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Second Update: There is now a pdf pamphlet available. Thanks, Susan1138!
This has been revised to remove references to I.O.U.'s and add a bit of explanation. You can browse the revision history at my blog. This diary is being linked to from There Is No Crisis. There are efforts to create pdfs and flash presentations from it. Contact me if you have more ideas on how to help. Thanks to everyone for the helpful comments. --Tunesmith
I have been creating some "Social Security For Dummies" graphs that anyone is welcome to use. Cross-posted from my blog.

Social Security For Dummies

Social Security is funded by a payroll tax. When we make wages, 6.2% is taken out of our paychecks to go to Social Security. An additional 6.2% is matched by our employers. This stops after the first 90k of income for each person.

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In a perfect year, the Social Security beneficiaries would need exactly as much money as we pay in taxes. However, most of the time, the amounts are unequal. When the baby boomers retire, they will require more money than the payroll tax generates.

To make up for this, we have years where we generate more in payroll taxes than we need to spend on beneficiaries. This excess goes into a Trust Fund. The Trust Fund grows each time there is a yearly surplus.

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Later, when there are years where the beneficiaries require more money than the payroll taxes provide, we can take money from the Trust Fund to make up the difference.

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Since 1970, there have been 11 different years where we have had to do that, and it's worked fine.

How does the Trust Fund work? When excess money is generated, Social Security is required by law to invest the money in U.S. Treasury Bonds, considered the safest investment on the planet. They are issued by the U.S. Government, who has never defaulted on them. These bonds are supposed to be cashed in later when extra money is needed.

So, Social Security's Trust Fund is a big collection of bonds, and the U.S. Government gets the cash.

What does the Government do with this money? It spends it. That is theoretically okay if the intention is to pay it back later, but that is not Bush's intention.

In 2003, the Bush Administration ran a deficit of $536 billion. Social Security ran a surplus of $156 billion. (The Postal Service also ran a surplus of $5 billion.) So, the Bush Administration reported a deficit of $380 billion instead of $536 billion, ignoring the fact that that money is supposed to be earmarked for future bond redemptions.

Now the Bush Administration is saying that when beneficiaries require more money than payroll taxes generate - 2018 or 2028, depending on who's talking - that we will not be able to afford it.

This basically means that the Bush Administration is following a policy of ignoring the Trust Fund entirely. Rather than viewing excess money as going to the Trust Fund, they view it as going to the government:

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And then when the time comes, they will see the extra money that the Beneficiaries needing as coming from the government, from cashing in bonds:

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They will then paint this as a problem - even though this is exactly how it is supposed to work - because in their mind, it would require higher government spending. And the GOP can't have that. So instead of paying us back, they say that benefits would instead need to be cut.

It is important to recognize what they are doing here. The payroll tax is a regressive tax designed for Social Security. Normal tax is a progressive tax designed for normal government spending. They are two separate systems. Revenue and Spending need to balance out in each system, and they should not intermingle:

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But the Bush administration applies payroll tax to the normal deficit, claims that the trust fund does not exist, says Social Security needs to be cut, and implies that the government isn't good for their U.S. Treasury Bonds anymore:

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To summarize, the Bush Administration takes the extra payroll taxes intended for Social Security and spends it on war and tax cuts:

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Then, Bush declares there isn't money for when the Social Security beneficiaries require more money than the payroll taxes supply, and says the only solution is to cut Social Security benefits:

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When actually, the truth is that the surplus is supposed to be applied to social security in later years:

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While the following shows what the real problem is, in red, white and blue:

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Originally posted to tunesmith on Fri Jan 21, 2005 at 11:25 AM PST.

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Comment Preferences

  •  i never understood... (none)
    ...the logic behind the 90K cap.  To me, I would think it should be flipped.  No one should pay SS taxes until they get to 90K, than they start paying into it.  Anyone have an explanation as to the logic of this other than, all our elected officals are in that 90K+ group and wouldn't want to shoot themselves in the feet?

    Anyway, call me simplistic but to close the possible gap that is decades away why not change the cap from 90k up to, say, 125K today.  Wouldn't something as simple as that solve the problem?

    "Should any political party attempt to abolish Social Security...you would not hear of that party again" - Dwight D. Eisenhower (R)

    by jdeliaNYC on Fri Jan 21, 2005 at 11:39:39 AM PST

    •  There IS NO LOGIC behind it... (none)
      The cap makes payroll taxes regressive. Period.
      •  These graphs show... (none)
        how we can make SS a Strategic Initiative, as Lakoff would say. We can win on the SS issue while also getting people to notice how the deficit is a major problem. If we win on SS then we tell people that the SS issue is not over until the deficits are gone and the budget balanced because Republicans still have another plan for dismantling SS by breaking the fourteenth amnedment and just simply stating that they can't or won't pay for it. If the budget isn't balanced and the deficits reduced then the Republcians will continue to run deficits that will do permanent damage to SS. Strategic Initiative! Run on SS, deficits, and balancing the budget.
      •  Well, there is some logic. (none)
        Pension payouts are related to the income level during one's working years.  The more you pay in, the more you get to take out.
        The assumption is that the highest earners not only will have enough invested to sustain them, but that the payout needs to be capped at some point.  Otherwise, what has the appearance of a fair system becomes progressive, paying those at the bottom more and those at the top less.
        So, in the name of not paying the top more, they cap the collection and freeze the top payments.
        What seems to get lost in the discussion is that the real purpose of the program is to enable the old and feeble and handicapped to pay for the goods and services they require, instead of having to rely on free labor from their children or the charity of others.
        What also tends to get overlooked is that when services are paid for they tend to be better than those one gets for free.
        So, it isn't really the recipients of the money who are the primary beneficiaries. It's society as a whole.  Which is why it's called SOCIAL SECURITY.
    •  regressive (4.00)
      It's been regressive since social security began, in 1935.  The cap has been raised several times, though.  I think the (bad) logic has something to do with: since social security is only supposed to be a bare minimum security, it isn't fair to keep taking money from those that are already more successful.  I don't know.

      I agree that removing the cap is the best way to go.  It doesn't penalize the folks that would need social security in any way.

      •  adjust for inflation (none)
        IMO -- The cap should adjust will inflation yearly, along with how much SS pays out to people.

        But really, I do not think there should be a cap -- no cap would be a form of flat tax after all ;-)

      •  asdf (4.00)
        The logic behind the cap is that, because social security benefits are based on income earned over one's working years, and they are capped, that contributions should be capped as well.

        The cap goes up every year.  

      •  Social security is not welfare. (4.00)

        Benefits are based on your wage history and you must contribute to get a benefit in most cases. It was designed that way so it would not be perceived as a handout, but rather something people earned by paying in. I remember my folks explaining this to me when I was a kid -- they were proud that they were paying their own way in the system. They didn't want welfare.

        Current benefits are actually progressive, with the lowest paid wager earners getting a retirement benefit that is a higher percentage of pay than higher paid workers. The benefit percentage declines as wages increase, then flatlines when wages go over the limit (currently $90,000). That's why people don't continue paying in after they hit the limit. SSA has benefit calculators that may be helpful in understanding this.

        •  Exactly right (none)
          It's our money. Only workers have paid in, only workers have taken out. Social Security is not a handout, it is a worker financed disability/survivor insurance system that is working just fine.

          Every attempt to raise the cap or find some alternative revenue scheme ignores two crucial points: one) none of that is needed, the system is in perfect health given any reasonable set of economic projections and two) you have just handed over a moral claim to the privatizers.

          The only claim they have to tinker (meaning destroy) the system is the claim that they will have to bail it out at some point in the future. Once that claim is proven untrue their whole case falls to pieces and we can ask them politely (or not) to get the hell off of our lawn.

      •  The Self-employed (none)
        get to pay all 12.4% themselves.

        With outsourcing, a whole lot more people are self-employed.  Me included.  

        You think you made $4,000 last month?  Make it $3,500 and send W $500.

        Good men through the ages, tryin' to find the sun, still I wonder, still I wonder, who'll stop the rain? -J. Fogarty

        by RichRandal on Sat Jan 22, 2005 at 07:55:06 AM PST

        [ Parent ]

    •  Wouldn't miss it (none)
      I used to have a great job in private equity.
      One year I noticed that my check got bigger in December.

      I asked around and discovered the cap on SS deductions.

      I had no idea and thought it was odd.

      •  me neither (none)
        I had no idea either, and I suspect that a good number of American's who have never been able to earn 90k in a single year also have no clue that it exists.  That really strikes home our message about not taxing the rich.

        "Should any political party attempt to abolish Social Security...you would not hear of that party again" - Dwight D. Eisenhower (R)

        by jdeliaNYC on Fri Jan 21, 2005 at 11:51:52 AM PST

        [ Parent ]

      •  me neither (none)
        I had no idea either, and I suspect that a good number of American's who have never been able to earn 90k in a single year also have no clue that it exists.  That really strikes home our message about how the rich are paying disproportionately less taxes.

        "Should any political party attempt to abolish Social Security...you would not hear of that party again" - Dwight D. Eisenhower (R)

        by jdeliaNYC on Fri Jan 21, 2005 at 11:52:33 AM PST

        [ Parent ]

      •  Me too (none)
        Same here, kind of a cool indirect Christmas bonus at the time :)

        Love the graphs though!  Definitely a diary to recommend.  

