Charles Krauthammer Schools Carlson and Krugman on Raising Social Security Retirement Age

November 13, 2010 · Posted in The Capitol · Comment 

Charles Krauthammer on Friday gave a much-needed education to Bloomberg's Margaret Carlson about why the age at which one can receive Social Security benefits must be raised.

His words on PBS's "Inside Washington" also refuted Paul Krugman's foolish claims on this matter published in Friday's New York Times (video follows with transcript and commentary):

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NewsBusters.org - Exposing Liberal Media Bias

Democrats to push for $250 Social Security payment

November 13, 2010 · Posted in The Capitol · Comment 

NEW YORK (CNNMoney.com) - When House Democrats return to Washington on Monday, a top priority will be putting a $ 250 dollar check in the mail to 58 million Social Security recipients.

Democrats plan to vote early in the lame-duck session on a bill that would provide Social Security recipients with a one-time payment, according to the office of Earl Pomeroy, a Democrat from North Dakota who authored the legislation.

FULL STORY


CNN Political Ticker

Rethinking The Federal Budget Mess: Part 1, Social Security

November 13, 2010 · Posted in The Capitol · Comment 

In the wake of the deficit commission post-election bombshell about the nation’s budget woes, partisans from all fronts are coming out of the woodwork with their talking points. But everyone is doing the nation a disservice by talking about “the budget” as though it were a single unit. It’s not. It’s just like a business or personal budget, composed of both fixed costs (e.g., rent or mortgage payments) and discretionary or variable purchases (e.g., electricity, printer paper, coffee, movie tickets). However, when talking about the federal budget, those words may not be used the way you use them in your home or business.

What does the short- and long-term budget look like if we break it into its components? For the purposes of this series, I’m dividing “the budget” into these components:

  • Shortfall (borrowed money) : $ 1.47 trillion (2010)
  • Defense : $ 1.059 trillion (Pentagon, War on Terror, VA, military benefits and pensions, 2009)
  • Social Security : $ 714 billion (OAS/DI, 2010) - self-funded (solvent)
  • Medicare : $ 531 billion (2010) - partially self-funded (insolvent)
  • Interest on Debt : $ 414 billion (2010)
  • Health and Human Services (Medicaid, SCHIP, Food Stamps, etc) : $ 618 billion (2009, xls)
  • Commerce and Housing (includes USPS) : $ 291.5 billion (2009, xls)
  • Natural and Physical Resources (USDA, Interior, Transportation, etc) : $ 142 billion (2009, xls)
  • Unemployment Compensation : $ 122.5 billion (2009, xls)
  • Federal employee retirement and disability : $ 118 billion (2009, xls)
  • Education : $ 79.7 billion (2009, xls)
  • Criminal Justice System : $ 52 billion (2009, xls)
  • International Affairs : $ 37.5 billion (2009, xls)
  • Science, Space, Technology, Energy : $ 34 billion (2009, xls)
  • Community and Regional Development : $ 27.7 billion (2009, xls)
  • General Government : $ 22 billion (2009, xls)

Social Security

Initial press reports characterized the deficit commission plan thusly: “mixing painful cuts to Social Security and Medicare with big tax increases.” What most of us think of as “Social Security” is actually the Old-Age and Survivors Insurance (OASI) Trust Fund.

First, I argue that Social Security should be treated as its own, stand-alone budget. It is characterized rhetorically as an “entitlement” program but it is an insurance program. That is, people who work for a living contribute a fixed amount of their income to the program with the expectation of getting money back at some point in the future. Yes, the employer contributes, too, but an argument could be made that this is indirect employee renumeration.

Second, how’s Social Security doing? From the 2010 Trustee’s Report (emphasis added):

The financial outlook for Social Security is little changed from last year. The short term outlook is worsened by a deeper recession than was projected last year, but the overall 75-year outlook is nevertheless somewhat improved primarily because a provision of the ACA is expected to cause a higher share of labor compensation to be paid in the form of wages that are subject to the Social Security payroll tax than would occur in the absence of the legislation.

[...]

