Friday, April 19, 2013

Social Security needs only 0.1% fix

None of the economists whose blogs I read (Krugman, DeLong, Baker, and others) believes that cutting Social Security benefits is a good idea.  More often than not, in fact, they state that the benefits ought to be increased, and that this is not unaffordable.

On the other hand, if you listen to the corporate media, you know (incorrectly) that social security has a huge demographic problem (wrong, that was figured into the Greenspan reforms of 1983 and already fixed with a payroll tax increase then), contributes to the deficit (wrong, since it's inception, social security has been self funding and off budget, although a "unified budget" was created in the 1960's and repealed in the 1980's, it never had any legal importance to the funding of social security), and that the Chained-CPI change is reasonable (wrong, even the current inflation index understates inflation for seniors slightly).

Now it is true, according to official sources, that Social Security would not be able to pay full benefits after 2033 or thereabouts.  It would not go bust, exactly, but it would then only be able to pay about 80% of currently scheduled benefits from then on (and essentially forever, according to conservative projections).

That gap could be "fixed" in a large number of ways, many of which have actually been scored by the Congressional Budget Office and/or the Social Security Trustees.  Probably the most well known fix and the one most often call for by progessives is raising the cap on FICA tax, which is currently set at $113,000.  Income above that level is not taxed.  Raising the cap to something like $250,000 would fix the funding problem.

But richer people don't like that solution.  While social security essentially returns what people paid in for more people, it has a progressive structure that pays proportionately more for poorer people (who may get slightly more than they paid in) and less for richer people (who get slightly less than they paid in).  Raising the cap would mean richer people would pay that much more than they get out (though it still works as insurance even for them).

So tax accountant Bruce Webb and his friends at Angry Bear (some of whom are moderately conservative) have worked out a plan that continues the pay-for-what-you get angle as much as possible for everyone, including richer people.  He has determined that the shortfall can be fixed with 0.1% increases in the FICA tax based triggered by projected shortfalls 13 years out.   Current economic projections suggest only a small number of these increases (3 maybe) would be necessary to fix the 2033 shortfall problem and keep the system solvent forever, according to current projections.  He calls this the "Northwest Plan."  But the plan could adapt to any circumstance by using predetermined triggers that invoke the 0.1% increases.  (To be clear, the FICA tax paid by employees is 6.2%, and employers also pay 6.2% of each employee's wages.  A 0.1% increase would increase both rates to 6.3%.)

I personally prefer the Raise the Cap solution.  But I think it's important to understand the Northwest Plan because it shows how small the Social Security funding gap actually is.  And the fact that the media doesn't really want you to understand how small the problem is so they can convince you that big cuts are needed to "save" Social Security.

Tuesday, April 16, 2013

Work? People should be paid NOT to work

I always hear, on right and left, but mostly on the self-righteous right, how laziness is a problem.

However, I look around, at the environmental destruction, at the weapons of mass destruction and the risks they pose around the world, and many other things.  All these terrible things are created by work.  We have done damage that will be impossible to reverse.  On balance, the future of our species, and our planet, would have been better off had the 18th century industrial revolution, and all that, had never happened.  And that involved a huge amount of work, and in the subsequent industrial revolutions, mostly to create destructive powers that played out immediately or mostly gradually.  We had a huge increase in population, which surely wasn't just child's play, with the construction of new facilities of all kinds, most rather unsuitable for our future which must be hardened from climate, and a huge network of energy systems all based on our greatest toxic waste.  If there is anything that has been truly beneficial, perhaps it has been art and science, but these things also have helped enable the others in no small part.

It seems to me that for the benefit of all, people should be paid not to work rather than the reverse, and paid the most to do the least.

All the better to be as far away as possible from this menace, work.