Deficit Reduction • Hacker News Board

Re: Deficit Reduction

#31

Post by 100k » Sun, Jan 16, 2011, 5:26 PM UTC

bluedevil2k wrote: post #9

Fixing Social Security - it's always up for discussion and nothing ever gets done about it. The frustrating part is that the solution is somewhat simple, but politically it's untouchable. Here's my quick & simple solution for the problem: 1) Phase out Social Security benefits if your income level hits $50k that year. - This aspect of Social Security is perhaps most baffling - why does someone who is making $250k a ye…

The reason why wealthy retirees get Social Security and why the tax is capped at $106K/year is the same: it's to prevent Social Security from being a welfare program for poor people

Since everyone gets Social Security, this makes it much harder to get rid of. This was an intentional feature, and it has worked -- look at the fate of welfare programs devoted to poor people. The poor have very little political power and are easy to "other", making programs for them easy targets.

The tax cap is in place because Social Security payments are based on the amount you paid in. By capping the tax, this limits the payments necessary to wealthy retires which would make Social Security very expensive.

Anyway, nothing you're suggesting is totally unreasonable, but I think it's important to recognize that there is significant amount of political and policy savvy that went into to designing Social Security. It is both a very popular AND successful program.

Re: Deficit Reduction

#32

Post by yummyfajitas » Sun, Jan 16, 2011, 5:27 PM UTC

natnat wrote: post #30

benmccann wrote: post #29

Earlier quoted context omitted.

There are a lot of other options you left out as well: * Raise the retirement age * Privatize a portion of the program * Reduce benefits to a more sustainable level * Decrease the rate at which benefits increase each year I don't particularly like the options you laid out as it asks an already strained middle class to pay for benefits to the poor without the recipients making any concessions. But that's why the solut…

You're conflating upper class with middle class. People who are making $50k a year after retirement, or making more than $106k a year before retirement, are not middle class. They are upper-middle to upper class, and they have substantially more savings than the people who receive less Social Security benefits. You can make anything sound politically bad by calling something an attack on the middle class. The thing i…

Raising the retirement age will disproportionately hurt anyone who works physical jobs, who are already strained by the decline in construction and manufacturing.

Keep the low retirement age only for the declining number of people who work physical jobs. Problem solved.

Re: Deficit Reduction

#33

Post by natnat » Sun, Jan 16, 2011, 5:34 PM UTC

jpcx01 wrote: post #20

bluedevil2k wrote: post #9

Fixing Social Security - it's always up for discussion and nothing ever gets done about it. The frustrating part is that the solution is somewhat simple, but politically it's untouchable. Here's my quick & simple solution for the problem: 1) Phase out Social Security benefits if your income level hits $50k that year. - This aspect of Social Security is perhaps most baffling - why does someone who is making $250k a ye…

I absolutely hate #2, however I would go along with it happily if #1 and #3 were implemented. These are 3 really solid suggestions, that would in fact save social security. However, I think #2 is the only one thats going to happen, and its the worst one.

Why is that? The payroll tax is regressive, and it makes the total tax rate of someone who makes $200k a year lower than someone who makes $100k if you factor in employer contributions.

Re: Deficit Reduction

#34

Post by amalcon » Sun, Jan 16, 2011, 5:36 PM UTC

nickpinkston wrote: post #16

bluedevil2k wrote: post #9

Fixing Social Security - it's always up for discussion and nothing ever gets done about it. The frustrating part is that the solution is somewhat simple, but politically it's untouchable. Here's my quick & simple solution for the problem: 1) Phase out Social Security benefits if your income level hits $50k that year. - This aspect of Social Security is perhaps most baffling - why does someone who is making $250k a ye…

1.) FYI - Your car insurance analogy falls apart in aggregate because some people do use it, but the element of luck is what you can't account for, so we use risk tables. There's no refund for you because other people got unlucky - you're paying for them to absorb your risk. Social Security isn't insurance - it's a progressive tax for the purpose of generating a small pention for everyone.

Except that it's actually a regressive tax (being capped at $106k/yr).

Re: Deficit Reduction

#35

Post by Joeri » Sun, Jan 16, 2011, 6:19 PM UTC

yummyfajitas wrote: post #24

nickpinkston wrote: post #16

Earlier quoted context omitted.

1.) FYI - Your car insurance analogy falls apart in aggregate because some people do use it, but the element of luck is what you can't account for, so we use risk tables. There's no refund for you because other people got unlucky - you're paying for them to absorb your risk. Social Security isn't insurance - it's a progressive tax for the purpose of generating a small pention for everyone.

Quite right - if SS were insurance, you would pay into it directly in proportion to your probability of receiving it. Good drivers pay less for car insurance, and people who can provide for their own retirement would pay less for retirement insurance. For example, consider a very rich person, with P(income < $50k/year) = 0.01. If SS were really insurance, he should only pay $50k x 0.01 = $500 + administrative costs.…

Insurance is still insurance even if everyone pays equally into the system. The underlying principle of insurance is spreading risk to lower average cost. You can bill everyone the same amount and still have such a model. What you must mean is that social insurance isn't priced like commercial insurance, and that is true, but it makes sense to do it that way.

Commercial insurance tries to give least protection to those most at risk, to produce a higher profit margin. Social insurance tries to give maximum protection to those most at risk, to achieve some sort of ethical goal. Or in other words, commercial insurance is a form of business, social insurance is a form of charity. That's why social insurance costs least for those with the highest risk, and why commercial insurance is priced the other way around. They're still both insurance, just priced based on a different theory.

