MaxedOutMamma has a pretty good overview post on the economics of funding Social Security and Medicare over the next 30 years or so.
So the real issue is not
those fictional bonds in the surreal trust fund. The real issue is
whether the American taxpayer will be able to pay for all its current
programs as well as Social Security and Medicare without paying double
or triple the percentage in income taxes the American taxpayer is
paying now. Because that is not going to happen. Forget all this
jibber-jabber about moral issues. That is not going to mean a thing to
the man earning the equivalent of $28,000 today in 2023 when he is
asked to pay much more of that money so that some 67 year old with
several millions of assets can get his or her scheduled Social Security
Nothing really new here, but the picture is always worth reviewing (she has lots of nice graphs showing the coming spending overhang). Politicians' ignorance of (and ignoring of) this problem would shock me if I had any regard left at all for politicians. I wanted to offer some random observations:
- If you are below 50 and in the top 40% of earners, do NOT expect to get any Social Security benefits. Live with it. Up until now, wealthy people have received SS retirement benefits as an expensive PR campaign to convince everyone that SS is an insurance program, not a welfare program. Well, I have run the numbers, and it is at least 83% welfare. The only alternative to defending these benefits will be to suffer through substantial tax increases which will be disproportionately paid for by the same richest 40% who would lose their benefits. Given the negative rates of return that SS pays on your payroll taxes, each extra dollar that taxes are raised will only yield well under a dollar (present value) in benefits. So give up on the benefits, campaign to keep taxes down, and start saving on your own.
- If you have some control of when you you earn your lifetime income, try to earn as much as you can in the next 10-15 years. After that, taxes are almost sure to go up substantially. It would not surprise me to see top marginal rates back well above 50% again.
- Democrats in Congress are pushing for new welfare programs, particularly socialized medicine, right now because they must understand that in 10 years, the window for major new spending programs will be closed. The pressures in a decade will be for program cutbacks as costs really start to balloon, and I can't imagine that new transfer programs will be taken seriously as the old ones eat up a larger and larger part of GDP. Of course, my point is that this is the last time that such a program would be politically feasible. From a financial management point of view, we are past the point where adding major new social programs makes any sense. In fact, adding such a program now would be like a guy who has gotten over his head and knows he can't pay his credit card bills taking his last money out of the bank and buying a plasma TV.