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
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Congrats on your blog, will look forward to reading regularly!
ReplyDeleteMilkana
Both solutions seem quite reasonable, but I think the bigger challenge is convincing politicians that their electorate will allow them to implement one or both solutions. Can you imagine a politician telling seniors that their social security benefits need cutting? And we've recently seen what happens when a politician says they want to raise taxes (even if it's only on the wealthy).
ReplyDeleteDan
How about the government using GAAP and including Medicare, Social Security, etc. in the calculations and having a real set of books for the government that provide some transparency?
ReplyDeleteMike
Don't worry, Obama will save us all. He has the foresight to see that the changes this country needs will be political suicide for those involved. So he will pass socialistcare for all and then give all immigrants free access to the government trough and finally ram through some big change to social security. Come 2012 he'll lose in a landslide or not even bother running and then the Republicans will have complete control!! Muhaha!!
ReplyDeleteWith which they will promptly eff it all up even more so no worries.
Yay Richard, good luck on your blog.
Carl
(While not directly addressing social security problem...) How about increasing overall tax revenue by more heavily taxing the producers of "goods" that cause disease and obesity? The Phillip-Morrises, the Frito-Lays, the tanning salons, etc. Similar to the WA state proposal of increasing sales tax specifically on products that end up costing taxpayers more money in healthcare.
ReplyDeleteGreat to see you blogging!
-Lynn
Thanks everyone for the positive feedback and thoughtful comments.
ReplyDeleteFor more thoughts on Dan and Mike's comments, see subsequent posting.
Re: Lynn's comment. I'm a big fan of use taxes, in which people who choose to partake in a particular activity (e.g., smoking) pay additional taxes (e.g., on cigarettes) that cover the expenses incurred as a result of that activity (e.g., from lung cancer).
If nothing changes, Social Security faces insolvency before 2037. That was projected when the current recession severely crimped payroll deductions. If just the pension benefits presently scheduled are to be continued, they will consume 51 percent of all federal revenues by 2037, not including Medicare. That date is moving ever closer. Current law requires that when its Trust Fund is depleted, payments cannot exceed monthly income and thus must be reduced proportionately. Total federal taxes would then have to be raised to 26 percent of GDP!—46 percent of all taxable incomes—just for Social Security pensions!—not including health care. The longer a solution is postponed, the more onerous will be its effects. The major impediment to solving this highly emotional issue is the lack of sufficient national income to finance it—and political demagoguery. There are a number of partial solutions:
ReplyDelete1. Raise payroll taxes by an additional 1.1 percent to a total of 73 percent for both employer and employee.
2. Tax all wages—not just those under $106,800.
3. Achieve 75 percent lower shortfall if cost of living increases are reduced one percent/year. (But none were paid in 2010-11!)
4. A 75 percent saving would accrue from bumping up the full benefits age from sixty-seven to sixty-eight. Unfunded benefits will decrease sharply if ages are bumped up every few years. In any case, this will definitely become necessary as longevity increases.
Cover deficits with a national income set-aside from licensing fees. This only suffices if such fees come from more resources: (e.g., water rights, oil, natural gas and mining exploration leasing fees, wellhead production taxes).
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