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Title: Social Security Is No Ponzi Scheme (Note to Rick Perry)
Source:
Bloomberg
URL Source: http://www.bloomberg.com/news/2011- ... e-note-to-rick-perry-view.html
Published: Sep 5, 2011
Author: Bloomberg
Post Date: 2011-09-05 11:53:58 by Brian S
Keywords: None
Views: 8621
Comments: 17
As Rick Perry campaigned in Iowa
late last month, he made it clear that he doesn’t have much faith in Social Security, one of the most popular U.S. government programs.
“It is a Ponzi scheme for these young people,” Perry said. “The idea that they’re working and paying into Social Security today, that the current program is going to be there for them, is a lie. It is a monstrous lie on this generation, and we can’t do that to them.”
As we celebrate a holiday devoted to American workers, it’s worth asking whether, as the Texas governor and leader of the Republican pack claims, the retirement program created for those very workers is at risk.
The answer, as we have argued in this space, is yes … and no. Social Security’s finances need shoring up. But there is nothing wrong with the program that Congress couldn’t fix in a week. Gradually raising the retirement age to 69, changing the formula for cost-of-living increases, and raising the cap on wages subject to the payroll tax would close most of Social Security’s funding gap for the next 75 years.
Such changes would rely about 60 percent on tax increases and 40 percent on benefit cuts, and would mainly affect the wealthiest Americans by asking them to pay more and get less in return. In the end, Social Security would be more progressive and benefits for the very oldest and the very poorest retirees would be enhanced.
Ticking Clock
In May, the Social Security trustees reported that the government pension system will run dry in 2036. That means payroll taxes levied on workers in 25 years will cover only three-fourths of benefits. The program by law can’t borrow money to pay retirees, so recipients will face immediate across-the- board cuts unless something is done.
That something can only take two forms -- raising taxes or reducing benefits. Fortunately, there are many options within those broad categories that spread the burden widely.
We don’t think private accounts should be among them. If workers divert some of their payroll taxes to an investment account, that would decrease the flow of money into Social Security and deprive retirees of benefits of equal value. Bad investment choices, or bear markets that lower returns on stocks and bonds, could add to their woes. In other words, private accounts would only make matters worse.
Instead, a very gradual rise in the standard retirement age would be the fairest solution. When President Franklin D. Roosevelt signed the Social Security law in 1935, average life expectancy was 64 and the official retirement age was set at 65. As life spans have increased, the retirement age hasn’t kept up.
The official age of retirement -- when full benefits are paid -- is now 66 (due to rise to 67 by 2027), well below the average life expectancy of 78 years and four months. The gap is even wider for the 40 percent of Americans who opt for early retirement and start collecting benefits at age 62, albeit at a lower rate.
President Barack Obama’s bipartisan deficit commission was correct to recommended indexing the retirement age to longevity by adding one month every two years, until 2075. That year, standard retirement would begin at 69 and early retirement at 64. Those who physically can’t work beyond 62 could apply for hardship exemptions. Adjusting retirement ages alone would erase about 21 percent of the 75-year Social Security shortfall.
Adopting a more accurate measure of inflation to calculate cost-of-living adjustments is the next best method for closing the Social Security funding gap. The government now uses the standard Consumer Price Index. But the Bureau of Labor Statistics and many economists say the CPI overstates inflation because it fails to account for the product substitutions people make when prices rise.
Switching to Apples
A better index, called the “chained CPI,” models actual consumer behavior. Most consumers, for example, switch to apples when the cost of oranges goes up, and thus keep household expenses steady. Using the chained CPI would close an additional 25 percent of the funding shortfall.
With those two changes -- raising the retirement age and measuring inflation better -- we’re almost halfway toward the goal. To close much of the remaining gap, the best choice involves raising taxes on those in high wage brackets, thus making the system more progressive.
Currently, Social Security taxes are paid on wages up to $106,800, at a rate of 12.4 percent -- half paid by the employer and half by the employee. (The self-employed must pay the entire 12.4 percent.) Earnings above $106,800 are exempt, yet that’s where most of the wage growth has been in the past few decades. In the early 1980s, payroll taxes covered 90 percent of wages; today they reach only 85 percent.
To restore the 90 percent standard, Congress could raise the payroll-tax cap to $180,000. Such a change would hit high- income Americans whose savings, private pensions and tax- protected 401(k) retirement plans provide nest eggs far beyond what Social Security provides. This would take care of 38 percent of the shortfall.
An additional 14 percent could be raised by taxing Social Security benefits the same way that private pension income is now taxed -- that is, on the portion of the pension contributed by the employer -- phased in over 20 years. The employee portion would not be taxed because it was already subject to income tax. Yes, this would result in a tax increase for future beneficiaries, but those in lower-income brackets could be exempted to keep the payroll tax progressive.
Now we are just 9 percent short of our goal. We can close that gap -- with room to spare -- by requiring newly hired state and local government workers to pay into the federal system. About 5.7 million public-sector workers don’t pay Social Security taxes because they are covered by state and local government pension plans.
