Social Security to start cashing Uncle Sam's IOUs

[Xiahou]

Social Security to start cashing Uncle Sam's IOUs
It's official, Social Security is now paying out more than it takes in. Meaning the government has to borrow money from somewhere else to pay back the money that it owes the trust fund. With the possible exceptions of 2014 and 2015, the fund is expected to run deficits... well, forever... until it officially bankrupts in 2037.

Can I opt out of this ponzi scheme please?

[Sasaki Kojiro]

Aren't people going to have less kids over time, and the economy increase? That would seem to make it not quite a ponzi scheme.

[johnhughthom]

From the article: "Social Security is financed by payroll taxes — employers and employees must each pay a 6.2 percent tax on workers' earnings up to $106,800."

So are earnings over $106 800 not taxed for Social Security?

[gaelic cowboy]

unfortunately people live longer now which is where the problem comes from things like state pensions etc were never really intended to be paid out as the average life expentacy when they were set was lower than the limit but the doctors caught and then left the line behind

[gaelic cowboy]

From the article: "Social Security is financed by payroll taxes — employers and employees must each pay a 6.2 percent tax on workers' earnings up to $106,800."

So are earnings over $106 800 not taxed for Social Security?

I would imagine it goes to a higher rate at that point

[johnhughthom]

I would imagine it goes to a higher rate at that point

That's what I would have thought, but the article seems to imply (by omission) you don't pay anything on higher earnings.

[Centurion1]

i would be willing to forego it right now. im sure many middle aged americans would too.

you try telling greedy old people you arent giving them money any more.

It has to be scrapped people plan it into their retirement plans FDR never intended it to go so far.

[Louis VI the Fat]

opt out of this ponzi scheme please?

One shall have to increase the taxation level, decrease the payout, or raise retirement age.

The system isn't broken. It's just a confusing pile of accounting tricks. Social security creates the impression of each taxpayer paying towards his own retirement/disability trust fund. Whereas for practical purposes, it more closely resembles an ordinary tax.

The productive generation will always have to pay for the unproductive generation, whether through a trust fund or taxes. The 'ponzi scheme' effect is created by demographic changes. The US faces the same demographic problems as the rest of the industrialised world. We should've done what Norway is doing with its oil revenue: buy up the newly developing countries. Then let this pay for the pensioner explosion.

Too late for that. The babyboomer generation has borrowed, instead of invested. They leave us with a double whammy: their loans, plus the Social Secutiry explosion. Both will have to be paid off at the same time. The whole industrialised world facing this same problem, we can't borrow from one another. We have to borrow even more elsewhere, or accept a steep decline in living standard. Either way: I suggest learning Mandarin.

I would imagine it goes to a higher rate at that point

Don't be silly. Where do you think you are, the Soviet Union? Social Security is a regressive tax system.

[Gregoshi]

So are earnings over $106 800 not taxed for Social Security?

Yes. You pay the SS tax on your earnings up to $106,800. Once you reach that amount they stop collecting on your earnings over that.

[johnhughthom]

I take it if I was to even hint that the threshold could be raised I would be shot down as a left wing commie Euro madman?

[Sasaki Kojiro]

I take it if I was to even hint that the threshold could be raised I would be shot down as a left wing commie Euro madman?

I remember during the campaign there was talk of Obama raising the threshold to 250,000. Or something like that.

And if people don't call Obama a left wing commie why would they call you one? ...

[johnhughthom]

I know a lot of you Americans get very touchy about tax raises.

[Gregoshi]

I know a lot of you Americans get very touchy about tax raises.

We like to argue about taxes over tea.

[Xiahou]

Aren't people going to have less kids over time, and the economy increase? That would seem to make it not quite a ponzi scheme.

Having less kids puts a higher burden on them when they become taxpayers supporting us. All the current workers are paying for current retirees, under the assumption that it'll be our turn on the top of the pyramid once we retire. However, the fund is forecast to be completely bankrupt well before my retirement age. I've been paying in for my entire working life and, as it stands, am likely to receive no benefit. Sounds like a ponzi scheme.

"A Ponzi scheme is a fraudulent investment operation that pays returns to separate investors from their own money or money paid by subsequent investors, rather than from any actual profit earned. The Ponzi scheme usually entices new investors by offering returns other investments cannot guarantee, in the form of short-term returns that are either abnormally high or unusually consistent. The perpetuation of the returns that a Ponzi scheme advertises and pays requires an ever-increasing flow of money from investors to keep the scheme going.

The system is destined to collapse because the earnings, if any, are less than the payments to investors."

I know a lot of you Americans get very touchy about tax raises.

