Replies to post #40686 on ajtj99's Market Pulse

[ajtj99]

I'll post it tomorrow.

[ajtj99]

OK, on the Social Security note, here's a brief history of the program from the US gov site:

http://www.ssa.gov/history/pdf/histdev.pdf

Here's also a nice blog that follows many of the wage issues on Soc Sec, with lots of links to other sites:

http://www.deadparrots.net/archives/social_security/0412wageindexing_and_social_security.html

In 1935, the average life expectancy at birth was 61.7 years. Social Security paid full benefits at age 65. In other words, full benefits did not begin until over 3-years past the average life expectancy.

By 2001 the average life expectancy at birth rose to 77.2 years. We are now effectively paying full benefits 15-years sooner than the original act did.

Here's the table of life expectancy from 1930:

http://www.infoplease.com/ipa/A0005148.html

In yesterday's Wall Street Journal there was a table showing eight options and their respective percentages for covering the projected shortfall beginning in 2042.

Option: Raise cap on taxable wages to $140,000 from $90,000
Shortfall covered: 43%

Option: Raise the retirement age for full benefits gradually to 70 by 2083
Shortfall covered: 38%

Option: Reduce starting benefits slightly to reflect longer life spans.
Shortfall covered: 25%

Option: Increase payroll taxes by 1/4% each for employers and employees
Shortfall covered: 24%

Option: Change benefits calculation to be based on a workers 38 highest paid years instead of 35 years.
Shortfall covered: 16%

Invest 15% of Social Security Funds in market index funds
Shortfall covered: 15%

Modify cost of living formula for increasing subsequent benefits
Shortfall covered: 14%

Require new state and local government employees to join Social Security
Shortfall covered: 9%

The main reason I was interested in this article is they outlined some very practical solutions which seem to allow compromise across the full spectrum of the issues at hand.

The one that drew my attention first was the proposal to raise the cap on wages subject to the tax from $90k to $140k

At first, I thought it seemed reasonable, as I thought the cap had not been indexed to inflation and had remained stagnant for some time. Well, I was wrong. In 1981 the cap was at $29,700, so it has tripled in less than 25 years. That's a bit more than the rate of inflation.

However, the intent of the increase in the wage cap was to have 90% of wages subject to the tax. At the current $90k cap, only about 84% of wages are subject to tax, which is up 10% from the 74% a couple decades ago. It may make sense to raise the cap so the intent of the reform is accomplished.

The increase of the retirement age for full benefits to 70 by 2083 seems reasonable in light of the life expectancy data supplied above. That covers 39%

Changing the benefits calculation for 38 years instead of 35 years of highest wages seems reasonable also when seen in the context of the original act and life expectancy.
That covers 16%.

Requiring new state and local employees to join seems to be a decent compromise. That covers 9%.

We're up to 64% now, almost 2/3rds of the way there.

Raising the cap on taxable wages seems the easiest to do politically, and if it was done to get to the 90% intended level of wage earners, it seems a reasonable application of the intent of a previous reform. Let's call that maybe an increase to 120K wage cap and maybe 25%

We're up to 89% now.

Reducing starting benefits and modifying the cost of living formula seem like draconian measures to the folks who depend on this stipend, and are probably politically impossible, so we might need to give them a pass.

That leaves 11%, and we've got two possibilities for taking care of that.

The investment of 15% of Soc Sec funds in market index funds is pretty much politically impossible, so that might need to be given a pass. That leaves the payroll tax increase of 1/8% to cover the remaining 11%.

Many of these changes would impact me immediately, but if it means the sovency of a system I have seen work compassion in a way many never thought possible, I'm willing to compromise.

I do not want to get into a discussion about whether the government is the best custodian of your private pension money. This program was not designed as a custodian of private savings. It was a plan that was designed as a safety net for those who had none and was amended later on to provide for other disadvantaged people.

While some benefit more than others from the program, the original intent of the program and its reforms is being carried out to this day, and it is one of the most popular and longest lasting programs we have. Let's hope we have some compromise on the issue to allow our kids and grandkids to work without paying 15% tax to support this program.

Anyway, sling away with the slurs, apply your ignores, and feel free to report me for perceived IHUB terms of use violations. <G>

ajtj99