Should resources be reallocated from retirees to those in greater need?

[DoggerDan]

“It makes us wonder whether the extraordinary amount of resources we spend on retirees and their health care should be at least partially reallocated to those who are hurting worse than them,”

Did the retirees pay into the system, or was their retirement and health care part of their work/retirement compensation? If so, then companies and government must honor those promises, period. Yanking it away because it doesn't seem fair would be the height of unfairness to those to whom it was promised.

 

[russ_watters]

Did the retirees pay into the system, or was their retirement and health care part of their work/retirement compensation? If so, then companies and government must honor those promises, period. Yanking it away because it doesn't seem fair would be the height of unfairness to those to whom it was promised.

Is it fair to make others pay to fulfill those obligations?

 

[LaurieAG]

Is it fair to make others pay to fulfill those obligations?

It depends if it's a Pension scheme or a Ponzi scheme.

 

[Jimmy Snyder]

Is it fair to make others pay to fulfill those obligations?

When they calculate that 47% of Americans don't pay taxes, do they mean that they do pay taxes, but get the money back? Or are they lying?

 

[WhoWee]

Did the retirees pay into the system, or was their retirement and health care part of their work/retirement compensation? If so, then companies and government must honor those promises, period. Yanking it away because it doesn't seem fair would be the height of unfairness to those to whom it was promised.

As we discussed in the Rhode Island thread - when government over-promises - tax payers are left with either the bill or reduced services. Some of those taxpayers don't have any benefits (or less benefits) from their employers - is that fair?

 

[WhoWee]

It depends if it's a Pension scheme or a Ponzi scheme.

I'll defer to the Rhode Island thread again - from post number 54
https://www.physicsforums.com/showthread.php?t=544605&page=4

http://www.wpri.com/generic/target_12/probing
Basically, the state set aside $25.5 Million to fund $3.6 Billion in retiree health care benefits. Please watch the "Target12Investigators" video.

 

[russ_watters]

When they calculate that 47% of Americans don't pay taxes, do they mean that they do pay taxes, but get the money back? Or are they lying?

It means 47% of people who fill out a 1040 come up with a zero or negative at the bottom of the form due to deductions and credits.

I'm not sure what that has to do with this thread, though...

 

[russ_watters]

It depends if it's a Pension scheme or a Ponzi scheme.

So if, for example, a company's or government's pension fails due to mismanagement by the company/government, then you would say it is fair for the government to bail it out by having everyone else in the country pay for it?

 

[Jimmy Snyder]

Is it fair to make others pay to fulfill those obligations?

It means 47% of people who fill out a 1040 come up with a zero or negative at the bottom of the form due to deductions and credits.

I'm not sure what that has to do with this thread, though...

Social Security taxes don't show up on the 1040. If you count SS taxes as taxes, then the 47% figure is a lie. If you don't count them as taxes, then you are not making others pay to fulfill those obligations.

 

[Vanadium 50]

I've split off this obviously off-topic thread.

 

[WhoWee]

Social Security taxes don't show up on the 1040. If you count SS taxes as taxes, then the 47% figure is a lie. If you don't count them as taxes, then you are not making others pay to fulfill those obligations.

The Social Security deduction is referred to as a tax because it's a payroll deduction - but it's really a retirement benefit account - similar to an annuity or a private pension fund.

Specifically, the deductions from your personal income - benefit you in the future.
http://www.ssa.gov/estimator/

The main difference between the Social Security system and an annuity or a private pension fund is the government doesn't actually invest the funds in marketable securities. The government uses the funds to pay other beneficiaries or other expenses.

If you don't pay enough into the system to cover the amount you take out - someone else will need to pay your share - won't they?
http://www.ssa.gov/oact/progdata/taxRates.html

 

[Vanadium 50]

Is it fair to make others pay to fulfill those obligations?

There is already some of that for private pensions. A private pension is insured by the federal government (PBGC). If the company goes bankrupt, PBGC pays the pension, up to a certain maximum. In principle, other companies pay insurance to PBGC (i.e. pay for others obligations) which covers the payments. In practice, they are about $25B in the hole because of some unfortunate financial decisions: they locked in losses with bonds, and then locked in more losses with stocks. This may not be surprising, as the agency bosses are political appointees, not pension fund managers. The outcome of this is that they will probably need a "one-time" infusion of funds from general tax revenues.

Things are more complicated for public pensions. These do not have insurance (states don't go bankrupt), and the people who would ultimately receive these pensions lobbied for the politicians who underfunded the pension plans.

 

[BobG]

Did the retirees pay into the system, or was their retirement and health care part of their work/retirement compensation? If so, then companies and government must honor those promises, period. Yanking it away because it doesn't seem fair would be the height of unfairness to those to whom it was promised.

Is it fair to make others pay to fulfill those obligations?

This is the core of the dilemma.