    •  sorry (none)
      Sorry, I forgot my frameshop lessons.  Of course there isn't a "problem" as i mentioned above.  It's a complete fabrication.  But still a small increase in this cap would seem to be pertinent at this time to accumulate more money into the trust fund.

      "Should any political party attempt to abolish Social Security...you would not hear of that party again" - Dwight D. Eisenhower (R)

      by jdeliaNYC on Fri Jan 21, 2005 at 11:49:50 AM PST

      [ Parent ]

      •  yes (none)
        It's actually an entirely separate "problem": whether the rate of trust fund growth is enough to pay for the deficit years.  But it's important to keep straight that that issue is kind of irrelevant compared to the problem the graphs illustrate - that the Bush Administration denies the very existence of the trust fund, and raids it for his own spending.

        Say you have a joint checking account that you pay bills from.  What would you do if your partner drained it and then blamed you for the debt?

    •  it's an insurance system (4.00)
      In insurance systems, generally when you pay more, you get a higher level of coverage.  This is essentially how social security works: If you make $45k each year for 30 years, you pay in 6.2% of that (matched by 6.2% from your employer), and get a certain level of benefits.  If you make $90k each year for 30 years, you pay in 6.2% of that (again matched), and get a higher level of benefits (i.e. a larger social-security check when you retire).  However, social security is only really intended to be insurance against poverty, so it makes no sense to continue this indefinitely: There's no reason for someone making $1m to pay in 6.2% of $1m (matched by his/her employer) and then to get back some ridiculously-sized SS check.  So, the government, like most insurance providers, has a maximum level of coverage: Once you're already buying the max coverage, there's nothing more to buy.  So, anyone making $90k/year or more pays for the highest level of coverage, paying the same taxes and getting the same benefits.
    •  Response (4.00)
      IllinoisMom mentioned (correctly) above the reason for the cap.  Since benefits are tied to wages (and are eventually capped), they also cap the income you can tax on that.

      I am fortunate enough to earn a comfortable salary and can always tell when I have hit the social security cap as my paycheck grows.

      How you view the fairness for the cap depends on how you view social security itself.  If you feel that social security is not supposed to be a tool for income redistribution, then you will think the cap is necessary.  You get out roughly equivalent to what you put in, albeit the money you are putting in is not earmarked for you (that money goes to pay current retirement benefits and to fund other government spending).

      If you feel that social security is an important tool for income redistribution, the cap makes little sense.  It is a regressive tax that takes a bigger portion of your income the less you make.  If you are in this camp, you will also likely be supportive of means-testing benefits.

      The Bush Administration proposal on social security is intellectually dishonest.  Assume that they are correct that social security is in crisis (they're not).  That would mean that in the near future social security's income will be exceeded by benefits it will have to pay out.  Remember, social security's source of income is the payroll tax.  If you allow workers to invest up to 4% of their payroll tax contributions into personal retirement accounts, you will cut the payroll tax from 12.4% to 8.4%.  That is about a 30% cut in social security's income stream.  If benefits stay the same, that will significantly worsen the "crisis" facing social security.  Incidentally, the only way to plug the gap (remember, payroll taxes go to fund benefits for current retirees) is to borrow one or two trillion dollars.  Just what we need!

      •  out what you put in (none)
        Is that really true?  So many workers die before they retire.  Isn't it true that it's very likely that a beneficiary will get more out of it than they put in?
        •  Response (none)
          Tunesmith,

          In theory, you are supposed to get out roughly what you put in.  In reality, it rarely works that way.  If my neighbor lives to be 65 and I live to be 90, I will get much more out of it.

          •  Longevity insurance (4.00)
            "If my neighbor lives to be 65 and I live to be 90, I will get much more out of it."

            On the other hand, if you have a private savings account and when you retire plan to withdraw an amount basically equivalent to  Social Security with the same savings, your plan will only fund you until the average mortality age of about 75 before running out of money.  With a private account, you will have no money for the last 15 years.  And imagine if you are one of the lucky ones to live to 120.

            •  annuity (none)
              I've been making the same point, but there's talk that the privatized moneys would be converted to an annuity.  I'm not sure how that affects this point.
              •  How does it affect the point? (4.00)
                It affects the point because the discussions that are being brought up to "fix" all the outstanding problems with the privatization scheme keep making the system look more and more like Social Security does now.

                One of the things that people are all excited about when Bush's scheme is being sold to them is the idea that "it's YOUR money" so if you die early you can leave it to your heirs.  If you purchase an annuity, it's just like Social Security - if you die early they keep the rest of the money, if you die late, they lose a bit.  An annuity IS the private market version of longevity insurance.

                The only difference seems to be that private investment firms and insurance firms get to skim off a percentage of the take, and we grow the debt another gigantic amount.

        •  Sometimes yes, sometimes no. (none)
          • If you die with young kids, they get a monthly survivor check until they're 19.  Depending on their age, they may well get a lot more than their parent put in.  On the other hand, if you die after your kids are grown but before retiring, there may not be any benefits paid.
          • Someone who gets severely disabled at a young age is also likely to collect a lot more than they put in as they may be collecting a check for a long time.
          • As Cardinal 96 points out, someone who lives to 90 collects more monthly checks than someone who dies in their 60's.

          But in each case the monthly check is calculated based on the amount of wage income you had while you were paying into the system.
          It has a lot of similarities to insurance.  

           

        •  You get out more than you pay in (4.00)
          because of inflation and the wage inflator.  Over time your salary goes up because of both advancement and inflation.  When you retire, the SSA calculates your benefit using the wage inflator, which takes account of how wages in general have risen over your working life.  This is supposed to give the average beneficiary about 40% of average wages when he or she retires.  Thereafter, you get COLAs every year based on the CPI, but it rises more slowly than wages.  So unless you die early, you probably get more out than you pay in.  Lower income people definitely get more, because there is a higher minimum benefit.  

          If you're going in the wrong direction and you stay the course, where, exactly, do you wind up?

          by Mimikatz on Fri Jan 21, 2005 at 03:46:54 PM PST

          [ Parent ]

        •  Tunesmith (none)
          I don't think I've ever read a more USEFUL diary in my entire time on dKos.

          This should be disseminated to every public school and every newspaper and every DMV in the country.

          Frankly, I think people should be forced to read it and demonstrate comprehension of it before they are allowed to cash a paycheck.

          OUTSTANDING.

          In the past 9 months, I've only seen fit to email Kos twice with recommendations to put a diary on the front page. This will be the third.

          Although... maybe I don't need Kos anymore, since I have so much blackmail material on a couple of the other Front Pagers...

          Heh.

          Rage, rage, against the lying of the Right.

          by Maryscott OConnor on Fri Jan 21, 2005 at 04:32:55 PM PST

          [ Parent ]

          •  It is almost scary (none)
            There has been more sanity posted on this thread on this point than in just about every Social Security thread I have ever followed (and I am a veritable freak on this topic, for proof check out my website).

            Follow the numbers. Social Security works exactly the way it was designed, and miracle of miracles, and beyond all expectations at the time and in most years since, the bandaid applied in 1982 turned into an outright cure. Given reasonable economic growth numbers in the future (like 2.1% per year) outcome ( I ) is a floor not a ceiling. Trust Fund Ratios under the Three Alternatives

      •  Remember that Social Security is more (4.00)
        "If you allow workers to invest up to 4% of their payroll tax contributions into personal retirement accounts, you will cut the payroll tax from 12.4% to 8.4%.  That is about a 30% cut in social security's income stream.  If benefits stay the same, that will significantly worsen the "crisis" facing social security."

        Remember that Social Security performs more functions than just retirement savings accounts:

        1. Disability insurance
        2. Survivor insurance
        3. Longevity insurance

        So a good chunk of that 12.4% is allocated to other pretty important insurance systems for people.  Taking out 4% will actually take away more than 30% from the part that acts as a retirement savings account.
        •  This is an important point to note!!! (none)
          Does SSI come from the same funding source?  (I think it does.)  If so, and we go Bush's route of privatization, shouldn't those electing private accounts get a proportionately smaller check at retirement, AND proportionately less disability insurance, in order to be fair?

          I don't see anyone addressing this question, and I think it's BASIC to the problem.

      •  I'm a little confused (none)
        If SS isn't supposed to be an income redistribution program, what is the point of it? You give money to the government only to get it back later? Sounds very inefficient to me..
        •  It's supposed to be insurance. (4.00)
          It's a mandatory retirement insurance.

          You must pay premiums based on your income, and then later, you get benefits based on those premiums.

          Since it's insurance, some will benefit more than others - like the guy who keeps getting his car stolen benefits more from his car insurance than the guy who never gets hit.

          It's structured this way because Americans are leery of "welfare" or "charity", and seem to have no clue about what a "pension" is supposed to be - which isn't too surprising, since most companies don't give pensions anymore. . .

          When only the govemment lacks virtue, there remains a resource in the people's virtue; but when the people itself is corrupted, liberty is already lost.

          by Robespierrette on Fri Jan 21, 2005 at 03:34:56 PM PST

          [ Parent ]

        •  It is mildly redistributive (4.00)
          It is an insurance program designed to eliminate elderly poverty.  In the '30s there were a great many impoverished seniors.  There were no senior discounts, either.  Seniors had among the least amount of money of any age cohort.  

