It's worth pointing out that the "Social Security cliff" isn't real.
If the system isn't reformed ahead of time and the trust fund runs out, Congress will not vote to make drastic cuts in current benefits. They just won't. They'll vote to use general revenue to cover the shortfall and run up the budget deficit even further.
The trust fund is a meaningless accounting fiction—the federal government is lending money to itself, which makes the balance in the fund both an asset and a liability—so there won't be any macroeconomic impact if that happens. There's no difference between running down the volume of Treasury bonds owned by the fund (which is what the shortfall does before exhaustion) and running up the volume of Treasury bonds owned by private investors (which is what it would do after exhaustion).
The reality is that Social Security funding is a long-term problem which gets gradually and continuously worse as long as you don't fix it. There may be a sudden crisis at some point if the ratio of federal debt to GDP becomes visibly unsustainable, but exhaustion of the trust fund isn't a crisis point.
Of course it will not make much difference but I wish we WOULD agree, no champion, raising the retirement age. We should destroy the social norm of age-based "retirement" and open up space for mid-career education to make longer working careers more productive. [This could be especially beneficial to women who take (a smaller % of) time out of working life for children.]
"Critics sometimes analogize Social Security to a “pyramid scheme” which I think is unfair"
It owns no revenue-generating assets except US gov't debt with almost no returns. It relies on funding from future contributors to pay current contributors. It's not a scam, it's upfront about what it's doing, but of course it's a pyramid scheme in structure.
Honestly, the best solution historically would have had nothing to do with taxes or benefits. It would have been to make the trust fund instead be a sovereign wealth fund investing in assets that generate actual returns. There's no reason whatsoever that "15% of everyone's income up to >$160k" shouldn't be enough to provide a much *higher* level of benefits to everyone than we currently have. Even for an individual, that's a high enough contribution rate to replace your entire (non-retirement-fund-contribution) income in retirement, assuming 8% average investment return and a 40 year working life. Pension funds can usually do better for lots of reasons. The $1T that was in the trust fund in 2000, properly invested, would have been worth $1T/yr in 2032, aka around 70% of current total social security spending.
At this point it's likely too late for that to push back the 2032 date too much.
Reading about Republicans' desire for huge cuts to low income health care, I couldn't help but reflect on how good they are at keeping quiet about their unpopular ideas, the exact opposite of the Democrats. I mean, just imagine a bizarro universe where there was a large activist class of young Republicans who held tremendous sway at universities, legacy media, and prestigious institutions more generally. Any time someone on their side suggested easing up on proposed cuts to Medicaid, they screamed at that person and called them a Communist, socially and professionally shunning them. At the same time, Democrats focused heavily on advertising their support for things like affordable childcare and a living wage, while keeping any support for de-facto racial quotas, banning gasoline-powered vehicles and making it very difficult to purchase firearms on the DL.
Every year the CBO releases a long list of potential taxes and spending cuts to close the future gap between Social Security and Medicare revenues and spending. The Manhattan Institute has summarized those recommendations, found here:
I can't tell if I agree with Matt on social security or not. He frequently attacks Republicans for wanting to cut social security, and points out that this is unpopular (it is), but he concedes that in less than a decade, social security is going to be automatically cut. I presume he's arguing we should fill the shortfall with higher taxes as he's alluding to here, but that cuts against the popularism argument, because the median voter doesn't want budget cuts OR higher taxes, they want the problem to magically go away. So doing the genuinely popularist thing is impossible.
Side note: the team of financial advisors i work with are all basically basing their recommendations on the idea that taxes are going up way more than benefits are being cut. We be doing some Roth conversions.
The bipartisan commitment to endlessly perpetuating our current system of government guaranteed retirement benefits is the most toxic dynamic in American politics.
Matt’s post ignores history. Since Reagan, Republicans have promised to pay for tax cuts by cutting entitlements. They’ve never really done this other than some smallish changes to food stamps. At least 90-95% if
of Republican tax cuts have been deficit financed. This practice is a far better predictor of Republican behavior than Paul Ryan’s ten year plans or the musings of the Republican Study Committee.
