How does Warren Buffet pay such a low tax rate, and are the people who've told me so far correct?

Not quite correct. First of all, it started in 1936.

Secondly, we are currently at a tipping point where revenue doesn't cover its expenses, and the SSTF has started to call in its "bonds" (really LBJ's IOUs). Those will be exhausted about 2036 (or 2022 if Obama's Jobs Act goes through) and after that, SS will only have enough revenue per year to pay about 77% of its estimated obligations.

It depends on how you define "cover". The problem is that it covers it only if the money is found to repay the Treasury securities that make up most of the funds. The SS commissioners are saying that current income will no longer cover outlays in a couple of years (I have heard as early as '12 depending on the assumptions). There is not now (nor has there even been) a mechanism put in place to actually repay the 20+ years of Treasury securities that are currently the SS's biggest "asset". Until someone can tell me where the money is coming from to pay this largely unfunded pension, SS runs out of money soon.

Of course there is. They're treasury bonds, they're paid off the same way as any other treasury bonds. What this means in practice is that the current SS shortfall is adding to the current deficit, which shouldn't surprise anyone since the prior SS surplus decreased the prior deficit.

Nonetheless, for the umpteenth time, all of the predictions of when the SS bonds will run out are very sensitive to economic assumptions and hence quite approximate, and in the worst case, small increases to FICA or other taxes would be adequate to keep paying benefits forever, assuming we still want to insure people against a destitute old age as we have been doing for the past 70 years.

R's, John

PS: to another note, there was a short term SS death benefit in 1936, but the retirement benefits we know as SS did indeed start in Jan 1940.

Strictly speaking, that might be true. But if they did not die off, there would not be enough money to keep the value of the shares up. It noted some time ago that if it were not for cigarette smoking, SS would already be broke.

Only true if you don't consider Treasury bonds to be assets.

If you don't, I'll happily take any you might have off your hands for a modest fee.

If nothing is done, FICA tax revenues will still be sufficient to pay

Pay-outs are actuarialy determined, just like life (or any other kind of) insurance, annuities and pension payment. Are you saying that they are all ponzi schemes, too?

___ Stu

YES, in a way. SS does not have any real investments. What investments there are, are Government bonds that depreciate because of inflation. Congress has made up for that by COLA's and increased SS assessments while spending any premium (tax or whatever you want to call it) in excess of payout. It is reaching the end of that road. They are basically saying that they will get the money somehow by the time the bonds need to be redeemed.

The reason it has been working so far, is that Congress is not trying to screw the investors, at least not in the way Bernie Madoff did--rampant theft. It is all above board and there to see by anyone willing to look. As long as the faith and credit of the Government is good, the value is there. But is this approach economically sound?

It seems to me that the approach is economically sound. However the details might need to change from time to time. For example in 1936 life expectency for men was 57 and for women 61. Most people wouldn't live to 65, so the outlay was much less over the population.

But as of 1998 the life expectency for men is 74 and for women 80. So instead of most people not living to collect social security, most people live to collect it for ten to fifteen years. Because of the availability of social security disability and the laws prohibiting mandatory retirement, it might be reasonable to raise the retirement age for social security.

___ Stu

On 11/2/2011 4:16 PM, Stuart A. Bronstein wrote: ...

Is that really so for SS? Are real actuarial data used to set the benefit levels? I thought it was basically just whatever the traffic would bear in getting authorizing legislation thru congress (with perhaps some phantom actuarial data thrown in for show).

Of course, if it were really actuarially-sound, the payouts wouldn't have started in a couple of years and there would actually be the accumulated "premiums" and the earnings therefrom from which to pay benefits instead of current revenues.

Except those numbers aren't useful for our calculations.

Yes, people are living longer today, but not that much longer.

The 1936 figures cited show average life expectancy but with many people dying before they entered the work market. Much higher frequency of infant deaths, much higher death rate for childhood diseases including measles, dyptheria and expecially polio.

Those are for those figures (At least as far as I could tell by matching with tables) was expectancy for those BORN in 1936. The real concern for SS is two fold, the %age of people actually living to get to 65 and life expectancy AT 65. I was only able to find figures starting at 1940, so they'll have to do. In 1940, 53.9% of males and 60.6% of females survived to age 65. They had a life expectancy then of 12.7 and 14.7 years respectively. By

This is a common misunderstanding of "life expectancy."

Life expectancy in the media is measured from BIRTH.

But statistically, as you make it through each year, your life expectancy increases, which the media does not show.

The previous post implies that few people were 65 or older because most died at 57 or 61. Well, there were many men and women older than 65 in

Life expectancy does not mean that a woman reaching 80 nowadays is expected to die at once. Reaching 80, she has a good chance of attaining

1. And so on for each year that she makes it.

Or another way to put it -- the average person's life expectancy decreases by less than a year in the course of a year.

(Of course, any individual's LE could decrease by many years in the course of a year.)