Helping the Poorest
We’ve now closed 107 percent of the 75-year shortfall. That leaves enough wiggle room to add benefits for the oldest and poorest retirees, who are often one and the same. By 2050, there will be 19 million Americans, up from 6 million now, over 85. Octogenarians often outlive their personal savings just as their health is deteriorating. To keep them from falling into poverty, lawmakers could create a minimum benefit of 125 percent of the federal poverty level (now about $1,100 a month), adding about 6 percentage points to the Social Security deficit.
The final tally? These changes would close 101 percent of the funding gap. Each of these suggestions, moreover, has been endorsed or included as part of a menu of options by the president’s deficit commission and other economic research groups. The savings and cost estimates come from the Social Security chief actuary, the independent official who has analyzed the financial effects of dozens of proposals, all available at www.ssa.gov/oact/.
More than 50 million people now receive a Social Security check. It’s the main income source for more than half of all elderly households. It’s the core of the compact working Americans have with their government. And though it’s increasingly unstable, it can be fixed.
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Rick Perry is right on this one. Social Security is definately a ponzi scheme.
You pay in with a promise that people further down in the chain letter will pay you later.
The very definition of a ponzi scheme.
If I believed Rick Perry actually believed that I would have less resistance to voting for him.
#2. To: A K A Stone (#1)
Rick Perry is right on this one. Social Security is definately a ponzi scheme.
Yep, the biggest one ever created in the history of such things.
The irony is if Owe-bama said it was a ponzi scheme, Brian S would agree immediately, as would all the leftwingnuts that simply can't, or refuse, to think for themselves here, and elsewhere.
Proxy IP's are amusing.....lmao
#3. To: Brian S (#0)
Of course its a Ponzi (Pyramid) scheme. The only way you can get paid is if an increasing number of people pay into the system. The people who got in early received back many times the amount of money that they paid in. This made them raving fans of the system. Unfortunately, the people getting in late are going to get screwed. It's a classic pyramid scheme, and the biggest pyramid scheme the world has ever seen.
The hippies wanted peace and love. We wanted Ferraris, blondes and switchblades. -- Alice Cooper
#4. To: A K A Stone, Badeye, jwpegler, lucysmom, Brian S (#1) (Edited)
You pay in with a promise that people further down in the chain letter will pay you later.
Insurance programs are not a ponzi scheme. SS is retirement insurance. Just like Unemployment insurance is not a ponzi scheme either.
With the economy still in the dumper -- maybe permanently? -- and full-time jobs becoming as scarce as rain during a drought, huge percentages of Americans have had their (misplaced) faith in the American dream shaken, the upper-middle-class consumerist lifestyle is exposed as a mirage for anybody who plays by the rules. Capitalism and the America that embraced it as a way of life is now and forever more a failure. It does me good to know that the generation that voted in Reagan and his ideology will see their America die from that ideology before their very own eyes and knowing they had a hand in its destruction.
#5. To: Godwinson (#4)
Insurance programs are not a ponzi scheme. SS is retirement insurance. Just like Unemployment insurance is not a ponzi scheme either.
Can you give me the definition of a ponzi scheme? From some dictinaary somewhere and not your made up definition.
#6. To: A K A Stone (#5) (Edited)
Can you give me the definition of a ponzi scheme?
From Wikipedia:
A Ponzi scheme is a fraudulent investment operation that pays returns to separate investors, not from any actual profit earned by the organization, but from their own money or money paid by subsequent investors.
By definition, Socialist Insecurity is a Ponzi scheme.
The hippies wanted peace and love. We wanted Ferraris, blondes and switchblades. -- Alice Cooper
#7. To: A K A Stone (#1)
You pay in with a promise that people further down in the chain letter will pay you later.
That is the way it ended up because criminal scum absconded with all the money forcibly confiscated from people who worked for 50 years with the promise that when they retired that money, with interest would be available to them. No schemer talked people into investing in social security, the government decreed you must pay or go to prison. That is no damned Ponzi scheme that is armed robbery.
#8. To: jwpegler, A K A Stone (#6)
investment operation that pays returns to separate investors
SS is not an investment operation that pays returns to separate investors - nor is it run for profit. SS functions like insurance programs. Why do you scum not call insurance programs like life insurane ponzi schemes?
With the economy still in the dumper -- maybe permanently? -- and full-time jobs becoming as scarce as rain during a drought, huge percentages of Americans have had their (misplaced) faith in the American dream shaken, the upper-middle-class consumerist lifestyle is exposed as a mirage for anybody who plays by the rules. Capitalism and the America that embraced it as a way of life is now and forever more a failure. It does me good to know that the generation that voted in Reagan and his ideology will see their America die from that ideology before their very own eyes and knowing they had a hand in its destruction.
#9. To: jwpegler, Godwinson (#6)
A Ponzi scheme is a fraudulent investment operation that pays returns to separate investors, not from any actual profit earned by the organization, but from their own money or money paid by subsequent investors.