A Republican trifecta would probably mean higher inflation and interest rates. They’d probably cut the benefits of some especially unsympathetic poor people. However, I seriously doubt they would stand by and let social security benefits decrease by 23%, much better to borrow the money and spread the pain via inflation.
Matt writes: "illegal immigrants working with fraudulent documents are especially valuable to Social Security because their employers pay taxes into the system but the immigrants don’t collect benefits."
That's less than 1% of Social Security's annual payout. (Because although the about 8 million undocumenteds make up about 6% of the workforce, they make very low wages, thus pay low Social Security taxes.)
1% is a nice addition, but it's far from a game changer. Letting in more high-skilled immigrants would help a lot more.
Getting the federal government out of the business of being a claim-level insurance plan could be a positive thing, provided that the replacement isn't just a for-profit private insurance organization that pays claims but doesn't itself provide healthcare or operate under the control of healthcare providers.
When Medicare and Medicaid were created, hospitals, medical practices and other providers were small entities that lacked the cash flow and scale to bear insurance risk. That's not true anymore. A wave of concentration in healthcare means that almost every state now has at multiple large IDNs that can bear insurance risk for their patients.
I.e., it would now be possible to cut the insurance middlemen out, and instead of paying an independent entity to bear insurance risk and pay claims for a patient, pay a subscription fee directly to a large healthcare entity such as an IDN, which then agrees to assume responsible for taking care of all of the patient's healthcare needs -- an update to the original Blue Cross model.
If a state wanted to structure it's Medicaid program that way, it should be allowed to do so.
>> They also resurrect a version of Ryan’s old plan to replace Medicare with a “premium support” program that would work like the Affordable Care Act.
Republicans actually tried this in New Hampshire and it was a disaster, maybe for a surprising reason.
The program lasted just one year, after which Republicans hastily reverted back to the old dedicated Medicaid system.
The problem was that the Medicaid population turned out to be much less healthy than the general ACA population and combining the Medicaid risk pool with the ACA risk pool caused insurance premiums to skyrocket for folks with ACA policies. This didn't matter so much for lower income ACA policyholders receiving subsidies, but it really killed higher income folks and many of them happened to be republican small business owners.
Here's the thing about "tax the rich", or anybody else. The American people demand a certain level of publicly provided services. In a constitutional, democratic republic, elected officials either have to provide the services that the people demand in a constitutionally permissible way, or explain to the people why they can't have them and/or shouldn't want them. And they need to be honest about what those services are going to cost, and who's going to be taxed to pay for them.
NEITHER party has been willing to level with the American people on that since George H. W Bush and Bill Clinton. The Republicans have been worse, in my opinion, but both parties have just taken the easy way out, said "yes", and passed the bill on to our kids and grandkids. That has to stop.
Once you decide to be honest, you tax where the money is. Taxes are the dues we pay to live in the society we want. As long as the taxation is applied fairly and not confiscatorily, I for one am pretty agnostic as to level. We're pretty lightly taxed compared to most of the developed world. Deciding what we need, what we want, what we're willing to pay, and where those three things meet is something that regular people of good will and some comity should be able to work out for themselves. The Founders thought that we could, and so do I.
I appreciate the coverage of the boring stakes. However, those are also the things that are most likely to not happen due to political pressure and are relatively easy to undo if the public doesn't like them.
Trump has never been particularly loyal to any ideological viewpoint and any legislative agenda he isn't personally tied to (and even ones he is) seems likely to be something he reverses course on if people don't like it.
In contrast the effect he has on the integrity and general quality of the federal bureaucracy is something that can't just be repealed and is baked into Trump's management style. So while not unimportant I can't agree the boring stuff is the most important.
Is Matt’s post campaign messaging or political analysis? It may be effective messaging, but assuming Republicans will do the unpopular things they propose in seldom read documents is naive.
The 'Social Security Trust Fund' is an economic fiction, of course. All that happens is that taxpayers pay tax and this is then given to old people. There's fiscal fat to trim in Social Security, it's just the Republicans are going to just let shit happen without a plan.
1. Spend a disproportionate amount of the budget on medicare and social security
2. Wage earners are taxed and parental benefits are cut to pay for this
3. People feel it's too expensive to have kids
4. The electorate skews older and votes for more spending on medicare and social security
5. And the cycle repeats
It's worth pointing out that the "Social Security cliff" isn't real.
