Los Angeles Times columnist Michael Hiltzik sent similar signals Sunday, warning that Obama’s tax deal spells trouble ahead. He reports that some conservatives and liberals say it will be hard to restore the old payroll tax rate in the foreseeable future. Restoring the tax in a single swipe would mean a sudden tax increase of almost fifty percent, which pols could paint as a tax hike on the middle class, he says. Increasing the rate to its former levels might get tangled in a deal to extend the Bush-era tax cuts for the rich, or give supporters of privatization their opening by channeling a portion of the tax increase to privatized accounts—something they have championed for years and that would, some experts say, undermine the program.
It’s topsy-turvy politics, alright. Dems portraying themselves as angels delivering middle class tax cuts; Republicans casting themselves as saviors of social insurance. Election politics swirling around Social Security could get really interesting, as this recent press coverage suggests. Eric Kingson, co-director of the advocacy group Social Security Works, told Hiltzik: “You’re risking long-term economic security for a short term economic gain, however important that is. We hope people understand that.” They might if there’s more reporting like we saw last week.
Actually, the Social Security Payroll Tax should be around 3.5% of pay (total pay). That is the Entry Age Normal Cost under The Entry Age Normal Cost Actuarial Cost Method, when this methodology is used to advance fund the system, by doing a real annul defined benefit pension valuation--with common stocks being the key asset class.
The Initial Unfunded Past Service Liability still needs to be paid off--just as mortgages are--but this is done through the General Account so that current workers do not pay for past workers as well as themselves.
I estimate that overall we need to put about 50 billion dollars more over the next 40 years to do that and every dollar can be invested in stocks (of various kinds).
Here is more detail.
If you try and fix a major financial problem that has been around a long time, you should first make sure you are not using an accounting system that helped cause The 1929 Stock Market Crash--cash accounting--and use one that replaced it everywhere but in our governments--accrual accounting--and also make sure you do not listen to so-called 'experts'--actuaries whose main interest in these areas is to not fix these systems so they can sell way overpriced products.
The right way to fix Social Security and Medicare will also fix our economy, big time and quickly and in the long run, also fix Capitalism itself, by having ordinary people own a significant amount of stock, collectively, not individually.
Here is the way to fix these systems, beginning with Social Security.
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Au contraire, my friends---to keep Social Security alive you must look at the way it is financed. The financial problems have nothing to do with the benefits, which are meager at best. Pay-As-You-Go gets far too little investment returns to help pay the promised benefits and, in addition, is highly unstable.
It is easy to prove the former--any actuary can easily do it, but I am the only one talking. Actuaries have enormous conflicts of interest and have never successfully dealt with them.
We need to replace PayGo with Actuarial Advance Funding, done with an annual pension actuarial valuation and also pass strong laws with teeth to protect the assets, and define correctly how benefits accrue and then prevent any cut backs in those past service accrued benefits.
I have done hundreds of pension actuarial valuations and seen the results of thousands of others and can vouch they work exactly as advertised in sharply reducing costs and in stabilizing pension systems.
As far as the laws are concerned you can Google me--Andy Lang actuary--and find two letters I sent, one to the IRS on the absurd way benefits presently accrue, whose values are heavily backloaded-- a trillion dollar scandal, few know about and even fewer understand---and how you fix it, and a second one to the NLRN on why taking assets from pension plans weakens them enormously, usually leading to their termination.
#1 Posted by Andy Lang, CJR on Tue 21 Feb 2012 at 08:48 AM
PS: I am a 72 yr old actuary, who unlike my fellow actuaries, speaks the truth.
When it comes to fixing Social Security and Medicare, this truth is that actuaries invented the right way to fund these systems way back in 1915 with the very first independent pension consulting actuary--a man need George Buck---and the roots of this methodology goes all the way back to 1762 in Britain, nearly two and half centuries ago before we were even a nation.
When you can forecast cash payouts in the future that increase exponentially and need to be made, the solution is to forecast them realistically, present value them, using an interest rate that can be earned on the fund long-term and then spread this present value in the future as either a level dollar amount or a level % of pay, or both, and this simultaneously levels the cost while also reducing it.
The reduction is very large and comes from what I used to call, 'the miracle of compound interest' and what Einstein once said, is 'the most powerful force in the universe'.
I have been saying this for 47 years now, since 1964 when I took a test on the subject and first learned we were not funding Social Security correctly and it would eventually collapse, unless we did. The following year when Medicare was passed I said it too needed to be advance funded to be successful.
You may contact me here, andyclang@comcast.net.
#2 Posted by Andy Lang, CJR on Tue 21 Feb 2012 at 09:17 AM
The nation uses an awful accounting system called 'case accounting', a system that was a principal cause of the 1929 stock market crash.
It was replaced in 1934 for all public firms by accrual accounting and this system would also be used by many large non-profits voluntarily ask well.
When trying to figure out why we have never fixed Social Security or Medicare, despite knowing exactly how to do it for 95 years, it would help if we used a sound accounting system.
How can you possibly fix a major financial problem when you do not have decent financial information?
#3 Posted by Andy Lang, CJR on Sun 20 May 2012 at 08:10 PM