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Social Security, SS lecture 3/4, *For those who have physical jobs->…

- - - - What were Rooesvelt's goals?
        
        Create program that provides financial security against:
        
        Loss of a job: unemployment compensation
        
        Poverty stricken old age: SS retirement income
        
        Poor Health: poor aged, disabled, and blind
  - - - Old age survivors insurance
        
        Social security trust fund (OASI): social security trust fund
      - Aid for the Aged
        
        Welfare program paid from general funds of the US Treasury
        Redistribution program essentially
    - - Medicare: health care insurance for those receiving social security benefits
        
        Separate payroll taxes
        
        separate trust funds
        
        Hospital Insurance Fund (HIF): pays for in hospital stays and procedures
        
        Supplemental Medical Insurance Fund (SMIF): partially pays for out of hospital expenses
    - - Aid for the aged
      - Aid for the disabled
      - Aid for the blind
      - MEANS TESTED PROGRAM: income evaluated for eligibility; demonstration of financial need
  - - - Largest and most comprehensive income maintenance program in the US
      - Federally funded through special taxes
      - around 25.3% of federal funding
  - - - SS admin sets annual maximum earning limits on which taxes must be paid
      - required to pay SS taxes on earning up till speified limit- $160,200
  - - - Distributes income across lifetime and among cohorts
      - Redistributive: workers -> non workers;
        Annuity: pay while working -> benefits when retired
    - - PROGRAM IMPLEMENTATION
        
        How is it paid?
        
        Social trust fund maintained by mandatory contributions:
        Federal insurance contributions act (FICA)
        
        Medicare on all income: SSTT only on 160k
        
        Taxes are Regressive (lecture 2)
        
        lower income pay larger % of their total income bc/ of SS cap on earnings
        
        Benefits are progressive
        
        Higher income individuals get higher $PIA amount but lower pre-retirement wage replacement
        
        Federally funded
        
        Takes up 25.3% in federal funding
        
        Employee and employer matched tax-15.6 if self employed
        
        How is it given?
        
        Primary insurance amount: calculated just before retirement
        
        Average Indexed Monthly Earnings: Looks at average monthly income made over working and earning lifetime (35 years)
        
        index: earnings over 35 years are "future valued"
        
        Subject average monthly earning into formula- redistributive
        
        Every dollar up to 1,116, get 90 cents for every PIA; larger monthly index then less PIA
        
        Current Law Primary Insurance Amount Formula
        
        90 for every $1 increase in AIME
        
        .32 for every $1 increase in AIME
        
        .15 for every $1 increase in AIME
        
        looks back on 35 years
        
        PIA indexed to consumer price index for every year after received
        
        keeps up wit inflation
        
        SS & SSI benefits will increase 8.7% in 2023
        
        SOCIAL SECURIITY TRUST FUND(Lecture 2)
        
        What happens when social security payments exceed revenue?
        
        Loss of payroll due to recession/COVID is made by transfers from general fund of treasury
        
        How does the government get money to pay SS benefits when there is insufficient tax?
        
        raise SS taxes
        
        Raise non-SS taxes
        
        reduce other gov spending
        
        reduce benefits
        
        borrow it
        
        Other Facts
        
        Dollar level of combined SS trust fund reserves predicted to decline until total depletion in 2033
        
        SS cost will be higher than income in 2025 and laterr
        
        trust fund reserves projected to decrease rapidly
        
        Benefits in Jeopardy
        
        OASI trust fund assets become depleted and unable to pay scheduled benefits in full in 2033
        
        tax income would be sufficient to pay only 75% of benefits through 2085 - Actuarial Deficit
        
        3.62 increase in SS taxes needed to fix deficit
        
        scheduled benefits would have to be reduced by about 21% or 25% to those who become initially eligible 2023 or later
        
        Revenue would have to be increased by amount equivalent to immediate and permanent payroll SS tax rate increase
        
        How is surplus/deficit measured?
        
