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  #941  
Old 06-08-2018, 03:09 PM
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https://www.marketplace.org/2018/06/...ecurity-report

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Our Social Security system is in even worse shape than we think, according to one academic

Spoiler:
America's Social Security and Medicare systems may need expensive repairs.

A new report on Social Security and Medicare finds that the system is now paying out more than it brought in, forcing the system to dip into its $3 trillion pool of reserves for the first time since 1982.

Overall, it suggests that taxes to fund systems for retired or disabled Americans either have to go up, or benefits have to eventually be cut. Today, there are 62 million people in the Social Security System, a number that'll jump to 90 million by 2040. And by then, there will be fewer workers supporting those beneficiaries.

However, in a statement, Treasury Secretary Steven Mnuchin said "the administration’s economic agenda — tax cuts, regulatory reform, and improved trade agreements — will generate the long-term growth needed to help secure these programs and lead them to a more stable path."

But Laurence Kotlikoff, an economics professor at Boston University who is deeply concerned about the Social Security system, says it's magical thinking when trustees use an accounting system that chooses to ignore what happens beyond 75 years from now. That may sound like a "Star Trek" star date, but there are kids alive today who will need the system beyond that time horizon.

Kotlikoff specifically points toward the end of the trustees report (Table VI.F1 in the appendix, page 200) where he sees the “real” accounting acknowledged. In his reading, it's not pretty. He joined us to talk about the issues he sees with our Social Security System and what he sees as faulty reasoning from Mnuchin. Below are some of his edited responses to our questions.

So where did they go wrong here? I mean, we knew the American population was aging, yet their calculation was off here. You notice that there is an acknowledgment that there's a different way to calculate this where it doesn't cut off at 75 years from now. And when you see that, what is the suggestion to you?

That we're in a far worse shape than the news reports are stating. The beginning of the document is advertising that the trustees are not doing their work. They're hiding in this document, way in the appendix, the truth about that the system is in far worse shape than they were talking about at the beginning of their document. The trustees are saying that in 2034, the trust fund will run out of money. And at that point, we need a 21 percent immediate cut, and permanent cut, in all the benefits being paid by Social Security, including disability benefits. But if you look at that table VI.F1, it's saying something very different. It's saying we need a 24 percent cut not starting in 2034, but starting today.

Now the treasury secretary, Steven Mnuchin, says that the Republican-led tax cuts and economic growth is going to help the situation, if not fix the situation. What do you think about that?

Well, I think it will help somewhat, but he needs to realize that the benefits are also connected to the growth. So if there's more wage growth, there's gonna be higher benefits as well. Now what the trustees report is saying is that despite the tax reform, that's no salvation — that the system is in just horrendous shape. The system ran a $1 trillion deficit last year. It's unfunded liability, a shortfall. So Mnuchin could use a little lesson in my classroom in front of the white board. I'd love to have him there for about an hour, just tie him down and make him actually learn some economics.

Now this isn't just a Trump administration thing — with many administrations, their vision gets a little hazy when looking into the future when it comes to Social Security and Medicare.

Oh yeah, this goes back with every administration — the Obama administration. This is an ongoing, generational expropriation game. It's a Ponzi scheme. We're taking from the young and giving to the old — it's a take-as-you-go. It's been called a pay-as-you-go system, but it's really a take-as-you-go. Each generation is being told, "Look, hand us over money. We're going to call it taxes rather than borrowing, but ... we're going to use that money to pay off the current elderly. But we're going to promise you even more benefits when you get older." And guess what, when you're older, we're going to go and expropriate your kids to pay you. So you'll have your chance at expropriating your kids. That's the basic story behind not just Social Security, but Medicare, Medicaid, defense spending. The entire fiscal operation in the post-war starting with Eisenhower on — Carter, Kennedy, Johnson — it's all take as you go. And that's why the country is really in terrible fiscal shape. It's probably in the worst fiscal shape of any developed country when you do the analysis correctly.


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  #942  
Old 06-08-2018, 03:27 PM
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Regarding the views of Kotlikoff (a friend of mine): Making policy decisions TODAY based on projections for years 76-infinity is simply preposterous, as the AAA said in a letter back in 2003 (just after President W added those silly infinite projections to the Trustees Reports). Projections that far out have zero credibility, almost by definition. The only thing I can say with certainty about the world in 2094 and after is that the sun will continue to rise in the East. Everything else is speculative.

