced budget and were paying on the debt. The current administrations policy of tax cuts for the wealthy combined with massive military spending is obviously not working.

 

ROSS PEROT in 2004

 

http://www.runrossrun.com/images/ross_perot_sr.jpg

 

If you care about these issues, then ROSS PEROT

is your man:

The Federal Deficit, Illegal Immigration, Social Security, Campaign Finance Reform, the Military, America.

 

If you want an individual with -

Character, Integrity, and Honesty -

then ROSS PEROT is your man.

[keelec]

As he has in the past, Greenspan called on Congress to reinstitute rules that require any future tax cuts to be paid for either by spending cuts or increases in other taxes.

At least someone in our govt has figured out that we can't always cut taxes and increase spending and balance the budget..... MR. BUSH, PLEASE READ !!!!!!!

[keelec]

Ok, here is the "Crash" that is going to hit us.

 

http://www.cbo.gov/docimages/321301.gif

 

Notice between 2010 and 2030, the ratio from "retired" and "workers" to shift from about 20% to 40%.

 

If social security is to continue to be funded as it is now, then a much bigger chunk of my wages will have to go out to Social Security.....

 

Here is a shorter prediction of the expected increase in spending which I presume independent of or otherwise adjusted for inflation (without significantly increasing the population that will be paying for it). It is unlikely that the spending will peak for another 5 to 10 years after the end of the chart.

 

http://www.cbo.gov/docimages/321302.gif

 

Ok, around 2015, if we keep similar spending, the cost of social security will exceed income. And, this deficit spending could potentially continue forever, until the coffers are empty.

 

http://www.ssa.gov/OACT/TR/TR03/images/II_project_IID6.gif

 

Ok, here is a picture of the likelihood of when Social Security will crash. I guess I don't have to worry about anything beyond 2070 because I will likely be too old to care at that time. However, if it crashes between 2030 and 2050, it would definately make a difference to me. And, of course, the next generation will be hurting.

 

http://www.ssa.gov/OACT/TR/TR03/images/VI_stochastic_VIE1.gif

 

Perhaps the big issue is whether there is or will actually be any money left in the SS trust fund in 2010 when we will start needing it, or if the REPUBLICANS will have already emptied the trust fund.... Thus, leading to a much earlier crash (sorry, I had to add that in).

 

See the attached reports for some interesting graphs and discussions (I looked at the pictures and didn't read all of the text).http://www.cbo.gov/showdoc.cfm?index=3213&sequence=2&from=0

http://www.kc.frb.org/spch&bio/colorado200...orumsco03pp.pdf

http://www.ssa.gov/OACT/TR/TR03/II_project.html

http://www.ssa.gov/OACT/TR/TR03/VI_stochas...ic.html#wp94108

[keelec]

This article seems to have some of the ideas I was considering.

http://www.cbo.gov/showdoc.cfm?index=3213&...quence=2&from=0

 

One of the issues that the article doesn't discuss is that currently social security runs somewhat like a savings (but not nearly as well managed). The more one pays in, the more one gets out.

 

I.E. If one person averages 20K / yr during the working years, the social security payment will be far lower than the person who averages 80K / yr. However, the person with the higher income during the working years likely has more assets and savings, and thus is less dependent on social security.

 

One of the first things that I see will get cut is those individuals who have private savings to suppliment social security will get far fewer benefits from the government.

 

------ Clifford ------

 

Issues to Consider in Reforming Social Security

 

Several aspects of the Social Security program and its outlook as the population ages are especially important in considering changes to the program. First, throughout its long history, Social Security has had multiple goals--some related to redistributing income among or within generations, others related to providing insurance to offset lost earnings. Policymakers will need to decide whether those goals are still appropriate and, if so, how changes to Social Security would aid or hinder the achievement of those goals and would affect various types of beneficiaries and taxpayers. Those decisions will also need to take into account the dramatic increase in the elderly population that is expected in coming decades.

