The Dow Jones Industrial Average

[vt]

Re: The Dow Jones Industrial Average

FICA, which is social security, and medicare are our retirement and medical programs for retirees. They have nothing to do with the federal budget. Don't forget that the employers, many of them small business, pay an equal amount of FICA as the worker does.

FICA is not a taxed on the 1040; it is an old age and survivors pension system, and a disability insurance program. Medicare is health insurance for those over 65. It has been paid for all their working lives by them and their employers, and is paid for until they die, plus it only cove,r 80% of some medical care. Supplemental insurance covers the rest.

Don't try to mix up FICA with the income tax system.

[dcarrigg]

Re: The Dow Jones Industrial Average

Didn't you just say your preferred way to cover the massive federal budget deficit that would be caused by this tax cut is through slashing social security and medicare benefits a couple of posts back?

[thriftyandboringinohio]

Re: The Dow Jones Industrial Average

FICA, which is social security, and medicare are our retirement and medical programs for retirees. They have nothing to do with the federal budget. Don't forget that the employers, many of them small business, pay an equal amount of FICA as the worker does.

FICA is not a taxed on the 1040; it is an old age and survivors pension system, and a disability insurance program. Medicare is health insurance for those over 65. It has been paid for all their working lives by them and their employers, and is paid for until they die, plus it only cove,r 80% of some medical care. Supplemental insurance covers the rest.

Don't try to mix up FICA with the income tax system.

VT you are entirely correct about the nature of FICA tax and how it is different from income taxes.
None the less people pay them, so if we are talking about the tax burdens that rich people bear compared to the burden poor people bear, then it's probably best look at all taxes including FICA.
If we are instead talking about how tax policy affects budget deficits and debt, then your distinction is vitally important and must be considered just as you suggest.

Those two ideas get conflated and confused in many discussions about possible tax changes.
It's pretty tempting to jump back and forth between the fairness of the taxes people pay and the effect of tax policy on the deficit and debt.

There is one important connection between the federal budget and FICA.
When the Social Security Trust Fund holds a surplus, the treasury borrows it to help fund government.
That connects the general federal budget to FICA.

[vt]

Re: The Dow Jones Industrial Average

DC, we have three choices to protect social security. The first two, which are raising taxes or slashing current benefits, are not good. The only other way is to extend the age for much younger people that they can collect in the future. Longevity has been increasing for decades and the age you can apply should increase too.

Another problem is that Americans have lost their saving ethic. We are far behind other nations. Social security as never meant to be the only retirement income. Savings and the reduction of debt are the other two key factors. People go into retirement with too much debt and far too little assets from which to derive an income. This is part of the behavioral process which leaves many in poverty. We do not have good financial habits.

And Thrifty why does Congress have the right to borrow from the social security trust fund? That means that more money is owed back to social security from a budget which is already deep in the red. Why do we American citizens have to pay higher taxes to pay back debt that our leaders have seen fit to dip into so that our pension system is solvent.

Any why is the system only invested in government bonds. This is not how you run a pension system. It should be a balanced account. Professor Jeremy Siegel has proven that stocks beat bonds by 2 to 1 over long periods of time. Social security is like a Ponzi scheme built on a house of cards.

[thriftyandboringinohio]

Re: The Dow Jones Industrial Average

...And Thrifty why does Congress have the right to borrow from the social security trust fund? That means that more money is owed back to social security from a budget which is already deep in the red. Why do we American citizens have to pay higher taxes to pay back debt that our leaders have seen fit to dip into so that our pension system is solvent.

Any why is the system only invested in government bonds. This is not how you run a pension system. It should be a balanced account. Professor Jeremy Siegel has proven that stocks beat bonds by 2 to 1 over long periods of time. Social security is like a Ponzi scheme built on a house of cards....

Well vt, to your first question about why reserves are not kept separate, it has always been true since Social Security was created in the 1930s. The cash is not kept in a separate account, only on the books. Here's a link to what SSA says about itself in this regard. https://www.ssa.gov/policy/docs/ssb/v75n1/v75n1p1.html

To your next points, well, U.S. Government debt instruments have always been considered the world's safest investments, and they are still viewed that way. The government does not run stock trading desks or hedge funds for itself. I support that policy. What a can of worms we'd have otherwise - companies fighting to get the U.S. govt to drive up their stock price with huge purchases, and the federal budget trying to predict the value of their equity portfolio when they need to sell things to pave a road...

To your point that borrowing the surplus today causes higher taxes tomorrow, well, that's true. If our congress is irresponsible with that authority trouble can always result.
Crazy decision have in fact been made about spending and pain will certainly follow. That does not mean Social Security, as a program, is the root cause of those problems.