Social Security expenditures are expected to exceed tax receipts this year for the first time since 1983. The projected deficit of $ 41 billion this year (excluding interest income) is attributable to the recession and to an expected $ 25 billion downward adjustment to 2010 income that corrects for excess payroll tax revenue credited to the trust funds in earlier years. This deficit is expected to shrink substantially for 2011 and to return to small surpluses for years 2012-2014 due to the improving economy. After 2014 deficits are expected to grow rapidly as the baby boom generation’s retirement causes the number of beneficiaries to grow substantially more rapidly than the number of covered workers. The annual deficits will be made up by redeeming trust fund assets in amounts less than interest earnings through 2024, and then by redeeming trust fund assets until reserves are exhausted in 2037, at which point tax income would be sufficient to pay about 75 percent of scheduled benefits through 2084.

What are the relevant points?

  • Trust fund reserves will be exhausted in 2037.
  • Without a change in funding source or eligibility, from 2037-2084, the Social Security Trust Fund could pay benefits at a 75% rate.

What does this mean?

It means that Social Security is not in imminent threat of collapse, although there are structural problems.

It also means that changes such as raising the eligibility age to 70 should improve the life of the trust fund in terms of additional years of contribution. Such a change reflects increases in life expectancy since 1935, when Congress passed the Social Security Act. For example, in 1940, a man who was 65 years old could expect to live 12.7 more years (~78); a woman, 14.7 more years (~80). A man who is 65 years old can expect to live, on average, until age 83; a woman who is 65 years old can expect to live until 85, according to US News and World Report. According to the CDC (pdf), in 2007, someone aged 85 could expect to live 6.5 more years (~92).

Life Expectancy for Men and Women Aged 65
Year Men Women
1940 ~78 ~80
2010 ~83 ~85

Disability Insurance (DI) Trust Fund

The Disability Insurance Trust Fund pays monthly benefits to disabled-worker beneficiaries and their spouses and children. It was created by the Social Security Act Amendments of 1956. According to the 2010 Trustees report, the DI Trust Fund is “projected to become exhausted in 2018.”

In 2010, OASI took in $ 686 billion and spent $ 586. The DI Trust Fund, on the other hand, took in $ 105 billion and spent $ 128 billion. The Trustees do not explain the discrepancy or the steady increase in DI expenditures forecast for the next 10 years. Before we try to engineer a solution to the problem, we need to understand why DI is already upside down.

Clearly, the DI Trust fund needs immediate attention, far more immediate attention that OASI. Find that in any news story or political sound-bite.

Possible Solutions

The actual tax rate for OASI/DI has been unchanged for 20 years. Since 1990, it has been 6.20% of the taxable income level. In 1980, it was 5.08%. Increasing the rate slightly may be a reasonable response to the pressing problem facing DI — or it may not be. It’s difficult to engineer an effective solution to a poorly defined problem.

What about indexing the income threshold for OASI? It is already indexed. In fact, in the past 30 years the income threshold has grown faster than inflation. In 1980, the income threshold was $ 25,900. In 2010 dollars, that’s $ 68,659.83. However, the income threshold in 2010 is $ 106,800, more than a 50% increase.

The most logical short-term modification is to increase the full retirement age.The nature of work (more cerebral, less physical) and lifespan have both changed since the SSA was passed in 1935. In 1935, the the “full” retirement age was 65. In 1943, Congress increased it to 66. Since 1960, it has been 67. Thus, we are long overdue for an increase in the full retirement age. Without question, such a change would have an impact on total revenue, assuming that people continued working until retirement age. However, it is unclear as to the effect such a change might have on outlays, as the program is currently constructed:

As a general rule, early or late retirement will give you about the same total Social Security benefits over your lifetime. If you retire early, the monthly benefit amounts will be smaller to take into account the longer period you will receive them. If you retire late, you will get benefits for a shorter period of time but the monthly amounts will be larger to make up for the months when you did not receive anything.

A Note About The Trustees

There are six trustees — four by virtue of their appointed government position and two representing the public. The two Public Trustee positions — appointed by the President and confirmed by the Senate as required by the “Social Security Amendments of 1983 — are currently vacant. Why?