 

Second, issues about how to prepare for an aging population ultimately concern the amount of goods and services the economy will produce and how they will be distributed, not how much money is credited to the Social Security trust funds. In that sense, the projected depletion of those funds--which is the focus of much of the popular debate about Social Security's future--is irrelevant. The challenge of adjusting to an aging population would need to be faced even if the trust funds never existed.

 

Third, deciding how to prepare for an aging population is likely to require weighing the interests of today's workers and Social Security beneficiaries against the interests of future workers and beneficiaries. No matter how it is packaged, any plan to increase national saving today means that the U.S. population will consume fewer goods and services now so that consumption can be greater in the future, when a larger share of the population is retired. Gone are the days when expansion of the labor force could pay for the growth of Social Security benefits. As the Congress looks at policy changes, one consideration is that future workers and Social Security beneficiaries are likely to have higher standards of living, on average, than current workers and beneficiaries do, because of future increases in productivity.

 

 

Strategies for Preparing the Nation

 

The 107th Congress has inherited Social Security reform as a major item on its agenda. Like previous Congresses, it faces projections that payments from the government to the elderly will rise sharply as a share of the economy over the next 30 years. Spending more on the elderly may be appropriate given the large increase in the older population, but questions can be raised about how much that spending should rise. Policymakers have many goals, but if they want to limit the growth of spending on the elderly as a share of the economy, they can do so in only two ways: either by slowing the growth of total payments to the elderly or by increasing the rate of growth of the economy.

 

Different options for reform would have different effects on economic growth. To the extent that they boosted the future size of the economy and increased the nation's accumulation of assets, they could lessen the burden on future workers of government programs that serve the elderly. In essence, the accumulation of assets "prefunds" the future spending of retired baby boomers (as explained in Box 2). That action would reduce the relative costs of an aging population to future generations by reducing payments to retirees as a share of the economy.

 

 

Policymakers could attempt to increase the size of the economy in several ways: by running budget surpluses or promoting private saving (which can make more funds available for investment in business equipment, structures, and other types of capital); by changing tax and regulatory policies to improve the efficiency of the economy or to boost people's incentives to work or improve their skills; or by spending money on government programs that are oriented toward investment rather than current consumption. In addition, some changes to the Social Security program could have positive effects on economic growth. For example, cutting future benefits might create incentives for workers to save more.

 

Chapter 4 of this report focuses on three strategies that have generated a lot of public attention: saving budget surpluses and using them to pay down federal debt; using those surpluses to create private retirement accounts; and making changes to the benefits or revenues of the current Social Security program. Those various approaches are not mutually exclusive; they could be combined in any number of ways.

 

Save Budget Surpluses

 

One strategy for preparing for the needs of an aging population is to preserve the federal government's annual budget surpluses and pay down the federal debt. If the government continues to spend less than it receives in revenues, it can increase national saving (if private saving does not fall to offset the government's saving), boost the stock of private capital, and expand the future size of the economy. By saving the surpluses, policymakers would have more flexibility for dealing with unexpected developments, and future workers could be better prepared to bear the heightened burden of making payments to an aging population.

 

CBO projects that if current laws and policies do not change, surpluses would be large enough to pay off all of the federal debt available for redemption by 2010.(3) What would happen after that? If laws restricting the Treasury's current investment choices were modified, any further surpluses could be used to buy nonfederal assets, such as stocks and bonds. Although asset accumulation could increase the funds available for capital investment and boost economic growth, it would be unprecedented for the federal government to hold a large stock of private assets. The possibility of such holdings raises questions. Would it be appropriate for the government to own and possibly control private companies? Could the government's involvement distort market signals and corporate decisionmaking?(4)

 

Questions have also been raised about whether using surpluses to pay down debt and accumulate assets is politically realistic. Would policymakers refrain from spending more or cutting taxes further and allow the government to pay off its debt and build up private assets? Recent experience creates some doubts on that score. Although the government has paid down debt over the past few years, federal spending has also been growing faster than inflation. This year, the President and the Congress enacted the Economic Growth and Tax Relief Reconciliation Act of 2001--which will reduce tax revenues by a total of almost $1.35 trillion between 2001 and 2011--and policymakers are considering other proposals that would further reduce projected surpluses.

