Before writing more generally about the budget, I thought I’d express my thoughts on Social Security.
First, I think that there is no way other than a system like Social Security to ensure that Americans are not destitute in their old age. Any other plan bears some risk of loss which negates that. Furthermore, any plan that invests its trust fund in private investments will eventually come to own a substantial percentage of all assets, something I don’t believe those who propose such things want to happen.
Second, Social Security has become something quite different from what was imagined in 1935. In 1940 when the Social Security system began paying monthly benefits most could not expect to live to 65 and those who did could only expect to live into their mid-70s. There was no expectation that most Americans would retire in their 60s and collect benefits for the next 20-40 years. That’s a completely different system than was originally envisioned.
So here are the reforms I think should be made.
- All wage income should be subject to Social Security taxes. That will not realize as much income as some seem to think since the highest income earners can arrange things to minimize their wage income and take their income in other forms.
- The minimum Social Security Retirement Age should be gradually increased to 70 with the “full Social Security Retirement Age” gradually increased to 80.
- These ages should be indexed to life expectancy.
I also think we should stop importing workers with low lifetime earnings expectations but that’s another subject.
If Congress wishes to create a separate compulsory retirement savings system in which funds can be invested in private investments, I would not oppose it but I honestly can’t imagine such a system. The present 401K system is lousy.
The situation with Medicare is even worse. Not only does it have the same age issues that Social Security does, Congress has shown no willingness to economize on Medicare costs. Some hold the mystical belief that can be corrected if everyone is covered within the same plan. I do not believe that will be effective as long as Congress is not willing to economize.
Something really does need to be done and that’s not a “right-wing MAGA” fantasy. Many economists and financiers including Lawrence Summers, Jared Bernstein, Jerome Powell, and Jamie Dimon (hardly a catalog of “right-wing MAGA” fanatics) have said that what we are doing is not sustainable. Even Paul Krugman has implied as much if not saying so outright. His terse response to questions about his thoughts on Modern Monetary Theory was “things don’t work that way” which in turn implies that what we’re doing is not sustainable.
Life expectancy in the US is falling, even among whites. This is opposite to the trend in other developed countries (including Russia), and US life expectancy is below that of most other developed countries. The proximate cause is likely the obesity epidemic. A majority of Americans are obese.
I mention this, because it seriously affects longterm projections for both Social Security and Medicare, although oppositely.
By the way, I read somwhere that Bismarck also thought that most people died by age 65, so large numbers of elderly would never be a problem. I think this is anther urban legend.
Also, Social Security and Medicare will be funded out of general revenues, which will squeeze out other spending, especially military. The MIC free ride is over.
I would agree with these, especially since you added indexing. As we know, life expectancy correlates strongly with income. We should index this so that people would expect to receive SS for some set time, say 15 years. (Current US life expectancy is 77.5. In Russia it is 72.5. The US took a big hit during covid as we had many more covid deaths than other 1st world countries but we are recovering. We do like to kill each other and ourselves which does hurt our life expectancy.)
Steve
Now lets see if state legislatures will do the same with their pension plans and benefit calculations.
Illinois state and local governments not to mention their taxpayers are being crushed under public pensions. To mitigate that we’d need to amend Illinois’s constitution and there’s no prospect for that—those who want it to change leave while those who don’t stay.
State pension plans are a dated concept. The should go to defined contribution plans like everyone else.
Steve
In Illinois that would require an amendment to the state’s constitution.
Something will have to be done because we are spending down the so-called “trust fund” and once it runs out, benefits will be cut by, IIRC, around 20%.
The problem with Social Security (and Medicare) is not just that people are living longer, but also demographic changes because these are not in any way savings programs, but pay-as-you go programs. This makes the balance between the number of people paying into the system and the number of people receiving benefits a huge factor.
People like to point out how great it was to balance the budget in the 1990’s, but a large reason why that was possible is because the Boomers were in their peak earning years and social security was collecting, IIRC, 200-300 billion per year in excess revenues. This was spent in the general revenues (or used for deficit reduction), while the balance was transferred to to the trust fund. We are now in the opposite situation where we are paying from general revenues to cover the revenue shortfall – at least until the accounting of trust fund runs out.
Doesn’t the City of Chicago have assets that could be auctioned, such as parkland. waterfront? A zoo? Stadiums?
The longer these things stay public property the less money they will be worth as the city decays.
For my cohort, minimum age is 62, normal retirement is 67, and maximum benefits hit at 70. My dad died at 66 and his dad at 62. I’m healthier than they were but don’t like my odds of reaching 80, much less 90.
Honestly, I think age as the only variable makes little sense. 70 isn’t an unreasonable age to stop working for a college professor. It’s damn old to be digging coal or shingling roofs.
The numbers don’t add up. We’ve been living beyond our means since the 1950s (the decade when the very idea of retirement took hold). I’m the first man in my family to live long enough to collect Social Security and I’m still working AND paying into the trust fund, a bizarre situation.
My father died at 53 and my grandfathers at 46 and 63. That’s not an unusual human experience. What’s unusual is living as long as we do.
Consider the way things used to be. One of my great-grandfathers was a cowboy when he was young, a cattle grader at the stockyards after that, and, when he was no longer able to clamber around the pens, operated a confectionery until he died in his 80s.
Life expectancy varies widely by income. You can see it at the link. Bottom 1% males are at 72.7 years and top 1% males are at 87.3 years. As James noted and I think is obvious not many people are roofing over the age of 70. Lots of people can still be a functional teacher at 70 or lawyer or lots of office workers. Index it so that expect to get 15 years at time of retirement, or choose your number. You then cant start receiving SS until that age. We have computers. Wouldn’t be that hard.
I am not really that averse to privatizing some of SS since you would likely get higher returns. However, some people would lose money and I fear we couldn’t resist bailing them out.
Steve