Les Jones

CBO: Social Security headed for crisis ahead of schedule

Wednesday, August 26th, 2009 | Economics, Social Security | Permalink | 1 Comment |

The Market Ticker - Here Comes Trouble: Three Problems:

The CBO’s annual Social Security Update is out, and it’s pretty ugly:

This is pretty ugly; we were not supposed to have a negative income-to-outlay view on Social Security for another decade or so.

Well, the recession fixed that.  Tax receipts are in the toilet but outlays sure aren’t.

In case that graph isn’t clear: Social Security has been running a surplus. That surplus is about to turn into a deficit. So instead of SS revenues funding the general budget, SS is about to become a drain on the general budget. This is bad, bad news. Everyone knew this day was coming, but it’s coming much sooner than expected.

10 year deficit raised $2 trillion

Sunday, August 23rd, 2009 | Economics, Health Care, Social Security | Permalink | No Comments |

Zero Hedge - Long-Term Budget Deficit Revised, Now $2 Trillion Dollars Worse:

White House budget review set for release Aug. 25 will show cumulative deficits over the next decade amounting to $9 trillion, up from $7.1 trillion that the administration predicted in May, the official said on condition of anonymity because the figures have not been made public.

So that’s another $2 trillion that can’t fund health care.

My theory is that if Obamacare-style nationalized health care doesn’t happen by 2016 it won’t happen for the foreseeable future. By 2016 the depth of the government’s deficits will be so great that no national health care will be unfundable. Besides the deficit itself, the liabilities for Social Security and Medicare/Medicaid will eat up so much of the budget that we’ll face a crisis just trying to keep the existing programs intact. The public will finally realize how badly the government has managed its finances and promises.

Tags: deficit

Eat the rich!

Thursday, August 6th, 2009 | Health Care, Politics, Social Security | Permalink | No Comments |

Washington Times - Congress in Fantasyland:

The Congressional Budget Office projects a total additional deficit of approximately $4.9 trillion dollars during President Obama’s first term (2009-2012). Currently, the top 1 percent of taxpayers pay 40 percent of the tax, or $450 billion a year, or approximately $1.8 trillion dollars during the next four years, leaving a $3.1 trillion hole. Increasing the tax rate on those high earners to 100 percent might yield an additional $1.5 trillion the first year, but this will only work for the first year. Most people, after being taxed 100 percent on their income, will quit work and/or put their investments in nontaxable entities, such as tax-free local government bonds.

It is also not mathematically possible to take care of all the new spending by increasing taxes on the top 5 percent of taxpayers (those making $160,000 or more annually) who already pay 61 percent of the federal tax (or $676 billion per year). Most of these people are now paying close to the revenue maximizing rate, which means that any increase in their tax rate is unlikely over the long run to bring in much more tax revenue

Are Medicare cuts being subsidized by private health care?

Tuesday, June 23rd, 2009 | Health Care, Social Security | Permalink | No Comments |

Reason - ObamaCare is a Trojan Horse for Socialized Medicine:

Medicare hasn’t controlled costs by discovering some wonder drug to deliver new efficiencies that the private sector doesn’t have. In fact, the Government Accountability Office lists Medicare as a “high-risk” program, thanks to its long-term financial problems and its vulnerability to fraud. Rather, Medicare has cut costs by deploying the economic equivalent of leech-therapy: slashing payments to providers. The only reason providers haven’t been bled out of existence is because they have offset these cuts by raising prices charged to private insurance plans. In effect, then, the good performance of Medicare that Obama and Co. tout has been purchased by beggaring the private plans that they deride.

There is a rich literature testifying to this phenomenon. A study last December by Milliman Inc., an independent consulting firm, commissioned by America’s Health Insurance Plans, found that underpayment by Medicare and Medicaid accounted for nearly an 11% increase in the health care costs of private plans. This means that on average a privately insured family is forced to pick up about $1,800 extra every year of the government’s slack. Private plans, all in all, are subsidizing government programs to the tune of $90 billion annually.