Bear in mind that their additional income that isn't taxed to SS also does not factor in when benefits are paid....

"A worker's retirement income benefit is based on his Primary Insurance Amount, or PIA. The PIA is the average of the highest 35 years of the worker's covered earnings (before deduction for FICA). Covered earnings in any year are limited by that year's Social Security Wage Base, the maximum earnings that could be subject to the OASDI portion of FICA payroll tax ($106,800 in 2010 [59]). If the worker has fewer than 35 years of covered earnings, zeros are used to bring the total number of years of earnings up to 35. Years of covered work more than 2 years before the year the worker turns 62 are indexed upward to reflect the increase in the national wage via the average wage index (AWI) from the time at which the earnings were covered in the past to the value of the AWI two years before the worker turns 62 (which is the most recent year available at the date the worker turns 62). One-twelfth of this 35-year average is the average indexed monthly earnings (AIME). The PIA then is 90% of the AIME up to the first (low) bendpoint, and 32% of the excess of AIME over the first bendpoint but not in excess of the second (high) bendpoint, plus 15% of the AIME in excess of the second bendpoint. Bendpoints designate the point at which the rates of return on a beneficiary's AIME change.[60][61] In 2008, the bendpoints for calculating the PIA are a change from 90% to 32% at $711 and a change to 15% at $4,288.[61][62] This PIA is then adjusted by automatic cost-of-living adjustments annually starting with the year the worker turns 62. Similar computations based on career average earnings determine disability and survivor benefits. These alternate computations average less years of earnings when the worker dies or is disabled before age 62 and use different base years for the inflation adjustments."

[Sasaki Kojiro]

Having less kids puts a higher burden on them when they become taxpayers supporting us. All the current workers are paying for current retirees, under the assumption that it'll be our turn on the top of the pyramid once we retire. However, the fund is forecast to be completely bankrupt well before my retirement age. I've been paying in for my entire working life and, as it stands, am likely to receive no benefit. Sounds like a ponzi scheme.

Yeah, I had that backwards somehow. I was thinking about someone how someone in the last thread mentioned that the baby boomers retiring was putting a strain on it. If there was a bump in babies that dissipated it would help the system out it seems.

Although life expectancy will probably increase as well, especially with the drop in smoking.

But the forecast is a "if the current system doesn't change" forecast, yeah?

[drone]

I knew 20 years ago that I would never see a dime back from my FICA "payments". The boomers are going to suck the teat dry, the last act of the worst generation.

[a completely inoffensive name]

The problem is self correcting in the long run, necessary taxation precautions need to be taken to survive the baby boom hump before social security sees a return to a stable multi generational birth level at which point changes can be made back to pre baby boomer status.

[HoreTore]

And if people don't call Obama a left wing commie why would they call you one? ...

In what alternate reality was/is Obama not called a left-wing commie babyeating terroristhippie?

[Subotan]

im sure many middle aged americans would [surrender their Social Security]

ahahahah

It has to be scrapped people plan it into their retirement plans FDR never intended it to go so far.

Having less kids puts a higher burden on them when they become taxpayers supporting us. All the current workers are paying for current retirees, under the assumption that it'll be our turn on the top of the pyramid once we retire. However, the fund is forecast to be completely bankrupt well before my retirement age. I've been paying in for my entire working life and, as it stands, am likely to receive no benefit. Sounds like a ponzi scheme.

"A Ponzi scheme is a fraudulent investment operation that pays returns to separate investors from their own money or money paid by subsequent investors, rather than from any actual profit earned. The Ponzi scheme usually entices new investors by offering returns other investments cannot guarantee, in the form of short-term returns that are either abnormally high or unusually consistent. The perpetuation of the returns that a Ponzi scheme advertises and pays requires an ever-increasing flow of money from investors to keep the scheme going.

The system is destined to collapse because the earnings, if any, are less than the payments to investors."

Correct. The current state of the pension system in many Western nations resembles a Ponzi scheme because of the demographic situtation when many of them were first created has now changed. For example, the pension age for British citizens is 65. When it was introduced in the 1940's, the average life expectancy of a male Briton was 63. Now, it's late seventies.

As average life expectancies have increased, so has the burden on pensions. But this was offset by rapidly growing populations in Europe and the USA. Now that population growth has slowed and the baby boomers have reached retirement age, we have a problem. Baby boomers, a huge segment of the population expect and will receive a long, subsidised golden retirement of about 20 years. This is not how the system was designed or should work.