When you say Social Security is a Ponzi scheme built on a house of cards, the evidence does not support that claim.
It has worked as advertised for 82 years so far and paid many hundreds of millions of people exactly what they were promised.
I'm not aware of any Ponzi scheme, scam, or swindle that paid out perfectly for 82 years - social security does not fit that definition.

[Milton Kuo]

Re: The Dow Jones Industrial Average

When you say Social Security is a Ponzi scheme built on a house of cards, the evidence does not support that claim.
It has worked as advertised for 82 years so far and paid many hundreds of millions of people exactly what they were promised.
I'm not aware of any Ponzi scheme, scam, or swindle that paid out perfectly for 82 years - social security does not fit that definition.

While I believe Social Security should be continued and the cap should be removed to try to fully fund Social Security, I do believe it is a Ponzi scheme and that it meets all the requirements of a Ponzi scheme.

Imagine a scenario where the following conditions are true:

1. Inflation is strictly capped at 2.5% per year; i.e., the USG/Fed is prohibited from printing money to make Social Security payments
2. For whatever reasons, the U.S. population either stops growing or starts decreasing
3. The Social Security tax rules and benefits rules are unchanged
4. The U.S. government does not bail out Social Security

Do you really think the people who have paid into the system and are paying into the system will be able to get the benefits they were promised if the above were true? I don't.

If every working American today decided to resign from his job and work underground, Social Security goes bust. That is the very definition of a Ponzi scheme: the first "investors" get something for nothing and subsequent investors can only get their money back if new investment money continues to come in. Meanwhile, 401Ks and IRAs, which are not Ponzi schemes, would exist as they are by definition fully funded.

If Bernie Madoff had been able to stave off redemptions in 2008, it's possible that he could have kept his Ponzi scheme going after the numerous rounds of global QE we've had. Even so, li'l ol' Bernie ran his Ponzi scheme for 30 or so years. Imagine how long he could have kept the charade going if he had the power of the federal government and could compel people to invest with him. I'm not impressed at all with the 80 or so years that Social Security has been able to run.

[vt]

Re: The Dow Jones Industrial Average

Well, not many hundreds of millions. Maybe including those that have died 75 million plus. Social security has worked exceptionally well, but it can do beter.

https://www.ssa.gov/policy/docs/stat...html#table5.a4

No one wants the government to promote any company, so why not use a total market index like one for the U.S. and one for the entire world for the equity portion? Or the Wilshire 5000 index? Yes treasuries are safe but stock indexes of blue chip dividend paying stocks have reasonable risks over long periods of time. We've been in a bad stock cycle since 2000, but the next 25 years may do much better.

India has been using some equity exposure:

http://www.thehindubusinessline.com/...cle9709255.ece

Here is a more through look at many pension systems across the world:

http://www.oecd.org/daf/fin/private-...nds-Survey.pdf

Retirement plans are a complex issue, but we should be open to looking at the past data to see how we may better meet the needs of citizens living longer lives.

[thriftyandboringinohio]

Re: The Dow Jones Industrial Average

While I believe Social Security should be continued and the cap should be removed to try to fully fund Social Security, I do believe it is a Ponzi scheme and that it meets all the requirements of a Ponzi scheme.

Imagine a scenario where the following conditions are true:

1. Inflation is strictly capped at 2.5% per year; i.e., the USG/Fed is prohibited from printing money to make Social Security payments
2. For whatever reasons, the U.S. population either stops growing or starts decreasing
3. The Social Security tax rules and benefits rules are unchanged
4. The U.S. government does not bail out Social Security

Do you really think the people who have paid into the system and are paying into the system will be able to get the benefits they were promised if the above were true? I don't.

If every working American today decided to resign from his job and work underground, Social Security goes bust. That is the very definition of a Ponzi scheme: the first "investors" get something for nothing and subsequent investors can only get their money back if new investment money continues to come in. Meanwhile, 401Ks and IRAs, which are not Ponzi schemes, would exist as they are by definition fully funded.

If Bernie Madoff had been able to stave off redemptions in 2008, it's possible that he could have kept his Ponzi scheme going after the numerous rounds of global QE we've had. Even so, li'l ol' Bernie ran his Ponzi scheme for 30 or so years. Imagine how long he could have kept the charade going if he had the power of the federal government and could compel people to invest with him. I'm not impressed at all with the 80 or so years that Social Security has been able to run.

I see your point, Milton. The similarities are undeniable.
A quick google shows this has been a joyful debate for many years.