          It is not welfare, in that you have to have paid in a minimum number of quarters to qualify at all, and the more you pay in, the larger your benefit.  However, it is somewhat redistributive in that the minimum benefit is more than low-income workers pay in, because it is designed to keep them out of poverty in old age.  Higher- income workers get more, but only up to a point, because the wage cap kicks in.  The point of having it this way is that it does provide an incentive to work, and it is broadly popular because almost everyone gets something.  As private industry gets rid of more pensions, or converts them to defined contribution plans, the "insurance" aspect of SS becomes more important, because benefits are not tied to the stock market or the economy generally.

          If you're going in the wrong direction and you stay the course, where, exactly, do you wind up?

          by Mimikatz on Fri Jan 21, 2005 at 03:55:21 PM PST

          [ Parent ]

      •  percent vs. percentage points (none)
        If you allow workers to invest up to 4% of their payroll tax contributions into personal retirement accounts, you will cut the payroll tax from 12.4% to 8.4%.  That is about a 30% cut in social security's income stream.

        That would be four percentage points of their payroll tax. Four percent of payroll tax would cut the payroll tax from 12.4% to about (too lazy to get out the calculator) 11.8%. Which, obviously, is a 4% cut in the stream.

        It's imperative that we are precise with our terms in this argument. The sloppiness of the preznit is ripe for attack.

    •  It's a Christmas bonus (4.00)
      An old Soviet era joke goes:

      A party member went into the contryside to educate the populace. He found an unsuspecting peasant and engaged him in conversation. "Comrade," he said, "if you had two houses, surely you couldn't use both at the same time."

      "No, I suppose not," said the peasant suspiciously.

      "And so wouldn't it make sense to give one house to the state, so that all could benefit?" pressed the party member.

      "I guess," said the peasant.

      "And if you had two wagons--shouldn't you give one to the state, so that all benefit?"

      "I suppose," the peasant replied.

      "And if you had two horses, one to the state?"

      "Absolutely not!" said the peasant emphatically.

      "Well why ever not?" said the party member, puzzled.

      "I have two horses," replied the peasant.

      The revelance of this story is, every year around Christmas, I get a little bonus. Helps pay for presents, contributions to the DNC, that sort of thing. I like getting this little bonus. And yet every year, they raise the cap. I, for one, would prefer they didn't raise it to 125k, and keep my horse.

      •  You will have two horses unless... (none)
        ...you lose one, and you have to care your elderly parents, who have suffered a significant cut in their SS benefits, don't have enough investments to cover their care - and they need a new horse.

        I see Social Security as a way to help mitigate the cost of caring for my parents, if the need arises. I don't have a crystal ball and I don't know what my or their financial situation will be by the time they retire.

        Still, I think most Americans would prefer the cap stay low and the Bush tax cuts are repealed then the cap raised and have SS turn into some wealth redistribution scheme.

        BTW, how do you feel about Bush's tax cuts? There's some decent bonus for your income bracket in that package. <shrug>

        Taxes of any type are a poor mechanism for wealth redistribution. Americans have an irrational enough resentment for taxes without attempts to use it as a major vehicle for wealth redistribution.

        •  As re tax cuts (none)
          Oh no no no no no. The tax cuts are only significant for somebody who makes real money--like Michael Moore :-) For me it has amounted to about $25 a paycheck. It's hardly worth bankrupting the nation over. While hardly impoverished, I consider myself a person of modest means. I live in the DC metro area where tiny 1300 sq ft houses go for nearly 400K. My income goes to the mortgage company (and god forbid someone should suggest eliminating the mortgage tax shelter).

          As re the cap, picking an arbitrary number like 125K is just that, arbitrary. And I doubt raising the cap will fix SS. That's mostly because I am firmly in the camp of those who don't think SS needs fixing. As the diary makes abundantly clear, Bush's plans for fixing SS are to sack it's wealth to fund his immoral wars, do a favor for his stock broker buddies, and run the deficit up still futher and thereby justify eliminating social programs. Those same popular social programs that get Democrats elected. The HUD cutbacks just announced are among the first signs of that plan going into action.

          As re my parents, they're doing just fine--it's me I'm worried about. I want SS there when I retire. It's the third rail, don't touch it!

        •  How about a third choice? (none)
          Still, I think most Americans would prefer the cap stay low and the Bush tax cuts are repealed then the cap raised and have SS turn into some wealth redistribution scheme.

          How about the government keep its hands out of the trust fund and the cap gets adjusted (if needed) when there is an approaching surplus or deficit?  It would be like a pressure release valve.  

          The tax cut should be something that Republican office holders are forced to rescind, since this bribe tax cut is a chief reason why so many of them are in office, anyway.  If Democrats are perceived as being the ones who "took peoples tax cut away" then the Republicans win twice.

          Furthermore, I believe that this world is the best of all possible worlds. ;-)

      •  Response (none)
        I gave you a 4 as I got a good laugh out of that communist joke.

        That is so true.  My girlfriend is not very knowledgeable about government finances and we discuss it rarely.  I will bring up discussions about our current budget deficit and ways to address it.  Her response was typically that Bush needs to tax "the rich" to help reduce the budget deficit.   As a background, we each have comfortable six-figure incomes (but live in Manhattan where the cost of living is high).

        Every time she mentions that, I remind her that most people would consider taxing "the rich" to include taxing us.  It is at that point that, for some mysterious reason, she appears to lose interest in the proposition.  In her mind, taxing the rich is fine as long as it doesn't mean taxing us.:)  I have gotten her to accept why we need a progressive income tax.  Everyone hates taxes until they are faced with what those taxes fund.  When you accept that there are people in this country who are unable to fend for themselves, the only alternative to a progressive tax system is to let them fend for themselves (i.e., starve).

        •  Tax sanity (none)
          This is what I would like to see.  Everyone wants every service until they have to pay for it.  Politicians seem to promise you can get everything you want without having to pay for it.  We need a real dialogue about what taxes do and don't pay for.  This way we can come to some consensus on what the tax rate should be.

          I'm a member of a minority group: the reality-based community.

          by Unstable Isotope on Sat Jan 22, 2005 at 07:03:49 AM PST

          [ Parent ]

          •  But so many people (none)
            who should take part in the dialogue get their ideas directly from Faux News, who get their ideas directly from the White House.

            I like your idea, but I don't see how you get honest dialogue in our country -- outside of daily Kos, that is.

    •  Stupid Cap (4.00)
      The history behind it is that the head of some Senate committee in the 1930s was a conservative southerner, and the only way the guy would let Social Security be created is through a regressive tax.  Eleanor Roosevelt and other progressives were very vocal on what a stupid idea this was, but it was that or nothing, and nobody has ever had the courage to change it.

      When social security taxes on income are included, middle class people pay a higher tax rate than do the wealthy.  Never forget that.

      Can we borrow some Ukrainians to teach us about how Democracy is supposed to work?

      by Go Vegetarian on Fri Jan 21, 2005 at 03:11:26 PM PST

      [ Parent ]

    •  Put the security back into SS (4.00)
      If there is to be a cap, it should be on who gets benefits. The idea that someone who may have millions in investments (and an annual income over, say $100,000 to pick a nice round number) should still receive social security benefits just because they got old is antithetical to the premise behind Social Security. There's nothing insecure about these people's situations.

      "I still think politics is about who's getting screwed and who's doing the screwing." -Molly Ivins

      by hono lulu on Fri Jan 21, 2005 at 04:07:50 PM PST

      [ Parent ]

      •  except (none)
        then you are taking money from someone who worked for it and giving it to someone who needs it.

        might be a popular idea in this community but it wouldn't fly with most people.

        •  And isn't THAT ironic... (none)
          given the preponderance of people who claim to be Christian, and the fact that JESUS HIMSELF advocated that VERY thing.

          Take from the rich and give to the poor -- only necessary because the rich aren't heeding the eternal call to take care of those less fortunate than themselves.

          but try telling that to a righ wing nutbag christianist.

          Rage, rage, against the lying of the Right.

          by Maryscott OConnor on Sat Jan 22, 2005 at 11:42:46 AM PST

          [ Parent ]

    •  Raising the cap (none)
      See my post toward the end aboput various adjustments.  Gradually raising the cap to $140,000 would eliminate 43% of the projected shortfall over the next 75 years, according to AARP.

      If you're going in the wrong direction and you stay the course, where, exactly, do you wind up?

      by Mimikatz on Fri Jan 21, 2005 at 04:19:45 PM PST

      [ Parent ]

      •  "Projected shortfall" (none)
        Not only that, but having the economy perform better than predicted eliminates 100% of the shortfall.

        "What's that you say? The model that underlies the "projected shortfall" called for 2.7% growth in 2004? Didn't I read somewhere in the paper that the economy grew at a 4.0% rate? Wouldn't that move the numbers?"

        Yes, yes and yes. Every year the economy outperforms the projections of the Intermediate Cost alternative the shortfall and exhaustion dates get pushed back and the projected payroll gap shrinks. Given the 1.3 point difference between reality (4.0%) and projection (2.7%) history suggests that exhaustion will be pushed back to at least 2045 in the 2005 Trustees' Report (don't miss it, it is due out March 31, 2005). There is exactly no reason not to believe that the trends in the following graph will not continue.
        EPI: Changes in the Trustees' projections over time

    •  raise cap way up, but cut rate (none)
      Why can't we raise the ceiling high enough to cut the rate and still get enough flowing into the fund?

