An old study on social security but very interesting.

[dkf]

EXECUTIVE SUMMARY Social security faces a major long-term funding crisis. A 38 or greater percentage increase in the system's tax rate is needed to meet benefit payments on an ongoing basis. Tax increases of this magnitude or compa-rable benefit cuts would significantly worsen social security's treatment of postwar Americans.

This paper uses CORSIM (a dynamic micro simulation model) and SOCSIM (a detailed social security benefit calculator) to study this treatment. The study finds that Americans born in the postwar period will, under current law, lose roughly 5 cents of every dollar they earn to the OASI program in taxes net of benefits.

Measured as a proportion of their lifetime labor incomes, the middle class are the biggest losers, surren-dering about 7 cents per dollar earned. But measured in absolute dollars, the rich lose the most. Out of every dollar that postwar Americans contrib-ute to the OASI system, 67 cents represent a pure tax.

The system treats women better than men, whites better than non-whites, and the college-educated better than the non-college-educated. While the system has been partially effective in pooling risk across households, it offers postwar cohorts internal rates of return on their contributions that are quite low-1.86 percent. This is half the real rate currently being paid on inflation-indexed long-term U.S. government bonds. If taxes are raised or benefits cut by the amounts needed, under intermediate assumptions, to achieve intertemporal budget balance in the OASI program, postwar Americans will end up receiving a 1 percent real return on their contributions.


http://www.nber.org/chapters/c10923.pdf

[RaleighNCDUer]

1. If by 'interesting' you mean an argument for the privitization of SS,

you are right.

Doesn't mean it's not bullshit.

[dkf]

2. When you look at they payout tiers it is obviously progressive.

You think if this is how it functions it is a problem?

Lifting the cap will change the numbers too. I am sure this will be examined should we get into that discussion.

[RaleighNCDUer]

3. This paper talked all about the 'returns', and how it was basically a

'bad investment'. And didn't say anything about potential solvency in raising or eliminating the cap (which of course would make it an even worse investment for the rich).

When the discussion appears to be looking for a way to increase returns for the rich, and talks about the system's insolvency, I can only assume it is aimed at privitization.

[dkf]

4. This is how you discuss retirement investing.

It is also the difference between a retirement plan and an insurance plan.

In retirement the goal is to achieve a return on your investment. In contrast an insurance plan pays out unequally and has no relation to the number of times you paid the premium just the fact that you paid your premium before the payment triggered.

Social security is a weird hybrid. There is no private sector product that works this way.

[RaleighNCDUer]

6. Well, that's the point, isn't it? It considers SS to be a 'retirement' plan

not an 'insurance' plan, though it is obviously much more the latter than the former.

SS is government-sponsored, individually funded old-age/disability insurance. It is for retirement what single-payer would be for healthcare. Nothing weird about it, unless you are looking at it from Wall Street's POV. And just as Wall Street effectively put the kibosh on single-payer, so would they do with SS - money manipulation is their business and they are very jealous of their turf.

[dkf]

7. Yet we think we need to keep paying benefits to high income brackets for what?

They already don't get much of a payoff.

[RaleighNCDUer]

8. Randy Quaid.

The dude was worth millions - now he's homeless. Rich people go bust all the time. Of course, they seldom think THEY will go bust, but many of them do, and when they do they have SS there to provide a bare minimum for their subsistance. If we stop paying out to the wealthy, they will have no reason to pay in, and there goes the entire system.

For the weathly to support a system that effectively gives them negative returns is only a matter of enlightened self interest. The system will provide for them in the worst potentiality.

[spooked911]

5. it's from 1999

--so not super old. But it would be good to know how this was received by other SS experts, and if this is accurate, how much has changed since.