The Moderate Voice

Hensarling Ludicrously Claims Rep. Ryan’s Roadmap Will Not Cut Social Security Or Medicare By ‘One Penny’

November 12, 2010 · Posted in The Capitol · Comment 

On Wednesday night, Rep. Jeb Hensarling (R-TX) successfully claimed the chairmanship of the House Republican Conference after his challenger, tea party favorite Rep. Michele Bachmann (R-MN), dropped out of the running. But just hours after his big win, Hensarling, ran into this familiar buzz saw for Republican deficit frauds when on CNN’s Parker/Spitzer he was completely unable to name any significant spending cuts he wants to enact.

Host Elliott Spitzer astutely laid out the hollowness of Hensarling’s proposal to cut $ 900 billion dollars of annual government spending through a Constitutional amendment by noting that Hensarling’s plans leaves massive portions of the federal budget untouched, making it almost impossible to find nearly a trillion dollars in savings. Hensarling tried to fight back, but offered only feeble talking points and assertions that he didn’t understand Spitzer’s math, prompting Spitzer to remind Hensarling, “Sir, you have a degree in economics.”

Hensarling only ran into more trouble when he spoke of a different plan he has endorsed — Rep. Paul Ryan’s (R-WI) Roadmap for America’s Future. While proudly saying he has endorsed the Roadmap, Hensarling claims the plan would not “cut one penny” from Social Security or Medicare:

SPITZER: I want to go through category by category so the public can understand where we are. $ 2.3 trillion of this $ 3.8 trillion is in couple of areas, Social Security, Medicare, Medicaid, interest on the debt and defense spending, right? We can agree on that, I presume, right? That’s straight out of the federal budget. Now, are you willing to cut Social Security 25 percent this year?

HENSARLING: Oh, absolutely not. And again, Eliot, you know that you don’t have to cut one penny out of these programs. What you do have to do is ensure they don’t grow faster than the economy’s ability to pay for them. We can’t have Social Security, Medicare and Medicaid grow at 5, 6 and 7 percent and the economy grow at 1.5 percent. … You have to bend the growth curve so they don’t grow as fast. I have co-sponsored Paul Ryan’s “Roadmap for America’s Future.” Not one penny of these programs is cut.

Watch it:

Hensarling — who does indeed have an economics degree from Texas A & M University — is either gravely misinformed about the plan he is endorsing, or willingly misleading the American people. As the Wonk Room’s Pat Garofalo noted, “the Roadmap is an explicit attempt to balance the federal budget via severe cuts to Medicare and Social Security.” The Center on Budget and Policy Priorities explains, the “Ryan plan proposes large cuts in Social Security benefits — roughly 16 percent for the average new retiree in 2050 and 28 percent in 2080 from price indexing alone.” Meanwhile, “By 2080, Medicare would be cut 76 percent below its projected size under current policies.”

And after all that, Ryan’s Roadmap still won’t balance the budget. As the New York Times’ Paul Krugman noted, “the Ryan plan would reduce revenue by almost $ 4 trillion over the next decade. If you add these revenue losses to the numbers The Post cites, you get a much larger deficit in 2020, roughly $ 1.3 trillion.”

ThinkProgress

Immigration and Social Insurance

November 12, 2010 · Posted in The Capitol · Comment 

You hear a fair amount about immigration in the United States and you also hear a fair amount about Social Security. But you hear shockingly little about the interplay between the two. Consider, however, that the overwhelming reason Social Security is facing a post-2037 budgetary shortfall is that population growth in the United States has been decelerating:

This is a free society, and if people choose to have fewer children than they used to that’s fine by me. I think that if we had more sensible policies around child care and housing the birth rate would probably edge up a bit. But of course there’s another way to increase the population growth rate. That would be to be more welcoming to people who’d like to move here. America’s gotten into the odd habit of thinking of ourselves as a country that’s burdened by the desire of other people to move here. But nobody thinks that way about a town or a neighborhood. Being a desirable place to live is an asset that we should take advantage of. About 165 million people say they’d like to move to the United States. It obviously wouldn’t be feasible for all of them to show up tomorrow all at once, but we could accommodate many more of them than we’re currently planning on, and doing so would strengthen our country in very many ways.

