Thanks for the thoughtful comments on my first posting.
Dan commented on the lack of political will to either raise taxes or reduce benefits. Making such changes might not be easy for elected representatives, but being able to campaign on having saved Social Security could provide them some political benefits as well. They could also introduce the benefits changes gradually (as was done with raising full retirement age to 67 and introducing the sliding scale of benefit amounts based on retirement age between 62 and 70) so the reductions only affect future beneficiaries.
Mike commented that the government should start properly accounting for all current and future financial obligations. I absolutely agree.
29 April 2010
28 April 2010
Social Security insolvency 1
According to the 2009 Annual Report on the status of Social Security and Medicare, Social Security will begin generating a deficit in 2016 and will run out of reserves in 2037.
There are two obvious solutions to this financial problem:
1. TAX MORE: Eliminate the current income limit on the social security tax. Currently, people earning over $106,800 (in 2010) pay a lower overall percentage of their earnings towards social security (because they pay 0% on all earnings above $106,800). Instead, everyone should pay the same 6.2% on all of their earned income (plus the additional 6.2% paid by the employer).
2. SPEND LESS: Raise the full retirement age. In 1935 when the Social Security Act was passed, the retirement age for social security benefits was 65. At that time, the average life expectancy was less than 60. In 1983, the retirement age for full benefits was gradually increased to 67. In 2009, the average life expectancy was 78. Life expectancy has been rising much faster than the retirement age for full Social Security benefits. Raising that retirement age to life expectancy age would not be unreasonable.
2009 Annual Report Summary: http://www.ssa.gov/OACT/TRSUM/index.html
2010 Social Security and Medicare Update: http://www.ssa.gov/pubs/10003.html
There are two obvious solutions to this financial problem:
1. TAX MORE: Eliminate the current income limit on the social security tax. Currently, people earning over $106,800 (in 2010) pay a lower overall percentage of their earnings towards social security (because they pay 0% on all earnings above $106,800). Instead, everyone should pay the same 6.2% on all of their earned income (plus the additional 6.2% paid by the employer).
2. SPEND LESS: Raise the full retirement age. In 1935 when the Social Security Act was passed, the retirement age for social security benefits was 65. At that time, the average life expectancy was less than 60. In 1983, the retirement age for full benefits was gradually increased to 67. In 2009, the average life expectancy was 78. Life expectancy has been rising much faster than the retirement age for full Social Security benefits. Raising that retirement age to life expectancy age would not be unreasonable.
2009 Annual Report Summary: http://www.ssa.gov/OACT/TRSUM/index.html
2010 Social Security and Medicare Update: http://www.ssa.gov/pubs/10003.html
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