I don’t know, given that social security will likely be totally bankrupt and unable to make payments in the future, this seems like a smart move to default early. Government won’t be able to take a chunk out of $0.
Under current laws of social security “defaults” it will still pay out something like 70-80% of authorized benefits. There is no reason to believe it will ever be 0% as the benefits are paid out of taxes that are continually collected from current workers.
The only reason to believe it will still exist in the future is because people believe it should exist and should pay out from the government pocket even if it technically doesn't have the money.
The problem is many millennials and Gen Z have already given up on social security, do not believe in it in the future, and will not vote to keep a dead or dieing SS program alive when they themselves had abandoned it long ago. And once they hit critical mass the SS can actually die without voters to backup it up and along with it all the terrible old precedences of that program will disappear. That will leave a huge hole for retirement funds, but it also means a new program can be implimented into its place, something like a basic income that has become more popular or just another social security model that has different specifics and rules.
Current social security is relying heavily on population rising or at the least not falling, but even that is very questionable at this point and could end up being the nails in its coffin.
The only way it is disappearing is if millennials, when they are eligible to receive benefits, decide not to receive them. As of 2019, there 69.1 million people received benefits from programs administered by the Social Security Administration ( https://www.ssa.gov/policy/docs/chartbooks/fast_facts/2020/f... ). Those people are not going to vote against Social Security, no way. And the people that care about those people will not vote against it either, for many reasons (for instance: they don't want to see those people suffer or die, or even they don't want to take care of them themselves).
Once Millennials are the majority getting the benefits, they should feel free to refuse them and shut down the program.
> The problem is many millennials and Gen Z have already given up on social security, do not believe in it in the future, and will not vote to keep a dead or dieing SS program alive when they themselves had abandoned it long ago.
Good.
Let's be brutally honest and ask who's really to blame for this.
All the people who say that Social Security is in danger usually then elaborately explain that it's in danger because they themselves are going to try their best to dismantle and defund it.
> Let's be brutally honest and ask who's really to blame for this.
The people who designed SS to be funded out of payroll taxes instead of corporate taxes, buybacks, and dividends. No seriously, hear me out.
As the economy became more efficient, fewer and fewer highly-paid workers are needed to work in it. This leads to overall lower SS tax per head being collected as the economy becomes more productive. What you really want is for the growth of the economy to be captured in supporting seniors - so tax the indicators of that growth.
Unfortunately they had real, political reasons for setting it up that way. Funding it with payroll taxes was the only way to get the bill passed, and ensure it wouldn't be gutted. (I'm paraphrasing from books I've read). And the people who paid into the program would feel morally entitled to receive benefits, and thus would always support the program.
Even without millennials and Gen Z, there are a lot of Gen X-ers who are skeptical of SS despite being only 10-20 years from receiving it. Even when they do get money from it, many of them will likely still believe that it is unjust given how much they paid for it.
Everyone but the boomers has had a 401k for most of their working lives, and comparing 401k payout to social security, the "trust fund" looks like it has a terrible ROI.
Could you explain the mechanism by which social security would go bankrupt, given that it is just an institution of USG? And why does such a mechanism not apply to other large institutions such as the military?
Social security, unlike all the rest of the US Government welfare programs, draws from a separate trust. It currently has roughly $3 trillion in the trust. When you pay income tax, there’s a portion (usually noted on the paystub) that goes directly to the trust. If they continue current payments, the income of everyone stays the same, and the tax percentage stays the same, then it will run out of funds after a while (currently predicted to be 2035).
However, I would bet pretty strongly that one of those constraints won’t hold - probably the amount paid out to each person will be lowered, although the tax percentage could also increase.
The “trust” is like someone who is horribly over their head in debt writing an IOU to themselves for next months groceries and pocketing the IOU. They can then continue to party while they pay their pocket with the IOU secure in the knowledge that food next month is assured.
Yep, if you look at the historical trustee reports[1], in 1990 it was projected to run out in 2043. In 2000 it was projected to run out in 2037. The same 2037 estimate was given in 2010. In 2020, it was estimated at 2034, which is the current estimate.
