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I say it does, but that does not stop it from being attacked. The words Ponzi Scheme are being thrown about. The fact it is underfunded is being used as a argument that it doesn’t work. Some in government are calling for it to be replaced with private accounts. I read one official say there is plenty of money to pay all the benefits to those now collecting, but we can’t continue. Well, that’s not true on either point.
No doubt Social Security is underfunded, but that is the fault of every Congress since the 1990s and of the Americans they fear will not support higher taxes or other changes. That is not a valid reason to claim the system can no longer work.
It’s true the worker to retiree ratio is shrinking-fewer workers to support a growing number of retirees and that needs to be considered as well and can be over time by increasing the tax paying base – another discussion.
The irony is that making Social Security sustainable requires relatively minor changes and increases in funding. If changes had been made gradually over the years, they would hardly be noticed. For example, today just increasing the payroll tax by 3% (1.5% each on employer and worker) and applying FICA to employer cafeteria plans results in 97% of funding covered for the next 75 years (Committee for a Responsible Federal Budget SS calculator.) That amounts to about $17.00 a week for the median wage earner – meaning half would pay less. That seems a small price for future retirement income. The increase would be considerably lower had it been applied ten years ago.
The challenge now is a general anti-government anti-tax ideology in favor of individual empowerment and responsibility.
What’s missing is a realistic understanding of human behavior- in this case related to finances and long-term planning. Americans are not even adequately saving and managing money for their share of retirement income, let alone all the required income.
I used to joke that there was no reason to worry about Social Security, it will always be there. My confidence is waning.
I’ve never understood why there’s a cap on taxable wages for Social Security but not for Medicare. The disparity is in black and white on paystubs of high income earners. The govt simply stops collecting FICA at some point in the year, but not the Medicare tax. Lifting (or modifying) the cap is an obvious and fair solution here.
I agree. The cap on taxable wages makes the tax regressive. Warren Buffett has pointed this out for years. I live in a state that taxes groceries of all things. How regressive is that?
Define “work.” I would argue that as a social program to solve issues from the Great Depression it works great.
Remember the beginning of Social Security was “The New Deal.” SS has always been an unfunded program. The benefits for those initial beneficiaries were paid by the workforce in place. It was the OG of Keynesian stimulus programs.
The SS Trust fund was built from those years where taxes on workers were more than benefits paid to beneficiaries. We have the opposite situation now. As the surplus grew, more benefits were added but not effectively included in the funding. That is the financial failure, not providing funding for new benefits.
Yes indeed, that and not adjusting for demographic changes. The part that does not work are the members on Congress to keep the program solvent.
In theory the incoming revenue should always at least cover all payments, but as we know that is not the case.
We’ve had this exchange before, but running out of money is indeed a great way to evaluate whether something failed.
Yes, it’s true that those Congresses could have made changes by putting more money into the system. But saying something like “my business only failed because the investors didn’t plow more money in” is not a winning statement supporting how great your business was. Same is true for SS.
Totally disagree. Everything needs adjustment to keep current, but that does not mean the basic structure does not work.
”(Politicians) fear (Americans) will not support higher taxes or other changes.”
A survey was released in January this year detailing Americans’ views on Social Security reported:
Rather than closing Social Security’s financing gap through benefit reductions, Americans strongly prefer bringing more revenue into the system. Eighty-five percent say we should ensure benefits are not reduced, even if it means raising taxes on some or all Americans. The most strongly preferred of all options tested is eliminating the cap on payroll tax contributions for those earning more than $400,000 per year. Additionally, Americans across all groups, including a majority of Republicans, say they are willing to pay more themselves by gradually increasing the payroll tax rate to strengthen the program’s finances.
If Americans won’t support higher taxes, than how is it that California, Illinois and New York can continuously raise taxes? Yes, these states are bleeding citizens but most prefer to pay the tax. It would seem some (Many?) will complain but in the end most stay and pay the tax. I think this will also be true about any future adjustments to Social Security. The tax basis will go up, and adjustments will be made to the benefits. There will be complaining. Nothing at all new about this. But it makes for an easy subject for lazy journalists who lack anything of substance to write or talk about.
I just saw the AARP survey you refer to. It says these are among favored changes. The amount of increase in taxes won’t do it. Adjusting COLA adds to costs.
Reducing benefits for high-income retirees is a step toward making it a welfare program. I think that is a serious mistake changing the very concept of the program.
Gradually raising the payroll tax rate from 6.2% to 7.2% (for both employer and employee),
Keeping the full retirement age unchanged,
Adjusting COLA more fairly,
Offering caregiving credits and bridge benefits for early retirees in physically demanding jobs,
Reducing benefits for high-income retirees.
Americans still want more for less or nothing. If politicians would tell the truth about the program it would help, instead many people get their information and believe the nonsense on social media.
Let someone else pay, no doubt about that. I have heard that before.
But eliminating the cap or kicking it in above $400,000 still doesn’t fix the problem.
I haven’t seen that willing to pay more, but If thats what Americans say then there is no reason not to fix it, nor has there been for decades. Makes you wonder why nothing has been done.
We experienced this on a smaller scale at my former employer. A dean or provost would underfund a program. It would then struggle to meet its goals. Then that was used as an excuse to take it over, gut it, and start over with something cheaper.
I’ve seen a similar scenario in corporations and government programs. It wasn’t always a deliberate attempt to kill a program. Sometimes it was incompetence, or desperation. I used to describe it as “being painted into a corner, and then blamed for being there”. Some people are very, very good at doing that to others to advance their career.
In NJ it was caused by an unholy alliance between politicians and public unions. Politicians gave into union demands and then couldn’t pay for them so the unfunded liabilities grew. Then to make it worse some funds were diverted to lower property taxes.
When I was on my first governors task force reviewing the benefits plans for the state, the pension was so outrageously generous no company in the world could afford it and neither could taxpayers.
Workers could take loans from the DB plan at interest rates lower than the assumed return on the trust funds and they could keep loan going even after they retired. They could save unused sick time and have all of it added to pension earnings calculation.
now to partially help they made the state lottery an asset of the pension fund thus diverting it from the stated purposes of funding education programs for children and disabled. Their logic was the pension was for teachers, hence education.
That’s a scary scenario I have not considered.