If the system isn't reformed ahead of time and the trust fund runs out, Congress will not vote to make drastic cuts in current benefits. They just won't. They'll vote to use general revenue to cover the shortfall and run up the budget deficit even further.
The trust fund is a meaningless accounting fiction—the federal government is lending money to itself, which makes the balance in the fund both an asset and a liability—so there won't be any macroeconomic impact if that happens. There's no difference between running down the volume of Treasury bonds owned by the fund (which is what the shortfall does before exhaustion) and running up the volume of Treasury bonds owned by private investors (which is what it would do after exhaustion).
The reality is that Social Security funding is a long-term problem which gets gradually and continuously worse as long as you don't fix it. There may be a sudden crisis at some point if the ratio of federal debt to GDP becomes visibly unsustainable, but exhaustion of the trust fund isn't a crisis point.
Of course it will not make much difference but I wish we WOULD agree, no champion, raising the retirement age. We should destroy the social norm of age-based "retirement" and open up space for mid-career education to make longer working careers more productive. [This could be especially beneficial to women who take (a smaller % of) time out of working life for children.]
"Critics sometimes analogize Social Security to a “pyramid scheme” which I think is unfair"
It owns no revenue-generating assets except US gov't debt with almost no returns. It relies on funding from future contributors to pay current contributors. It's not a scam, it's upfront about what it's doing, but of course it's a pyramid scheme in structure.
Honestly, the best solution historically would have had nothing to do with taxes or benefits. It would have been to make the trust fund instead be a sovereign wealth fund investing in assets that generate actual returns. There's no reason whatsoever that "15% of everyone's income up to >$160k" shouldn't be enough to provide a much *higher* level of benefits to everyone than we currently have. Even for an individual, that's a high enough contribution rate to replace your entire (non-retirement-fund-contribution) income in retirement, assuming 8% average investment return and a 40 year working life. Pension funds can usually do better for lots of reasons. The $1T that was in the trust fund in 2000, properly invested, would have been worth $1T/yr in 2032, aka around 70% of current total social security spending.
At this point it's likely too late for that to push back the 2032 date too much.
Reading about Republicans' desire for huge cuts to low income health care, I couldn't help but reflect on how good they are at keeping quiet about their unpopular ideas, the exact opposite of the Democrats. I mean, just imagine a bizarro universe where there was a large activist class of young Republicans who held tremendous sway at universities, legacy media, and prestigious institutions more generally. Any time someone on their side suggested easing up on proposed cuts to Medicaid, they screamed at that person and called them a Communist, socially and professionally shunning them. At the same time, Democrats focused heavily on advertising their support for things like affordable childcare and a living wage, while keeping any support for de-facto racial quotas, banning gasoline-powered vehicles and making it very difficult to purchase firearms on the DL.
Every year the CBO releases a long list of potential taxes and spending cuts to close the future gap between Social Security and Medicare revenues and spending. The Manhattan Institute has summarized those recommendations, found here:
https://ibb.co/7N1MJkV
I can't tell if I agree with Matt on social security or not. He frequently attacks Republicans for wanting to cut social security, and points out that this is unpopular (it is), but he concedes that in less than a decade, social security is going to be automatically cut. I presume he's arguing we should fill the shortfall with higher taxes as he's alluding to here, but that cuts against the popularism argument, because the median voter doesn't want budget cuts OR higher taxes, they want the problem to magically go away. So doing the genuinely popularist thing is impossible.
Side note: the team of financial advisors i work with are all basically basing their recommendations on the idea that taxes are going up way more than benefits are being cut. We be doing some Roth conversions.
The bipartisan commitment to endlessly perpetuating our current system of government guaranteed retirement benefits is the most toxic dynamic in American politics.
Matt’s post ignores history. Since Reagan, Republicans have promised to pay for tax cuts by cutting entitlements. They’ve never really done this other than some smallish changes to food stamps. At least 90-95% if
of Republican tax cuts have been deficit financed. This practice is a far better predictor of Republican behavior than Paul Ryan’s ten year plans or the musings of the Republican Study Committee.