 

Create Private Accounts

 

A second strategy is to use part of the budget surpluses to pay for the creation of private retirement accounts. Proposals for private accounts differ in many ways, but they share a common feature: the income from an account that would be available to a worker at retirement would depend on the payments made into the account and the rate of return on the account's assets during the person's working life. Many types of accounts are possible, and their effects would vary widely.

 

Supporters argue that using budget surpluses to finance the creation of private accounts could provide many of the same economic benefits as saving the surpluses, without the potential problems of having the government own shares in private companies. In essence, proponents would shift control of part of the surpluses from the government to individuals.

 

How much of those surpluses would a system of private accounts absorb? The answer would depend on the details of the proposal, but the amount could be large. For example, creating a system of private accounts that was based on contributions of 2 percent of workers' earnings could cost about $1 trillion over 10 years.(5)

 

Some people argue that private accounts would offer higher rates of return than the traditional Social Security system does, but that argument can be misleading. Social Security has a low rate of return largely because initial generations received benefits far greater than the payroll taxes they paid. That difference would have to be made up even if the Social Security system was entirely replaced by private accounts. Moreover, investing in the stock market (either through private accounts or through government purchases of stock for the Social Security trust funds) is no panacea. Simply raising the average rate of return on assets by taking on more risk would not change the economic fundamentals. Only if the accounts increased national saving and enlarged the economy would they reduce future burdens. Their impact on national saving would depend on how the accounts affected both government and private saving.

 

In setting up a system of private accounts, policymakers would have to address many practical issues. How much would the system cost to administer? Would it provide insurance against downturns in the stock market? How would it handle benefits for workers' families, for survivors of deceased workers, and for disabled workers? Would the system give subsidies to people with low income and intermittent work histories? How would the system be regulated and investors informed?

 

Some of the answers to those questions could have implications for the economy. For example, government guarantees that people would receive a minimum level of retirement income in the event of a market downturn would probably reduce national saving below what it would be without those guarantees. And subsidies to low-income workers that were phased out as wages rose could impose implicit taxes on work and could discourage some people from working more.

 

Make Programmatic Changes

 

A third approach is to modify the current Social Security program. Changes that have been proposed include reducing benefits (for example, by raising the retirement age, lengthening the period over which benefits are computed, or reducing annual cost-of-living adjustments) or increasing payroll taxes. The effect on the economy would depend on the particular type of change. Other things being equal, reducing benefits might be more likely to increase the size of the economy than raising payroll tax rates, which could lessen people's incentives to work.

 

Economic models suggest that many types of benefit reductions could increase the size of the economy in the long run because they could encourage some people to save more. However, those long-term gains could take a couple of decades to materialize fully. How the benefit cuts would affect the economy in the near term is uncertain.

 

Slowing the growth of Social Security benefits would most likely reduce the lifetime resources of some transitional generations. However, it could also raise the wages of later generations and reduce their tax burdens. If benefits are to be cut, changing the law now rather than later would give workers time to adjust their plans for saving and retirement.

[Dave G.]

Damn, Clifford. Go buy those damn wrenches yourself. You really need more to do instead of becoming a research god.

 

Don't freaking worry about the SSA. Young kids will soon be going to congress. Sure...they are set. But really....do they want to have to pay for their parents? They'll sort it all out........

[keelec]

Don't freaking worry about the SSA.  Young kids will soon be going to congress.  Sure...they are set.  But really....do they want to have to pay for their parents?  They'll sort it all out........

Dave,

 

You must be a REPUBLICAN!!!!

 

Very smart thinking..... Empty out the Social Security Coffers to pay for tax breaks for the wealthy..... Go around invading countries and spending more money..... Use up the world’s oil reserves as quickly as possible..... Why in the heck would we want to do anything about cleaning up the environment now??????

 

Don’t worry about anything, it will be our children and grandchildren’s problem.

