Social Security

The Social Security Choice

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Hello? Anyone there?

The Washington Post notes a new report indicating that Paul Ryan's long-term budget plan "would reduce benefits by gradually raising the retirement age and gradually trimming benefits for the top 70 percent of earners." According to the report, the wealthy and those who are currently under 25 would see the greatest reductions under Ryan's plan. Given that the program is effectively a subsidy for retirement, reducing the subsidy for the better-off doesn't seem like the world's worst idea. And as Ryan spokesperson Conor Sweeney says at the bottom of the article, Ryan's plan actually provides beefed-up benefits for low-income individuals. More to the point, though: What happens to benefits if we don't restructure Social Security? As Cato's Jagadeesh Gokhale pointed out earlier this year, without change, the program runs a "high risk of insolvency." It's headed for a permanent deficit within five years, and in 2037, it won't even have a mythical "trust fund" to fall back on. That means that workers in their mid 30s are looking at a 27 percent benefit cut. So even if you ignore the larger budget issues, the question isn't whether to choose between Ryan's plan or no benefit cuts. It's what to do with a program that isn't sustainable in its current form.

Last month, Reason Senior Editor Jacob Sullum asked why progressives don't support means testing of Social Security benefits.

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  1. “Given that the program is effectively a subsidy for retirement, reducing the subsidy for the better-off doesn’t seem like the world’s worst idea.”

    Agreed. I’m not sure when the Dems became the party against “means-testing” benefits, but it was a stupid move.

    1. Agreed. I’m not sure when the Dems became the party of thievery and subsidies disguised as benefits, but it was a stupid move.

      FIFY

    2. Politically it’s worked out pretty well for them, and their wealthier voters have demanded it.

      They console themselves with the idea that “a program for the poor is a poor program.”

      This is what I mentioned to you yesterday.

    3. Right around the time when the Greatest Generation Ever! (no, not the WWII gen) came to power and realized that it conflicted with their business plan of a completely co-dependent population.

    4. IIRC from 2005, the argument was that means-testing was an evil Republican stalking horse for total privatization, and prelude to abandoning old folks on ice floes. Once the rich had to pay without receiving any benefit, the Illuminatus Council in the person of Cheney would personally start kidnapping and abandoning retirees (probably black).

      1. I recognize that politics is politics and that SS Reform is really no different from a million other issues in that regard, but that whole episode just struck me as particularly shameful with the way the whole thing got so quickly demagogued from both sides.

        There was/is an easily observed and quantifiable fiscal problem (compared to say, gay marriage or airport security) and it was just completely ignored and distorted in favor of craven short term political games.

        Just really made me sick then and pisses me off now, still.

        1. In fairness, on that one issue that Republicans were being fairly reasonable, moderate, and far sighted. W dropped all privatization plans when the Dems made it clear it was a dealbreaker in exchange for arguing for reducing the rate of growth of benefits for the wealthy.

          Of course, for their troubles of being reasonable and mature, the Republicans got their asses kicked politically. And people wonder why they’re craven on other issues and now.

    5. the argument on the left against means testing is that it would demonstrate even more clearly that social security is a welfare program, not a pension plan, which would result in it being less politically popular

    6. As soon as a lot of the politicians in the party stopped having any principles beyond getting elected, which was whenever the party was founded (and the same can be said of Republicans).

    7. I’m not sure when the Dems became the party against “means-testing” benefits

      1986, to be precise.
      Reagan and the Republicans proposed means-testing social security benefits, because the program back was already on the path to unsustainability.

      I’m not sure what the Dems argued back then, but the Republicans got burned hard by it, and have been afraid to touch the subject ever since.

      Instead, the problem was solved by increasing payroll taxes.

      Unsurprisingly, the Democrats once again would rather increase payroll taxes. Proving what a ponzi scheme the whole thing is. Always increase taxes … never cut benefits.

      1. Actually, no.

        The Democrats became the party against “means-testing” benefits in 1937. In other words the Dems have always been the party against “means-testing” benefits.

        Many Republicans at the time supported a means-tested income supplement for the elderly funded out of general revenues. FDR and the Democrats rejected that plan in favor of one that produced revenue to use for current spending while also being too popular to ever be repealed by promising a retirement income.

  2. According to the report, the wealthy and those who are currently under 25 would see the greatest reductions under Ryan’s plan.

    I don’t know anybody under 40, much less 25, or anybody with any assets, who is counting on getting any Social Security benefits. So I doubt this is the silver bullet to kill Ryan’s ideas that the Post no doubt fancies it to be.