Candidate Obama vs. President Obama on healthcare

Tuesday, June 16th, 2009 | Health Care, Social Security | Permalink | No Comments |

National Review - What Obama Used to Think of Medicare Cuts:

“Now, first of all, we found out that Senator McCain wants to pay for his plan by taxing your health care benefits for the first time in history. Just like George Bush. That was bad enough. But ‘The Wall Street Journal’ recently reported that it was actually worse than we thought. It turns out Senator McCain would pay for part of his plan by making drastic cuts in Medicare. $882 billion worth. $882 billion in Medicare cuts to pay for an ill-conceived, badly thought through health care plan that won’t provide more health care to people.”
– Barack Obama on the campaign trail

Now President Obama wants to pay for his healthcare plan by … taxing health benefits and making cuts in Medicare benefits. It’s almost as if he’s making up a multi-trillion dollar national health care plan as he goes along.

UPDATE FROM THE FUTURE: Five Health Care Promises Obama Won’t Keep

Tags: obama

Fix Medicare first

Thursday, June 4th, 2009 | Social Security | Permalink | No Comments |

Virginia Postrel:

Think about this for a moment. Medicare is a huge, single-payer, government-run program. It ought to provide the perfect environment for experimentation. If more-efficient government management can slash health-care costs by addressing all these problems, why not start with Medicare? Let’s see what “better management” looks like applied to Medicare before we roll it out to the rest of the country.

Yep. With the boomers retiring Medicare is heading for insolvency on a historical scale. In another decade fixing Medicare is going to be the challenge that consumes the national interest over and above everything else, to the extent that if government-run health doesn’t happen by then the Medicare crisis will lead people to question the wisdom of letting politicians run the healthcare system.

Previously - Social Security and Medicare: outlook worsens by the day

Medicare prescription program would have funded Social Security

Wednesday, May 27th, 2009 | Social Security | Permalink | No Comments |

I’ve said before that the Medicare prescription drug program was a disaster. We didn’t know how we were going to fund existing liabilities for Social Security and Medicare. Then Bush added the prescription drug benefit without raising a single dime of new revenue to pay for it.

I knew the Medicare prescription drug benefit was bad. I didn’t realize it was this bad.

We could also look at this another way. The federal reports released this week indicate that the unfunded liabilities associated with Social Security are about the same size as the unfunded liabilities associated with the Medicare prescription drug plan. So for the cost of the drug plan, we could have funded Social Security forever without cutting benefits or raising taxes.

Social Security and Medicare: outlook worsens by the day

Wednesday, May 13th, 2009 | Health Care, Social Security | Permalink | 1 Comment |

AP - Social Security and Medicare finances worsen:

The Congressional Budget Office recently projected that Social Security will collect just $3 billion more in 2010 than it will pay out in benefits. A year ago, the CBO had projected that Social Security would have a much higher $86 billion cash surplus for the 2010 budget year, which begins Oct. 1.

The trustees report projected that Social Security’s annual surpluses would “fall sharply this year,” then remain at a reduced level in 2010 and be lower in the following years than last year’s projections. The report said that the Social Security annual surplus would be eliminated entirely in 2016, reflecting increased demands from the wave of 78 million baby boomers retiring.

That means Social Security will have to turn to its trust fund to make up the difference between Social Security taxes and the benefits being paid out beginning in 2016. The trustees projected the trust fund would be depleted in 2037, four years earlier than the 2041 date in last year’s report.

And what about Medicare?

Medicare’s condition is more precarious, reflecting the pressures from soaring health care costs as well as the drop in tax collections.

That’s all the details they provide. They presumably can’t bear to bring themselves to say how bad off Medicare is.

Which would be typical at least. People will talk about the federal deficit. Some brave souls will talk about Social Security shortfalls. Few people have the fortitude to explain that Medicare in anything like its current form is completely unsustainable. From a post last week interviewing a Wharton economics professor:

Medicare is tough for two reasons. One, the shortfall in Medicare is six to seven times larger than in Social Security. Social Security is a major problem; Medicare is a crisis. You add both of those… shortfalls together and you’re getting something that’s … between $80 and $120 trillion in total present value shortfalls. … People can’t even imagine how big that number is. If you took the total value of the United States, except for the people (all the land, houses, buildings, everything that’s non-perishable, your washer and dryer, cars, and so forth), it has about a value of about $50 trillion. So we’re talking about a shortfall of twice the value of the value of the U.S. except for the people. Now, the value of the people is about three times that. We’re just talking about biblically large shortfalls. We’ve never seen this type of problem.