        Trust fund ratio: assets/expenditures
        
        ratio > 100 = surplus
        
        ratio < 100 = deficit
        
        trust fund holds no direct monetary assets
        
        Surplus SS taxes ae lent to federal gov to fund other programs
        
        Fund is empty except for gov IOUs
        
        Pay-as-you-Go Ponzi Scheme: intergenerational; other people paying for retirement money
  - - - demographics- no
        if all retirees die within short period after retirement system would remain
      - Life expectancy: life expectancy grew from 62 years of age to 80 years (2023)-> longer period of benefits (0.08% increase each year)
      - Too few workers being taxed
        
        Dependency ratio: divide non-working elderly over 65 by total number of tax paying workers
      - people living longer (longevity)
      - people still retiring at same age (retirement age)
      - current SS contributions and promissory notes will not be enough to cover demand (Trust fund deficit / US Deficit)
      - people have not saved enough of retirement on their town
    - - poverty rate increases for elderly
      - more across race
- - - - was sold on principles of social insurance - dignity and self respect- not on redistribution and welfare
        
        social security redistributes income between generation
        
        pay as you go system
        
        between generations
        
        between cohorts
      - Progressivty- redistribution
        
        rich to less rich
        
        Mechanism: progressive benefit structure- bend points
        
        income replacement level in retirement too low to keep people out of poverty
        
        SS primary source of income for low income
      - fair return on contributions- individual equity
        
        contributions render a fair rate of return over time- US treasury bill rate
        
        benefits in retirement related to contribution- earnings over working life
        
        People get more benefits than what they pay into- longevity
      - equal treatment of equals- horizontal equity
        
        equal assessment of payroll taxes on those with equal earnings
        
        payment of equal benefits to those born in the same yyear with equal earnings history
      - Economic efficiency
        
        Capital Market Efficiencies: SS tax should be kept low so they do not have negative effect on economy
        
        Labor Market Efficiencies: tying higher benefits to employment/covered earnings to prevent offsetting behavior (eary retirement)
      - How are these principles working?
        
        social security is failing as anti poverty
        
        perpetuates intergenerational inequity
        
        perpetuates intragenerational inequalities (redistribution)
        
        everyone gets benefits no matter how many resources you have in retirement
    - - push back retirement age
      - universal benefits
    - - reducing benefits
        
        use highest 40 years of income instead of 35
        
        adjust the bend points to force lower PIAs
        
        promises would be broken; lower standard of living; more poverty
      - reducing the cost of living adjustment
        
        current system provides greater average benefits to beneficiaries than past
        
        2023 gets higher real benefits than someone retired in 2000
        
        benefits grew with nominal wage rates, wages grew faster than inflation
        
        COL increase over past 20 years higher than inflation
        
        Reduced standard of living for retirees if inflation continues
        
        Solution: Reduce cost of living to PIA
        
        Video:
      - Increase payroll taxes
        
        1.raise SS tax rate on earning above 6.2%
        
        predicted impact of raising taxes
        
        impact of the economy
        
        disincentive to work in the economy
        
        What are the proposals?
        
        raise earnings capto 300k on income subject to the 6.2% tax
        
        eliminate "earnings cap" on income; all income subject to tax
        
        would eliminating SS income cap solve deficit?
        
        only solve 34% of structural deficit for 300k
        
        overall 72% structural deficit fixed
        
        would NOT solve structural deficit
        
        Raising taxes would also lead to large AIMEs
        
        How would taxes be credited into the PIA?
        
        2 more items...
        
        Raise cap on SS taxable income
      - Raising retirement age
        
        NRA- 68; ERA- 62;
        
        keep people in labor force for longer
        
        Argument against
        
        No choice about when too retire- physically demanding jobs
        
        post retirement jobs for elderly are scarce
        
        unfair for people with reduced life expetancy
        
        Could have zero-sum savings- offsetting early: if retirees apply for other federal programs like SSDI to support themselves during time from retirement to eligibility for SS
        
        argument for: government should not be encouraging people to retire ealier than needed given increasing life expectancy
        
        effectiveness: would eliminate only 29% of 75 year funding gap
        
        not sufficient enough
      - universal flat benefit for retirees
        
        all pay into system
        
        same flat benefit
        
        enough to keep income above poverty line
    - - Social security trust fund
        
        holds no direct monetary assets
        
        surplus taxes lent to federal government to fund other programss
        
        fund is empty except for gov IOU- bonds/notes
      - When social security payments exceed revenue
        
        loss made up by transfers from general fund of the treasury
        
        made though
        
        borrowing
        
        raise SS taxes
        
        raise nonSS taxes
        
        reduce other government spending
        
        reduce benefits
  - - - 3.62% increase in payroll taxes
      - or decrease benefits by 21% to all current and future
      - 25% if reductions applied to those who became initially eligible for benefits in 2023 or later