Anyway, getting Congress to focus on next week is a major struggle. There is no hope whatsoever that they would ever act on projections so far out in the future.

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Old 06-08-2018, 03:30 PM
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and that's kind of what this piece says -- the political will is not there.

https://www.washingtonpost.com/blogs...=.667466f5461e

Quote:
Saving Social Security and Medicare now seems hopeless

Spoiler:
Another annual report is out from the Social Security and Medicare trustees. Which means it is the solemn duty of every economics columnist to acquaint their readers with some frightening numbers.

Thanks to the Great Recession, the taxes paid into the Social Security program began to exceed the money flowing out in 2010. But that is a permanent condition, not a recession-only shortfall; until taxes are raised or benefits are cut, the system will never return to balance. As more baby boomers retire, starting in 2022 we will begin to empty out the “trust fund,” which is supposed to buffer this imbalance. In 2034, it will be exhausted; under current law, benefits will then be slashed by 23 percent.

Medicare is in even more parlous shape; the Hospital Insurance Trust Fund will be emptied by 2026, three years earlier than was projected just last year. And that assumes that health-care cost growth remains moderate. If Medicare is unable to hold payments down as projected, that date could advance even further.


Yet none of this is exactly news; for years we columnists have been reading approximately the same reports and painting approximately the same picture with the depressing regularity of an annual trip to the dentist. America has made large promises to our retirees, but has not provided adequate revenue streams to make good on them. And, eventually, at least one of those two things will have to change.

All that’s really new is the date on our calendars: Once again, we have marched one year closer to fiscal catastrophe. Almost 20 years ago, when I first began writing about this, the dates of trust-fund depletion felt comfortably far off; the hypothetical disaster only marginally more real and pressing than a scenario in some apocalyptic novel. Now we are as close to the day of depletion as we are to the day when I penned my first warning about it. The crisis is no longer peeking over a distant horizon but looks unfortunately tangible, and uncomfortably close.

Just as with saving for our personal retirement, the most painless approach to sustainable entitlements is to start early and make small adjustments, rather than trying to frantically close the gap during the past few years. We could easily have done this, for the solution has always been obvious: a combination of raising the retirement age and raising the payroll taxes, with the changes phased in slowly to give people plenty of time to adjust their expectations.


We didn’t do that when it would have been easiest 20 years ago; we aren’t doing it now, when the necessary changes will be larger and harder. And, unfortunately, it’s hard to see how we will do it until the trust funds are down to the last penny and massive cuts to benefits are looming over the heads of frightened retirees.

The math of fixing our entitlement programs has always been easy, but the politics have always been difficult. The long time horizons over which such problems unfold, and over which solutions are best implemented, are ill-suited to the exigencies of the American political calendar. The political bases of the two major parties want something right now — a gargantuan tax cut, perhaps, or a massive new health-care entitlement that must be paid for by using Medicare payment reforms that could otherwise have shored up the finances of the existing program. Politicians facing a choice between giving the base what it wants, or giving the base higher payroll taxes and later retirement ages just to keep something they already have, unsurprisingly chose the easy path to fiscal meltdown, rather than the rocky road to sanity.

But if the politics of entitlement reform were bad before, they seem hopeless now. The necessary reforms necessarily have to be bipartisan; any party that tried to force this unpleasant fiscal medicine on the American public by themselves would be committing electoral suicide. Given the bitter rancor gripping the country, it’s hard to see either party agreeing to hold hands and jump together.

Which means that all too soon, the crisis will be upon us. It’s hard to say exactly when it will arrive, though it’s unlikely to be those headline dates. Even two parties that hate everything about the other guys can undoubtedly find a way to agree on some kind of quick fix that keeps Medicare payments flowing and Social Security checks going out, probably by borrowing a great deal of money from the debt markets.

But it’s unlikely, in our current environment, that they’ll be able to craft the kind of deep reforms that could keep these programs stable, and sustainable. So entitlements, and rising interest payments, will put more and more pressure on the rest of the budget: less money for other priorities, even more flagrant deficits. Eventually that pressure will become unendurable, forcing a rapid and unpleasant adjustment to bring outflow and inflow back in line.

