So to fix Social Security our elected officials are going to have to make some hard choices around taxation or benefit cuts, right? Maybe not. Perhaps they can broker a middle policy which basically raises payroll taxes by 14 percent but makes it possible for taxpayers to opt out. Those who opt out will voluntarily accept future benefits 13 percent less.

To fix Social Security, Congress could do away with the limit on taxable income.

To fix Medicare, Congress could expand it to cover all Americans, and spread the costs among the entire populace. Medicare already covers the most expensive patients--the elderly.

Ezra, you're smarter than this:

"The headlines will emphasize the dates of insolvency. Medicare runs out of money in 2017, two years earlier than anticipated by last year's report. Social Security falls in 2037, four years earlier than predicted in last year's report."

The "trust fund" isn't real savings, it means that the general government will have to borrow more or raise taxes to "pay back" what they owe Social Security.

Right now we're collecting payroll taxes and using it to fund general spending. In the next few years, we'll devote all payroll taxes to paying benefits and will need to both replace that revenue for general spending as well as find new revenue to pay benefits. Any way you look at it, the government needs more money to pay for this. That doesn't happen in 2017 for Medicare and 2037 for Social Security, the situation gets worse every year between now and then.

I may be a libertarian and you and I may not see eye to eye on this, but it does a disservice to your readers to continue suggesting that the "trust fund" is anything more than a meaningless accounting entry to make the electorate feel better. Even the AP agrees.

Brad, The trust funds are not a "meaningless accounting entry"; they are just as meaningful as depreciation and all the other devices of accrual accounting. The effect of using, in part, a flat tax which is capped at certain level is to reduce the progressivity of the tax system. FICA is only fair if the money is then used to pay for Medicare and Social Security. A politician who advocates not paying back the trust funds will not hold elected office long. Even in terms of cash flow, they have a real impact on the level and purpose of taxes. Right now, they mean that the people who would be paying more income tax are getting to keep more of their money. Someday, taxes will have to go up and then a lot of rich(er) people will have start paying the full costs of government. I sometimes wonder if the whole "taxes are the ultimate evil" line isn't intended to lay the groundwork for welching on this generational compact.

Actually Social Security is itself two distinct programs DI Disability and OAS Old Age Survivors. A close examination shows that the immediate challenge is DI which could be fixed by increasing FICA by 0.06% per year for five years starting in 2010 and devoting it to DI and then further increasing FICA by 0.08% per year in 2028 and continuing that for 20 years. Spreadsheets available at Angry Bear. Fixing DI requires a laborer making $12.50 an hour to pay a quarter a week in year one and $1.25 in year five. Too good to be true? Test the speadsheets.

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Fix social security = eliminate the cap on FICA.

The lesson here is that it's up to you to make enough money to be very comfortable. If you let government of anybody else determine your financial future than you are at their mercy.

Some people feel that it's not fair that you've invested in these program and now you don't reap the returns. We've all made hundreds of bad investments in one way, shape or form but we ultimately move on from them.

If you have a job, don't get another job. Invest. Start a small business. Open up multiple streams of income and acquire your own wealth so that you don't have to rely on government.

Ryan

If you have a job, don't get another job. Invest. Start a small business. Open up multiple streams of income and acquire your own wealth so that you don't have to rely on government.

That's fine for those who can. But there are many people who make minimum wage, can't afford to go back to school, can't afford to save much for retirement. Some full-time jobs just don't allow for the flexibility to improve one's circumstances, and when those workers can't work anymore they'll be in bad financial shape.

That's why Social Security was founded in the first place: it was a response to the terrible incidence of poverty among the elderly, many of whom had worked hard their entire lives. If we think reducing that incidence is still an important governmental function, then we should be willing to take action to shore up the system in some way. And if we're not willing to take such action, maybe we should admit we don't think that function is so important after all.

I am for reform of SS and Medicare but the way many people will interpret this report is ridiculous. People will say: "when I reach retirement age there will not be money for me", wrong the program is political and as long as most people want the programs they will exist and they will get the money needed.

To me the right thing to do is to end the FICA and Medicare taxes. Then since the programs become welfare, everyone can get the minimum payout from SS regardless of how much they paid in and Medicare can stop paying for some ineffective things and perhaps put a big deductible on those able to pay. But these reforms are not required except to lower the burden on the young who are poorer than the old anyway.

