Social Security program is in very solid shape for the foreseeable future. And yes, Congress and the Reagan Administration worked in a bipartisan manner to ensure the viability of the program for the foreseeable future. I encourage you to read the GAO reports to assure yourself of this.

Medicare, a completely different program that ensures health care for our senior citizens, has major problems, due to a number of factors. Republicans like John McCain love to fool people like you into conflating the two different programs. They do this to strike fear into the hearts of people who aren't able to understand the idea that these are two different programs funded by two different tax streams, and who can't understand that the two programs are administered differently and have different purposes. I encourage you to do some more reading about that.

"McCain talks as though letting younger workers put some of their FICA taxes into private accounts would help fix the Social Security shortfall. This is not true. Private accounts would make the Social Security shortfall much worse.

... My taxes are used to pay the benefits of today’s retirees... Suppose that we start allowing people to put some of their FICA tax dollars into personal accounts. That means that I will be paying not for the generation of workers who are now retired, but for me."

This just the old "transition cost" argument -- who will pay the "transition cost" of paying for current retirees if SS funds go into private accounts? -- and Milton Friedman pointed out how totally false it is.

Social Security is underfunded. That is the Status Quo.

Any move to private accounts obviously must cover this underfunding somehow -- by issuing more bonds, with tax increases, benefit cuts, whatever.

But staying with the Status Quo requires dealing with the same amount of underfunding to the dollar, to be covered the exact same way -- by issuing more bonds, with tax increases, benefit cuts, whatever.

Dealing with this shortfall is a consequence of the Status Quo. And calling a cost of the Status Quo a "transition cost" of switching to private accounts is incompetence (or dishonesty).

The trick the Hillzoys of the world play on others (and/or themselves) is in the statement "When I retire, my benefits will be paid by the taxes of the generation behind me" -- they won't be, not without issuing more bonds, tax increases, benefit cuts whatever, because those benefits are underfunded. That's when the "transition cost of the status quo" hits.

So the Hillzoy "transition cost" argument is this: "Social Security is underfunded. You have a proposal to deal with this undefunding. We don't. Therefore you are making things worse!"

The effect of going to private accounts is to move the financing of the underfunding forward to today, using more borrowing (when interet rates are at historic lows) or tax increases (when taxes are the lowest they ever will be again) today. Then, that transition cost covered, 30+ years from now SS would be paid for and solid forever.

The Hillzoy solution is to wait to deal with the underfunding until 30+ years from now.

But not even 30 years from now, in 2030 -- just 22 years from now -- CBO projects that income taxes will have to be >50% higher than today to cover the cost of Medicare and Social Security! Or else deficits will be economy-crushing (without these tax increases S&P projects US bonds reach "Junk" status by 2027, and CBO projects the economy collapses when deficits exceed 20% of GDP soon after.)

The Hillzoys of the world want to wait to borrow more, increase taxes, or cut benefits THEN! Good luck to us all that way!

In short, as per Friedman, the present value of the "transtion cost" to the govt of moving to private accounts is exactly $0, because each dollar of cost incurred up-front saves a real dollar later.

Moreover, it would be a whole lot easier to incur that cost up-front today than after 2030 -- because as per CBO, the tax increase needed in 2030 as a % of GDP will be larger than those enacted post-Pearl Harbor to fight World War II, and will be only increasing from there.

IOW, we're not going to be able to afford to save SS "later". The Hillzoys of the world are cutting SS's throat, come 2030. (Just like Karl Rove planned!)

Social Security Ripoff

If I had been able to take these social security taxes and instead put them in a savings plan, and then took the accumulated balance out at age 67 and bought an annuity (at current rates), what would be my monthly payment?

Well, assuming a very conservative after-tax rate of return of 5%, I would have $1,077,790 at age 67 to buy an annuity, which at current rates quoted on the Vanguard site, would give me $7,789 a month until I die.

This return is just about four times the amount I get from having the Social Security Administration manage the money for me instead.

In fact, this all opens up the obvious question, what actual rate of return is Social Security paying out on your "premiums?"

In fact, the implied rate of return on my money in the Social Security system is -0.8% a year. In other words, not only is the government not paying me any interest, they are charging me to hold my money.

Dan Kanoza

Ah, the myth of the Trust Fund being created in 1983 to hold savings to finance future benefits.

Alas, it is just not so. It's a story made up later. Now a political urban legend. If you believe it is so, you don't know how Social Security works, or politicians either.

Here's Robert Meyers, SSA's long-time chief actuary and Executive Director of the Greenspan Commission on this subject, in the SSA.gov oral history section...

~~ quote ~~
Q. As we look at it today, some people rationalize the [trust fund] financing by saying that it's a way of partially having the baby boomers pay for their own retirement in advance. You're telling me now this was not the rationale. Nobody made that argument or adopted that rationale?

Myers: That's correct. The statement you made is widely quoted, it is widely used, but it just isn't true.