      Somebody do the math here for me.    I envision a revision of the Social Security tax base like this:  Raise the ceiling on what amount of income is taxed. Right now it what? 90k? That's barely in the middle class in some communitites. How high does this ceiling have to be to make it possible to actually lower the payroll tax rate?  Say all income up to $500kpa was taxed at 10% instead of the current 14.2%, continuing the equal split bertween employer and employee.  Or even reduce the employer's share a bit, just to sweeten the pot for them.  It just seems unjustified and absurd to not tax income that exceeds a certain level.  

      I suspect that by raising the ceiling high enough, the rate could be greatly  reduced.and still generate enough input to the SS Fund to even modestly increase benefits.   What am I missing here?  Why haven't I seen this discussed?  It seems so obvious. So what's the Conventional "Wisdom" that refutes this solution?

      (when I say "not been discussed", I didn't mean in this thread, I mean in the MSM)  I wrote this before I read the thread, because it's been stewing in my mind for a while. I see people here have mentioned raising the cap, but the way to sell this is to be able to actually lower everybodys' tax rate. It would be utterly fair: all pay the same rate, and the rate is lower than it was.

      Somebody explain why this can't be done.

      don't always believe what you think...

      by claude on Fri Jan 21, 2005 at 07:48:19 PM PST

      [ Parent ]

    •  Taking a stab at it (none)
      The amount paid out in benefits does not grow beyond a certain point, so I'm sure it's a part of Republican "fairness."

      I'm a member of a minority group: the reality-based community.

      by Unstable Isotope on Sat Jan 22, 2005 at 06:56:45 AM PST

      [ Parent ]

    •  The 90K cap in SS is not regressive (none)
      because payouts to beneficiaries are not proportional to the funds paid in.  Many beneficiaries (widows, orphans, disabled) are supported by the Social Security system.  

      Congregamus ergo sumus.

      by biotecchie on Sat Jan 22, 2005 at 10:49:37 AM PST

      [ Parent ]

    •  I think the thinking is (none)
      Social Security is trying for the everyone pays a little, everyone gets a little. You only get so much basic benefits later, so only your basic income gets taxed. Higher income should really be taxed into general revenues.
    •  Social Security is a regressive tax for a reason (none)
      SS is not a tax and spend program like FICA. Social Security is a mandatory retirement program that guarantees a return on savings of barely above inflation. The program mandates that you put 6.5% of your paycheck, and your employer contributes 6.5% as well. The amouont that you will receive when 65, depends on the amount of money you put in. At some level of income, it gets somewhat silly to save with the Government's help. And that is where is Congress set the cap, at $90k. SS is a regressive tax, because people get out what they put in.

      What makes SS different than a private retirement plan? The beauty of a mandatory government savings program is that it protects people from either being a jerk most of their life and saving jack shit OR people losing most of their savings because of, um, lets say Enron. Both of those situations leave old people in dire straights, which is bad for society. SS garantuees a check for everyone who works, backed by Uncle Sam, and his checkbook.

      In that sense, King George doesn't want to fix SS, he wants to make it something else. Something with a higher return, and therefore, higher risk. The point of SS is not a higher return, it's zero risk. And that has served society well, King George will lose this fight.

      "In a ROW!!!"
  •  BRILLIANT DIARY!!` (4.00)
    Even a third grader (ie, Dubya) should be able to understand this!  Wait -- in the Bush v. Gore debates, he actually didn't think it was a government program! LOL
    •  HEAR! HEAR! (none)
      Ditto. However, I would ask that you refrain from insulting the Nation's third-graders. They're our future, you know.

      Ren/Stimpy: 2004!

      by mugsimo on Fri Jan 21, 2005 at 12:58:41 PM PST

      [ Parent ]

    •  Was wondering when someone would get around... (none)
      to complimenting this stellar distillation. Molto kudos due - Bravo!

      [grumpy]

      Reminds me of my kids: Give them a present, and they spend the day obsessed with the box.

      [/grumpy]

      WTG tunesmith - I'm gonna use it!

      (I know, I know, it is recommended. Just like to see craft explicitly acknowledged. Not enough sincere thank you's in this world and all that.)

  •  tip jar (3.97)
    If you feel like recommending, do it.

    <shameless hint>I've never been on the recommended list.</shameless hint>

    •  what's up with someone giving you a 2? (none)
      This is excellent work.

      Perhaps you touched a nerve with a lurking Club for Growth member?

      Prayer is not a substitute for a good plan

      by pacific city on Fri Jan 21, 2005 at 03:22:07 PM PST

      [ Parent ]

      •  never mind... (none)
        I see his comment below detailing his objection. Still, the marginal rating is not supposed to be used for disagreement.

        I just hate to solid A work get a C grade from anyone.

        Prayer is not a substitute for a good plan

        by pacific city on Fri Jan 21, 2005 at 03:24:55 PM PST

        [ Parent ]

    •  In case you missed it.... (none)
      ...this diary has been recommended on: http://www.thereisnocrisis.com/

      Congratulations!!

    •  The winning meme (none)
      The Bush administration is spending OUR social security money on his war adventures and tax cuts.

      We should be shouting this from the rooftops.  They are using social security money to cover up how big the deficit is, to cover up how much they are spending.

      They are taking MY social security money and giving it to rich people as a tax cut.

      They are taking MY social security money and using it to invade Iraq.

      I want my social security money back.

      Democrats: We believe in fiscal, economic, social, civic, personal, and moral responsibility.

      Republicans: We take risks with your future.

      by Katydid on Sat Jan 22, 2005 at 04:42:41 PM PST

      [ Parent ]

  •  Excellent excellent excellent! Don't stop there! (none)
    The Bush Administration is required, by law, to pay back the money they raided against his campaign pledge. So we are forced to assume they will, in actuality, pay it back.

    Next, cover what happens in the future and the supposed "crisis" in all situations or whatever. You are doing great. Keep it up!

    Resuscitate investigative journalism! Reality-Based does NOT mean investigations are wrong - it means investigations are essential.

    by nephalim on Fri Jan 21, 2005 at 01:18:42 PM PST

    •  blog (none)
      If you go to my blog and go back a few entries, there's another two or three graphs that explain this a bit, although I'd like to expand it and revise it.  For instance, I was saying then that the trust fund doesn't really exist ('cause Bush spent it), when now I think it's important to do everything we can to convince people that it does exist (and that Bush actually just has a much huger debt level).  That entry got some good commentary, including from a conservative that had a lot of tire-kicking to do.
  •  There is no crisis!!!! (none)

    Thoughts from Connecticut

    by ctsteve on Fri Jan 21, 2005 at 01:23:16 PM PST

  •  You got a problem (4.00)
    Those great graphics look cartoonish and hence are going to incur the wrath of Dr Dobson because they could possibly promote readers to become homosexual.

    Other than that, great job.

    I am a Reform Democrat

    by Pounder on Fri Jan 21, 2005 at 01:52:09 PM PST

  •  Small thing: the trust fund looks like a tombstone (none)
    That is not the best association, given that Bush is trying to portray it as worthless (i.e. dead). Otherwise, looks great!
  •  Excellent work, tunesmith. (none)

    I think this should be archived on DailyKos where it can be easily accessed.  The visuals are helpful.

    It's funny. A few years ago I was one of the ignorant baby boomer/Gen Xers (I'm right at the dividing line: 1964) who simply thought I'd never see Social Security at all.  Now I see that it is not only possible, but damn likely if the government can manage it with even the slightest hint of efficiency.

    My point:  Bush sucks.

  •  This is exactly (none)
    the kind of diary that should be on our Front Page, or at least on our Recommended List, so that plenty of our incoming new members can quickly get up to speed on this important topic.  And so that not-so-new members like me can fully grasp the situation.

    Recommended.

  •  So What If You Don't Wrok for your Income? (none)
    If all your money is from say dividends, do you have to pay 12.6% to the government for SS Tax?
    •  Response (none)
      Pacified,

      I am not an accountant but am 99.9% sure that the social security only taxes income from employment.  I have received dividends in the past and have never had to pay social security on that amount.

    •  It sort of depends (none)
      I just incorporated (S-Corp) so I'm still learning the ropes.  But I only pay social security (both sides) on the wages I pay myself.  I can send almost the same amount to myself as dividends, which isn't subject to social security.
      •  Or taxes! (none)
        I can send almost the same amount to myself as dividends, which isn't subject to social security.

        Or taxes!

        By the way, GREAT job with the graphs. Pictures are worth 1k words indeed.

        My hat is off to you.

        Politics is the art of controlling your environment. Participate! (outlandishjosh.com)

        by Outlandish Josh on Fri Jan 21, 2005 at 03:08:12 PM PST

        [ Parent ]

        •  dividends (none)
          thanks.  :)

          dividends are not taxable on the personal side, but they are taxable on the corporate side.

          (For an S-Corp it makes no difference because any leftover corporate income is taxed at personal income rates anyway.)

          It's the mirror image of wages, where they are a corporate deduction, but taxable on the personal side.

          Except for Social Security - neither side pays social security on dividends.