It’s true that higher levels of legal immigration aren’t the most politically popular thing around. But neither are tax hikes or benefit cuts. And unlike those, more immigration will actually boost our productivity and our growth rate.


Yglesias

Krugman Shows Why Media Will Never Support Social Security Reform

November 12, 2010 · Posted in The Capitol · Comment 

There's little debate in America that with baby boomers retiring, Social Security and Medicare are on a collision course with bankruptcy.

Regardless of this inconvenient truth, powerful media figures like New York Times columnist Paul Krugman stand in the way of any meaningful reform to these programs that might lead to their long-term viability.

Krugman proved that once again in his article Friday:

read more

NewsBusters.org blogs

Social Security, ctd

November 12, 2010 · Posted in The Capitol · Comment 

Megan McArdle offers a reply to my concerns about our paternalistic treatment of future obligations that I like a lot. There are at least two important points. The first is essentially that paternalism is unavoidable. Even when provided with all the relevant information, poll respondents still don’t give logically consistent answers.

People in polls are lunatics on the budget; they consistently oppose tax increases, oppose spending cuts, and strongly support balancing the budget. Depressingly, pollster Doug Rivers says that this is true even when you inform them of the sums involved-i.e., make sure that they know you can’t close the budget gap just by slashing foreign aid. Despite being informed about the relevant tradeoffs, when they are again asked the question, they continue to insist that they very much want to close the budget deficit-without raising taxes or cutting any major programs.

This is a more balanced perspective than Simpson-Boyles. McArdle suggests that we are getting mixed signals from the public and trying to do the best we can with what we got — much healthier than the Commission to Save America, Grandchildren and Puppies.

She also notes:

The question, then, is not simply, “Should we raise taxes or the retirement age to fix Social Security?” The question is, “What are the best spending cuts and tax increases to bring our budget into balance?” There are a number of reasons that raising Social Security taxes, and the retirement age, are among those-fiscal reasons (there’s a lot of money there), economic reasons (social security encourages people to leave the labor force earlier, which raises spending and shrinks the tax base), political reasons. You can argue that these aren’t good reasons-that there are better reasons to leave it the way it is.

There are important differences between pure transfers like Social Security and public goods like education and national defense. With education or defense there are society-wide benefits to estimate and important policy choices to be made regarding how much of the public good to produce and by what means. With a transfer you get out the same thing you put in: cash.

McArdle is right that since choices about Social Security restrict our taxing options that we can’t look at these programs in pure isolation. Still there is a fundamentally different sort of analysis going on. Social Security payments do not crowd out the private sector in favor of public goods. That basic trade-off does not have to be considered. If Social Security recipients want to buy iPads or shoes, American-made apparel or Chinese imports, it is up to them. Resources flow into the private sector under the direction of private individuals.

Karl Smith is an assistant professor of economics and government at the University of North Carolina and a blogger at ModeledBehavior.com.







Ezra Klein

Krugman Shows Why Media Will Never Support Social Security Reform

November 12, 2010 · Posted in The Capitol · Comment 

There's little debate in America about the fact that with baby boomers retiring, Social Security and Medicare are on a collision course with insolvency.

Regardless of this inconvenient truth, powerful media figures like New York Times columnist Paul Krugman stand in the way of any meaningful reform to these programs that might lead to their long-term viability.

