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February 07, 2005
It’s worse than you think.
Ok, here it is, my long over-due post on Social security:
Before Social Security we had a system where retirement was a rare event-- old people were forced to work until they died, or live off their children. But a lot of old people starved on the streets or “died with their boots on”...
Or have what today we would call “private accounts”. During the 1920s the stock market boomed and lots and lots of people bought lots of stock. Around November of 1929 this option didn’t look nearly as good anymore. Old people (along with everyone else) were suddenly starving in the streets...
So, New Deal: Works Progress Administration, Interstate highways, Social Security. For 70 years, Social Security kept old people from dieing at work or on the streets. Now, Bush wants to change it irrevocably...
The way the program currently works, I pay 20% of my income to FICA, who gives a lot of that money to my grandmother. Between everyone in my store, we manage to take care of about 10-15 grandparents. Not bad at all...
In exchange for this, when I retire I’ll get an income (from the government) with a base level based on what I paid into the system. We expect a couple of things to happen by 2043: 1) standards of living will be better than they are today 2) Productivity will be higher than it is today.
Assumption 1 tells the government that was is middleclass today will be poor in 2043. When the first people to get Social Security started getting Social Security, having a refrigerator was a luxury almost no one could afford-- air conditioners might not have existed. Today’s retirees get an income consistent with having both AC and ‘fridges. How much more than this they get is based upon how much they paid into the system. Whatever luxury items we have today that will be necessary for living by 2043, they’ll be covered under current social security...
Assumption 2 tells us that we’ll be able to pay for increased standards of living because our workers will simply be able to be more productive then ever before-- even if there are less of them. At 26, with a low level job, I create more wealth then my grandfather could have at 26 with his mid level job. Technology increases, and with it productivity. This has been the central fact of the last 300+ years, we don’t expect it to stop any time soon...
The problem
The problem is that my grandparents had too damned many kids-- and I don’t have enough siblings. Everything I just said about assumption 2 is true-- but there are a fuckton of Baby Boomers. And they’re going to live for gods-damned ever. How ever shall we solve this problem?
Actually, the problem is solved. Back around 1982, Ronald Reagan took a look at the problem and said that if we started saving right then, that very moment, things should be ok. So, Payroll taxes got raised to above the rate the system would need to pay out to current retirees. That extra money would be saved until 2010, when the first Baby Boomers would start to retire...
Since hauling several trillion dollars out of the US economy would be an enormous burden on the economy, the decision was made (I think Alan Greenspan suggested it) to buy US government bonds with the Social Security Surplus. The bonds would become due when the Boomers retired, and Mr. Greenspan would pat himself on the back for his own cleverness...
Ok, so the bonds aren’t quite enough to cover everything forever. The Social Security Administration estimates that those bonds will run out in 2053. The Congressional Budget office estimates 2047 (I retire in 2043, so I’m set). Once the bonds run out, Social Security will only be able to pay out 85% of promised benefits. Remember: that 85% is much higher than what my grandmother is getting now, and will be a lot higher than what my Father will get. And it won’t effect anyone who is currently over 17. Really, there is a long time to solve this issue...
In fact, the Economic forecasts used to estimate when the SS system will run out of extra money assume the US economy will grow at 1.9% per year. Since the Economy grows closer to 2.5-3% per year, there may not be a problem at all...
ok, so what is the problem?
In about 5 years, we’re going to have to start buying back a whole lotta bonds. Social security is not in a "crisis", but will certainly cause one!
See, a bond is basically a lone (actually, a lone is a bond. But never mind). When the SS administration bought all those bonds, the government essentially borrowed it and spent it (that’s how we kept it in circulation all those years). The US government is not in a position to pay back that much money all at once-- we’ve got a war and tax cuts to pay for...
This is what stodgy ol’ Al Gore tried to tell us when he insisted that Bush’s then-proposed tax cuts would be a bad idea. The only way we can pay those loans back is by raising taxes or slashing spending. Probably both. I’m not holding my breath waiting for Bush to get responsible...
Thus we see that the "Social Security Crisis" Bush is so keen to talk about is actually a Social-Security caused General budget crisis. Of course, since it was designed this way from the start, and we’ve had an entire generation to come up with the money, you’d figure that we would have been more responsible. Perhaps we will be soon. When you default on your House Loan, you loose the house. What happens when we default on America’s loans? How much do I have to pay for Amber waves of grain at the foreclosure auction?