        •  S-corp (none)
          The S-Corp can only help avoid some of the self-employment taxes, not the income tax.  You still gotta pay that on the entire amount earned.  
    •  NO. (none)
      The PAYROLL tax, as it is known, is on wage and salary income.  The self-employed pay the whole 12.4%.

      OTOH, you cannot qualify for SS by drawing dividend and interest income.  You qualify for a benefit by working and paying in.  Every year, three months before your birthday, the SS Admin sends you a statement with your earnings history and probable benefit at 62 and at full retirement.  It goes up every year you work, and it also goes up because of the wage inflator (explained in a post above).

      If you're going in the wrong direction and you stay the course, where, exactly, do you wind up?

      by Mimikatz on Fri Jan 21, 2005 at 04:01:12 PM PST

      [ Parent ]

  •  Misleading diagrams (4.00)
    I don't think these diagrams are correct.  I think their incorrection serves the arguments of the other side.

    Referring to T-Bills as "IOUs" serves the Republican agenda.  They're not IOUs.  They're an investment vehicle, the stablest one known, and entirely fungible.  When you call them "IOUs," you imply that they may not be good.  For T-Bills not to be good, our entire fiscal system and government would have to collapse.  Only an Argentinian style default and national bankruptcy would make T-Bills invalid, and as much as Bush seems to encourage it, I don't think the rest of the world would permit it to happen.

    Of course, once purchased, the purchase price of the T-Bill is then used by the government.  This is not stealing anything. The government uses the money raised by selling T-Bills no matter who buys them - me, China, Social Security, we're all the same - and returns interest higher than inflation.   Calling this stealing is as absurd as saying that if you invest in say IBM and IBM spends the money it raises by selling its stock on R&D or capital expenses, then it has stolen that money because it didn't just put it in a big money pile in the back room.

    The T-Bills held by Social Security have the same standing and validity as those held by millions of Americans and many foreign  investors and governments.  Nobody is holding a big pot of money just in case they get called in.  That would be ridiculous.  How could a return be paid that would beat inflation?  

    I think you'd do well to redo your diagrams, because they are misleading.  They support the fallacious Republican argument that there is a crisis in Social Security.   The main reason that there is no crisis in Social Security is that the trust fund is in perfectly fine shape as T-Bills.

    •  crisis (4.00)
      I'm hardly arguing in support of there being a crisis.  I'm pointing out that that is how the Bush Administration is painting it.  The truth is that the deficit was over $500 billion in 2003, not $380 billion or whatever, because the social security surplus should be considered part of the trust fund.  The graphs can be used to show what they're doing, and in support of the argument in this paragraph.

      I think there are good IOUs and bad IOUs, but I concede that the GOP has been using that term in a perjorative sense (implying they are unstable).  I do make the point that the treasury bonds are considered the most stable on the planet, but I'll look at giving it a different name, or moving that particular graph to a section that makes the point that the GOP looks at it that way.

      And I'm not implying that the bonds are not stable.  The whole point is that Bush is going to argue that Social Security needs to be cut because of the deficit, which means they won't need to redeem the bonds as quickly.  That's more likely than them declaring the bonds in default.  The GOP's "crisis" argument is in favor of cutting Social Security, not defaulting on the bonds.

      •  Okay (none)
        I have edited the diary to remove references to I.O.U.'s, and to point out that it's the combination of Bush spending the money and then declaring that it's Social Security's debt that is the problem.

        Hope that resolves all of your concerns.

        •  Don't know why you caved (none)
          on that one, IOU's is exactly what they are, and to define them as "investments" is advocates a definition that is valuable only to a tiny fraction of people in this world, that would be the wealthiest.

          (none / 0), (none / 0), it's off to Kos we go, with a...

          by doorguy on Sat Jan 22, 2005 at 01:14:22 AM PST

          [ Parent ]

          •  not caving (none)
            The GOP uses "I.O.U." to put across the idea that the bonds aren't worth the paper they are printed on.  It plays into their contention that Social Security is unhealthy and broken as of 2018.

            But it IS very important, conceptually, to point out that when the government gets the cash, it is a debt to Social Security that they need to pay back.

            •  I'm not disagreeing with you (none)
              either. But they are IOU's, that come due with an interest rate, not like stocks and stock funds with a risk-reward calculation that includes loss, and that's where SS contributions are headed under Bush's plan to ransack the system, isn't it?  

              (none / 0), (none / 0), it's off to Kos we go, with a...

              by doorguy on Sat Jan 22, 2005 at 02:36:39 AM PST

              [ Parent ]

              •  T-Bills not an investment? (none)
                It will be news to many people that Treasury Bills are not an investment.


                Treasury Bills

                Treasury bills, like other marketable Treasury securities, are debt obligations of the U.S. Government and are backed by the Government's full faith and credit. A bill is a short-term investment issued for a year or less. Investors buy bills at a discount from par (or "face") value. The difference between the purchase price and what the investor receives at maturity is interest.

                For example, a $10,000 bill may be sold at issue for $9,900. In this case, the investor receives $10,000 when the bill matures; therefore, the interest is $100. The interest is determined by the discount rate, which is set when the bill is auctioned.


                Source: US Treasury

                P.S. Don't tell China a T-bill isn't an investment -- our government may collapse.

    •  So in claiming (none)
      that SS faces a "crisis", what the GOPers are really implying is that when SS starts redeeming its T bills the gov't won't have the resources to honor them?!

      Love to see the market reaction to Greenspan uttering those words:  "As of 2018 the US will not be able to honor its debt's".

      1929 would look like a spring holiday compared to the chaos that would cause.

      But that is the implication isn't it?

      Ah but it makes sense to me now.  Bush doing God's work here on earth:  the "End-Time" won't just happen by itself, he's actively working to make it happen.

      Man, I hope I'm just being snarky.

      Social Security Piratization is Welfare for Wallstreet -
      CaliBlogger.com

      by CaliBlogger on Fri Jan 21, 2005 at 03:22:34 PM PST

      [ Parent ]

      •  Oooh (none)
        Good point.  
        •  yeah (4.00)
          I think there's a lot of mileage to be had on that point.  Imagine on a talk show.

          "You're saying that by 2018, the government won't be able to honor its Treasury Bills?  That's a highly irresponsible statement to make, are you sure you want to be sending that message to our overseas investors and our allies?  Are you trying to set off a financial panic here?"  etc etc...

      •  You are absolutely right (none)
        the crisis IS based on a Republican intention not to redeem the T-bonds that the SSA has been purchasing.  They are going to say this is just some sort of "internal borrowing" or some such garbage.  But the intention not to pay the IOU, or redeem the bonds, is the (unspoken) basis of the "crisis".  Tell it to the Chinese and Japanese who are buying most of the rest of the T-bonds.

        I agree you should not play into that mind set.

        If you're going in the wrong direction and you stay the course, where, exactly, do you wind up?

        by Mimikatz on Fri Jan 21, 2005 at 04:05:35 PM PST

        [ Parent ]

        •  asdf (none)
          And this isn't criminal???  Someone, please tell me they can't do this!
          •  Yes it is criminal (none)
            Literally. And they would never actually get away with it, the next midterm election would take care of that. It's a scare tactic to try to disguise the fact that they simply don't have the numbers on this one.

            Expect the shrill factor to get ever higher over the next two months. Because the 2005 Social Security Report is due March 31 and they will be faced with inserting 4.0% for 2004 and some number that will pass the laugh test for 2005 into a model that predicted 2.7% and 1.8%. These models are very sensitive to changes in the front end. For those that have the patience it is very instructive to examine the projections for future growth in the outyears over the series of reports from 1997 to 2004. Every year that the economy meets or beats the numbers of the Low Cost Alternative (the one that shows no gap at all) the bruceweb: What is the Low Cost alternative? What does it mean? estimates for growth in the out years under the Intermediate Cost alternative (the ones everyone cites, the ones that produce the 2042 date) have to be suppressed to maintain any notion of crisis. Even so they can't keep the exhaustion date from moving out EPI: Changes in the Trustees' projection over time.

            But you can only suppress the numbers so far and retain any credibility at all. Because you cannot logically maintain that the economy will go into permanent freefall to justify "crisis" and then turn around and use historic rates of stock returns to provide your "solution". And yet privatizers are trying to do exactly that. The growth numbers under the Intermediate Cost alternative from the 2004 Report are pathetic. They assume that the economy will NEVER grow more than 1.9% in any year and will settle in at 1.6% longterm 2004 SSA Report: Economic Assumptions . Sorry, you are not going to get 7% returns on equities in that economy.

            These folks are in a serious bind. They can't drive numbers in the out years down any farther than they already are, yet inserting real 4.0% for 2004 and some plausible number for 2005 moves the exhaustion date way out. And people are now awake on this issue. They will understand that a crisis that recedes an average of 1.3 years per year even under a model that assumes the U.S. economy goes into the toilet is just not something that requires the immediate and drastic "fix" now being proposed.

            They want to pretend they are doctors, but the "fix" they are proposing for Social Security is actually the one you get at the veterinary clinic.