The people who agree with me make these points to claim Social Security is not a Ponzi scheme:

1. Ponzi schemes are fundamentally dishonest and deceitful. Victims do not know their payments are being handed out to earlier participants. Instead they are told the money is being used for some other purpose that will generate genuine profits. Charles Ponzi told his victims their money was being used to arbitrage postage stamps between Italy and the U.S.
Social Security is open and honest about how it spends the money it collects. No one is deceived or duped in that way.

2. Ponzi schemes require ever greater numbers of new participants. Social Security has endured through demographic declines in new participants.

As for me, I am very impressed with 80 years of operation. Most of the elderly people dear to me only avoided abject poverty because of social security. They did not to save enough and would have been homeless and starving without their social security check, quite literally.

I think when we say Social Security is a Ponzi scheme, we are engaging in hyperbole to emphasize a different point about the levels of payments and taxes collected and how to best change the way we manage our national pension system so it can endure for 80 more years.

But to acknowledge your point, if we define a Ponzi scheme so narrowly that the only criteria is taking money from a new participant and paying it to an earlier participant, then you are exactly right.
I don't agree that is the best definition. If we accept it then most any retirement system would be considered a Ponzi, because the new young members pay into a pool that only the earlier participants draw from.
But I am happy to agree that we may have put Social Security into a bad spot just when the big wave of baby boomers are retiring, and that's a serious problem that will require some deft management.

[Milton Kuo]

Re: The Dow Jones Industrial Average

1. Ponzi schemes are fundamentally dishonest and deceitful. Victims do not know their payments are being handed out to earlier participants.

Many people (perhaps most people considering how clueless the average American is) believe that their Social Security payments are put into U.S. bonds. They are totally unaware that the money they pay in Social Security taxes are being paid out to someone who is retired.

2. Ponzi schemes require ever greater numbers of new participants. Social Security has endured through demographic declines in new participants.

Social Security was a New Deal program so it's not clear to me which demographic decline you're talking about. We've had the Baby Boom generation, who are beginning to retire in droves and smaller Generation X and relatively large Generation Y millennials are still working to pay for Social Security benefits. If you look at the population of the U.S. since Social Security started, it is a monotonically increasing number. What will happen to the U.S. if its population growth chart looks like Japan's?

It is the retirement of almost all of the Baby Boomers that is going to provide Social Security with its first real test. This will occur in the next 10 years.

As for me, I am very impressed with 80 years of operation. Most of the elderly people dear to me only avoided abject poverty because of social security. They did not to save enough and would have been homeless and starving without their social security check, quite literally.

I am not calling for the abolition of the Social Security system or some nasty trick to reduce the benefits exactly because of what you say above. Far too many people, either through bad luck or recklessness, would be in dire straits if Social Security benefits were eliminated or curbed. Furthermore, they paid into the system.

However, I do think it's proper to call it for what it is. If we cannot even diagnose it for what it is, how can we possibly expect to fix it? How do we fix a Ponzi scheme and turn it into proper retirement plan? My opinion is that by removing the cap and addressing some taxation giveaways, Social Security taxes could rise to the point where a lot more money is coming in than going out. Do this long enough and Social Security eventually becomes a system more like a traditional pension fund where even if money stopped coming in, the people who have paid into the system will get their promised returns.

The nations that have massive SWFs for their retirement benefits are likely not Ponzi schemes. Maybe underfunded but nothing like the American Social Security system.

[vt]

Re: The Dow Jones Industrial Average

So if you raise the cap, which goes up each year, do you also raise the payment to those paying in more? Do we turn social security into a welfare system? Remember it is a retirement and disability insurance program.

Social security has worked very well, but there has been an utter failure by our leaders to manage it as an effective retirement and disability program. I told a top lobbyist in the mid 1990's that there was a demographic downturn coming soon and that he should alert Senators he knew. Unfortunately the chart I passed on fell on deaf ears. Note, I am not a lobbyist or work for the government or any political group.

Why is there such reluctance to raise the age of full social security for the youngest of workers when longevity has improved for decades and people who have good habits are living longer much healthier lives? You can always change the parameters in 20 or 30 years if needed.

If you think more taxes for anyone are necessary can someone explain how any pension system can work much beyond 25 years in retirement in any system funded by bonds or pay as you go?

How far can any economic system go that punishes success and rewards poor habits? Yes we do need a progressive tax system and help for the truly disabled and destitute. We need to get rid of unneeded deductions of course.

Why aren't we discussing how to cut unnecessary and outdated spending and not just look at the revenue side? We do need to allocate funds where really needed as infrastructure. Unfortunately government isn't doing proper long term planning.