We have no idea how to fix Medicare, in part because we don’t have the stomach to discuss it. Yet while our country’s largest medical care program is heading to certain doom George Bush introduced the unfunded Medicare prescription drug program and Barack Obama has expanded other government health programs like SCHIP and is trying to expand health programs further.

Take any politician’s estimate of how much these programs will cost and double it, then double it again. Then realize they have no idea how they’ll pay for all of this, because they don’t even know how they’ll save Medicare.

Wharton prof: Real fiscal crisis is yet to come

Monday, April 20th, 2009 | Social Security | Permalink | 1 Comment |

Knowledge @ Wharton - A Thought for Tax Day: The Real Fiscal Crisis Is Yet to Come:

Knowledge@Wharton: Do we have to dig ourselves out of the national debt before we can address Social Security or Medicare?

Smetters: No. In fact, ideally, it would be in some ways just the opposite. Social Security and Medicare are much bigger problems, and the longer that we delay those, the more those problems [will] snowball. In particular, every year that we delay reform on either of those programs it adds about another $2 trillion to the present value shortfalls of both programs. So just a one-year cost of delay is about the size of the record deficit that we’re going to have this year….

Knowledge@Wharton: So, whatever we do for Social Security, the bottom line is that it has to cost a lot less than it does now.

Smetters: Yes. You can certainly raise some tax revenue in some places. People have talked about increasing the maximum taxable wage cap [currently $106,800]…. That’s not going to… help a lot in present value, because those people will eventually collect more benefits. They’re not going to collect as much… as they paid into the system, but it’s still not going to be super-effective…. People have [also] talked about taxing fringe benefits like health care and so forth. But the fact of the matter is that these benefits are growing faster than inflation. We have to bring Social Security benefit growth rate closer to [the rate of] inflation for it to be a sustainable system. And that’s the easy problem.

Medicare is the tough one.

Knowledge@Wharton: Medicare is tougher, why? Because … people [are reluctant] to give up benefits that have to do with their health care?

Smetters: Medicare is tough for two reasons. One, the shortfall in Medicare is six to seven times larger than in Social Security. Social Security is a major problem; Medicare is a crisis. You add both of those… shortfalls together and you’re getting something that’s … between $80 and $120 trillion in total present value shortfalls. … People can’t even imagine how big that number is. If you took the total value of the United States, except for the people (all the land, houses, buildings, everything that’s non-perishable, your washer and dryer, cars, and so forth), it has about a value of about $50 trillion. So we’re talking about a shortfall of twice the value of the value of the U.S. except for the people. Now, the value of the people is about three times that. We’re just talking about biblically large shortfalls. We’ve never seen this type of problem.

Tags: inflation

Retiree dependency ratio by country

Tuesday, April 7th, 2009 | Population, Social Security | Permalink | No Comments |

Financial Times - The red ink of a greyer future:

Once the recession passes, countries will need to work on closing their gaping fiscal deficits without triggering further collapses in output. They will also need to service bloated national debts. The International Monetary Fund estimates that among the Group of 20 nations whose leaders meet in London this week, the industrialised members will have increased their national debts by an average equivalent to nearly 25 per cent of gross domestic product between 2007 and 2014.

That is a heavy burden. But, to 2050, the cost of this crisis will be no more than 5 per cent of the financial impact they face from the ageing of their citizenry. As the IMF says, “in spite of the large fiscal costs of the crisis, the major threat to long-term fiscal solvency is still represented, at least in advanced countries, by unfavourable demographic trends”.

When I was younger and more enthusiastic about environmentalism I thought China’s one child policy was brilliant. Now I just think it’s suicidal, not to mention tyrannical.

Hat tip to Tigerhawk.

