Sunday, August 24, 2008
"Research" my derriere
Economic Policy Institute
In fact, the CBO report says, “future Social Security beneficiaries will receive larger benefits in retirement…than current beneficiaries do, even after adjustments have been made for inflation.”
The report, which forecasts out 75 years, finds that while the accumulating surpluses in the trust fund will be exhausted in 2049, ongoing revenues will still be sufficient to fund about 81% of promised benefits at the end of the 75-year period (in 2082). The reason for this is that wages and Social Security revenues will continue to grow as the economy grows. The trust fund will cushion the large baby boom retirement, as it was designed to do, but most benefits will continue to be funded by direct transfers from workers to retirees, as they are now.
They don't bother to link the study. A quick look at the opening graph will give you a sense of why. Remember that solid GDP growth is only a few percent, that one percent of GDP is more than 5% of the tax burden, and look at the difference in outlays as a percent of GDP.
Or look at the replacement rate tables, showing how less and less of one's income is replaced by SS benefits, for all the income cohorts.
How is it that we are going to start converting the ~$2 trillion "Trust Fund" to debt in 2017, and people who otherwise complain about increases in government debt levels somehow think that's a non-event.
The benefits are projected larger because SS benefits are linked to wage increases not CPI, and the former has been faster, and is projected to be faster. The language stating that benefits are higher makes it clear that is because people will live longer and receive lower benefits for more years, summing to more 'lifetime benefits':
# High earners receive higher benefits than low earners do, and future generations will receive larger benefits than current beneficiaries do, even after adjustment for inflation and even if benefits cannot be paid as scheduled once the trust funds are exhausted.
# Conversely, low earners have a larger percentage of their earnings replaced by Social Security than high earners do, and current beneficiaries have a larger percentage of their earnings replaced than future generations will.
# Future beneficiaries will not only receive higher annual benefits than today's beneficiaries but will live longer, on average; thus, they will receive greater total benefits over their lifetime.
# The payroll tax is a constant percentage of taxable earnings, which means that because taxable earnings are projected to rise over time (even after adjustment for inflation), future generations will pay higher taxes.
Basically, this is a report that shouts out how incredibly expensive this program is going to be, even though it is falling away from its original promise of income replacement. The EPI thinks the increasing outlays are somehow indicative of financial health. By this logic, a sudden upward reset of someones adjustable mortgage is an indication that their balance sheet is in good shape.
What sort of 'research' institute is this?
I once calculated my projected return on contributions to Social Security using their numbers. My return is negative unless I live into my 90s. Don't you think we could create a bit more wealth some other way? While Medicare is a much deeper hole, SS is poorly conceived, poorly executed, and sequesters money in an unproductive low-returning sinkhole. Time to stop.
7 Comments:
By 
, at
Sun Aug 24, 01:28:00 AM:
Don't you think we could create a bit more wealth some other way?
Two words -- Robert Mugabe. Everyone, even the lowliest street sweeper is a multi-billionaire in Zimbabwe!
By 
Andrew Hofer, at
Sun Aug 24, 10:04:00 AM:
funny. but treating the comment seriously:
- not any more, he just chopped 10 zeros off the new dollar
-of course he destroyed wealth
I'm not familiar with any state pension system in Zimbabwe, other than the bribes you get (printed) if you are favored by Bob, which are the source of inflation in the first place.
Oh - maybe that's what you meant.
By , at
Sun Aug 24, 10:17:00 AM:
The easiest way to know a liberal is lying (i.e. doesn't believe their own words are true) about wages not keeping up with inflation is to suggest that Social Security should be indexed to inflation rather than wages. When they accuse you of trying to hurt the elderly you have them.
By , at
Sun Aug 24, 10:46:00 AM:
Dreck ... would like to see a PV analysis ... do lower dollars for more years mean more or less? Me thinks less on a present value basis. As it is, I'll be about 70 before I see any dollars, assuming I'm alive, and I don't figure I'll get all that many years of it. 90 is laughable for me unless there are some huge advances in medicine.
As I understand it, the other reason the trust fund's lock box is empty is that the illegals and otherwise legal imports draw from the pool of money, via some form of social security or the health & human services budgets.
The old timers got a better deal, and the more you've paid in the more you've been screwed on the 'return on investment'. I realize it's not a pension, and no stated rate of return was made or promised, but it's a royal screw and wealth transfer. Coupled with the pols who want to tax the rich even more, how are they to fund their own retirement?
By Dawnfire82, at
Sun Aug 24, 12:40:00 PM:
I have heard before that it possible to withdraw yourself from the Social Security system. Theoretically.
Does anyone have any solid information about that?
By Andrew Hofer, at
Sun Aug 24, 01:04:00 PM:
Anonymous - you are probably correct, and that would mathematically explain the plummeting return figures.
Your comment provokes a realization - the CBO is using LOTTERY ACCOUNTING.
That's funny!
By Andrew Hofer, at
Sun Aug 24, 01:42:00 PM:
See update - they do estimate lifetime benefits with discounting.
