Monday, June 20, 2016

Social Security Expansion exposes Ryan's Cuts as a Costly Delay we can't Afford.

Paul Ryan's repackaged cuts and privatization plans for social security will be getting a lot of attention in the presidential race. Not only will the cuts and delayed benefits not solve the solvency problem, but the time wasted going down that road will only increase the costs for true reform later.

I've put together a couple of Motley Fool opinion pieces that I think most accurately describes the Democratic reform plans to expand Social Security. If you want to debate and crush your conservative friends mindless argument that it won't be there for them when they retire, tell them the following:
Hillary Clinton's Plan: Let's take a closer look at some of the measures Clinton has suggested. It has been projected that fully 77% of the trust funds' shortfall could be eliminated by increasing the Social Security tax rate for employers and employees from its current 6.2% to 7.2% in 2022 and 8.2% in 2052.

It's also been estimated that 71% could be wiped out by eliminating the earnings cap over a 10-year period. If both changes were enacted, then the program's funding shortfalls would, in theory, evaporate.
Clinton also wants to help women who have reduced their lifetime SS benefits when they took time to raise families and provide care for sick family members. It's a unique but important idea:
Clinton has also voiced support for implementing a "caregiver" tax credit of 20% of the costs tied to caregiving -- the credit would max out at $6,000 -- and expanding Social Security benefits for caregivers, too. That's evidence of her support for women, because women collect smaller average benefit checks than men, and it's often because they worked part-time or not at all while they cared for children, elderly parents, or ailing loved ones.
Obama now support SS expansion too: The stats below are rarely explained, but are crucial to understanding the whole point of SS expansion. You'll realize just how bad the cuts would make things:
Obama called for expansion of the Social Security program; "It's time we finally made Social Security more generous and increased its benefits so that today's retirees and future generations get the dignified retirement that they've earned."

According to the latest Gallup survey, 59% of currently retired seniors count on Social Security to generate the majority of their income. Add in the seniors who responded that Social Security is a minor source of monthly income, and 90% of all seniors surveyed by Gallup rely at least somewhat on income from Social Security to make end meets during retirement. That's a high figure.

Boomers are retiring at a rate of around 10,000 per day, and essentially will be doing so through 2030. Social Security's investment holdings simply aren't earning much in the way of interest thanks to accommodative monetary policy from the Federal Reserve, which has kept interest rates low on interest-bearing assets.
 According to the Center for Retirement Research (CRR), many of the most popular solutions to fix Social Security simply don't cover the full breadth of the income shortfall. Raising the payroll tax earnings cap would take care of about 30% of the financial shortfall of the program. 

The above figures take into account simply maintaining the status quo. My best guess is that a solution to fix Social Security is probably going to include a payroll tax hike across the board, regardless of income, as well as potential means-testing that reduces benefits on well-to-do persons.
While Republicans waste valuable time "debating" changes no one in their party seems to agree with, the delay will only cost us more. The bottom line: Cuts and delayed benefits will make things worse:
The 2015 Board of Trustees report estimated that a 2.68% tax increase, or presumably a 1.34% increase for employer and employee, would take care of the upcoming deficit woes. The Trustees suggest that the longer Congress waits to enact these tax increases, the higher the increases would need to be to cover the projected cash shortfall. 

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