Of course money is just numbers to allocate worker productivity. The real important things are demographic ratios and what percent of our productive capacity we want to allocate to taking care of retirees. The running out of the trust just more directly forces us to revisit that question.
"running out" means the Old-Age and Survivors Insurance (OASI) Trust Fund, after which taxes (as they stand) will be able to cover 77% of the needs of that fund. It does not mean that SS goes away.
Sure, but the current problem is workers are retiring faster than we can replace them with workers from younger generations. Bring in a bunch of immigrants in their early 20s and let them contribute for 40+ years, reproduce (immigrants historically have more children than native-born), and the problem gets a lot smaller, if not completely solved.
There are quite a few knobs we can turn to keep the SS program solvent. The conservative push to disband the whole system in favor of private savings is one of the most dramatic. And likely to put us back to the 1920s, with those unable to work, wether by age or disability, becoming destitute. That's not a state of affairs we should strive to reproduce, IMO.
Because the military doesn't have any assets to speak of. It's a government program funded each year by taxes.
The social security program is separate from the federal budget [0], and that's why you see it as a separate tax on your paycheck (if you're American). Every dollar you pay into it, goes into a trust fund, whose sole asset is US Government bonds.
Social security can go bankrupt if the US defaults on it's debt, which although almost unthinkable (see Russia as a recent example of paying bonds despite being under heavy sanctions, and having to pay them in another currency) comes up every few years [1].
It’s an old right wing trope. Fewer babies, fewer people paying into the system, eventual bankruptcy. Completely ignoring that we can just increase the tax.
I wouldn't call it a trope if the "solution" is "just increase the tax". That's exactly what many many people want to avoid. Just because you don't see an issue with raising taxes, doesn't mean people aren't justified in wanting to avoid it.
There are many knobs we can turn. Increasing taxes on everybody is the "easy" one. We can reduce benefit payments. We can increase retirement age. We can remove the income max (income over $137k isn't taxed). We can import labor. Thee point is, SS only runs out of money if we allow it to do so. There is no law of nature that requires SS to become insolvent any time within our lives.
The typical conservative plan is to abolish SS and replace it with private savings. We tried that. It didn't work. Low income earners don't always have the capacity to save at the levels required to avoid destitution in old age or disability.
We are the government/society. It does what we want. We decided in the 1930s that a minimum level disability and retirement income should be available. Watching granny starve in the gutter wasn't a pleasant sight.
Not everybody will be able to retiree on their personal savings. Many of those people will get that way through no fault of their own. Some people just have bad luck. They get injured and disabled. They have extenuating family circumstances. They might just be stuck in a dead-end, minimum wage job.
Also ignoring that social security payments as a percentage of GDP is not hitting some limit it has not over the past eight decades. The US was able to pay out social security in 1942 with a much smaller economy, there is no reason it should be unable to in the future. Some groups have been complaining about social security for eighty years - probably because it is the one benefit the average worker gets back from the federal government.
Social security expenditures will grow from 4% of gdp to 6% of gdp from 2000-2035. By 2035 Medicare will grow to 8% of GDP. So in a bit over a decade, one out of every six dollars produced in the economy will be going to take care of retired people.
Social security was a higher percentage of gdp in the early 1980s than it is now. Even if it goes back up it is to a level it was at before. People can come to different estimates about what future gdp growth rates will be and have different estimated.
All health care costs in the US are going up. The US government has to pay HMO corporation profits, Americans have to pay higher drug prices unlike other countries. The government can continue paying current Medicare rates, or it can hand more money to health companies if it wants to. As the government is still handing extra money to health companies apparently no one thinks it is a problem as of yet.
Income over $130k is heavily taxed at 24%. Retirement age can only be increased so many times before retirement is effectively gone for the lower class - I think I've heard the statistic that the majority of Americans will only ever collect on three social security checks.