Social Security is the perfect example. It was a promise made by the government before most of us were even born (it was signed into law in August 1935).

Is it really ethical to make promises on behalf of future people and just expect them to fulfill promises they had no say in making? (In fact, you could say the same about a national debt that "we" never intend on paying, instead deciding that's something that someone else will have to deal with after we're dead.)

It truly is unfair to force people to pay into a retirement system (whether it's via FICA taxes or by an employer promising future pay in return for lower current pay) and then to renege on that promise when the bill comes due. It's also unfair to commit people that may not have been hired or even been born yet to promises they obviously have no say in.

It's a bad situation, but, hopefully, the democratic process will prevail. Thanks to good planning, us baby boomers made sure a lot of us were born at the same time, giving us a lot of political power. We also made sure not to have so many kids that younger generations would outvote us. And then, just to make sure our political power didn't evaporate through premature deaths, we started putting extra restrictions and taxes on unhealthy things like tobacco and alcohol and started putting extra safety restrictions on things such as vehicles. We planned things well!

And for the younger generation of complainers, just remember this - paying for our Social Security benefits are the only reason we had brats like you in the first place!

If you didn't want to pay so much in Social Security taxes, you should have planned your births a little better!

 

[Vanadium 50]

Social Security is also special in that it doesn't apply to all citizens. Public employees might not have FICA withheld, and they might not get benefits. Usually these are correlated, but in some cases people who did not pay into the system can still get benefits.

 

[russ_watters]

Social Security taxes don't show up on the 1040. If you count SS taxes as taxes, then the 47% figure is a lie.

It's not a lie. Different statistics are different statistics. We've had many discussions about the pros and cons of that particular statistic in different contexts.

And you are mis-stating the issue: no one is claiming the social security tax (the payroll tax) isn't a tax, it is just a different from the federal income tax because - as you just said - it doesn't show up on the 1040. It is collected separately, under a separate structure, for a separate purpose.

If you don't count them as taxes, then you are not making others pay to fulfill those obligations.

Huh? The label that you put on "them" doesn't change what they are.

You're going off on an odd tangent here, since DD's post didn't mention Social Security. But regardless, Social Security is a strange hybrid of a forced retirement plan and a pyramid scheme. Depending on who'se doing the arguing, one might emphasize one aspect or the other. On the one hand, it looks kinda like a forced savings plan, where you get a retirement benefit based-on what you paid-in. Similar to a pension. But on the other hand, the pay-out is progressive, with people on the lower end getting paid-out a higher proportion of pay-in than those at the upper end. And the pay-outs overall are greater than the pay-in and the difference isn't made up with investment. So it requires a continuing pyramid-shaped pay-in/pay-out structure to sustain itself.

Now Social Security has been this way forever. Everyone grows up knowing they'll be paying for the retirement benefits of today's retirees and hoping tomorrows workers will pay theirs. But that's not what this was about. This was about private and government pensions. Entities that were never intended to be paid for by the general population, but rather funded by the workers themselves. So DD asserted it would be unfair to take away people's private and government funded pensions. I agree. But I also believe it would be unfair for the rest of the population to pick up the slack for such underfunded pensions. Someone's getting screwed either way when a big pension plan fails. I'd prefer the breadth of the screwing not be expanded.

 

[russ_watters]

There is already some of that for private pensions. A private pension is insured by the federal government (PBGC).

Yes, and I don't think that's "fair" or more to the point, a good idea -- at least, in the absence of strict regulation to protect us from companies mismanaging their pensions (which apparently happens a lot).

 

[phyzguy]

Did the retirees pay into the system, or was their retirement and health care part of their work/retirement compensation? If so, then companies and government must honor those promises, period. Yanking it away because it doesn't seem fair would be the height of unfairness to those to whom it was promised.

What if the government or company made promises that it doesn't have the ability to keep? What then? There are many cases of this - Greece, many US municipalities, the US auto industry...

 

[russ_watters]

This is the core of the dilemma.

Social Security is the perfect example. It was a promise made by the government before most of us were even born (it was signed into law in August 1935).

Is it really ethical to make promises on behalf of future people and just expect them to fulfill promises they had no say in making? (In fact, you could say the same about a national debt that "we" never intend on paying, instead deciding that's something that someone else will have to deal with after we're dead.)

I'm actually more OK with this promise than I am the promise the government makes to pay other people's pensions out of my pocket if necessary. At least with SS I have some way of predicting my own involvement in the program!

But that said, I do believe it is unethical to set up a retirement system that is not inherrently self-sustaining. Yes, SS will have lasted nearly a hundred years when it goes bankrupt, but everyone knows a pyramid scheme is unsustainable, even if they don't want to admit it. SS required forever continuing population growth and a halt to life expectancy growth, neither of which was reasonable to expect.