But that is not to say that the pensions are flawed, or that it was flawed when it was introduced. Rather, there has been a chronic lack of reform to adapt a social policy so sensitive to changes in demographics to demographic changes. The idiot idea that you shouldn't pay any SS over $100,000 is one glaring example. Radical reform is needed to prevent the economic crippling of the OECD nations, but it is doubtful that any ideology has the will or the political capital to brave out such unpopular reform.

[KukriKhan]

The problem is self correcting in the long run, necessary taxation precautions need to be taken to survive the baby boom hump before social security sees a return to a stable multi generational birth level at which point changes can be made back to pre baby boomer status.

I can see that. You 18-35'ers need to get out there are make moar babeez. Makes Grampa proud, and gives him beer money.

[Gregoshi]

I can see that. You 18-35'ers need to get out there are make moar babeez. Makes Grampa proud, and gives him beer money.

Will a six pack of both do the trick Gramps?

[drone]

The problem is self correcting in the long run, necessary taxation precautions need to be taken to survive the baby boom hump before social security sees a return to a stable multi generational birth level at which point changes can be made back to pre baby boomer status.

If it was just the boomer retirement years, Social Security would survive. The main problem is that the social security fund has been raided by Congress for other projects, now the bill is coming due. This is not so much a demographic problem, but a bad government problem. What would normally be a funded entitlement is now a debt liability on top of the mess we already have.

[PanzerJaeger]

More of FDR's chickens coming home to roost. Once an entitlement is given, it is nigh on impossible to take away - regardless of how it effects the nation's finances. Privatize it or kill it, doesn't matter to me. I'm never going to see a penny from it anyway.

What's scary is how tiny SS is in relation to how big of an entitlement health care will be - making demographic changes even more crippling to the country.

[Strike For The South]

Let's just annex Mexico and put a tax on chicklets.

[Centurion1]

i think we should annex canada........ or have we i always forget?

[Lemur]

Let's just annex Mexico and put a tax on chicklets.

i think we should annex canada........ or have we i always forget?

You fools! Annexations cost money. A tax on chicklets, on the other hand, might get us where we're going ...

[Centurion1]

You fools! Annexactions cost money. A tax on chicklets, on the other hand, might get us where we're going ...

but with both Vermont and Canada in our grasp we would completely control the syrup trade let alone the ham/bacon trade.

[KukriKhan]

If it was just the boomer retirement years, Social Security would survive. The main problem is that the social security fund has been raided by Congress for other projects, now the bill is coming due. This is not so much a demographic problem, but a bad government problem. What would normally be a funded entitlement is now a debt liability on top of the mess we already have.

Yeah. And the SS Trust Fund isn't the only one. They regularly raid any "loose money" they see apparently just laying around doing nothing but slowly accruing tiny interest for its contributors. The Fed's Thrift Savings Plan (a 401(k) knockoff) is another. Congress, and Fannie Mae & Freddie Mac have tapped that money yearly, especially hard since the armed services got brought into the Plan about 6 years back; and they repay, slowly, with Treasury Bonds.

And that 'tapping any loose money' has me wondering, with some much of TARP $$ left un-committed, where, exactly is that cash, and who makes $$ off where it sits? Please don't tell me AIG.

[a completely inoffensive name]

Ok, so if the problem is congress raiding money from the program, institute greater transparency and make it illegal to remove any money from the program period. Then make the necessary taxation changes and continue as I explained above.

[KukriKhan]

Ok, so if the problem is congress raiding money from the program, institute greater transparency and make it illegal to remove any money from the program period. Then make the necessary taxation changes and continue as I explained above.

A perfect problem-solving answer. Bravo!

It mirrors Al Gore's "lockbox theory" for Social Security solvancy from 15-16 years ago. And I agree.

BUT: What do you do, from where does the money come, when unforseen events occur? Tornadoes, wars, earthquakes, floods, market meltdowns, and the like? I mean: you can plan for floods, and storms and earthquakes and employee retirements - set money aside for those things. Then somebody flies a couple of planes into some big NY and DC buildings, and the next thing you know, your army is in southwest Asia, needing beans and bullets. Not to mention that Aunt Sarah's street needs its potholes filled; you remember Aunt Sarah, the one who donated $5k to your election campaign, as 'primer money' for her garden club to imitate? To the tune of $125k, just enough to buy enough air-time on W-Podunk radio to put you over the edge and into office?

And that money is just sitting there. And your predessessors wrote provisions into the law creating those funds, allowing congressional dabbling.

All you, an elected Rep, have to do, is to convince 51% of 434 (that'd be 222 of them) other reps that you're right, and that their soldiers will be fed and provisioned, and their Aunt Sarah's potholes will be fixed, along with your own.