There is a wide range of agreement between Erik and myself on social security. We do differ, but for the most part it is in the area of projection and interpretation. The one area where we may have different assumptions concerning the facts is in what happened with the 1983 reform. Erik talked about taxes being raised...which did happen. But, projected/promised benefits were also lowered. The latter was done through two methods. First, the nominal age for receiving Social Security was gradually raised from 65 to 67. Second, Social Security was counted as income for income tax purposes, in some cases.
The general rise in payroll tax for social security was from 10.8% to 12.4%....roughly a 15% increase. If one uses the increase in SS benefits now available for people who delay receivng SS (8% per year) as a yardstick, one finds that benefits were also cut, roughly, 15% by the change in the ages. In addition to these two changes, a number of other changes were made: http://www.ssa.gov/history/reports/gspan5.html Some of these changes were affected who was taxed, lower taxes for self-employed people, etc. Others affected payments....such as including SS in income and changing how COLAs are calculated. These changes were equivalant to 1.8% of payroll, or slighly more than the change in taxes (1.6% of payroll). Of this, about 1.2% of payroll was listed specifically...with roughly half affecting income, and half affecting taxes. So, the sum of changes to SS was about 47%....which is a bit less than twice the change we now need to make. Roughly half of this came from benefit cuts (or paying taxes on benefits which has a similar result), and roughly half from increases in the tax rate or the tax base. I'll agree with Erik that the % of GDP going as payments to the elderly should not increase. So, I'd go with a similar reduction in the increase in benefits that was agreed to in '83, with no overall increase in the projected taxes collected (although the tax could be more progressive). I think that would definately get us within the ball park of long term sustainability by 2050. If this were accomplished by changing the indexing formula, as I have suggested, after sustainability was achieved, we would then see SS as a % of GDP slowly decrease after 2050....assuming roughly historical ecconomic growth. Dan M. _______________________________________________ http://www.mccmedia.com/mailman/listinfo/brin-l