Krugman proved that once again in his article Friday:

read more

NewsBusters.org - Exposing Liberal Media Bias

Social Policy Out, Defense Priorities In at Armed Services Committee

November 11, 2010 · Posted in The Capitol · Comment 
style="float: right; margin-bottom: 10px; margin-left: 10px;"> src="http://blog.heritage.org/wp-content/uploads/2008/12/pentagon_081204.jpg" alt="Pentagon (Photo by Newscom)" width="375" height="240" />

For the most part the progressive movement is href="http://thehill.com/blogs/on-the-money/budget/128713-pelosi-left-rip-proposal-from-debt-commission-chairmen">unhappy with the proposal from President Barack Obama’s fiscal commission report. But one area that they will embrace is the report’s call for $ 100 billion in defense cuts. Fortunately, the American people have a strong ally in presumptive-House Armed Services Chairman Buck McKeon (R-CA). McKeon released a statement last week href="http://news.dawn.com/wps/wcm/connect/dawn-content-library/dawn/news/world/99-republicans-want-troops-afghanistan-ik-03">promising:

America remains a nation at war. More than 150,000 of our sons and daughters are deployed around the globe in the fight against Al Qaeda and its terrorist allies. The top priority of the Armed Services Committee will be to provide those brave fighters the resources and support they need to succeed in their missions and return home safely.

McKeon also href="http://www.govexec.com/story_page.cfm?articleid=46446&oref=todaysnews">promised that the fiscal 2011 defense authorization bill would “not weighed down by the current majority’s social agenda items.” id="more-46474">

A fierce no-nonesense advocate like McKeon is just what are military needs to fix href="http://www.heritage.org/Research/Reports/2010/06/US-Defense-Spending-The-Mismatch-Between-Plans-and-Resources">the mismatch between what we ask them to do and the resources we give them to do it.

The Foundry: Conservative Policy News.

Money Managers Want to Cut Social Security to Keep Their Tax Breaks

November 11, 2010 · Posted in The Capitol · Comment 
Photo credit: roberthuffstutter  
  Wall Streeters poured millions of dollars into Republican campaign coffers to keep their unfair tax breaks.  
 
   

The Republicans and their Wall Street buddies are warning that the nation will go bankrupt unless we cut billions of dollars out of two of the most successful-ever federal programs: Social Security and Medicare.

The realities are that Social Security is sound and the system will be solvent for decades. The people who would benefit from cutting Social Security are money managers and other wealthy Wall Street types who would get to keep big, unfair tax breaks and not have to pay their fair share.

Take former Lehman Brothers chief executive and co-founder of the Blackstone Group Peter Peterson, who today launched a multimillion-dollar campaign to convince voters that without immediate cutbacks to Social Security benefits, our country faces imminent financial collapse. But that’s just not true. A recent report by the Center for Economic and Policy Research (CEPR) shows that Social Security is stable and solvent for at least the next 27 years.

Peterson became a billionaire by managing other people’s money in leveraged private equity buyouts. He received huge payments for making his investors richer. Yet because of one of the most outrageous loopholes in our nation’s tax laws, Peterson and other money managers pay capital gains taxes on millions of dollars at a lower tax rate than schoolteachers and firefighters pay on their wages. 

These money managers poured millions of dollars into 2010 political campaigns to make sure they kept their tax breaks. NBC News reports that hedge funders and other wealthy Wall Street types funneled millions of dollars to Karl Rove’s Crossroads GPS to prevent real financial reforms from taking place. These donors are bitterly opposed to a proposal by congressional Democrats—and endorsed by the Obama administration—to increase the tax rates on compensation that hedge funds pay their partners, NBC said.

Writing on TPM Café, Dean Baker says putting a fair tax on financial transactions would put a huge dent in the federal deficit:

…taxing Wall Street speculation is a far more economically desirable route than taking away the Social Security benefits that ordinary workers have already paid for. We could easily raise more than $ 1.5 trillion over the next decade with a broadly based financial speculation tax that would have almost no impact on anyone except the Wall Street crew.

Baker says even the International Monetary Fund (IMF) is pushing for higher taxes on the Wall Street billionaires. But, he says, the media and Congress do not respond to economic reality—they respond to money.

And Peter Peterson and the Wall Street crew are not paying for an honest discussion of the country’s fiscal and economic problems. They are financing a rigged debate that is intended to result in even more money flowing to Wall Street and less to those who work for a living.

Read Baker’s column, “The Wall Street TARP Gang Wants to Take Away Your Social Security,” here.

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