Quote:
Originally Posted by Goodnight
Looks like the end of social security is near, something has to give. This has been totally missing from the discussion by any of the candidates or congressmen.
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The Social Security Administration has been pulling money out of the OASI Trust Fund for 10 years now.
This is not news.
And, it will crash around 2027-2028, not the 2035 the Trustees project.
The Trustees never make assumptions for recessions. You will have two, probably three recessions, and maybe even four recessions between now and 2035.
You're currently 118 months into the second longest economic expansion in history. All the evidence indicates you will tie the record of 120 months in August and break the record in September.
However, the economy will not expand much longer beyond that. It's possible a recession could start 4th QTR 2019, but more likely it will occur 1st or 2nd QTR 2020.
So, you'll get your wish. The next President will be a Democrat, so choose the contender wisely.
In Economics, past performance is not proof of anything, but the fact remains that both record expansions, the 106-month and the 120-month ended with double-dip recessions.
The possibility you'll have a double-dip recession here is very real.
In the former, the recessions were severe, with lots of job losses, but in the latter, the most recent one, the recessions were rather mild, with few job losses.
And, there's no guarantee that after that you'll launch back into another record 106-month, 120-month or 120-odd month expansion. In fact, it's unlikely you won't. You'll get hit again after 48-72 months.
Then, there's the specter of Inflation. Some, myself included, predict the onset of Inflation around 2025 and lasting quite a few years, like 7-9 years or longer. It will be worse than the 1970s, but not nearly as bad as the 1920s. Figure maybe 15%-25% annual rate of Inflation. That will be Monetary Inflation combined with Demand-pull Inflation.
Those conditions will very rapidly deplete the OASI Trust Fund much sooner than people anticipate.
You can fix it, and fix it permanently. Social Security is real simple:
Revenues = #Workers * Wages * FICA Tax
That's it. We know from 6th Grade Math that if we increase or decrease any of the multipliers, then the product increases or decreases.
You've had a decrease in the #Workers. You're 11 Million workers short, you will always be 11 Million workers short, and there's nothing you can do about it.
You cannot increase Wages. Why? I just told you why. You're 11 Million workers short. It would require a massive across-the-board wage increase for all workers, and that result in rampant Wage Inflation, plus exacerbate the problem.
Your benefits are calculated in part based on the Average Wage Index. Increase wages and you increase the Average Wage Index, so you pay people more in benefits, which doesn't resolve the problem, it only moves the goal-posts.
The only real effective solution is to increase the FICA Tax.
There's a Bill pending before Congress. I don't particularly like the Bill, but I can live with it. It calls for an increase in the exact amount I've been saying you need to increase it for the last 10 years.
The primary issue with Social Security all along is the ratio of Workers-to-Beneficiaries.
The program started, you had 159.4 workers for every beneficiary. Within 5 years that had dropped to 41.9 workers for every beneficiary and continually decreased until 1975 when it stabilized at 3.3 workers for each beneficiary.
That's where it remained for 35 years until 2010, when the Boomers started retiring.
Now it's dropped to about 2.5 workers per beneficiary.
The good news is that from this point on and for the next 100-200 years you will always have about 2.0-2.5 workers per beneficiary.
All you need is one more tax increase of 1.8%-2.2% and the problem is solved for the next 100-200 years.
The current Bill does that. It also taxes income starting at $400,000 and floating, meaning every year the it goes up just as the current wage cap goes up every year.
But, that's not to fund Social Security
per se, it's to fund pet projects in the Bill. The Bill gives a boost to lower income workers and those who didn't work 35 years by giving them partial credit for years not worked. So, someone who worked 29 years and is only getting 82% of their benefit would get partial credit for the 6 years they didn't work, so that their benefits are calculated based on 32 years.
If you don't understand how that works, you index your wages to the Average Wage Index and then divide your 35 highest years of wages by 420, which is the number of months in 35 years.
If you only worked 29 years, then you have 72 months of $0 dragging down your average.
Anyway, it's a simple fix, it's just that Congress has a habit of always waiting until the last possible minute, instead of being proactive.
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