If this seems like a daft way to handle a serious problem, that’s because it is. And yet, it’s getting very hard to envision any other possible ending. We let our finances run out of control thanks to an optical illusion. And all the evidence suggests that we’re planning to cling to that illusion until the veil is forcibly ripped from before our eyes.


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  #944  
Old 06-08-2018, 04:46 PM
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At what point do we start adopting creative solutions to the problem? Most of the focus is around cutting benefits or increasing tax revenue, but alternatives are out there. For instance, if the tax code were tweaked to encourage families to have 3+ kids, maybe birth rates creep up again, eventually plugging some of the shortfall once those kids start entering the workforce 15 years down the line. Similarly, many people cite cost of living as a big reason for not having kids (or having only 1-2 kids rather than the 3-4 they’d have if cost weren’t a factor). Today, a huge chunk of the jobs out there are located in big expensive cities, but the type of housing necessary to raise 3+ kids is prohibitively expensive in those same cities. Provide incentives encouraging major companies to relocate to low COL places, and all of a sudden, paychecks go a little further, which might ultimately lead to higher birth rates. Encouraging corporate relocations to college towns might be a good place to start (educated workforces in low COL places where people would actually want to live).

Do any of the Social Security fixes actually contemplate taking action to increase the birthrate? Should that be a tool for policymakers to take advantage of? Another baby boom staring today won’t immediately plug the gap, but it might make the eventual tax increases and benefit cuts less painful.
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  #945  
Old 06-08-2018, 04:53 PM
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The current payroll rate isn't adequate, period. (Someone correct me if I'm wrong.)

If that's the case, no amount of population boom can truly fix it. That's just another way of kicking the can down the road.
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  #946  
Old 06-08-2018, 06:22 PM
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That's not really true. A sufficiently high total fertility rate COULD solve the problem, while overpopulating the country. I'm not sure that saving Social Security is worth the other costs associated with a population growing so quickly.

But while we're on the subject of population growth, an alternative to producing our own children is importing fully grown people from other places -- otherwise known as immigration! Too bad that's considered evil by the current administration. I'm glad my grandparents got here before Trump was born!

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  #947  
Old 06-08-2018, 10:34 PM
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Default 2034 and certain pension valuations

Print & website reporters and TV news readers, for their audiences, and retired or nearly retired actuaries, for their own financial planning, might already be reacting to the possibility that SS benefits will be reduced starting around 2034. Who else?

I was wondering whether valuation actuaries of offset style pension plans already reflect something for this possibility. I guess that "current law," if that were somehow a default position, would now mean a 21% reduction in SS benefits in 2034. Whatever the approach taken by the actuary, it seems clear that the approach needs to be spelled out in the valuation report.

I tried researching how many offset plans exist but got nowhere. I did observe that one plan offset some percentage of "primary SS benefit" (which sounds like the 100% amount) while another referenced "SS benefit received...." (which sounds like the 79% amount). So I guess that for offset plans, there could be an issue surrounding how the plan and the pensioner share the hit in 2034.
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Old 06-08-2018, 11:04 PM
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At the point where Medicare runs short, Congress will just authorize t-bills to cover the shortfall.

Nobody will dare to vote against it (except possibly someone like Rand Paul).
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Old 06-10-2018, 02:32 PM
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Quote:
Originally Posted by msydlaske View Post
Who else?
...valuation actuaries of offset style pension plans
Group disability insurance typically includes a Social Security offset. Then there's an assumption about what percentage of claimants will actually get SSDI (most group disability policies have a less stringent definition of disability than Social Security, so definitely not everyone gets it although they are basically forced to go through the process and try). There's a further assumption of how much their SSDI payment will be which varies by income and number of dependent children.

So it seems like if SSDI is going to have a shortfall that should affect the projection of how much SSDI certain disability claimants are going to get. I think it's going to hit insolvency in 2032 (two years before SSOAI) so certainly some people who are getting disabled now and who are already disabled will still be collecting in 2032.

I sort of doubt that any assumptions are being modified to take a potentially higher future benefit cost into account though. I guess they should, but I doubt they are.
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Old 06-14-2018, 05:50 AM
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http://thehill.com/opinion/finance/3...rk-for-workers

Quote:
Making Social Security's retirement age work for workers

Spoiler:
A new report from the Social Security trustees warns that the program is in deep trouble. The retirement and social insurance program is already spending more on benefits than it raises in dedicated revenue, due in large part to a decline in birth rates and a decreasing ratio of workers to retirees. By 2034, beneficiaries face the prospect of a sudden 21 percent benefit cut when trust fund savings from the program’s prior surpluses are exhausted.

