Economics, Entitlements

Social Security: A problem after all?

12.13.12 Social Security Expenditures

It’s a cottage industry on the Left to poo-poo the Social Security shortfall: Some say it’s a small, manageable problem; others claim it won’t happen at all. So it’s a surprise to see the New York Times—which itself dabbles in crisis-denial—publish research indicating that Social Security’s problems might be larger than previously thought. Demographers Gary King and Samir Soneji argue that SSA’s methods for projecting mortality are outmoded and significantly understate future life expectancies and the system’s overall shortfall. By 2031, they say, the Social Security deficit will be around $88 billion larger (in today’s dollars) and the trust fund balance $800 billion smaller than currently projected. You can find more details in their full article here.

While I’ve spent a lot of time in meetings preparing for the Social Security Trustees Reports, I can’t judge the accuracy of King and Soneji’s claims. I do know, from a 2005 SSA study, that the Trustees’ projections for life expectancies are on the low end of the reasonable range. So it’s possible they’ve got a point.

However, the authors are misleading in one respect: They state that GOP presidential nominee Mitt Romney “said that ‘neither the president nor I are proposing any changes’ to the program. It was a rare issue on which both men agreed—and both were utterly wrong.” The authors deleted the end of Gov. Romney’s sentence—“…for any current retirees or near retirees.” Romney, in fact, proposed indexing the retirement age to longevity along with reducing the growth of benefits for middle and high earners. President Obama, however, to date has made no proposals to fix Social Security.

11 thoughts on “Social Security: A problem after all?

  1. I saw the same report and I’d put more stock in their assertions if they compared what SS is doing to the private market annuity products.

    But overall, when you compare the “problems” of SS with other things in the budget like Medicare and MedicAid, it’s a gnat on a dogs butt that won’t fully ripen until 2030 or so.

    so why.. right now…when we have a trillion+ deficit, is SS front and center in the priorities?

    It makes no sense. It basically confuses the entire entitlement issue and promotes the idea that any/all entitlements are in crisis mode and it contributes to a dishonest narrative that this country cannot afford entitlements at all and need to get rid of all of them.

    Every single industrialized country in the world, to include places like Singapore, Hong Kong, Australia, Japan, etc have some form of mandatory payroll tax/social security.

    If you listen to the anti-SS folks, they basically want to make us more like a 3rd world country.

    • I have some familiarity with Asian retirement law, having worked in Hong Kong for an investment firm.

      In Southeast Asia (the area we covered), most countries mandated that people put money into private investment accounts with some broad diversification requirements. I’m sure that was the case in Singapore. I think Hong Kong law is similar (not in effect when I lived there).

      These pension funds are in private accounts – not in government coffers. People own these accounts – they are private property, not government promises.

      I’m not sure how many countries around the globe have this kind of system, but I know there are others. Mandating retirement savings is not libertarian, but it’s a lot less nanny-like than a government tax and a promise.

      • they are private accounts in the sense that the value is associated with the individual (social security does this also) but they cannot spend the money in those accounts except for purposes the govt approves.

        I’d also point out that the mandatory payroll tax in Singapore is double the 15.3% in this country.

        the real point here is why are these payroll taxes mandated in every single industrialized country – no matter whether they operate on a individual fund or pay-as-you-go basis?

        the people who are opposed to SS in this country are opposed to the CONCEPT of the mandatory payroll tax but they attack SS on these various issues as proxies for doing away with SS all together – because they have always been opposed to the concept of SS from the beginning.

        they just won’t argue on the merits. The vast majority of people in the industrialized countries LIKE and support the CONCEPT of SS even if they might want it to work in different ways (like individual funds) but they basically support the concept of mandatory payroll taxes set aside for future retirement.

        • “they cannot spend the money in those accounts except for purposes the govt approves”

          Well, yes, obviously they have to use it for retirement.

          The important thing, in my opinion, is that the money is actually invested – in real estate, in stocks, and in government bonds (where the bond interest is paid into that specific privately owned account).

          I’m not a dogmatic libertarian – I would call myself a practical libertarian, or a realistic libertarian. In an ideal world, maybe, everyone would provide for their own retirement (or depend on relatives or on charity). I accept that we don’t live in that ideal world (nor are we ever likely get there from here).

          Accepting that, I would like to see the least economically disruptive, least liberty-constricting solutions to people’s frequent failure to provide for themselves.

          For the same reason, I didn’t find the government healthcare system in Hong Kong objectionable. Entirely free for all residents but limited in scope. For anything beyond the basics, there was a private healthcare system where people could get whatever they wanted to pay for.

          • re: ” Well, yes, obviously they have to use it for retirement.”

            Can and is used for healthcare as well as other purposes including buying a home, I believe.

            I do not know it is invested or how.

            here’s some info:

            http://www.watsonwyatt.com/europe/pubs/healthcare/render2.asp?ID=13850

            it’s a new system and very different from ours except that it is mandated, it’s a top-down govt controlled system and it involves subsidies for those unable to pay for their health care even with their savings.

            Initially free market conservatives held it up as a model for health care but have been fairly quiet lately as there is quite a bit of government involved including the mandate and a 33% payroll tax.

            Most conservatives who are opposed to the concept of SS and universal healthcare do not like their system either.

  2. To be fair, Romney went back and forth on so many issues that you can’t really blame them for getting confused on his Social Security plan. When Rick Perry was still in the race, Social Security had no stauncher defender than Mitt Romney.

  3. No Social Security fix should end with the government collecting more in payroll taxes than it pays out. The surpluses hide the true cost of government and pave the way for a massive transfer of power from local and state governments to DC.
    Congress cannot invest the surpluses. All it can do is spend them. So every time we fix Social Security for the next 75 years, all we are doing is taking money from the future to spend now.
    I would levy a 4 percent tax on all forms of income to pay off the debt to Social Security in about 10 years, levy payroll taxes to make up any difference, and then once debt is paid off, have current payroll taxes cover current benefits.
    And, I would force companies to raise wages by 6.2 percent and double the employee’s share. Every working person would know what his is contributing to keeping the retired generations going.

  4. I assume you’ve seen this response from the SSA actuaries? I’m not an expert, but it seems to quite conclusively invalidate King and Soneji’s argument.

    In short, by adding smoking and obesity to SSA estimates that already have those factors “in the market” (incorporated in the actuary’s estimates), K&S are double-counting, and not surprisingly, getting “crazy” results.

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