This difference is also why a commercial model of insurance can never be used efficiently for a social system (such as pensions or healthcare). Competition forces insurers to lower their prices, but the only way to do that and maintain profit is to lower pay-outs. How do you lower pay-outs? (1) provide less service to those that need it more, or (2) raise prices on those that need it more (risk-based billing, as you propose). The logical conclusion of that is that many of those that need protection are unable to afford it. That's not a "social" system. Social insurance is a charity, not a business.

Re: Deficit Reduction

#36

Post by jerf » Sun, Jan 16, 2011, 6:21 PM UTC

100k wrote: post #26

On the whole, this is a ridiculous article. No one except rich elites cares about the deficit (including the bond market: 30 year treasury notes are yielding 4.5% right now). Republicans may have made noises about it in the last election, but one of their major planks was that the Affordable Care Act cut Medicare benefits! We are in the middle of a global economic contraction, it is not the time to be reducing spendi…

"We are in the middle of a global economic contraction, it is not the time to be reducing spending"

I disagree. It's time to put Keynesianism to bed again. The only reason it came back to life was because it told politicians what they wanted to hear a couple of years ago. What it's time to stop doing is pretending that the solution to the problem is for the government to suck a dollar out of the economy to generate 75 cents of wealth and 50 cents of debt. In the real world, the Keynesian government multiplier is less than 1, and that cracks the entire theory wide open. And once you plug that number into the theory, it'll tell you the same thing.[1]

We absolutely need to cut government spending. Government can move dollars but it has proved incapable of generating wealth. It boggles my mind that after the past couple of years we're even talking about this. The final test of a theory is that it makes correct predictions, and the predictions based on Keynesianism have been repeatedly and continuously wrong. It's time to stop pretending it's because we're still not doing it hard enough.

[1] (Also, the multiplier is not a static universal constant. Like pretty much everything else economic, it reacts to conditions; if government were actually too small it might indeed be over 1 to grow it some more. So it's not that the optimal answer is to cut spending to 0, that's typical first-order thinking. It's just that today, the multiplier is way less than 1, and we've got a lot of shrinking to do before that's even close to changing.)

Re: Deficit Reduction

#37

Post by yummyfajitas » Sun, Jan 16, 2011, 6:58 PM UTC

Joeri wrote: post #35

yummyfajitas wrote: post #24

Earlier quoted context omitted.

Quite right - if SS were insurance, you would pay into it directly in proportion to your probability of receiving it. Good drivers pay less for car insurance, and people who can provide for their own retirement would pay less for retirement insurance. For example, consider a very rich person, with P(income < $50k/year) = 0.01. If SS were really insurance, he should only pay $50k x 0.01 = $500 + administrative costs.…

Insurance is still insurance even if everyone pays equally into the system. The underlying principle of insurance is spreading risk to lower average cost. You can bill everyone the same amount and still have such a model. What you must mean is that social insurance isn't priced like commercial insurance, and that is true, but it makes sense to do it that way. Commercial insurance tries to give least protection to tho…

Insurance is about pooling risk to allow people to reduce the variance/value at risk/etc of their costs, while holding the expected value of their costs constant.

You are describing a forced redistribution scheme, which perhaps devotes a slim minority of it's revenues to insurance. It's deceptive to describe such a scheme as insurance - you might as well describe the mafia as a pizza business, since a small amount of their revenues are laundered through a pizza shop.

You are also utterly mistaken about what charity is. Charity is the practice of benevolent giving. You are describing taking money from people by force and giving it to other people.

Re: Deficit Reduction

#38

Post by mixmax » Sun, Jan 16, 2011, 7:42 PM UTC

jemfinch wrote: post #28

ck2 wrote: post #5

Military and "defense" costs far more than "just" $1 trillion every year. There are many many hidden costs and the massive expenses for the thousands of severely wounded soldiers from Iraq and Afghanistan that survived instead of dying because of modern medical technology. http://en.wikipedia.org/wiki/Military_budget_of_the_United_S... This does not include many military-related items that are outside of the Defense…

"Now this conjunction of an immense military establishment and a large arms industry is new in the American experience. The total influence — economic, political, even spiritual — is felt in every city, every Statehouse, every office of the Federal government. We recognize the imperative need for this development. Yet we must not fail to comprehend its grave implications. Our toil, resources, and livelihood are all i…

The documentary "Why we fight" opens with Eisenhovers farewell speech and addresses this very problem. It'a available on Google video here: http://video.google.com/videoplay?docid=9219858826421983682# and is worth watching.

Re: Deficit Reduction

#39

Post by mark_l_watson » Sun, Jan 16, 2011, 7:49 PM UTC

Right on.

As Fred Wilson points out this is partially a political problem: getting most people to agree to necessary changes.

It is tough to cut defense spending however. Throughout history the rich and powerful have become richer and more powerful through wars. The chances of the government acting in the best interest of our country is about zero.

Another way that the rich get richer is on the "war on X" where X can be terror, drugs, etc. I just heard a good lecture on how much illegal drug money gets money-laundered through Wall Street by the drug cartels. Good luck changing that.

Re: Deficit Reduction

#40

Post by jleyank » Sun, Jan 16, 2011, 7:55 PM UTC

bjelkeman-again wrote: post #23

ck2 wrote: post #5

Military and "defense" costs far more than "just" $1 trillion every year. There are many many hidden costs and the massive expenses for the thousands of severely wounded soldiers from Iraq and Afghanistan that survived instead of dying because of modern medical technology. http://en.wikipedia.org/wiki/Military_budget_of_the_United_S... This does not include many military-related items that are outside of the Defense…

Imagine what could be done with that money if you spent it on schools, investment on renewable energy, upgrading the sagging infrastructure etc.

There's the rub. The money's NOT THERE... The US is spending what it doesn't have, and has to stop doing that...