 

------ Clifford -------

[Patrick & Li]

Well... at least he didnt call you a fascist, Dave.

 

Patrick

[Martytb]

You must be a REPUBLICAN!!!!

 

Very smart thinking.....  Empty out the Social Security Coffers to pay for tax breaks for the wealthy.....  Go around invading countries and spending more money.....  Use up the world’s oil reserves as quickly as possible.....  Why in the heck would we want to do anything about cleaning up the environment now??????

 

Don’t worry about anything, it will be our children and grandchildren’s problem.

 

------ Clifford -------

Clifford's back!!!!!

 

 

My view is maybe if the GD government pays back what it borrowed, and the politicians have to rely on SS instead of the benefit package they get now, they would have more incentive to fix the problem.

Want to see things get fixed? Never vote for an incumbent.

[Bryan_Qunying]

You must be a REPUBLICAN!!!!

 

Very smart thinking.....  Empty out the Social Security Coffers to pay for tax breaks for the wealthy.....  Go around invading countries and spending more money.....  Use up the world’s oil reserves as quickly as possible.....  Why in the heck would we want to do anything about cleaning up the environment now??????

 

Don’t worry about anything, it will be our children and grandchildren’s problem.

 

------ Clifford -------

Clifford's back!!!!!

 

 

My view is maybe if the GD government pays back what it borrowed, and the politicians have to rely on SS instead of the benefit package they get now, they would have more incentive to fix the problem.

Want to see things get fixed? Never vote for an incumbent.

Maybe the US should collect all the money from the "Country's" that owe us money, i.e. Post war Germany, Russia (Former USSR), just to mention a couple.

 

It looks like to me that the entire world is broke!

[chinadave2001]

Seems to me the biggest problem is that we are spending the money that is supposed to pay for future generations now. That's right, lets suppose that the the government collects X dollars now and only spends Y, which is less than X. The difference is supposed to be held in trust until it is needed but the government cannot help itself and spends it all now. So the money that is supposed to be waiting for these folks when they retire has been long spent, thus creating an even bigger deficit when the current baby- boomer generation retires. The current generation is spneding their children's money. Both parties have done this. It is not a Republican or Democratic problem.

PS. I do not pay social security because I pay instead in to a teacher's retiremenet fund. same tax % but it has a cash value which I can always cash out if I choose to. Many government employees do not pay social security taxes.

CD

[keelec]

CD

 

I haven’t heard of the teacher’s retirement fund. It sounds interesting. I do know someone who worked on the railroad and they have their own retirement system too.

 

My father taught at the University of Oregon and I am pretty sure he had Social Security taxes including the period working as a Post-Doc student. Both parents were members of Oregon PERS (Oregon Public Employees Retirement System). Many years ago the government decided to invest 10% of the income in a type of 401K rather than giving them an equivalent raise.

 

The system did EXTREMELY well over the years. In fact, it did so well that all of the Oregon voters got upset and forced the system to reduce benefits even though the system was very similar to the 401K systems many non-government employees invest in.

 

401Ks, IRAs, and etc are the future. Those individuals who don’t build up retirement funds outside of Social Security will be literally left outside in the cold.

 

----- Clifford -----

[warpedbored]

Considering that interest on the national debt is the 3rd largest expenditure in the national budget we could easily shore up social security and medicare if we just balanced the budget and paid down some of the debt. We cannot continue the huge deficits we are currently running. Both major parties better wake up and do something or we will end up as a third world country.

[keelec]

Considering that interest on the national debt is the 3rd largest expenditure in the national budget we could easily shore up social security and medicare if we just balanced the budget and paid down some of the debt.  We cannot continue the huge deficits we are currently running.  Both major parties better wake up and do something or we will end up as a third world country.

Carl,

 

Of course, half of the problem with Medicare and Social Security is that half the national debt has been borrowed from the Social Security Fund...... I.E. The only way that Social Security can survive the Baby Boomers is if we pay off the National Debt.

 

----- Clifford ------

[tonado]

From Senator Kent's site