Bluejay's
intro: The Wizard has been strict about
keeping politics off of WizardOfOdds.com, but I've been
pressuring him for a long time to write about Social
Security reform because he's uniquely qualified to do so.
He's not only an expert on the subject but he's also fair
and evenhanded, and not biased towards any political
party. I insisted that our readers would appreciate the
benefit of hearing his thoughts on the matter, and he
ultimately agreed. I'm excited now that we're able to
bring you an analysis that's not only informed but also
trustworthy. So without further adieu, take it away,
Wizard!
Normally the Wizard of Odds is
an apolitical website. I certainly am for legalization of
gambling but that is about as far as I've let the site
get politically. However after eight years I'm going to
break with tradition and offer an opinion on something
that has little to do with gambling.
Before I was the Wizard of Odds I was an actuary from
1992 to 2000 at the Social Security agency headquarters
in Baltimore. The Social Security actuaries are the ones
who keep track of when Social Security will run out of
money, among many other things. Personally I was a
short-range actuary. My job was largely to determine the
effect that congressional legislation had on trust funds.
Whenever anyone in Congress wanted to change Social
Security there was a good chance I was the one who
calculated how much the change would cost or save over a
period of 5 to 10 years. I was heavily involved in two
big changes during the 1990's, the increase in the tax on
benefits for high earners, and the phase out of the
earnings test for those over 65.
I knew the long-range actuaries well and tried my best
to transfer to their division. There was talk of an
opening for an actuary to be largely devoted to the issue
of private accounts, and I made my interest known that I
wanted to be that actuary. However a couple big
retirements in my own unit kept me where I was.
Management felt they couldn't afford too much turnover in
my unit in a short time, and I can't blame them. Stuck
where I was I felt bored and frustrated, which eventually
resulted in my resignation so I could pursue building my
website and consulting on gaming math. Had things turned
a little differently in the year 2000 I may have become
the wizard of private Social Security accounts instead of
the Wizard of Odds.
It is very difficult for me to write briefly about the
whole big enchilada of Social Security long-term
financing and private accounts. I used to spend weeks on
internal memos on topics affecting very small groups of
beneficiaries. I have strong feelings about the topic, am
well qualified to address it, and have a captive audience
(you). However it pains me to briefly address I topic I
could write 100 pages about.
First let's review some numbers from the 2004
Trustees Report, which my fellow actuaries produce
once a year.
- Year in which monthly benefits will exceed monthly
tax revenue: 2018
- Projected date trust funds are exhausted:
2042
- Tax increase necessary to ensure solvency over
75-year period: 1.89% of taxable payroll
- 75-year projected shortfall in revenue: $3.7
trillion in 2004 dollars.
- 2003 benefits paid: $479 billion
- 2003 tax revenue: $632 billion
- Average interest earned on trust funds in 2003:
6.0%
(source)
Basically,
Social Security is a "pay as you go" system. Most money
that comes in goes right back out to somebody else.
Currently more money comes in than goes out. The
difference is invested in interest-earning government
securities. While things are fine today there is a huge
long-term crisis approaching. The baby-boomers are
nearing retirement age and life expectancy continues to
increase. There are currently 3.3 workers supporting each
1 Social Security recipient, but this ratio is projected
to decline to 2.0 by the year 2040 under intermediate
economic and demographic assumptions, and to continue to
decline after that.
It is a good thing we are taking in more than we need
now to prepare for the rainy day we know is coming, but
it isn't enough. As I quoted above we would need to
increase the Social Security tax by 1.89% now to be
solvent for a 75-year period. We've known about this
problem for years but nothing substantial has been done
since the Reagan administration. At the time Reagan
phased in tax increases and increased the retirement age,
but it wasn't enough. Since then commissions have studied
the problem during the first Bush and Clinton
administrations, but it was mostly just lip service. I do
applaud Clinton for finally phasing out the earnings test
for beneficiaries age 65 and over, which is another topic
but something I strongly agreed with doing.
Social Security is so huge it can't be looked at
without considering the entire national economy. Although
there was $1.53 trillion in the trust funds at the end of
2003 it could be argued that the money does not really
exist. When it comes time to cash in those bonds and
securities the money does not exist to just hand out.
Taxes will have to be increased at the time, less money
spent on other things, or we'll have to borrow more. The
big picture here is that right now the baby boomers are
at the peak of their earning potential, and the number of
Social Security recipients is relatively small. This is
the time that as a country we should be preparing for the
future by paying down the national debt and building up a
surplus for the day when there will be only two workers
for every one beneficiary. Yet what are we doing? We
continue to spend more than we take in, adding to the
debt, at precisely the time while we are young, strong,
and should be running a surplus. We did have a surplus
during many of the Clinton years, but alas no longer.
I applaud President George W. Bush for taking a big
political risk and actually making this topic a priority.