It truly is unfair to force people to pay into a retirement system (whether it's via FICA taxes or by an employer promising future pay in return for lower current pay) and then to renege on that promise when the bill comes due. It's also unfair to commit people that may not have been hired or even been born yet to promises they obviously have no say in.

Yes...or to shift the cost from those who paid-in and managed it over to people who had nothing to do with either the pay-in or the benefits. That's the part my first question was about.

It's a bad situation, but, hopefully, the democratic process will prevail.

You really think it will? I see that as the key economic problem facing the entire world right now and I think it is because of the democratic process that it exists. The problem is simple: People who aren't born can't vote, so they can't vote against having to pay for today's spending (be it retirement spending or any other government spending). The democratic process encourages runaway debt!

And I think you do see that:

Thanks to good planning, us baby boomers made sure a lot of us were born at the same time, giving us a lot of political power. We also made sure not to have so many kids that younger generations would outvote us. And then, just to make sure our political power didn't evaporate through premature deaths, we started putting extra restrictions and taxes on unhealthy things like tobacco and alcohol and started putting extra safety restrictions on things such as vehicles. We planned things well!

And for the younger generation of complainers, just remember this - paying for our Social Security benefits are the only reason we had brats like you in the first place!

If you didn't want to pay so much in Social Security taxes, you should have planned your births a little better!

 

[russ_watters]

What if the government or company made promises that it doesn't have the ability to keep? What then? There are many cases of this - Greece, many US municipalities, the US auto industry...

Well clearly, if the Greek government makes promises to its people that it can't keep, the Germans should bail them out!

 

[russ_watters]

Social Security is also special in that it doesn't apply to all citizens. Public employees might not have FICA withheld, and they might not get benefits. Usually these are correlated, but in some cases people who did not pay into the system can still get benefits.

That's part of the basis of liberals' objection to the 47% statistic and general progressiveness of the federal tax structure -- particularly as it pertains to the rich. Since the rich don't pay into it above a certain income level - and are also excluded from the benefits above that level - a snapshot-in-time view of taxes that includes SS implies a flat or regressive tax structure. But in a cumulative lifetime analysis, it cancels out and then some.

 

[Vanadium 50]

Well clearly, if the Greek government makes promises to its people that it can't keep, the Germans should bail them out!

So why can't we demand the Germans bail out, say, California?

 

[ParticleGrl]

That's part of the basis of liberals' objection to the 47% statistic and general progressiveness of the federal tax structure -- particularly as it pertains to the rich. Since the rich don't pay into it above a certain income level - and are also excluded from the benefits above that level - a snapshot-in-time view of taxes that includes SS implies a flat or regressive tax structure. But in a cumulative lifetime analysis, it cancels out and then some.

Its actually somewhat tricky to do this cumulative lifetime analysis because poor people die younger. (see http://www.nytimes.com/2008/03/23/us/23health.html ) Along with an income gap, we are developing a life-expectancy gap. Maybe we should hunt down those numbers and work it out.

Also, I think the larger part of the objection to the 47% statistic is that excise taxes,sales taxes, many state taxes, etc are regressive. Even if we exclude payroll taxes as somewhat ambiguous, there are lots of regressive taxes that everyone pays, including the bottom quintile.

But that said, I do believe it is unethical to set up a retirement system that is not inherrently self-sustaining.

I think this is a problem with retirement systems in general. Basing a retirement system on the value of future capital (like 401ks) is as problematic as basing a retirement system on the value of future labor (social security). An increase in the ratio of old/young workers will mean economic slow down and lower expected returns to 401ks. See an economist at North Carolina discussing this on his blog http://modeledbehavior.com/2011/02/22/the-401k-pyramid/

This is compounded by the fact that young workers have substantially less wealth than they used to- so who buys the retiring boomer's stocks?

 

[WhoWee]

So why can't we demand the Germans bail out, say, California?

Let's start smaller - they can bail out Rhode Island with much less investment - and less risk of a growing illegal immigrant population seeking benefits.

 

[WhoWee]

Its actually somewhat tricky to do this cumulative lifetime analysis because poor people die younger. (see http://www.nytimes.com/2008/03/23/us/23health.html ) Along with an income gap, we are developing a life-expectancy gap. Maybe we should hunt down those numbers and work it out.

Actually, the best method to correct the system might be to adjust the lifetime payout to the life expectancy when the system was originally designed - then allocate those (lower amounts) payments over the new life expectancy?

For instance, if the original design was for a 5 year payout (feel free to insert the correct ages/times) - assume $15,000 per year = $75,000 - from 65 until 70 years of age and the current reality is a 20 year span from 65 to 85 @ $15,000 = $300,000 (to be "fair") why not split the difference to 12.5 years of benefits = $187,500 paid over the 20+ year span = $9,375/year average?

