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[quote=Anonymous][quote=Anonymous]
Hi PP....thanks for your insights. (I'm curious if you work with the SS program since you are obviously so knowledgeable.)
1. FWIW, I'm a moderate conservative and feel strongly, as you've noted, that changes to SS need to be a balance of tax increases (on the higher income via the cap adjustment) and a reduction of benefits (via a delay of one year for full retirement benefits). It's true, though, that those who do physical labor would find the latter difficult, if not impossible, and I have no idea how to allow for that. (Having two different "start dates" depending on class of labor or even average wages would not be politically feasible, IMO.)
2. Re the Increased benefits for those who pay more as a consequence of raising the cap, wouldn't that defeat the purpose to a large extent? If we collect more from the higher earners, only to return it in the form of increased benefits, wouldn't that be a wash? (Although I suppose there is room for negotiation here, too. Maybe return somewhat higher benefits by not so much as to offset the higher contribution totally?)
3. I'm unaware of the issue with the cap covering 90% of aggregate wages, but if historically this has been the case and we've "slipped" due to rising inequality, that seems like a politically palatable way to present the cap increase.
4. Finally, while SS needs to be "fixed" and I am very interested in how to accomplish this (I have no particular role other than a concerned citizen), a big problem is that many people have come to rely upon the program as their sole plan for retirement when it was always intended as just one leg of the stool - the others being pensions and savings. Pensions have largely disappeared (for the private sector), and savings are alarmingly low. While the difficulty in saving is apparent among the lower-income, there are far too many people in the UM brackets who spend right up to their means (or beyond!), and give no priority to savings. The WP had a survey recently showing that among those earning $100k plus, fully 20% could not come up with $400 for an emergency (or would have a challenge doing so).

Again, PP,  thanks for all the information. I'll look forward to the solvency info, but if you don't hear back from me right away, it's because I have a "day" planned. I will check out any additional postings from you when I get back.

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Hi PP, I'm back. Most of the intervening posts since I left were not mine, except for swatting away some rudely presented ignorance just now. People are certainly entitled to their opinions, but they aren't entitled to remain in ignorance. That said, some of the other intervening opinions were quite well informed too, however they're not necessarily the same as my personal opinions.

In answer to your questions, 
1. I don't work directly on SS. I work on retirement issues writ large, although that obviously includes Social Security. I don't work for the government, and I've certainly never worked for SSA.
2. Paying benefits to people who pay more as a result of raising the cap does in fact raise net income. This is because of the benefit formula. People at the upper end of the benefit formula basically get a 15% rate on their additional earnings dollars. So their increase in total benefits is going to be lower than what they pay in. It's not a completely fair deal for people who earn above the current cap, obviously. But in the spirit of compromise, they do get something more. Just not a whole lot more.
3. Yes, the argument for 90% is often presented as being politically palatable, and lots of people use that argument.
4. You're absolutely correct that lots of people don't save enough for a rainy day, let alone for retirement. That's why some are suggesting mandatory saving through your employer in the form of these state-run auto-IRAs. You're right, that only 2/3 of people work for employers who offered 401(k)s, and not all participate, and very few save enough. People really don't save unless it's taken out of their paychecks. In fact, there's even more economic theory about how to nudge people to save more within their 401(k)s. But worse, for the people who don't get offered 401(k)s by their employers, if you tell them nicely that they should start IRAs, they don't. As you say.

So on to solvency. The first thing you need to know, although you may already know, is that SS solvency is presented in terms of "percent of taxable payroll." Taxable payroll is basically Social Security's tax base, i.e. the FICA tax * wages subject to FICA. The 75-year financial shortfall, according to the Trustees' most recent projections, is 2.66% of taxable payroll.

So 2.66% of taxable payroll is the gap that needs to be filled. Generally people talk in terms of "what percent of the shortfall" any given proposal or package would fill.

So now you're ready. SSA estimates individual provisions and also packages. Here are all the estimates for individual provisions that they've done recently:  https://www.ssa.gov/oact/solvency/provisions/index.html. It's a little daunting because they do estimates for a wide range of phase-in dates, combinations involving donuts and alternative payroll tax rates, and so on.

Let's take raising the retirement age. If you (a) click on "C. Retirement age" and then (b) on the first item (C1.1), and then (c) you click on "Summary Measures and Graphs", you end up here: https://www.ssa.gov/oact/solvency/provisions/charts/chart_run191.html. What you want are the columns headed "Change from Present Law: long-range actuarial balance" and "Shortfall eliminated: long-range actuarial balance." The "long-range actuarial balance" is simply 2.66, the pct of payroll that represents the 75-year shortfall. The Change from Present Law is 0.36, and that's the . If you prefer to think of this in terms of the percent of the financing gap that's closed, then you can look at the "Shortfall eliminated" column, which reads 13% (i.e. 0.36/2.66). And that's your answer for this provision. Raising the Retirement Age by 1 year, from 67 to 68, closes 13% of the 75-year financing shortfall.

Let's look at a version with more impact. I don't know what appeals to you. But how about we take C1.4, raising the retirement age to 69 and then indexing it to changing longevity (that part about raising the retirement age 1 month every 2 years). Click on Summary Measures and Graphs for this provision, and you'll see it closes 40% of the financing shortfall. That's more like it. Also, indexing the retirement age to changing longevity makes intuitive sense and has a lot of political appeal to many people (again, if we can get over the problem of people who can't keep working).

If you move on over to the payroll tax options (group E), you'll see that the options for raising the cap have very different impacts depending on whether you want to pay slightly higher benefits to people who pay more taxes, whether you have a donut hole, and whether you apply the same 12.4% tax rate to wages/salaries above the current cap vs. a lower rate.  The simplest illustrative comparison seems to be between E2.1 and E2.2, both of which would eliminate the current cap in 2016 and apply the full 12.4% FICA tax to earnings above that level. E2.1 wouldn't pay benefits on new tax payments and closes 88% of the 75-year shortfall. E2.2 would pay benefits on new tax payments and closes 71% of the 75-year shortfall.

But as you and I discussed, maybe returning to the historical 90% coverage ratio is more palatable politically. In that case you'd look at E3.1 (return to 90% and pay benefits on the additional taxes), which closes 29% of the shortfall. Or maybe E3.2 (return to 90% but [i]don't[/i] pay benefits on the additional taxes), which closes 37% of the shortfall.

So you can play with these, and see what variations and phase-ins appeal to you.

Another thing to keep in mind is that some of these provisions have interactions with other, which aren't captured by the individual estimates. So if you raise the retirement age so people work longer, AND you lift the cap, you're going to have a group of higher income people who are working longer AND paying more FICA taxes. The individual provision estimates don't capture these interactions.

As you can see, this gets really weedy. That's why the American Academy of Actuaries' game, which I linked to last night, is more accessible to many people. But if you're up for going through SSA's projections to find the package you like, then major props to you.

Hope that helps.

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