        •  This makes my head hurt . . . (none)
          Purchases of Treasury securities by foreigners hit $81 billion in November (but that may decline to a more "normal" $50 billion per month).  WSJ attributes the spike to everyone's pleasure over Bush's reelection. Surplus Soc. Sec. payroll taxes of $XXXXXXXX (too tired to look up) also poured into Treasury securities.  Proceeds from both sets of debt fund budget deficit, war, tax cuts, etc.  Now they take the surplus $XXXXXXXX and divert to private investments/individual accounts. To sustain spending on the war, tax cuts, etc.,  Treasury has to find more foreign investors to buy $XXXXXXX of securities to make up for the lost payroll tax money.  So we  shift Treasury securities from the Soc. Sec. trust fund to foreign buyers (if they can be found, the linked article makes it sound as if it may be difficult to keep finding more foreign buyers).  Then the U.S. defaults, screwing the foreign investors while the payroll tax money has been safely stashed in mutual funds somewhere instead.  Is that what they have in mind?   That is just inconceivable.

          The additional tax cuts Bush wants (make estate tax repeal permanent, further cuts in capital gain and dividend taxes, etc.) would cost some ridiculous amount -- $YYYYYYYYYY (too tired to try to look up).  U.S. would need to find more places to sell Treasury securities to cover the cost -- so it doesn't make sense that he would propose to yank all that payroll tax money out of Treasury securities at the same time he's proposing more tax cuts. Now he's got to get foreign investors to buy $50 billion (or whatever "normal" borrowing is) + $XXXXXXX lost payroll tax money + $YYYYYYY additional money needed to pay for his tax cuts.  Seems like that will just exacerbate the budget deficit or maybe force spending cuts somewhere. But Bush & his "borrow & spend" Congress don't seem to have any aptitude for cost cutting. Maybe he thinks the world is so delighted with four more Bush years that foreign investors will just keep pouring larger and larger amounts of money our way as an expression of their faith and gratitude.  I can't decide if it's just incredibly stupid or if there is some diabolical method to it.


          What am I missing?  Does this make sense to anyone??
      •  2028 is the income/expence balance point, not 2018 (none)
        2018 is an ugly Republican lie.

        Remember, the trust fund is invested in treasuries.  It earns interest income.  Since the trust fund is large, it earns a lot of income (nearly $100 billion a year or almost 20% of SS income).

        If you take SS trustees' "intermediate" projection, the SS expenses match the income at 2028.

        It's only if you steal the interest income from SS that 2018 has meaning.  If the Republicans stole all the trust fund investment income, expenses would match income at 2018.

        So the diagrams in this post are a bit misleading, because they omit the trust fund interest income.

        •  2006 equals 2018 (none)
          While the 2018 date is a lie, if you accept the Republican logic and grant the point, then this privatization plan just makes things worse -- it moves the supposed problem to the immediate future, next year, if this plan is adopted. Money will be diverted into personal accounts at a rapid rate, which means less money for current retirees. So even using Bush's formulation, this is not a solution.

          Don't play the other guy's game. - Damon Runyon

          by SpiderHole on Fri Jan 21, 2005 at 09:14:21 PM PST

          [ Parent ]

        •  the diagrams (none)
          The diagrams don't make any representation one way or the other about the interest rate.  That's a separate discussion.
          •  the diagrams (none)
            The diagrams try to present the income and expenses for social security, but miss the investment income, which is actually quite large, about 20% of total SS income.

            The diagrams would become too complicated if you added the interest income, so I'm not really criticizing them.

            The point is, the interest income from the trust fund is significant.  It's a very large number like $100 Billion per year.  It's a mistake to talk about social security without including that income in the discussion, and almost everyone forgets about the interest income.

            The interest rate isn't important.  It's the interest income.  Two different things.

    •  Good points... (none)
      and I agree. Driving home the point that these are invested in T-Bills... and that the GOP (aka the Fright-WingTM) are claiming the Gov. would be defaulting on its T-Bills (as others mention up-thread) is worth making clear, and underscoring.

      Well said.

      cheers,

      Mitch Gore

      Nobody will change America for you, you have to work to make it happen

      by Lestatdelc on Fri Jan 21, 2005 at 04:47:48 PM PST

      [ Parent ]

    •  But the piratizers are purposefully (4.00)
      conflating debt to the SS recipients (which has come from the payroll taxes already paid into the system) with the general revenue deficit which comes from having to re-pay the debt.  It's not that they are saying they will reneg on the bonds.  They just want to create a system where they will never have to pay them back, and are using scare tactics by purposefully confusing the accounting and justify cutting future benefits so they won't have to pay it back.

      The problem is not Social Security.  The problem is tax cuts combined with military spending and corporate welfare, which is rapidly increasing the deficit.

      Perhaps the example of a lawfirm's client retainer (referred to as a trust) accounts would be useful.  When keeping the books at the law office where I work, I keep a register for each client's trust balance, which has an off-setting liability account so the trust balances do not appear as part of the firm's cash assets.  The client trust is kept in a separate bank account and are never mixed in with the firm's operating, payroll, or investment accounts.  A lawfirm is not allowed to consider those trust accounts as part of the firm's bottom-line and a lawyer would be disbarred for borrowing against, or co-mingling, the trust accounts with the firm accounts.

      What the government is doing is akin to "borrowing" the client trust fund, using the funds to buy a condo for the senior partner's mistress, then cutting the wages of the secretarial staff to make up the shortfall because the senior partner doesn't want to make good on the debt, and then claiming it was necessary to save the firm and the secretaries' jobs.

      Whichever way your pleasure tends, if you plant ice, you're gonna harvest wind -- R. Hunter

      by Frankenoid on Fri Jan 21, 2005 at 05:20:01 PM PST

      [ Parent ]

      •  Enron, anyone? (none)
        But the piratizers are purposefully conflating debt to the SS recipients (which has come from the payroll taxes already paid into the system) with the general revenue deficit which comes from having to re-pay the debt.  It's not that they are saying they will reneg on the bonds.  They just want to create a system where they will never have to pay them back, and are using scare tactics by purposefully confusing the accounting and justify cutting future benefits so they won't have to pay it back.

        Nice accounting trick.  Didn't Gonzales work for Enron, too?

    •  I agree... (none)
      This immediately struck me as being inaccurate.  It's also why Al Gore's SS "lockbox" didn't make any sense.  If they're buying treasury bonds then that extra money is already going to the government.  

      It is, however, incorrect the way the Bush administration is reporting the deficit.  They should not be deducting the SS surplus because that is just more deficit.  Even if the bonds are made out to itself, they're still debt it owes.  

      In Britain they admit to having royalty. In the United States we pretend we don't have any, and then we elect them president.

      by Asak on Fri Jan 21, 2005 at 08:49:35 PM PST

      [ Parent ]

      •  when Gore talked about a lockbox (none)
        the federal government was running a surplus. Bush gave it away in tax cuts.

        Don't play the other guy's game. - Damon Runyon

        by SpiderHole on Fri Jan 21, 2005 at 09:15:44 PM PST

        [ Parent ]

      •  surplus (none)
        It is not wrong to spend the money generated by selling the bonds, if it is with the agreement that the government will pay it back when it's needed.

        It is wrong, however, to say that it means that the resulting deficit is the fault of Social Security.

        The last four graphs should make that point pretty clear.

        I'm revising the diary to remove reference to "I.O.U." and replace it with "bond", and add a bit more explanation.  Hopefully that will resolve concerns.

      •  "Lockbox" was a metaphor (none)
        It was a suggestion that we partially reverse the accounting move that comingled the overall general fund debt/surplus with social security debt/surplus. (A move that actually makes sense on a macroeconomic level, but which has the side-effect of disguising general fund deficits).

        "Lockbox" suggested that we simply ignore the huge surpluses building up in the Trust Fund and address the general fund all on its own and so force Congress to make the hard choices to make general fund income meet general fund expenditures. Meanwhile the dollars rolling into the Trust Fund would decrease dollar for dollar the outstanding public debt. Rather than rolling over 30 year bonds held by individuals and foreign governments with new 30 year bonds, you simply redeem those bonds with the money from payroll and issue new non-public bonds that would be put in the Trust Fund.

        Under this scenario Social Security dollars would never have been parked anywhere other than where they currently are, invested in Treasuries. But by cutting down the overall pool of publically held bonds they would have systematically cut down the interest costs the government pays out to finance the debt in two ways. First any bond that does not have to replaced with a new public bond represents a direct savings. This is the equivalent of adding some extra to your mortgage payment, you stop paying interest on that fraction of your principal forever, and over time that adds up big time. Second by reducing the pool of bonds you put downward pressure on the interest rates you have to offer. US Treasuries are the investment vehicle of choice for some individuals or governments not because they pay well but because they are safe, they will buy a certain amount even if the yield goes down. By decreasing the pool you drive up the price, and so reduce the interest rate on all bonds issued from that time forward.

        "Lockbox" really meant "reduce public debt to the point we can easily finance payback of Treasuries held by the Trust Fund" or "Congress: these excess payroll tax dollars don't mean there is really something known as a 'free lunch' " As such it was a very, very good idea indeed, although one that was a little misleading as to the actual mechanism involved.

        So it did "make sense", at least once you broke it down to the reality of where money coming into the Treasury Dept comes from and where it goes.