Social Security going broke ahead of schedule

Tuesday, March 31st, 2009 | Social Security | Permalink | 5 Comments |

The Heritage Foundation - Sayonara Social Security Surpluses:

Darren Gersh finds that due to slower projected payroll tax receipts combined with higher payments for early retirements and cost of living adjustments, “the era of large Social Security surpluses is over.” According to the Congressional Budget Office, the Social Security surplus will only be $16 billion this year, and only $3 billion next year. In total the recession will shave $150 billion off of the surplus over next three years.

Last year the trustees estimated that Social Security would have a negative cash flow by 2017. But analysts expect that number to move up significantly in this year’s trustees’ report. Gersh then talked to National Committee to Preserve Social Security and Medicare President Barbara Kennelly who claimed there is $2.5 trillion in the Social Security trust fund, and that there is therefore nothing to worry about. Problem is, as Heritage scholars David John and Brian Riedl explain that $2.5 trillion is pure fantasy:

Follow the link for the full explanation, but here’s short version. Decades of surpluses weren’t saved. They were loaned to other parts of the government. The other parts of the government wrote IOUs to Social Security.

The Past: Social Security generates a surplus in the budget.

The Future: those surpluses will soon be gone. Instead of generating a surplus in the general budget, Social Security will create a deficit in the general budget.

We’re going to be forced to reform Social Security very soon. In the next administration if not in this one.

Madoff was an amateur in comparison

Monday, January 5th, 2009 | Social Security | Permalink | No Comments |

Cartoon: where did Madoff get the idea to pay early investors with the money from later investors?

Britain’s public pension problems

Monday, December 8th, 2008 | Economics, Social Security | Permalink | No Comments |

MoneyWeek - Britain’s widening pensions gap:

“We have got to end the apartheid,” said Conservative leader David Cameron last week as he highlighted the huge gulf between public and private-sector pensions. Quite so, says The Daily Telegraph’s Paul Farrow: “the pension playing field is decidedly lopsided”. The Taxpayers’ Alliance recently revealed that 17,150 public-sector workers have already retired with pension pots worth over £1m. The list of beneficiaries includes 10,500 ex-NHS employees, 3,680 civil servants, 1,800 teachers and 815 judges. Ignoring those at the top, even the average public-sector worker will retire on an annual pension of £17,091, says Dr Ros Altmann, a former adviser to Tony Blair. To match that, given that 80% of employers have closed their final-salary schemes, a private-sector worker would have to save £427,275. In reality, says the Association of British Insurers, the average lump sum used to buy an annuity is just £24,150, enough for an annual income of well below £2,000.

Does it seem reasonable that public service employees have better pensions than most of the citizens whose taxes pay their salaries? As the article notes, public employees have more stable jobs and better benefits. With public service pensions driving cities and states to the poorhouse this is going to be an issue in the coming years.

Previously:

- Vallejo, California declares bankruptcy
- How irrational are California public pensions?
- State pension funds heading for insolvency

State pension funds heading for insolvency

Wednesday, November 26th, 2008 | Economics, Social Security | Permalink | 1 Comment |

Analyst: State of New Jersey Is Insolvent. And most state pension funds and therefore states will be insolvent if something doesn’t change. The analyst’s recommendations:

States have to dramatically raise taxes to pay for unrealistic promises

A voluntary reduction in pension promises will be negotiated

Cities, municipalities, and states declare bankruptcy or find other ways to default on promises made

Choice number one will lead to a taxpayer revolt, and choice number three will have every school district and government employee hopping mad. Yet, to expect number two to happen voluntarily is highly unlikely. The most likely thing that will happen is governors like Corzine will put the problem off, just as Schwarzenegger has done in California, and in fact every governor in every state has done.

Pension problems are rampant. Most states were way underfunded even before this 45% selloff in the stock market. I selected New Jersey to look at because they have disclosed the numbers as well as the future assumptions.

The point of pension crisis has now arrived. Yet few even recognize it and fewer still want to propose doing anything about it.

Just as long-term healthcare benefits and pensions for the autoworkers union broke Detroit the public service employees unions are liable to break cities and states.