    1. OK, let me get this straight. You’re going to take less money out of my paycheck and I’m supposed to be worried about that?

      Fuck you. Show me the money.

      1. Smart choice. In the 7-10 years until I become eligible, congress is going to reduce my SS check by at least 50 cents for every dollar I get from my military retirement.

        I’ve known this for a long time (decades) and planned for it.

    2. My retirement planning assumes Zero Dollars and no/cents ($0.00) from Social Security.

      When I run the retirement simulators (Fidelity has a particularly good one) with SocSec, it says I could retire now (

  3. In France, this would totally be an excuse to burn down the local post office.

    1. Except it wouldn’t fly in the U.S.

    2. They shut down our post office. Now I would have to burn down the local Shell station.

  4. I didn’t earn it. I don’t need it. But if they miss one payment I’ll raise hell!

  5. But, but, but…

  6. What happens to benefits if we don’t restructure Social Security? As Cato’s Jagadeesh Gokhale pointed out earlier this year, without change, the program runs a “high risk of insolvency.” It’s headed for a permanent deficit within five years[…]

    Wrong – it’s already IN THE RED.

    http://www.washingtontimes.com…..time-ever/

    1. Understood. But it’s predicted to bounce back into the black for a couple years, and then live in the red for the remainder of eternity.

  7. What the hell does she mean by “For example, allowing the retirement age to continue rising two months per year until it hits age 70 would cut initial benefits by nearly 20 percent for anyone turning 65 in 2050.”

    It sounds like the “cut” in “initial benefits” for someone “turning” (the chart says “retiring” so I’m guessing that’s what she means) 65 in 2050 is due to retiring 5 years before their full retirement age of 70, as opposed to 2 years (or whatever) early… but surely she isn’t operating at a high enough level of bad faith to be making that comparison, is she? She doesn’t, as far as I can tell, say anything about “initial benefits” at full retirement age now versus 2050.

    The article reads like it was skewed to fit her perspective so I’m not sure what the actual impact of the plan would be.

    1. Currently, retirement age is 65, but you can opt for a lower payment at 62. If we raise the official age to 70, but allow people to take an early, lesser retirement at 65, a person can be both retired and receiving fewer benefits at 65.

      1. Right, that’s why I was asking if all she is doing is comparing a static age of retirement with a higher full retirement age in 2050 and then calling that a cut in initial benefits. It looks like she is, but that seems like an embarrassingly bad argument to make so I was wondering if I misunderstood her.

        1. Sorry I mis-read your position. I thought you were making the assertion you were attributing.

          1. No problem. It was pretty poorly written even by my standards.

            1. How does Medicaid verify assets? Or does it at all?

    2. I don’t think she fully understands things, or maybe she is trying to skew it to fit her narrative.

      For anyone born in 1960 or after, full retirement is age 67. So if full retirement is raised to 70, the real question is what’s the difference between what a 65 year-old would get in 2050: the current 86.7% of full monthly benefit compared to something lower? Is it 20% lopped off that 86.7%?

      I guess it’s too much to want a WaPo reporter to understand what’s she covering.

      1. That was my question, just phrased better.

        The way it looks, she is comparing the initial benefits of someone who begins drawing benefits 2 years short of full retirement age (65 vs 67) with someone who begins drawing them 5 years short (65 vs 70).

  8. Should there be a moratorium on Abe Simpson images in Suderman’s posts?

    1. Get off mah lawn!

    2. There are very few things Abe doesnt improve on.

      “I’ll be deep in the cold, cold ground before I recognize Missourah.”

      1. Did Abe play the grandma in Josie Wales too?

  9. 65 is already a bogus age as its already been raised to 67 for anyone born after 1960ish.

    Continuing the 2 months per year thing is just obvious sense.

    1. I can’t imagine me retiring unless I have to.

      I doubt that I’ll be wealthy enough to do truly enjoyable things that I want to do frequently enough to keep me occupied. What else am I supposed to do with my time? Sit around the house with the wife?

      1. Yes retirement sounds really good if you have a ton of money to spend on fun stuff, or if you are good at finding fun things to do for free. Otherwise it sucks. At this point my retirement plan is probably to work until I croak. Maybe I’ll get lucky and keel over from a massive heart attack (CVD does run in my family) or maybe get shot to death by a cop or some other thug.