  •  90K cap (none)
    when was the 90K cap introduced? has it increased with inflation? seems like a logical and fair way to help shore up SS.
    •  Cap (none)
      The social security cap increases each year.
    •  Raising the Wage Cap (none)
      Is one of the most popular and most effective ways of raising more money to make SS more secure.  The WSJ had an article this morning saying that according to AARP, gradually raising the cap to $140,000 over a period of years would provide 43% of the projected shortfall over the next 75 years.  While SS was designed to cover about 90% of wage income, because high earners have gotten so much more over the past several years, it only covers 84% of wage income.

      Other possible methods are raising the age at which full benefits are paid to 70 over the next 75 years (38% of the shortfall; makes some sense because many people can now work longer) and reducing starting benefits to take account of longer lifespans (25%, but this makes no sense because a person still needs the same amount every year, just for a longer time).  Increasing payroll taxes .25% for both employers and employees would solve 24% of the shortfall.  

      Another idea is investing 15% of SS funds in market index funds (15%).  The only reason this makes sense is that it puts the money out of reach of politicians.

      If you're going in the wrong direction and you stay the course, where, exactly, do you wind up?

      by Mimikatz on Fri Jan 21, 2005 at 04:15:55 PM PST

      [ Parent ]

      •  suggestion (none)
        perhaps a nice simple and easily argued solution would be:

        index cap amount to wage growth instead of inflation, since the benefit growth is indexed to wage growth instead of inflation.

        •  Yeah, (none)
          I've read in a couple of places the last week or so that the percentage of taxable wages to overall wages has not kept pace with the historic rates, because of the income gap.

          Whichever way your pleasure tends, if you plant ice, you're gonna harvest wind -- R. Hunter

          by Frankenoid on Fri Jan 21, 2005 at 05:58:05 PM PST

          [ Parent ]

        •  asdf (none)
          The wage cap is already indexed to wage growth.
          •  you're right (none)
            others were under the impression it was indexed to inflation.  It's not.  It's wage growth.

            So the problem isn't that we're not keeping track of average wages.  The problem is that the income gap is growing too wide, as was said above.  Okay, that makes more sense now.

            •  I think Bush's proposal (none)
              Is to calculate the basic benefit formula using cost of living rather than wage growth, which would substantially reduce benefits in the future.  Not clear whether the wage base for purposes of calculating taxes would still go up based on wage growth or whether the two would go in tandem.  
          •  Your link (none)
            answered a question for me.

            It should be linked to median wage growth, not average wage growth.  Then the income gap wouldn't be such a problem.  Because the point of the wage pyramid is so narrow, using averages skews the cap to a point lower than it should be.

            Whichever way your pleasure tends, if you plant ice, you're gonna harvest wind -- R. Hunter

            by Frankenoid on Sat Jan 22, 2005 at 04:19:41 PM PST

            [ Parent ]

      •  OK, what if... (none)
        the cap was raised high enough that the rate could actually be lowered while providing enough cash? I don't know how to do the math, but if you increase the size of the pool to be taxed, the individual rate could be lowered, and have the same yeild, que no?   You could sell a change if the talking point were Reducing the Payroll Tax.  How much income would have to be taxed in order to get the same yeild at, say, 8% as we now get at the 12.4 % rate on the limited income pool?  

        As far as income redistribution goes...it happens. What can be controlled is how that happens. If income disparity becomes too great, social disorder sets in and the needy go out and steal from the wealthy, who are rightly percieved as having stolen all that wealth. Progressive policies should aim to curb that disparity by judicious redistribution of some wealth downwards so the needy don't boil over and burn down the whole party.

        don't always believe what you think...

        by claude on Fri Jan 21, 2005 at 09:38:49 PM PST

        [ Parent ]

  •  Another "dumb" question... (4.00)
    ...why is it that a projected deficit 10 years from now is a "crisis", but an actual deficit in the general fund right now is just fine?

    "The past is never dead. It's not even past." -- William Faulkner

    by GreenCA on Fri Jan 21, 2005 at 03:10:19 PM PST

    •  I've asked a conservative that question (none)
      And it's funny - it simply did not compute! It was like I had said something in a different language, and he just continued on. No denial, no angry fuss, no quick change of subject - not trying to cover up an inability or even a lack of desire to answer.

      Perhaps what was going on, was that for him to answer my question, would require him to reconcile two different conceptual frameworks. Or at least, operate on a different framework than the one he was arguing from. And he wasn't running or didn't want to run that conceptual-processing subroutine, so my statement just slid off?

      Humans...

      "Think. It ain't illegal yet." - George Clinton

      by jbeach on Sat Jan 22, 2005 at 12:00:38 PM PST

      [ Parent ]

      •  I know what you mean (none)
        I participate in an ongoing discussion over at Brad DeLong's Semi-Daily Journal (Brad is a UC Berkeley Economics Professor) where a lot of smart people (and a couple of trolls) argue this topic at a high level, mostly focusing on rates of return between stocks and bonds.

        But with one or two exceptions they simply refuse to recognize that economic reality has arrived. The model they use, the model everybody uses, including Baker and Weisbrot in this otherwise excellent piece from the WaPo Sunday WHAT CRISIS?:It Ain't Broke,  So No Need  To Fix It continues to be the Intermediate Cost alternative.

        Hello? The economy did not come in at 2.7% (Intermediate), it did not even come in at 2.8% (Low Cost), it came in a 4.0%. Inserting this number into a spreadsheet that predicted 2.7%, and never assumes a number above 1.9% in any future years is going to move the date beyond the 2042 of the Trustees, it is going to move it beyond the 2052 of CBO (who didn't fundamentally challenge the productivity numbers).

        And yet they just won't engage. They 'know' things about Social Security, things they have 'known' in many cases their entire lives. 'The looming retirement of the Boomers will place unbearable stress on the Trust Fund'. Well no it won't, given even average economic growth, outcome ( I ) in the following graph never assumes growth above 2.2%, and it shows a fully funded Trust Fund forever. Given that it relies on a 2.8% number for 2004 we can reasonably conclude that it is a floor and not a ceiling. Trust Fund Ratios under the three alternatives and yet the cognitive dissonance just will not let the message penetrate.

        The key is not to despair that your opponent simply won't recognize your reality-based world view, because the target here is not committed privatizers but bystanders (mainly Gen X'ers) who can be convinced that on this one they have just been lied to. Which is not a hard sell in the Iraq war era.

        The longer the hard corps privatizers keep their heads down trudging for the Third Rail of American Politics the better for us. Because we are simply peeling off the camp followers. We have the economic numbers, more and more we are gaining the people numbers.

        A diary like this would have been impossible two months ago. The very premise would have been laughed away. Trust me on this one, because I tried three times.

  •  An alternate depiction (none)
    Although it's not quite as detailed, I sort of prefer this graphic explanation of Dubya's plan.
  •  So... (4.00)
    Team W has larceny in his heart on many levels here:

    1.  He wanted to tap into the system to cover the costs of his every expensive administration, but there is not way he could just come out and say "I must change Social Security", he needed a smokescreen/cover.  Privitization sounds like some philosophical argument in which sounds like people just might get rich.  

    2.  As an added bonus, W gets to lavish Wall St with some cash which is always good for a politician.

    What a friggin' dirty bastard!

    And now that we are all better versed on SS, Question - O'Neil, the ousted persona non grata with these guys, wrote that he had hatched a plan for each person under 35 to retire as a millioniare.  Does anyone recall how he figured that would work?

  •  In the same spirit... (4.00)
    ...of simple graphics on explaining the Bush scam about the Social Security fake-crisis:

    How Republican math plans to "save" your Social Security.

    cheers,

    Mitch Gore

    Nobody will change America for you, you have to work to make it happen

    by Lestatdelc on Fri Jan 21, 2005 at 03:59:07 PM PST

  •  Brilliant! (none)
    I love the intiative to explain in simple, effective ways the real story. You are exactly right in saying that when it's convenient Bush takes the taxes paid and spends them, but when it's convenient he pretends that this money is not part of the overall system and somehow can "go bankrupt."

    This, frankly, says it all:

    In 2003, the Bush Administration ran a deficit of $536 billion.  Social Security ran a surplus of $156 billion.  (The Postal Service also ran a surplus of $5 billion.)  So, the Bush Administration reported a deficit of $380 billion instead of $536 billion, ignoring the fact that that money is supposed to be earmarked for future I.O.U.s.

    This basically means that the Bush Administration is following a policy of ignoring the Trust Fund entirely.  Rather than viewing excess money as going to the Trust Fund, they view it as going to the government

    Remember how Bush ads said "It's your money, not the government's"? Well, I say the Democrats blast this across the nation and repeat his own words back to him. A series of ads would be good. Is any liberal group gearing up an ad blitz to help defeat this ridiculous plan.

    Some group should print up some pamphlets using this approach to explain the situation. A comic book format would work brilliantly for this. A group with any money at all could print up several thousand comics like this and distribute them around the country and perhaps even buy just one TV spot (ala Swifties).

  •  One issue that (4.00)
    never seems to be addressed (so I never find answers) is the rise of two-income families.  I addressed some of my questions here: Social Security Questions  In dual income couples such as my husband and I, we pay SS on every penny we make, even though our combined earned income is way more than the cap.

    Additionally, what is not discussed is married women with low incomes, or sporadic work histories.

    If you work fewer than 10 years (40 quarters) in your lifetime, you pay into SS, but you are not entitled to draw retirement benefits.  This would apply to many women who work a few years before kids, and then never work again.  They pay into the system, but never draw from it on their own.