However I disagree that his proposal of private accounts,
presumably largely invested in stocks, is the answer. If
we let workers move some of their Social Security taxes
into private accounts that would leave a shortfall in
terms of paying existing benefits. As I said before we
have a pay as you go system. Another problem is that
Social Security was never meant to be entirely a "money's
worth" program. It is no secret that it is
welfare-weighted, giving low-income workers a much better
rate of return than high-income workers. If you let
people partially opt out of the current system it will be
mainly the higher earners that do so. That will leave
another shortfall. Simply put, the rich subsidize the
poor when it comes to Social Security. The poor generally
get more than they put in. If you let the rich partially
opt out then who will subsidize the poor?
What will probably happen if we allow private accounts
is the government will have to raise taxes or borrow even
more to make up for the shortfalls in order to pay
current recipients. Ultimately the private accounts
probably will have a better rate of return for high
earners than the existing system. However all that extra
income will ultimately go towards paying more in taxes to
subsidize those without private accounts, so those who
get the private accounts won't really wind up with more
money than they're getting now with the current
system.
Let's
also not think of the stock market as such a great
investment that it's a panacea. Stocks returned only 7.8%
from 1926-2001 without dividends reinvested. Social
Security trust funds are already making 6.0%, which
frankly isn't bad. However even if stocks were a much
better investment, there is only so much of that to go
around. If private accounts start competing for stocks it
will drive out other investors. Ultimately stocks will
only make or lose so much money, it is just a question of
who will whether you give the proceeds to Peter or Paul.
If the government didn't have a huge debt I wouldn't
oppose investing some of the trust funds in stocks.
However the rest of the federal government needs to
finance their deficit spending from somebody, so we may
as well borrow from Social Security. To do otherwise
would be like borrowing to play the stock market, which
is ill-advised for the average person, and thus should be
ill-advised for the country at large.
Ultimately, the wealth of the country is mainly a
function of how much in goods and services we produce.
Private accounts will not cause anybody to work harder or
longer. In fact I predict we will work even less as a
country as we waste time on the job checking how the
stock market is doing and another big bureaucracy will be
created to run the accounts. Private accounts will simply
be a shell game of moving money around. It does not
address the long-term crisis we face as a country as the
average age continues to increase.
There is no easy solution to the problem. We simply
need to reduce benefits, increase taxes, or a combination
of both. The sooner we do something the less painful
it will be. Personally I favor a balanced approached,
featuring an increase in the retirement age, smaller cost
of living increases, and a modest tax increase. This I
feel is a way to distribute the pain fairly. We don't
need to come up with a completely new scheme; changing a
few numbers in the existing system is all the fixing that
we need. Let's do something now rather than continue to
postpone the problem.
Postscript
I wrote the above commentary on March 15. At the
time I never imagined that on June 11 we still would not
have put out a newsletter. (Bad Bluejay!) Since I wrote
the above Bush proposed a plan to solve Social Security's
long term deficit. His solution is to make the initial
benefit (called the Primary Insurance Amount) grow more
slowly, which is basically a way of cutting benefits.
This would change how benefits grow starting now; all
benefit growth that's already occurred would still use
the old method.
The problem with this proposal is it unfairly puts the
burden of long-range solvency on the young. According to
the Washington
Post, which quotes the Social Security chief actuary
(whom I know well), those retiring in 2012 will only see
a reduction in benefits of 0.9%, while those retiring in
2075 will see a 45.9% reduction.
To put it bluntly, the young are already screwed as
they subsidize earlier generations through much higher
tax rates and lower benefits. This plan only makes the
inequity greater. The young should be mad as hell about
this. This is a cowardly way of putting off the problem
to younger Americans who for the most part have already
lost faith in the program.
I at least give Bush credit for proposing something.
Meanwhile the Democrats are obstructionists who will not
even come to the bargaining table. My advice to the
young is take the maximum advantage of employer matching
contributions to a private retirement plan, Fruth IRA's,
and any other such incentive. By the time you reach
retirement age Social Security will be extremely watered
down the way things are going. I'm just so mad about
this I don't even want to talk about it any
more!
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There are currently three new player bonuses to choose
from, and all amounts are valid in dollars, pounds, or
Euros:
|
Match Amount
|
On initial deposits
up to
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Wagering Requirement
(deposit+bonus)
|
For which games
|
More info
|
|
100%
|
$100
|
25x
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Slots, except progressives
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(more
info...)
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50%
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$200
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25x
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Poker Games
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(more
info...)
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25%
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$400
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25x
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Any game, except progressive jackpots and
even-money bets on roulette, sic bo, craps
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(more
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I like the 25% "any game" bonus the best. Note that
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All in all 32 Red is a fine casino and I'm happy to
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customer service a couple of times to check the details
on the bonus offer, and each time someone answered
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