The editors of Bloomberg are worried about Social Security:
Washington seems determined to ignore the country’s rapidly worsening fiscal picture, but sooner or later policymakers will be forced to pay attention. When they do, they’ll find that changes to Social Security are unavoidable.
No doubt, any such effort will meet strong political resistance. That’s why nothing has been done for 40 years and counting. The best approach — on the merits and as a matter of political feasibility — would combine entitlement reform with fresh thinking about financial security in retirement.
They propose a combination of raising the Social Security Retirement Age and mandatory savings. I don’t believe they’ve thought the issue through. I have no problem with increasing the SSRA as has been intended all along but I think their proposal does not raise it high enough (I’m far over SSRA myself). But I think they will find that mandatory savings has a disastrous effect on the U. S. economy.
If it were still 1983 (the last time we reformed Social Security) it wouldn’t be so bad. But personal consumption expenditures have increased as a percentage of GDP since then:
They don’t really get to the crux of our problem which is that over the last 40 years the percentage of income subject to Social Security withholding has declined precipitously.
Said another way: The top 1% of income earners hold a far larger proportion of total income than they did forty years ago (even more than 50 years ago) and very little of their wages not to mention earnings are subject to Social Security. There’s more than one way of accomplishing that: either increase FICA max faster or ensure that more people earn more.
In other words I don’t think our problem is that people are retiring too early or that they aren’t saving enough but that there are too many low income earners relative to the total population and not nearly enough people earning near FICA max ($160,200 this year). That’s not an accident. It’s what happens when you maximize the number of minimum wage jobs which has been the objective of policy since the end of World War II. It’s perverse but that’s how politiians keep score.
Uhh, everyone earning close to $160k means we would be earning 2-3 times more than any other country. Not even remotely possible. You carefully avoid noting we would just tax all income or at least back to the live we used to do.
Steve
You have a remarkable ability to hint at some sort of motive for any omission.
Everyone earning close to $160K isn’t the only way to accomplish what I’m suggesting. It could be accomplished by increasing FICA max to tax the same proportion of income over time. It could be accomplished by many fewer people with incomes at minimum wage or below (and adjustments to FICA max), i.e. a much larger proportion of the country at middle income. There are other ways.
“Tax all income” sounds easy and I’m not opposed to subjecting all wage income to FICA but I believe that subjecting all income to FICA would be a lot harder than you imply and have signficant run-on effects.
When you say the crux of the problem ” is that over the last 40 years the percentage of income subject to Social Security withholding has declined precipitously.” seems like one of the possible solutions should be to tax more of our income. No actual solution to this is possible in the current Congress. It’s just going to be a game of chicken and whoever is caught holding the bad when SS starts to crumble will be blamed. Someone is going to have to win over 60% of the senate. Maybe when SS payments start getting cut that can happen.
Steve
Subjecting non-wage income to FICA would be a drastic change to the program. It would also have substantial run-on effects.
I agree that the present Congress is unlikely to make effective and productive reforms in Social Security. The Republicans are torn among those who want to abolish the program altogether, those who swear to maintain it, and those who believe that all tax cuts are good. The Democrats have other eggs to fry as well.
Most of the problems with Social Security have been well-understood since the end of World War II. The only aspects unforeseen is the substantial growth in immigrant and low-wage populations (not unrelated). That an increasing proportion of personal income has ben non-wage income has been apparent for forty years.