The dwindling ratio of workers per retiree (from 16 to 1 in 1950 to under 3 to 1 today) is a real thing. The right wing runs with it because it plays into their politics, for the same reason the left runs with climate change. But that doesn’t make it a manufactured problem.
Working young people have to take care of non-working old people. That’s true in a Bangladeshi village and that’s true in America. There’s no policy knob you can turn to make that fundamental dynamic go away.
Policy knobs can be used to determine how resources are allocated and, perhaps most importantly, the kind of resources.
There's a lot of elder-care that is fundamentally non-scalable and non-automatable. But there's also a lot that is. Policy can both incentivize development of / investment in the latter and paying people competitive wage and benefits to step up and work the former.
Meanwhile, with productivity per person higher than it's ever been thanks to general industrial and service automation, there should be more GDP than ever free to invest in such social programs.
> Working young people have to take care of non-working old people
> There’s no policy knob you can turn to make that fundamental dynamic go away.
Are all the productivity increases in the past century completely meaningless?
To take the most facile, direct example possible, if all the fast food jobs are automated, can't we train those people to take care of the elderly? Not medically, but as orderlies and other employees in nursing homes?
> Are all the productivity increases in the past century completely meaningless?
Based on the change in prices for long term care and skilled nursing facilities, the productivity increases due to automation/outsourcing have not offset supply and demand in labor for elder/disabled care.
It is highly undesirable work, plus medical advances keep people alive longer and longer who need assistance to live. Even during my life, the past 30+ years, these jobs were almost always done by immigrants because they were willing to accept low wages. It is not something an American with options is going to opt for without higher pay.
Of course people can be trained as nursing home workers. The problem is who is going to pay for all the nursing homes as our population ages? Most nursing homes charge more per month than the maximum Social Security benefit. And many elderly people have minimal other retirement income or assets. So nursing homes constantly squeeze their workers on pay, especially in HCOL areas. There doesn't seem to be any politically acceptable way of closing this gap.
> who is going to pay for all the nursing homes as our population ages?
The increased productivity from the economy. The money is there. It's obvious it's there because we produce way more than ever before with far fewer workers.
Just stating that the money is somewhere out there in the economy is rather facile. It's not as if there's some big vault full of cash that we can draw from to pay for nursing homes. That money is currently being spent on or invested in other things. Consumers are already tapped out. On the government side, there is no political will to drastically cut other spending or raise taxes to pay more nursing home workers. The industry is also not very amenable to automation.
> It's not as if there's some big vault full of cash that we can draw from to pay for nursing homes.
I'm talking about productive capacity in the economy, not cash in a vault. It exists. Instead of battering workers with higher taxes, try taxing companies more directly. They're the ones benefiting the most from productivity increases. Tax land value, since real estate prices also benefit from productivity increases in rich metro areas.
> That money is currently being spent on or invested in other things
If you pay care workers more money, they will also spend or invest it. It's not just stacks of dollar bills going into a furnace.
It's not as if there's some big vault full of cash that we can draw from to pay for...
The money is out there. The wealth generated by all that increased productivity is just being captured by a small group of ultra-wealthy.
We could "easily" tax those massive accumulations of wealth to fund societal needs. We only need to convince all the temporarily embarrassed millionaires that doing so is in their own best interest.
It's unpleasant but there is a policy "knob" you can turn, which is to just let people die when they can't support themselves in the society we've built. We already do it for large sections of the population and there's no reason to suppose we won't do it to grandma and grandpa when the SSA coffers are empty. It's much harder to do this in a village society, where you literally see people starving as you have your lunch, but in an industrialized, atomized western society it is extremely easy because you never even have to think about it.
You are completely ignoring the fact that you can't always "just increase the tax". Tax increases have their negative consequences, at some point they can kill the entire economy.
Bankruptcy doesn't always mean complete dissolution. Typically the obligations are altered to ensure continued existence, especially when there is continued revenue coming in.
If they modify the COLA, they can let inflation take care of the social security bomb. I'm guessing they will adjust this next year, due to the elections this year.