This, by the way, is also where Medicare is headed. Social Security with its fixed payout could still be saved, but Medicare is almost certainly hopeless in its current form. The system will break once the boomers retire - their retirement will reduce the money going into the system and their declining health will increase the money going out of the system.

The system only really works when the population is steady or growing. Throw in a shrinking working population or a growing retirement population due to greater longevity and the ratio of workers to retirees becomes unsustainable.

Hat tip to Instapundit.

Ratio of Workers to Soc. Sec. Recipients on the Decline

Wednesday, July 30th, 2008 | Social Security | Permalink | 4 Comments |

Ross Perot is back, and this time he knows HTML. I especially liked this chart, which illustrates the challenges in keeping Social Security solvent:

So in 1960 you’ve got four workers supporting each person on Social Security. Currently that ratio is down to 3 to 1. If current demographic trends continue by 2032 there will only be two workers for each Social Security recipient.

That ratio isn’t sustainable. Something’s gotta give. What makes it worse is what isn’t shown - Medicare/Medicaid. Those are uncapped entitlement programs with much higher combined liabilities than Social Security.

U.S. Credit Rating Threatened by Medicare, SS, Debt Liabilities

Friday, January 11th, 2008 | Health Care, Social Security | Permalink | 11 Comments |

Financial Times - US’s triple-A credit rating ‘under threat’:

The US is at risk of losing its top-notch triple-A credit rating within a decade unless it takes radical action to curb soaring health care and social security spending, Moody’s, the credit rating agency, said yesterday.

The warning over the future of the triple-A rating - granted to US government debt since it was first assessed in 1917 - reflects growing concerns over the country’s ability to retain its financial and economic supremacy.

People are willing to talk about the national debt (it was the centerpiece of Ross Perot’s 1992 presidential campaign, which led to some deficit reductions and even modest debt reductions in the ’90s). People are even willing to talk about Social Security shortfalls (which led to modest Social Security changes, such as changing retirement age from 65 to 67 for those of us born after 1959).

Few people are willing to talk about the truly massive unfunded obligations of Medicare and Medicaid ($33.4 trillion), which dwarfs unfunded Social Security obligations ($4.6 trillion) and the national debt ($10 trillion). The U.S. also has “$2.3 trillion unfunded liability for medical and disability benefits promised to civil servants and military personnel who retire.”

Social Security needs a few tweaks to stay viable. Removing the $85,000 ceiling for contributions and indexing payments to prices rather than wages would help. Reducing Social Security payments doesn’t seem like an option - the government has made express commitments of specific dollar amounts upon retirement. It would undermine credibility in the government to reduce those payments.

Medicare on the other hand doesn’t have the same type of specific obligations, and in general pays out much more than it takes in. Medicare represents our largest financial shortfall, so reform there is mandatory for our government to stay solvent.

This looming threat is one reason I do not want government-provided healthcare. The government has already shown it can’t provide a health care system with balanced books. My guess is that if we don’t get nationalized health care the next ten years it will be off the table. Once people realize how financially unstable the current government health care system is they won’t want another.

U.S. Going Bankrupt?

Tuesday, July 18th, 2006 | Social Security | Permalink | 3 Comments |

That’s according to an article in the Telegraph which quotes Professor Laurence Kotlikoff for the Federal Reserve Bank of St Louis, “a leading constituent of the US Federal Reserve.”

xperts have calculated that the country’s long-term “fiscal gap” between all future government spending and all future receipts will widen immensely as the Baby Boomer generation retires, and as the amount the state will have to spend on healthcare and pensions soars. The total fiscal gap could be an almost incomprehensible $65.9 trillion, according to a study by Professors Gokhale and Smetters.

The figure is massive because President George W Bush has made major tax cuts in recent years, and because the bill for Medicare, which provides health insurance for the elderly, and Medicaid, which does likewise for the poor, will increase greatly due to demographics.

The article doesn’t break the problem down enough to say how much of the problem is deficits and how much is entitlements. I suspect it’s mostly the latter, based on the European experience in which social program liabilities dwarf debts. Of course running up deficits as Bush has been doing doesn’t help. Also not helping: Bush’s Medicare prescription program, which increased entitlements without increasing revenues.