It's a real problem, but a solvable one. Despite a lot of posturing and politics, Congress can shore up Social Security's finances by reducing benefits, raising the retirement age for when workers can collect benefits, raising the Social Security payroll tax rate, or raising the income level at which workers stop paying said taxes — $128,400 this year based on a formula in law. Making such changes would generate sufficient revenue to keep Social Security on firm footing.

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Some of these ideas are more popular than others. Raising the payroll tax income limits would help preserve the progressivity of Social Security, but that idea, in practice a tax increase, is politically challenging and insufficient to solve the program’s shortfall by itself.


Raising the normal retirement age, which varies between 65 and 67 depending on when someone was born, seems like a no-brainer if you work in front of a computer or in another role that is not physically demanding. People are living longer so what's another year or two in the office or at the kind of job that allows you to write and think about Social Security policy. Or if you're a member of Congress.

But imagine for a moment that you are a waitress on your feet all day. Or that you move things around in a warehouse or at a construction site. Or if your job requires you to be bent over or crawling on your hands and knees a lot. If your job is physically demanding, then suddenly the idea of working a few more years is less appealing — if it's even possible.

We're not talking about a negligible number of workers. More than one in three workers over 58 is working in a physically demanding job. Millions more work in difficult working conditions - outside or in cramped spaces or with unusual machinery. Even with enhanced benefits, working longer doesn't sound like a great deal to them.

But there are a number of potential ways to modernize Social Security that respect the challenges facing these workers. Rather than blanket retirement ages, Congress could create occupational categories differentiating between physically demanding jobs and other jobs. Yes, this sort of parsing about what roles count as physical will be high stakes and politically charged - and a great time to be a lobbyist, speaking of non-physically demanding jobs. But such an approach, for instance coding Social Security quarters to different types of work, would allow for raising the retirement age in a more equitable way in today's economy. It also takes into account that for those with physically demanding jobs that wear a body down, early retirement with lower Social Security benefits is sometimes not a choice at all.

The National Commission on Fiscal Responsibility and Reform, better known as Simpson-Bowles, included a version of this idea in their 2010 recommendations with ahardship exemption to increased retirement ages. The commission also wanted the Social Security Administration to look at ways to help workers in physically demanding jobs if the early eligibility age – when someone can first collect Social Security with a permanently reduced monthly benefit – was raised from its current level (age 62). The idea has been debated episodically, such as when the retirement age was raised in 1983 and a study about physically demanding jobs was mandated by Congress.

Another option is raising the retirement age but reducing the penalties associated with earlier retirement for low-income workers. The Bipartisan Policy Center proposed a version of this idea in the form of a "Basic Minimum Benefit," which was included as part of a broader package of reforms recommended by their Commission on Retirement Security and Personal Savings. This income-based approach is an intriguing one, but it's worth remembering that not all low-income jobs are physical and not all physically demanding jobs are low-income.

Finally, lawmakers could strengthen Social Security’s Disability Insurance component, which provides benefits to individuals who can no longer work due to their medical situation. DI’s eligibility standards already take into account some hardships unique to older workers, so enrolling in benefits becomes progressively easier for individuals over the age of 50. Nevertheless, DI could still be broadened and improved to better accommodate those workers in physically demanding jobs while raising the age for full Social Security retirement benefits.

All these ideas are aimed at the same goal. And ideas like this should be a no-brainer for the Trump Administration - ostensibly friendly to working Americans and tougher on the country's elites. But underneath the bravado at rallies and on Twitter, President Trump governs far more like a plutocrat than a populist and there's little reason to believe Trump is any more serious about retirement policy than other domestic policy issue. So far the President struggles to effectively run the Social Security Administration.

Democrats, meanwhile, still take their retirement policy cues mostly from interest groups that benefit from the status quo. But the nation's retirement security problems will still be here after the Trump show is over. As pressure grows on the federal purse, the field is open for leaders who want to champion creative solutions for strengthening retirement security rather than only criticize Republican efforts to undermine successful programs like Social Security.

Andy Rotherham is a senior fellow at the nonprofit Progressive Policy Institute and co-founder and partner at Bellwether Education.


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