Posted by Andrew at February 7, 2005 10:59 AM
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Comments
Well I can think of several SIMPLE remedies.
1) Roll back the ludicrous Bush tax cuts. We couldn't afford them then, we can't now. The pretense that they're propping up the Recovery is a laughable sham, to the same degree that the Reagan tax cut - 84 boom correlation is false. (By that logic there should not have been a 90's boom following the Tax increases of 91-93. Or World War II for that matter.)
2)Remove Payroll Tax Cap. I don't know what kind of salary my Uncle Joe draws as a Senior Partner at his Multinational Consulting firm but it's a hell of a lot more than me and it's capped for payroll tax purposes at $80,000.00. Between his Team of accountants finding loopholes to eliminate his Income tax, and the practical non-existance of taxation on capital income, I AM paying a higher percentage of my personal income in taxes than the Rich. (The fact that Joe made his fortune as a Military makes it all the more infuriating.)
3) Suspend ALL Weapons system development. That's right, I said ALL. Our existing technology gives a force edge over all potential foes for 60 years. Any nation that has a snowball's chance in hell of hurting us conventionally ALSO has ICBMs, which renders the consideration moot. We don't need an F-22, we will spend a Billion dollars on each plane for 15 minutes of active combat and the 50 year old B-52s are a more effective Bomb delivery system.
We could mothball most of our military's heavy weapons and still maintain 10 crack divisions for $100 Billion a year, if not half that, and still be able to shake out a force in a hurry if need be.
Spending more on development and construction is just Pissing money away on toy collections for the Officer corps.
4) Implement a REAL Flat tax on all income above the Payroll. NO Deductions, no exceptions, no shit. The same rate for everything: Wages, Capital Gains, Corporate Income, Stock Dividends, Interest. Maybe 10%, probably lower. Lay out strict standards for Corporate income reporting and actually enforce them. God knows the sons of bitches probably pay more to their accounting departments for hiding their income than they'll ever pay under such a system.
5) Use the above to PAY DOWN THE DEBT. 30% of the Federal budget goes to Debt maintenance. It is Equal to the deficit. Get rid of it. Then you can fight over lower taxes or more services until the damned cows come home.
None of this will happen. Every single bit of wasteful government spending or beaurocratic Gordian Knot is some asshole's living. These people have and will continue to fight change tooth and nail. (That's BOTH sides of the aisle.)
The interesting thing about the Republican revolution is how thin a tissue of lies it really is built on. People have a basic need to believe that they are fundamentally good and without fault, and that anything bad that happens to them or any perceived evil is the result of some sinister external force.
For the ignorant Podunk Red-Stater, the answer is Satan... in blatant contradiction of any serious accounting of the Omnipotentence of the Christian Deity.
For the Populist farmers of the 1900's the answer was always Evil Eastern bankers. (And never their own irresponsibility OR the fundamental incompatibility of homestead family farming with an industrial society.)
For the REAL Communists it was always the vast conspiracy of Capitalist exploiters. (In an impressive misreading of Marx who saw Capitalists as somewhat disorganized and a necessary transitionary stage for the road to his utopia.)
For the unfortunate denizens of the Ghettos, it is the ubiquitous "man."
For the contemporary White Collar worker, with his daily exposure to the human vulnerabilites of Corporate Management and highly infrequent interaction with Beaurocrats, Union members and the genuine poor, perhaps the externalized abstract of Big Government is a natural boogyman. It's still a rather stupid ideological shorthand though. And Reagan, Rush and company do deserve a lot of credit for selling their crock of BS to the South on a plate of Racism and Atheist-baiting.
The interesting thing is that all of the groups I mentioned above did not have organized political antagonists until AFTER they had started acting against their perceived oppressors. (Northern Urban Blacks, NOT Segregated Southern ones. The inner city dwellers fell victim to an unfortunate confluence of prejudice, real estate value and property taxes as opposed to any organized movement to keep them poor.) What little optimism I have left tells me that while there was no Liberal conspiracy prior to 1994, an excellent job has been done of infuriating one into existance since then...
Posted by: John Foelster at February 7, 2005 02:41 PM
Use the jewel of judgment and create your own reality
Posted by: amberite at February 8, 2005 01:51 PM
??
Posted by: John Foelster at February 8, 2005 05:32 PM