More on Social Security
Just in time to answer my questions about what's really going on with Social Security reform, the Washington Post has a series of articles about it today.
What I learned from reading the articles is:
1) The crisis has been overstated. Social Security can meet its obligations through 2018 on payroll taxes alone. It will then be able to continue to meet its obligations through 2042 by drawing on the Social Security Trust Fund, which is invested in US Government bonds. Even after 2042, anticipated tax receipts will allow benefits to be paid at 73% of the currently projected rate. This amount is actually more, in real dollars, than retirees are getting today, because Social Security benefits are indexed to both inflation and wage increases.
2) If we wanted to "fix" Social Security now by simply increasing taxes, we'd only have to add an additional 1.89% to the current Social Security tax rate in order to ensure that the government will be able to pay the expected benefits for the next 75 years. Obviously, if we also decreased benefits slightly or made other changes in the program, the tax rate wouldn't have to go up so much.
3) The Republicans' main interest is in social engineering, not fiscal responsibility. The thinking behind private accounts has more to do with Bush's "ownership society" than it does with "saving social security". The idea is to make everyone a shareholder, giving them both a greater sense of responsibility for their own future, and a greater sense of participation in the economy. (Thanks, cos) The cynic in me can't resist pointing out that shareholders are more likely to vote Republican, and that increasing investment by U.S. workers will increase capitalization of U.S. firms, indirectly increasing donations to the Republican party. However, I'm actually willing to accept that the Republicans may well be advocating this change in the system out of a genuine sense of idealism.
Personally, I'd like to see people encouraged to invest for retirement, perhaps through an optional "add on" to our Social Security taxes -- sort of a federal 401(k). And I'm not bothered by the idea of reducing Social Security benefits, as long as benefits are reduced in a planned way that today's taxpayers will be able to prepare for. But I don't think diverting today's payroll taxes into private retirement accounts is the right approach.
What I learned from reading the articles is:
1) The crisis has been overstated. Social Security can meet its obligations through 2018 on payroll taxes alone. It will then be able to continue to meet its obligations through 2042 by drawing on the Social Security Trust Fund, which is invested in US Government bonds. Even after 2042, anticipated tax receipts will allow benefits to be paid at 73% of the currently projected rate. This amount is actually more, in real dollars, than retirees are getting today, because Social Security benefits are indexed to both inflation and wage increases.
2) If we wanted to "fix" Social Security now by simply increasing taxes, we'd only have to add an additional 1.89% to the current Social Security tax rate in order to ensure that the government will be able to pay the expected benefits for the next 75 years. Obviously, if we also decreased benefits slightly or made other changes in the program, the tax rate wouldn't have to go up so much.
3) The Republicans' main interest is in social engineering, not fiscal responsibility. The thinking behind private accounts has more to do with Bush's "ownership society" than it does with "saving social security". The idea is to make everyone a shareholder, giving them both a greater sense of responsibility for their own future, and a greater sense of participation in the economy. (Thanks, cos) The cynic in me can't resist pointing out that shareholders are more likely to vote Republican, and that increasing investment by U.S. workers will increase capitalization of U.S. firms, indirectly increasing donations to the Republican party. However, I'm actually willing to accept that the Republicans may well be advocating this change in the system out of a genuine sense of idealism.
Personally, I'd like to see people encouraged to invest for retirement, perhaps through an optional "add on" to our Social Security taxes -- sort of a federal 401(k). And I'm not bothered by the idea of reducing Social Security benefits, as long as benefits are reduced in a planned way that today's taxpayers will be able to prepare for. But I don't think diverting today's payroll taxes into private retirement accounts is the right approach.