    Because women historically are paid so much less than men are, and because many women have gaps in their employment for child rearing, even if they do work more than 10 years total, many are better off drawing their spousal benefit rather than their own benefit.  The spousal benefit is one-half of the worker's benefit, meaning that while both spouses are alive, they are drawing for 1.5 benefits.  But if you are drawing your own benefit, you can not draw the spousal benefit.

    It may be that the wife's individual benefit would be more than one-half of her husband's benefit -- let's say it's 3/4 of her husband's benefit, so with both spouses living, they'd have 1.75 benefits, as compared to 1.5 if she was taking the spousal draw.  However, typically a wife outlives a husband, both because women tend to marry older men, and women demographically have a longer life span.  A woman who is widowed and drawing a spousal benefit would, upon the death of her husband, receive a survivor's benefit of one full draw -- the overall Social Security income for the household would be cut by one-third.  However, if she has been drawing her own benefit in an amount that is 3/4 of her husband's benefit, her income would be cut by more than half (3/7 of what she was earning before).

    So, if a woman plans ahead to a statistically probable widowhood, she may forego drawing on her own Social Security benefits at all.  And, in families such as mine, the survivor's SS income would be cut by one-half.  Such a deal!

    If SS is to be "modernized", it should be "modernized" in a way that addresses the financial realities of the dual-income couples.

    Whichever way your pleasure tends, if you plant ice, you're gonna harvest wind -- R. Hunter

    by Frankenoid on Fri Jan 21, 2005 at 04:19:56 PM PST

  •  With your permission... (none)
    I would like to leverage some of your copy and the presentation you have here, to make a Flash animation of this.

    cheers,

    Mitch Gore

    Nobody will change America for you, you have to work to make it happen

    by Lestatdelc on Fri Jan 21, 2005 at 04:37:35 PM PST

  •  Bush's rip-off and Greenspan's complicity (none)
    This is great. It should be posted so people can see and refer to it.

    Another point is that all of us who have been working since 1980, have been paying into the fund in order to establish the surplus. This was the result of fixing social security in the 1980's. The amount deducted from paychecks was increased as was the employers' contribution. The amount of wages taxed was increased and the retirement age was phased in to become 67. Alan Greenspan was involved in the process to fix Social Security.

    The whole point of this fix was to get ready for baby boomer retirement. Now Bush says the trust fund isn't there. If that's the way he wants it, then the logical conclusion is that Bush with Greenspan's complicity stole, yes stole, my money from payroll taxes and everybody else's to fund his tax cut for the rich. This is the most outrageous part of Greenspan recommending the tax cut. If the fix hadn't been made, I wouldn't have been paying as much in payroll taxes.

  •  Socia; Security payments are taxed (none)
    One of the equalizing factors is that SS old age payments are taxed. So if all you have is a small SS check, you don't have to pay taxes, but at some point you do, especially if you have other income. I remember my dad complaining about this, since it was enacted after he started drawing SS. I think SS disability is not taxable.

    So you could have Bill Gates getting Social Security payments in a few years, but the taxes would eat them up again.

    Personally, I am in favor of raising the cap to around $150,000 to $200,000. That would keep it solvent for a long time. I am most emphatically NOT in favor of raising the retirement age any further. Some of us have worked hard all our lives, for working class wages, and have not been able to save as much as we would have liked. We are worn out by our early 60's, and would really like to retire as we were promised. There is too much changing horses in mid-stream.

    Sorry this is a bit incoherent. It's been a long couple of days.

  •  surplus & deficit & trust fund (none)
    In 2003, the Bush Administration ran a deficit of $536 billion.  Social Security ran a surplus of $156 billion.  ...  So, the Bush Administration reported a deficit of $380 billion instead of $536 billion, ignoring the fact that that money is supposed to be earmarked for future I.O.U.s.

    Isn't this just an old (and bipartisan) accounting gimmick, around before Bush (but revitalized by Bush's huge deficits).   Specifically, that borrowing from the trust fund (the "IOUs") is not counted toward the deficit?    Plus the trust fund isn't allowed to sell off its bonds (IOUs) to raise cash for retirees, like an independent entity, so its debt is in some sense special.

    Krugman reduces this to the simple explanation that SS is healthy, but the general fund (and its deficit, whether borrowed from the SS trust fund or elsewhere) is desperately sick.    

    Guess which  three (ahem) fiscally conservative presidents were responsible for the debt.

    •  gimmick (none)
      that's true in a way, but it's easily shot down by pointing out that clinton ended his presidency with a normal budget surplus without even counting the social security surplus.

      To be consistent we should always be opposing using the social security surplus in our deficit calculations when we talk about the deficit.  No matter who is president.  If we have trouble paying it back later, it is because of an imbalance in the normal (progressive) tax revenue and spending, not in the regressive social security system.

      There is a separate discussion to be had about whether the trust fund is healthy enough to fully fund social security for the next 75 years, but it is a less important discussion than this one (although you might not know it from all the press).

      •  Absolutely (none)
        Clinton with his "save Social Security first" laid down a marker to Congress. "You want tax cuts? Then finance them out of the general fund surplus. Social Security dollars are going to be used to draw down the overall public debt."

        It was politically brilliant and absolutely the right thing to do for the long term good of the American economy. And yet many on our side of the blogosphere are whining that it excuses their fundamental ignorance of the numbers.

        Well tough, it didn't keep me from reading and understanding the reports. Driving down the longterm structural debt was a good idea period. My dream at the time was that under President Gore we would drive the overall debt down and then make the delightful surprise that there was really no Social Security gap at all. At which time we could have had an honest debate about our newfound ability to finance either one) tax cuts for the wealthy or two) universal health care, and all without the rhetorical obstruction represented by the "impending retirement of the Baby Boomers".

        •  I agree, sort of... (none)
          Clinton [said] "You want tax cuts? Then finance them out of the general fund surplus. Social Security dollars are going to be used to draw down the overall public debt."   I agree, but sort of disagree too.   This, and Gore's lockbox rhetoric, although noble, obfuscate the fundamental truth - the same truth that the Repubs are trying to obscure, and the MSM are so pitifully bad at explaining.   Simply, that the trust fund runs a surplus and uses it to buy gummint bonds, just like any pension fund or private investor.   The safety of SS depends on the gummint's fiscal health and willingness to honor its debts.  This simple fact is what Krugman hammers in week after week, but you would be hard pressed to comprehend it from the ordinary news.   I'm an academic, yet Clinton's statement forces me to wrinkle my brow and draw diagrams with boxes and arrows.   Krugman lays it out nice and simple.
    •  The other (none)
      "advatage" to including Social Security in the general budget figures (beyond making the deficit look smaller) is that it makes military spending look like a smaller portion of the budgetary pie.  I think people would be much more outraged at the size of the military budget if they saw how much of our non-dedicated tax money went there (if, indeed, we could even get the real amount of spending, including all the "off book", funny accounting, hidden spending).

      Whichever way your pleasure tends, if you plant ice, you're gonna harvest wind -- R. Hunter

      by Frankenoid on Sat Jan 22, 2005 at 04:38:04 AM PST

      [ Parent ]

  •  This needs to be turned into a 30 second spot (none)
    Perhaps BlogPAC and There Is No Crisis could make an arrangement with an animator, such as Mark Fiore,  to turn this into a funny cartoon.
  •  this is outstanding! (none)
    Tunesmith, I've already emailed you about this, but I wanted to show you:

    I made a PDF file that can be printed out as a three-sheet, double-sided booklet.  Mine is B/W since I can't print in color, but the PDF itself is in color.  I can make changes to the booklet, and would like your input.  Eventually, when you and I are both happy with it, it can be made more widely available.  And I can make a ton of these booklets.

    Uthman's Razor: Of two equally plausible explanations, the more cynical one is correct. (Ed Uthman; PATHO-L)

    by Susan1138 on Sat Jan 22, 2005 at 09:10:13 AM PST

    •  wonderful! (none)
      I'd love for lots of people to print out ten or twenty copies on their color printer and leave them at their local coffee shops.

      Do you have a link to the pdf?  If you've got the bandwidth, I'll put it at the top of the diary.  The diary's about to fall off the reclist, so we'll have to figure out some more ways to make people aware of it.

  •  A New Frame??? (none)
    It seems to me that the last diagram has the perfect framing statment we have been looking for for the SS discussion:  Bush robs our seniors to pay his bills. What do you think?

    The media is not our friend. We need change.

    by california jim on Sat Jan 22, 2005 at 02:37:19 PM PST

  •  We must do community presentations (none)
    in our libraries, schools, churches, senior centers, local organizations etc. Put together a powerpoint presentation and speak to folks directly.  Most group are looking for free speakers. This has got to get out because TV ain't gonna show this.  I watched Lou Dobbs last night and he chuckled at the Dem spaking against privitzation, and complimented the RepCon for not using the word crisis, broken was OK.

    See what we are up against!  If we don't do grassroots face to face, we will lose this. If not right away, then incrementally like the Cons love to do to fool the masses. It ain't broke, don't fix it!

  •  The software used to create those diagrams (none)
    is called OmniGraffle, and I love it.  Just seeing its familiar clouds, arrows, and formatting made my I like this post feelers twitch.
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