Do the Medicare numbers incluce Bush's Prescription Drug benefits, or are those covered separately.

When that got pushed through Congress, I remember thinking at the time that it was a Trojan Horse meant to bankrupt Medicare sooner rather than later.

Mission Accomplished, maybe.

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What is soooo....frustrating is that when conservatives have brought this insolvency problem to light, they were handily shouted down and all of that talk was just "talking points" from the right.

*NOW* that the Democrats are firmly in power, the tune has changed and they probably will need to SPEND MORE MONEY.

Jim,

To fix Medicare, Congress could expand it to cover all Americans, and spread the costs among the entire populace. Medicare already covers the most expensive patients--the elderly.

Huh? All Americans already pay into Medicare - they just don't get a payout until they come of age. Your solution is to start paying out to everyone right now. This is the opposite of raising the retirement age. Again, huh?

As always: read Bruce Webb.

Also, the 'meaningless accounting entry' arguments are just silly bullshit. Our government has many trust funds. They reflect the borrowing by our government from portions of our citizenry, and those debts are as valid as those owed to anyone who buys our treasuries.

What should be a completely obvious point, but one that seems beyond most people: no matter how much money you collect now, the money for future retirees will come from either future borrowing or future taxes. Increasing FICA and SECA today will necessarily increase taxes at some point in the future and, most likely, allow a tax cut for someone today. The haggling is over two things: what is presumed to be a fair division of taxes over the long run and which source of taxation bears the brunt of payment in the future: payroll taxes vs. income taxes.

The intended formula from '83 was essentially for payroll taxes to subsidize income taxes for roughly 35 years in exchange for income taxes to subsidize payroll taxes for the rest of time.

Max Sawicky suggested this solution: pass legislation that makes this the reality forevermore and blow off the accounting dance. What we are talking about in 2038 is a massive income tax cut once the trust fund runs out. So, no tax cut for 2038. If we just say that income taxes will always make up the difference the problem is solved.

After all, FICA and SECA vs. income tax is just a 'meaningless accounting entry.'

America's welfare state problems seem bad enough but they're much worse in most of Europe, where benefits are more extensive and where the population just won't go forth and multiply--it's a dying continent.

The inevitable breakdown of the welfare state here and in Europe will be devastating and will lead to massive social disruption, probably to revolution, but certainly to plenty of violence and destruction.

Why have leftist dummies done this to us?

If we think reducing that incidence is still an important governmental function, then we should be willing to take action to shore up the system in some way. And if we're not willing to take such action, maybe we should admit we don't think that function is so important after all.

"actuarial balance over the next 75 years" = total complete bullshit.

There is nothing in the universe that is in "actuarial balance over the next 75 years" (i. e. guaranteed to stay solvent over three generations), least of all those pillars of US capitalism called General Motors, Citigroup, and Bank of America. To say that SS is not "in actuarial balance" because it may need more funding 30 years from now, at a moment when the economy is falling apart and SS is actually the only economic entity wide and far on the horizon that is not bankrupt, that is more grotesque than any right-wing propaganda ever was.

Hi there,
Ugh, I liked! So clear and positively.
Have a nice day

least of all those pillars of US capitalism called General Motors, Citigroup, and Bank of America. To say that SS is not "in actuarial balance" because it may need more funding 30 years from now, at a moment when the economy is falling apart and SS is actually the only economic entity wide and far on the horizon that is not bankrupt, that is more grotesque than any right-wing propaganda ever was.

The inevitable breakdown of the welfare state here and in Europe will be devastating and will lead to massive social disruption, probably to revolution, but certainly to plenty of violence and destruction.

The Legend have been started to play and it encourage lots of generation ,I think this treand will be go on .

Your posts are really insightful

Well, that’s good. Very good.

Some people feel that it's not fair that you've invested in these program and now you don't reap the returns. We've all made hundreds of bad investments in one way, shape or form but we ultimately move on from them.
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Spending on Social Security and Medicare totaled more than $1 trillion last year, accounting for more than one-third of the federal budget.

WASHINGTON — Even as Congress hunted for ways to finance a major expansion of health insurance coverage, the Obama administration reported Tuesday that the financial condition of the two largest federal benefit programs, Medicare and Social Security, had deteriorated, in part because of the recession.

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