Social Security’s problems are relatively easy to fix, since SS is a fixed payout and the program is expected to run in the black until 2018. Medicare costs on the other hand just keep rising.

Accounting For Future Healthcare Liabilities

Friday, May 19th, 2006 | Health Care, Social Security | Permalink | No Comments |

From USA Today via Megan McArdle:

New accounting rules require that governments, starting next year, put a price tag on the value of medical benefits promised to civil servants when they retire. New York City’s liability, for example, approaches $50 billion. The city’s total budget last year was $53 billion.

“It’s no exaggeration to say that elected officials are shocked, absolutely shocked, by the size of these liabilities,” says Donald Rueckert Jr., senior vice president and actuary at Aon Consulting, an insurance broker.

The federal government also has a $2.3 trillion unfunded liability for medical and disability benefits promised to civil servants and military personnel who retire. The costs are not the nation’s biggest financial problem. Medicare has a $33.4 trillion unfunded liability. Social Security has a $4.6 trillion shortfall.

See also:
- Highly Recommended Article on Europe’s Economic Future (deals with Europe’s’ unfunded liabilities related to its welfare state)

Report: Social Security Outlook Worsening

Tuesday, May 9th, 2006 | Social Security | Permalink | 2 Comments |

From Willisms.

* The projected point at which tax revenues will fall below program costs comes in 2017 — the same as the estimate in last year’s report.

* The projected point at which the Trust Funds will be exhausted comes in 2040 — one year earlier than the projection in last year’s report.

Just two years ago, those same projections were for 2018 and 2042. Reforming Social Security was a bridge too far for Bush’s administration, but someone is going to have to make changes to the system to save it.

United Airlines Defaults on Pension Plan

Friday, May 13th, 2005 | Social Security | Permalink | No Comments |

United Airlines, already bankrupt, has terminated its employee pension plans. Control of the plans has been passed to a Federal corporation by order of the courts. Employees may see as much as 50% of their expected retirement funds disappearing.

Alex Tabarrok writes:

Now, let’s review. A large organization counts on its younger workers and continuing high revenues to fund the pensions and medical care of its retired workers but finds that rising health care costs, longer life-expectancy, and its own inability to control spending force it to cut pension benefits and switch to personal accounts.

Yep. I expect Social Security will be saved in large part because it’s quite modest, but this won’t be the first pension plan - corporate or governmental - to go bust. Ford and especially GM could default on their pension plans. Most European countries can’t possibly honor their pension systems. The results could be devastating, not only for the retirees, but for the health of the nations involved.

Social Security Reform Debate

Wednesday, April 13th, 2005 | Social Security | Permalink | No Comments |

Informative debate on Social Security reform between James Glassman and Tyler Cowen. Both agree that Social Security should be indexed to prices rather than wages, and that indexing to wages is one of the causes of the current predicament. Cowen raises my main concern with privatization:

Whether we like it or not, government would come to be seen as offering an implicit guarantee for these accounts. If the stock market were to stay low for 10 or 15 years, retirees would demand that government supplement their returns. Government would feel pressure to cough up additional revenue exactly when the budget would be in the tightest squeeze. The result would be higher taxes in times of recession, exactly the opposite of what is appropriate. (It is true that government does not end up guaranteeing current IRAs, but that is only because we already have Social Security as a backstop.)

Glassman, in his counter-counterpoint, acknowledges this problem when he addresses plans that would completely dismantle Social Security (after paying back all contributors):

The second problem is that in the United States we don’t let people starve. Some people simply will not save for their own retirement–especially after 70 years of relying on the government. Even Hayek agreed that some form of forced savings is necessary to keep taxpayers from having ultimately to foot the bill for those who don’t provide for their own future.

Glassman isn’t in favor of let-it-all-hang-out market optimism, and proposes some limitations on the kinds of investments people would be restricted to in order to limit volatility. Cowen worries about the politicization of those government-mandated options, and I don’t blame him.