A Republican trifecta would probably mean higher inflation and interest rates. They’d probably cut the benefits of some especially unsympathetic poor people. However, I seriously doubt they would stand by and let social security benefits decrease by 23%, much better to borrow the money and spread the pain via inflation.
Matt writes: "illegal immigrants working with fraudulent documents are especially valuable to Social Security because their employers pay taxes into the system but the immigrants don’t collect benefits."
True, but let's do a reality check. Social Security pays out about $1.4 trillion per year. Undocumented immigrants pay in about $13 billion into the fund annually (https://www.marketplace.org/2019/01/28/undocumented-immigrants-quietly-pay-billions-social-security-and-receive-no/)
That's less than 1% of Social Security's annual payout. (Because although the about 8 million undocumenteds make up about 6% of the workforce, they make very low wages, thus pay low Social Security taxes.)
1% is a nice addition, but it's far from a game changer. Letting in more high-skilled immigrants would help a lot more.
Getting the federal government out of the business of being a claim-level insurance plan could be a positive thing, provided that the replacement isn't just a for-profit private insurance organization that pays claims but doesn't itself provide healthcare or operate under the control of healthcare providers.
When Medicare and Medicaid were created, hospitals, medical practices and other providers were small entities that lacked the cash flow and scale to bear insurance risk. That's not true anymore. A wave of concentration in healthcare means that almost every state now has at multiple large IDNs that can bear insurance risk for their patients.
I.e., it would now be possible to cut the insurance middlemen out, and instead of paying an independent entity to bear insurance risk and pay claims for a patient, pay a subscription fee directly to a large healthcare entity such as an IDN, which then agrees to assume responsible for taking care of all of the patient's healthcare needs -- an update to the original Blue Cross model.
If a state wanted to structure it's Medicaid program that way, it should be allowed to do so.
It
>> They also resurrect a version of Ryan’s old plan to replace Medicare with a “premium support” program that would work like the Affordable Care Act.
Republicans actually tried this in New Hampshire and it was a disaster, maybe for a surprising reason.
The program lasted just one year, after which Republicans hastily reverted back to the old dedicated Medicaid system.
The problem was that the Medicaid population turned out to be much less healthy than the general ACA population and combining the Medicaid risk pool with the ACA risk pool caused insurance premiums to skyrocket for folks with ACA policies. This didn't matter so much for lower income ACA policyholders receiving subsidies, but it really killed higher income folks and many of them happened to be republican small business owners.
Here's the thing about "tax the rich", or anybody else. The American people demand a certain level of publicly provided services. In a constitutional, democratic republic, elected officials either have to provide the services that the people demand in a constitutionally permissible way, or explain to the people why they can't have them and/or shouldn't want them. And they need to be honest about what those services are going to cost, and who's going to be taxed to pay for them.
NEITHER party has been willing to level with the American people on that since George H. W Bush and Bill Clinton. The Republicans have been worse, in my opinion, but both parties have just taken the easy way out, said "yes", and passed the bill on to our kids and grandkids. That has to stop.
Once you decide to be honest, you tax where the money is. Taxes are the dues we pay to live in the society we want. As long as the taxation is applied fairly and not confiscatorily, I for one am pretty agnostic as to level. We're pretty lightly taxed compared to most of the developed world. Deciding what we need, what we want, what we're willing to pay, and where those three things meet is something that regular people of good will and some comity should be able to work out for themselves. The Founders thought that we could, and so do I.
I appreciate the coverage of the boring stakes. However, those are also the things that are most likely to not happen due to political pressure and are relatively easy to undo if the public doesn't like them.
Trump has never been particularly loyal to any ideological viewpoint and any legislative agenda he isn't personally tied to (and even ones he is) seems likely to be something he reverses course on if people don't like it.
In contrast the effect he has on the integrity and general quality of the federal bureaucracy is something that can't just be repealed and is baked into Trump's management style. So while not unimportant I can't agree the boring stuff is the most important.
Is Matt’s post campaign messaging or political analysis? It may be effective messaging, but assuming Republicans will do the unpopular things they propose in seldom read documents is naive.
The 'Social Security Trust Fund' is an economic fiction, of course. All that happens is that taxpayers pay tax and this is then given to old people. There's fiscal fat to trim in Social Security, it's just the Republicans are going to just let shit happen without a plan.