It didn't happen that way, it was mostly happenstance that the Commission adopted this approach to financing Social Security ... The main thing that was talked about was how do we fix up the short-range problem. Are you sure we aren't going to have another crisis in 2 or 4 years? ...

~~ end quote~~

The 1983 Commission never even thought of using the Trust Fund to finance benefits, the idea never entered their heads. It was never discussed at all.

All the politicians wanted to do was make dang sure that the tax increase they put in then was high enough so they wouldn't have to go through this political tax increase hell again on their watch!

If you want to full story you can get it in this report (.pdf) from the Congressional Research Service.

Read it and learn about how both Social Security and politicians function in real life.

Geebus. I think, "gee, why are they getting it wrong and what reason would they have to purposefully misinterpret something". But hey, I'm not an authoritarian and don't worship at the feet of those who would claim to be my betters.

I guess those on the right are different.

Hal:

Paul Samuelson famously praised Social Security as a "Ponzi game" in his 1967 article, "Social Security, a Ponzi Scheme That Works"

Later, Paul Krugman was concerned about it as a "Ponzi game".

"Social Security ... has turned out to be strongly redistributionist, but only because of its Ponzi game aspect, in which each generation takes more out than it put in. Well, the Ponzi game will soon be over, thanks to changing demographics, so that the typical recipient henceforth will get only about as much as he or she put in (and today's young may well get less than they put in)."

And Milton Friedman damned it as a "Ponzi game".

Samuelson, Krugman, Friedman, "ignorant"?

Samuelson, Krugman, "right wing tools"??

Personally, when I hear three such great economists with such disparate points of view all describe Social Security with the words "Ponzi game" I think, who am I to argue?

That said, I think a guest worker program where there is never any chance of citizenship is a bad idea, from a policy standpoint, in that it will create two classes of long-term residents. I would like us as a nation to decide how many new citizens we can assimilate every year, and then skim off the best and most assimilated of the guest workers for citizenship.

The “guest worker” option, wherein we collect FICA taxes but then send them from whence they came before they can collect benefits would be even better from a fiscal standpoint but has the drawback of being horribly immoral.

"horribly immoral..?"

Look, I wouldn't claim to any superior moral code or anything, but the truth is, a "guest worker" program is a trade-off with benefits and costs. Workers wouldn't come here to work if they didn't feel they were getting a benefit--, i.e., they make money they can send home for their families. Paying into FICA for the privilege of working to make money isn't immoral, if workers are still making a profit. It's only immoral if they come here to work and don't make a profit. The system we have now is immoral: Immigrants risk their lives to cross the desert to get into this country to live their lives either hiding in the shadows in fear, or working as slaves for corporations like Burger King, picking tomatoes for 10 cents a bushel and living in squalor. Now, that is IMMORAL. Formulating a guest worker program wherein they pay a small amount into FICA, are documented to work here, make a decent living and live without fear, would be a step toward morality in my view.

The “guest worker” option, wherein we collect FICA taxes but then send them from whence they came before they can collect benefits would be even better from a fiscal standpoint but has the drawback of being horribly immoral.

No more immoral than forcing me (25 years old) to pay into a system that can't survive long enough to pay me out.

This is unsustainable without a massive influx of young people into the system willing to shell out an increasing share of their income to comparatively wealthy elderly folks retiring at what is now a relatively young age.

Not exactly. The problem is a little more complicated than that. The key problem is that not enough income is subject to the tax. Basically, there are two ways for that to happen: James's solution (“a massive influx of young people”) or raise FICA max (the income level at which income is subject to the tax).

Presumably, James's answer to this is that if we raise FICA max without also increasing benefits available to higher income folks it will reveal that Social Security isn't an insurance program but a welfare program. I don't have any problem with that.

The underlying fact is that an ever greater proportion of total national income has avoided being subject to the tax because so much of the increase in income over the last 30 years has been among people most of whose income isn't subject to the tax. And IMO that's a direct consequence of policy decisions made along the line. I think it's perfectly appropriate and just for policy decisions to offset the adverse consequences of previous policy decisions and that's what we've got to do.

No, you aren't hurting my feelings. I'm just greatly concerned that you have been so badly misinformed, or choose to be so misinformed about what amounts to issues pertaining to your own well-being.

I'm actually well aware how social security works, and how the federal budget works, and where the money comes from and where it goes. What worries me is that Republicans like you prefer to live in some kind of fantasy world where massive deficit spending is just great because the rich people "are due" while they worry about something like the social security program, which is solid and successful. Someday you are going to know what a dupe you are in buying into this Republican bull hockey.

Remember "surpluses?" When Bill Clinton was president, we had budget surpluses. Reagan ran the biggest deficits in history, until George Herbert Walker Bush, who ran bigger deficits, but HW's son, George Bush, beat 'em all to hell. George W. Bush has run the biggest deficits in the history of the world. Bill Clinton? Budget surplus!

I advise you to read more about how Social Security works beyond one little scare-mongering graph, son. You'll improve your ability to debate this kind of stuff, and as a bonus, you'll educate yourself as well.