Social Security has been keeping it's word to American citizens for the better part of a century; please demonstrate how SS meets the definition of "fraudulent investment operation".
"...all of the equations in neoclassical economics are rubbish. The differential equations describe nothing. Economics is not about mathematics, it is about the human being." Sandeep Jaitly
#10. To: Godwinson, lucysmom, A K A Stone, Happy Quanzaa, jwpegler (#8)
SS is not an investment operation that pays returns to separate investors - nor is it run for profit.
gobsheit and loonymom, your transparent attempts to redefine the meaning of "Ponzi scheme" tells me that your position is fundamentally flawed, and you are simply attempting to save "face."
But, by blatantly attempting to redefine the meaning of something makes you look not just foolish, but completely stupid.
Your responses are basically, "It depends on what the meaning of IS is..."
Get real.
To:Skippy, toe-jam, old man Fred Alzheimers Mertz, _jim, loonymom/ming, e-type-jackoff, goober56, Wrek, calcon, dummy DwarF, continental op, Biff, gobsheit and meguro From: Capitalist Eric Message: You're SOCIALIST morons. ESAD. 
#11. To: Capitalist Eric (#10)
But, by blatantly attempting to redefine the meaning of something makes you look not just foolish, but completely stupid.Your responses are basically, "It depends on what the meaning of IS is..."
Except in this case we are discussing the meaning of "fraudulent".
Beyond that, I am surprised a guy working on his PhD in economics can't tell the difference between an investment and insurance - maybe it takes years of advanced studies to overcome common sense.
"...all of the equations in neoclassical economics are rubbish. The differential equations describe nothing. Economics is not about mathematics, it is about the human being." Sandeep Jaitly
#12. To: lucysmom (#11)
Except in this case we are discussing the meaning of "fraudulent".Beyond that, I am surprised a guy working on his PhD in economics can't tell the difference between an investment and insurance - maybe it takes years of advanced studies to overcome common sense.
The goal of these so called conservatives is to transfer the entire government to the corporate model so it can be dismantled. They just don't get the 'service' part.
#13. To: Godwinson (#4)
You pay in with a promise that people further down in the chain letter will pay you later.
Insurance programs are not a ponzi scheme. SS is retirement insurance.
No, its not 'retirement insurance'. If you aren't informed on an issue, Godwincing, you shouldn't say anything on the topic.
Proxy IP's are amusing.....lmao
#14. To: Badeye (#13) (Edited)
No, its [sic] not 'retirement insurance'.
Chuckles...are you ever correct about anything Boofer?
SS = FICA - Federal Insurance Contributions Act.
/shitforbrains...
America...My Kind Of Place...
"I truly am not that concerned about [bin Laden]..."
--GW Bush
"THE MILITIA IS COMING!!! THE MILITIA IS COMING!!!"
--Sarah Palin's version of "The Midnight Ride of Paul revere"
I lurk to see if someone other than Myst or Pookie posts anything...
#15. To: Capitalist Eric (#10)
your transparent attempts to redefine the meaning of "Ponzi scheme"
They've already redefined the term "trust fund" as it applies to the Socialist Insecurity system. A trust fund now apparently means "mountain of debt".
The hippies wanted peace and love. We wanted Ferraris, blondes and switchblades. -- Alice Cooper
#16. To: lucysmom, jwpegler, A K A Stone, hondo68 (#11)
Except in this case we are discussing the meaning of "fraudulent".
Another transparent attempt to redefine the argument, so that you can feel as though you're making a valid point? PLEASE...
Beyond that, I am surprised a guy working on his PhD in economics can't tell the difference between an investment and insurance...
Who exactly are you referring to? Me? Where did I ever say I was working on a PhD? Where did I ever say the doctorate I'm working on (which isn't necessarily a PhD) was in "economics?"
As usual, you make LOTS of sweeping statements, and ignore things like.... oh, maybe FACTS?
maybe it takes years of advanced studies to overcome common sense.
Since you demonstrate a lack of (not only) common sense, but also the capability to accept FACTS, it appears you're not one to make judgements on others, as to their level of common sense.
Your statement is akin to being the dumbest girl in the room, and trying to determine who's smartest...
But thanks for the laughs. :)
To:Skippy, toe-jam, old man Fred Alzheimers Mertz, _jim, loonymom/ming, e-type-jackoff, goober56, Wrek, calcon, dummy DwarF, continental op, Biff, gobsheit and meguro From: Capitalist Eric Message: You're SOCIALIST morons. ESAD.
#17. To: eskimo, Capitalist Eric, *Ron Paul for President* (#7)
the government decreed you must pay or go to prison
That's definitely different than the standard ponzi. Armed robbery is one of the few things that the government does well.
"We (government) need to do a lot less, a lot sooner" ~Ron Paul
Obama's watch stopped on 24 May 2008, but he's been too busy smoking crack to notice.
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