Quick rundown on Social Security solvency: Social Security is funded by a payroll tax, jointly paid by employers and employees (on the paystub-it’s either noted as a FICA or an OASDI tax). It pays out benefits to qualifying people. In the past, social security took in more in taxes than it paid out in benefits and it invested the difference in treasuries; however, it now takes in less in taxes than it pays out in benefits so its spending its prior savings. Actuarial forecasts have the program depleting all prior savings by ~2030 and once there, it will only be able to pay out ~70% of promised benefits funded entirely by simultaneous taxes. Social security will forever be there paying out benefits so long as the Social Security Act is in force. The meaning of “bankruptcy” does not mean zero, it means more liabilities than assets. Debate is on how to either raise taxes or cut benefits to make the program more sustainable
American Economics Thread
- Thread starter Bernard
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If there was a robust unemployment system in the United States, the Social Security issue wouldn't even exist. We'd treat elderly people who are unable to work as we treat disabled people and pay them out benefits. In addition to that, a robust retirement program with mandatory IRA contributions would also solve a lot of headaches for Senior citizens. A simplified, fully digitized bureaucracy would be great.
As for practical solutions, eliminating the tax cap on Social Security taxes would go a long way towards alleviating the problem.
As for practical solutions, eliminating the tax cap on Social Security taxes would go a long way towards alleviating the problem.
Disability and old age insurance are permanent. Unemployment is not. Hence why UI and Social Security are separate. Different risks to insure against, different insurance premium rates to set. UI doesn’t cover disability: disability insurance (either from SSI/Social Security Disability or LTD insurance purchased from a private insurer) do.
Yes, that is social security? It’s invest in super low risk instruments but social security is an annuity.
I will put a devil's advocate and present a darker reality.
Society security (SS) for the elderly is a loss game. It will never have ROI. Maybe that was the intention; because most people relying on social security are typically unsuccessful individuals. USA's lack of effort in SS is their way of getting rid of those useless in their society. Successful individuals invest in their retirements. SS is a low-effort attempt by their society to, give breadcrumbs to the weak. If you look at SS from this perspective, then really SS is another way for society to milk the elderly for a bit longer. The elderly vote, go to the hospital, take meds and use a lot of services that would otherwise be underutilized.
That makes zero sense. The only thing you'd be changing is the payout amount and qualification criteria. You still have to screen applicants.
So no, they really should be treated the same. Especially since it would greatly simplify administration.
It's not. There isn't a pool of money that's being invested. It's just a redistribution program. Current SSA just lends excess funds by buying Treasuries.
So instead of OASDI, it’s now OASDUI? That might change the administrative costs on the margins the program administration is broadly the same
It’s currently not being invested since SS APs > SS ARs but treasuries are investments. Lending is investing. Debt is part of the capital structure
UI is currently administered by States. Absorbing the program wouldn't make sense, unless it's under the scheme I previously proposed.
Not for the individual and not in reality. What kind of "investment fund" limits itself solely to treasuries? I mean this is silly. Imagine if you simply took that 6.2% of your paycheck from your first job and invested it into a semi-conservative investment account. You'd easily be a millionaire at retirement age.
But no, that's not the case here. Social Security isn't a retirement program. It's just a redistribution social program, but again, I'm not against that. I just think it makes sense to not have a specific retirement age and to eliminate the tax cap.
Oh, and have them administrate unemployment benefits as well.
It’s all insurance, which is the contribution of premiums among a larger pool to pay for individuals in the risk pool that experience adverse outcomes. Unemployment, disability, and old-age insurance are all social insurance since of adverse selection and in the case of old-age insurance, a near certainty. The only difference for policymakers would just be the premiums and payout schedules/terms.
Most poor people end up getting more out of social security than they put it; hence why it’s insolvent. Social insurance is redistribution but is also investment since insurance is a form of savings.