[dcarrigg]

Re: The Dow Jones Industrial Average

Why is there such reluctance to raise the age of full social security for the youngest of workers when longevity has improved for decades and people who have good habits are living longer much healthier lives?

Because I am not as certain that this is true. First of all, life expectancy numbers move most due to infant mortality, not people living longer. So longevity has not moved as much as you would think. Since 1900, life expectancy for men aged 65 in America has increased a whole 4 years. Only 3 since Social Security came out. Sure, life expectancy from birth increased 20 years in that same time period, from about 50 to about 70. But that is primarily because of antibiotics fighting off childhood disease.

If you made it into adulthood in 1900, you lived basically as long as you do now. Life expectancy at 65 has only moved from 76 to 80. We might get you through one heart attack. Maybe milk a year longer out of a cancer diagnosis. That's about it. There's not a lot of medical magic happening.

Even more shocking? There's about a 20 year gap in life expectancy from birth from the shortest-lived county to the longest-lived one, and for life expectancy at 65, there are still demographics that are below 8 years.

Worse still? Life expectancy has dropped these past couple of years, not increased in the US. And I suspect it will keep dropping, and much faster, the worse inequality gets and the higher housing and healthcare costs go as a percentage of income.

[jk]

Re: The Dow Jones Industrial Average

people who have harder lives, and physically harder work, have to stop working earlier than those with the opposite situations. raising the social security age means more of the money will go to those who have led less stressful lives, society's winners. raising the retirement age increases inequality.

the countervailing process is the increasing numbers of workers who now claim disability payments. this is not a healthy trend for society.

[vt]

Re: The Dow Jones Industrial Average

Disability is available for those who have done physical work, and this type of employment is a much lower percentage of the economy than the past.

The prime reason for so many on disability is because the very poor economy after the 2008 crash; it was a way to take care of the large number of unemployed.

http://apps.npr.org/unfit-for-work/

[Milton Kuo]

Re: The Dow Jones Industrial Average

So if you raise the cap, which goes up each year, do you also raise the payment to those paying in more? Do we turn social security into a welfare system? Remember it is a retirement and disability insurance program.

No, lifting the cap probably should not entitle those that would then pay more in Social Security taxes to get greater benefits payouts. I've earlier said that Social Security as it exists is already a wealth transfer system where the highest earners are subsidizing the lower earners. The removal of the cap is part of a program to eventually fully fund the program to eliminate its Ponzi-scheme structure and to remove it as a point of contention for abolition or some or twisted program because of its perpetually bankrupt status.

I don't see how raising Social Security taxes by lifting the cap would turn it into a welfare system. The people who have earned less in their careers still have to reach minimum retirement age, they still have to work at least one year to get some sort of payout, and they must have grossed enough money to be able to get a liveable stipend.

I am not calling for raising Social Security taxes so that more money can be paid out. In fact, I specifically stated that lifting the cap must not be used for Social Security bread and circuses (higher payouts, free money to people who have never put anything into the system, etc.). Unless the Social Security funding system is fixed, it will face a crisis and then anything goes.

I'll say it again: Is a billionaire going to be so financially crippled by an extra 12.4% payout of his gross that he'll have to live in a tin-roofed hovel, wear tatters, and carry around a tin cup begging for alms? Or is the 12.4% that practically every other person in the country pays such a disincentive that the billionaire will stop trying to make money?

I have no quarrel at all with people becoming rich beyond the dreams of Croesus but this grubbing for ever more money at the expense of the poor and the middle class (which is becoming poor) is very dangerous to the rich themselves. The rich really ought to consider paying the higher taxes to ensure that they don't have to live in concrete bunkers as the rich do in South America.

One of the nice things about the U.S. is that you can drive a fancy car, wear nice clothes, wear nice jewelry and, for the most part, not have to worry about being carjacked or robbed in broad daylight. In my work, I've met people who come from parts of the world where, even if you avoid the bad areas, you'll still get robbed in broad daylight if you have anything that looks like it's worth a few hundred dollars. And it goes without saying that they live in houses surrounded by high, concrete walls with guards wielding machine guns.

That's where the U.S. is headed if the system isn't made more fair (equal opportunity, not equal outcome).

[thriftyandboringinohio]

Re: The Dow Jones Industrial Average

This seems a good place to say I believe robust Social Security and Medicare are important for a strong economy.
People are far more willing to accept risk when they know the worst-case scenario is acceptable.
Risks like starting a business or changing to a new trade or investing a large portion of our life savings, all important to a thriving economy.
People can take such risks when they are confident that the worst outcome is scraping by until retiring to a small apartment with food on the table and visits to a doctor.