With Social Security on Brink of Collapse, Dramatic Changes Coming

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Angry Bear
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Dear Reader

Dale Coberly: Bill has asked me to comment on an article appearing on the internet at wealthynickel.com under the title

With Social Security on Brink of Collapse, Dramatic Changes Coming – Some With ‘Bipartisan Support’ written by Andrew Herrig, who calls himself a finance expert and says his expert financial advice has been featured on CNBC, Entrepeneur,Fox News, GOBanking rates, MSN, and more.

Herrig says

Lawmakers have a mere 12 years to fix the Social Security program before it can no longer pay full benefits, according to the most recent Social Security trustees ’report.

I say

…a mere 12 years? in 12 years I got a public school education. It seemed to take forever. The Trustees do recommend we start now to make gradual changes so the people will have a chance to get used to it.

I have been trying to tell the people for fifteen years that if they start whenever the Trustees report “short term financial inadequacy” to raise the payroll tax one tenth of one percent per year they can make Social Security solvent forever. The Deputy Chief Actuary agrees with me.

One tenth of one percent of a 50k salary is one dollar per week. This should not be a burden to anyone. Moreover the raise would not be needed every year and should reach an ultimate level of 2% of wages when no further increaseswill be needed. By that time real wages will have increased at least 20%, so the worker will have more in his take home than he has now, plus saved enough via Social Security to pay for his longer life expectancy in retirement. Note the tax raise does not go into some government black hole; it comes back to the worker with interest when he will need it most.

Herrig says

After 2034, the report notes, the $2.9 trillion trust fund will be depleted, and with no legislative action, Social Security would have to rely solely on current tax income to pay benefits. This income would result in an ability to pay out only about three-quarters of the scheduled benefits.

I say

Relying on current tax income is not “Brink of Collapse.” If the payroll tax has been raised about one tenth of a percent per year by then, the Trust Fund will still be full and the expected “depleted” day will have been pushed back to about 2050. This is because the tiny increases in the tax each year will mean the Trust Fund does not have to pay out that much for each of those years and all subsequent years. The math shows a break even point..where rate of income growth reaches rate of benefit growth and no further shortfalls are expected [projected or predicted].

Even if the Congress is stupid enough to not raise the tax until 2035, the sudden need for a 2% tax increase would not be a burden that would even be noticed if the usual Social Security liars did not promote hysteria. Two months after the increase people will have forgotten all about it.

And, if the worst happens and Congress refuses to raise the tax even then, Professor Rosser has pointed out that a 25% benefit cut then will still leave benefits at a real value higher than they are today. I think this is bad policy, but still not the Brink of Collapse,

Herig says

However, there is good news. There are several proposed policy changes to address the Social Security funding gap that voters on both sides of the aisle overwhelmingly support.

I say

this is not good news. What people who don’t know anything about Social Security overwhelmingly support is not a good place to start planning In fact none of the policy changes would restore “solvency” and they all would have destructive effects on both the program and the people who rely on it.

Herig says

The University of Maryland’s Program for Public Consultation (PPC) surveyed over 2,500 registered voters through an online ‘policymaking simulation ’process. Respondents were briefed on the state of the Social Security program and then asked their opinion on arguments for and against various proposals to address the budget shortfall.

Surprisingly, a large majority of Republicans and Democrats favored various proposals to increase revenue, trim benefits, and even increase benefits for low-income earners. According to PPC researchers, these measures would eliminate 78-95% of the shortfall over the next 75 years, depending on the implemented policies.

I say

The enemies of Social Security love these “policy making iinteractive simulations. They give you not enough imfromation to make an informed choice, and the offered choices are rigged so they all lead to benefit cuts Note the use of the words “budget shortfall”. Social Security has nothing to do with the Federal Budget, and the “actuarial deficit” in the Trustees Report is not even a “debt.” It’s just a projection that at the current tax rate and benefit schedule, the system will run out of reserves, but at that point there is no “debt.” nothing the tax man or the bill collector will be demanding you pay. What there is is a need for you to save more of your money for retirement beause you are going to be living longer than your grandparents. and yes so will the generation that follows you. Because of the pay as you go financing each generation, by paying for his own future retirement is at the same time providing the cash to pay the benefits to the current retired generation. This is ordinary finance, just like a savings account or even an “investment.” It is not “the young paying for the old” although that is what the highly paid non-partisan expert liars want you to think of it as.

And here dear reader I need to rest. I will come back tomorrow with some very short responses to the proposals that Herig offers as good news.