Glassman notes what I think is one of the great unsung benefits of privatization. Namely, that private accounts can transform lives and families by making people active participants in their financial futures, and making the private accounts transferrable to their beneficiaries.

Finally, the establishment of private retirement accounts–even with restrictions–will be a blessing for tens of millions of low-and middle-income Americans who have little or no savings. As we’ve seen in Chile, when people are introduced to investing in stocks and bonds, they like the experience and want more. The problem today is that payroll taxes are so high that young people especially don’t have the cash to save and invest. Reforming Social Security would change that.

Charles Krauthammer on Social Security Reform

Monday, February 21st, 2005 | Social Security | Permalink | 10 Comments |

Think 2018, not 2042:

2042. I do not know if President Bush’s Social Security reform will pass, but if it does not, its demise will be traced to that point in the president’s State of the Union address when he warned that the system would go bankrupt in 2042. It was a disastrous moment.

First, it is hard to rally people to a crisis that you have located 37 years out. People 45 and older figure they will be dead anyway. And younger people have such a short time horizon that 37 years in the future is utterly meaningless. It does not matter if you have young children. A parent with young children can barely imagine them as teenagers, let alone as pre-menopausal fortysomethings. [...]

The really important date is 2018. That is when this pay-as-you-go system starts paying out more (in Social Security benefits) than goes in (in payroll taxes). Right now, workers pay in more than old folks take out. But because the population is aging, in 13 years the system begins to go into the red. To cover retiree benefits, the government will have to exhaust all of its FICA tax revenue and come up with the rest — by borrowing on the world market, raising taxes or cutting other government programs.

Democrats Were for Social Security Reform Before They Were Against It

Wednesday, February 9th, 2005 | Social Security | Permalink | 3 Comments |

So the Democrats are opposing Bush’s proposed partial privatization of Social Security as part of an effort to save it in the long run. That’s fine, but if it’s such a bad idea then why did so many Democrats previously support some variation of privatization or investment in the private sector?

Sen. Dick Durbin (D-IL) Press Release:

The De-population Problem

Monday, December 27th, 2004 | Population, Social Security | Permalink | No Comments |

Foreign Affairs examines declining birthrates around the world. It’s not just Europe, Japan, and the U.S., anymore. Birthrates have fallen dramatically in Iran and Mexico. Puerto Rico’s birthrate is now below replacement levels. Populations are aging everywhere, with potentially ruinous consequences for pension and healthcare systems.

Some biologists now speculate that modern humans have created an environment in which the “fittest,” or most successful, individuals are those who have few, if any, children. As more and more people find themselves living under urban conditions in which children no longer provide economic benefit to their parents, but rather are costly impediments to material success, people who are well adapted to this new environment will tend not to reproduce themselves. And many others who are not so successful will imitate them.

So where will the children of the future come from? The answer may be from people who are at odds with the modern environment — either those who don’t understand the new rules of the game, which make large families an economic and social liability, or those who, out of religious or chauvinistic conviction, reject the game altogether.

In a biological system, fitness is defined by reproducing. But certainly it’s financially advantageous today to not have children.

In the United States, the direct cost of raising a middle-class child born this year through age 18, according to the Department of Agriculture, exceeds $200,000 — not including college. And the cost in forgone wages can easily exceed $1 million, even for families with modest earning power. Meanwhile, although Social Security and private pension plans depend critically on the human capital created by parents, they offer the same benefits, and often more, to those who avoid the burdens of raising a family.

Privatizing Social Security

Sunday, September 19th, 2004 | Social Security | Permalink | 7 Comments |

Kevin Drum spells out the part of Social Security privatization that bugs me, too.

This is one of my biggest problems with Social Security privatization. It’s not really clear to me that it benefits anyone except the well-off to begin with, and I’m certain that if private returns collapsed the government would rush in to make up the shortfall anyway. That’s just the political reality. But if the government is essentially guaranteeing a minimum rate of return, why bother with privatization in the first place? Just let the feds fund Social Security out of current revenues the way they do now.

Yep. I’d be happier with an expansion of IRAs and 401Ks, with only minimal social security privatization.