Please note, if all of the persons and conditions that were never intended to be funded out of Social Security are separated (they recently added 50+ categories to SSDI qualifications and have grown by a few million persons) are removed from this calculation and funded with a new "disability" tax - the cuts to retirement payouts would be much lower (and the program might be watched closer).

 

[russ_watters]

So why can't we demand the Germans bail out, say, California?

Yeah, I get it - we kick them out of this union and make them join that one!

 

[russ_watters]

Its actually somewhat tricky to do this cumulative lifetime analysis because poor people die younger. (see http://www.nytimes.com/2008/03/23/us/23health.html ) Along with an income gap, we are developing a life-expectancy gap. Maybe we should hunt down those numbers and work it out.

Here's some: http://www.urban.org/uploadedPDF/310667_Straight36.pdf

Interestingly, it shows how big of a problem Medicare is, with the pay-out to pay-in ratio being much higher than SS. Both show a lean to the left, but the SS part (figure 2) is about 1.3:1 for low income earners and a touch under 1.0:1 for high income earners.

For medicare, as one would expect, the ratios are much more tilted due to the fact that the pay-in is tied to your income, but the pay-out is not.

So for all Warren Buffets complaining that his secretary is paying more taxes (percentagewise) than he is: she's going to get it back and he's not. Really, it is a better illustration of the problem I keep harping on: the young paying for the benefits of the old. That burden is getting bigger and bigger.

Also, I think the larger part of the objection to the 47% statistic is that excise taxes,sales taxes, many state taxes, etc are regressive. Even if we exclude payroll taxes as somewhat ambiguous, there are lots of regressive taxes that everyone pays, including the bottom quintile.

Granted, but that's a complex conversation, since many of those are different from state to state. That's why the conversation generally focuses on the federal level only.

I think this is a problem with retirement systems in general. Basing a retirement system on the value of future capital (like 401ks) is as problematic as basing a retirement system on the value of future labor (social security). An increase in the ratio of old/young workers will mean economic slow down and lower expected returns to 401ks. See an economist at North Carolina discussing this on his blog http://modeledbehavior.com/2011/02/22/the-401k-pyramid/

This is compounded by the fact that young workers have substantially less wealth than they used to- so who buys the retiring boomer's stocks?

I think that overstates the problem with 401k's/draws too big of a connection. If the federal government had just done some reasonable investing with Social Security funds, we wouldn't be in this mess.

 

[WhoWee]

I think that overstates the problem with 401k's/draws too big of a connection. If the federal government had just done some reasonable investing with Social Security funds, we wouldn't be in this mess.

I think some Government officials might agree - in hindsight.

http://www.msnbc.msn.com/id/3721442...ce/t/feds-get-earful-k-proposal/#.Tr_2wz1iSD4

"Government officials began seeking comments in February on a proposal to add an annuity option to retirement plans. Such an option would potentially turn a portion of a retiree's savings over to an insurance company in exchange for a monthly check."

 

[MarcoD]

Yeah, I get it - we kick them out of this union and make them join that one!

Well, the following states have a http://www.usgovernmentspending.com/state_debt_rank": Colorado, Washington, Alaska, Rhode Island, South Carolina, Pennsylvania, New York, Kentucky and Massachusetts. Wanna kick them too?

I personally don't want them, except for New York, maybe, if it renames to its correct name: New Amsterdam.

 

[WhoWee]

Interestingly, it shows how big of a problem Medicare is, with the pay-out to pay-in ratio being much higher than SS. Both show a lean to the left, but the SS part (figure 2) is about 1.3:1 for low income earners and a touch under 1.0:1 for high income earners.

For medicare, as one would expect, the ratios are much more tilted due to the fact that the pay-in is tied to your income, but the pay-out is not.

Original Medicare (Parts A & B) is the FFS or Fee For Service and MA means Medicare Advantage (Part C).

http://www.ama-assn.org/ama1/pub/upload/mm/399/nac_mafacts.pdf
"> The Congressional Budget Office reports that
21 percent of MA spending goes to plans that
are paid from 120 percent to greater than 150
percent of FFS costs"

 

[ParticleGrl]

Here's some: http://www.urban.org/uploadedPDF/310667_Straight36.pdf

Near as I can tell, this fails to make the adjustment I was discussing. Life expectancy is shorter for lower incomes, higher for upper incomes and near as I can tell this wasn't taken into consideration.

I think that overstates the problem with 401k's/draws too big of a connection.

Why? What solves this problem?

If the federal government had just done some reasonable investing with Social Security funds, we wouldn't be in this mess.

Nonsense, corporate pensions were heavily invested and the dotcom bust and housing crash have all but wiped them out. Its not just public pensions that are in trouble!

Interestingly, it shows how big of a problem Medicare is

Yes, that's why I've said several times that the long term budget problem is really a healthcare problem. Its also why health care reform is supposed to be a large long-term deficit reducer.