        1. That’s not a bad idea if you really want to die. Go out fighting the good fight. Make sure you get killed for a worthy cause.

          1. Im not saying Ive decided to do that but it beats rotting in some nursing home with Alzheimers, Parkinsons, etc.

            1. I was expecting to be close to 50% cyborg when they start to allow me to access my so-called “retirement savings”. Will I retire? Probably not. I’ll use some of those funds to fully automate myself to keep showing up and doing the job.

              If that creeps them out – I’ll have my hands and forearms replaced with gatling cannons so I can’t hear the sound of their puny objections.

      2. I’m only 32 and I’d retire today if I could. My DVR is almost full.

    2. They took are j…oh wait.

      I want my fuckin’ po…oh wait.

      I’ll be eating cat food! There we go.

      1. But cat food is delicious! Just heat it up on the hot plate.

      2. The Science Diet!! Soylent Green!!

  10. Is this the post where we get to laugh at the French again?

    We want benefits! How? Who cares!

    1. Look at that. It translates directly into English Progressive.

  11. But this can’t be right that Ryan’s plan only affects the young. A local Dem congressman is running tv ads pillorying his opponent as someone who will be supporting privatization of s.s. if elected. The voice notes that the stock market once fell by 50% and then this old lady (75 if a day) comes on and in a wavering voice says she can’t survive on 50% less s.s. So who is lying, Ryan or the craptacular
    Democrat?

    1. You must live in New Mexico–Martin Heinrich’s latest ad against his Team Red opponent is exactly as you described it.

      Me, I just wish I could opt out of the damn program altogether and find other ways to “save for my retirement.” But since Social Security is a tax and not an insurance or retirement program, there’s no escaping it until the whole system comes crashing down.

      1. Nope, other side of the continent. So the Dems must be using this same ad in various races.

        1. The GOP honestly should strike back with a “the Democrats want to cut Social Security benefits by 25%*” ad, because, hell, that is the actual alternate (articulated) plan of those who say that “Social Security is perfectly fine.”)

          *- In 2037

  12. Sometimes I think that the U.S. government is going to have to default and get into a Greek style crisis before anything will get done. The shortsightedness is breathtaking.

    1. “Sometimes”?

      1. Yeah, the rest of the time I’ve got my head in the clouds thinking that there are grownups in charge. It’s a personal weakness that I am trying to overcome.

    2. Of course that will have to happen. No politician in any position of power has the guts to tell anyone “no.” It is always easier to demagogue the issue and kick the can further down the road. The only way anything will get done is if we have a Greek style crisis.

  13. Means testing sounds nice, but how would you implement it? If you use calendar year ordinary income, you’re basically just taxing 401-K and pension distributions, since seniors tend not to work – and for those seniors who do work, this plan will further disincentivize late-life work. If you use assets, seniors will hide assets, give assets away, rand echaracterize assets away from anything that government counts – and this doesn’t even include the vast new institutional apparatus that the federal government would need to start counting people’s assets, which will likely lead eventually to a wealth tax. If you use lifetime income, this is effectively just another massive income tax hike, on top of the increases that Democrats are already implementing, or are trying to implement.

    I’m very curious what your solution is. Means testing seniors for entitlement benefits sounds nice, but it’s tough in practice. My preference would be to just tie payroll taxes to social security benefits via a strict inflation calculator, and make Medicare a bare-bones program that still required supplemental insurance.

    1. Disagree. We already do this to qualify people for hospice/elder care. You pay your money until your assets run out, then you qualify for assistance. I believe the only thing you can shield of value is a single homestead. We just need to shift this paradigm to all retirement payments. If you are still taking disbursements from personal retirement accounts, you don’t qualify.

      1. I think that’s going to be a pretty hard sell.

        If you’re going to cut it back that far and explicitly turn it into a welfare program, stop the withholding, worker and employer, and pay it out of general revenue.

        1. It is true this is done for nursing home/hospice care but it is massively unpopular. The adult children of elderly patiens want taxpayers to foot the entire bill so that they can inherit some money when the old boy or girl kicks the bucket. There is a big industry in advising oldsters how to transfer assets to their kids so they qualify for Medicaid.

        2. They already pay it out of general revenue. That’s why the “Trust Fund” is such bullshit. Its a book-keeping gimmick where they call the net difference between withholding and payments a Social Security credit, but spend all the difference on the Federal budget. Then they don’t count the IOU as part of the deficit.

  14. Screw means testing. If I’m being forced to pay into it, I better get my money back. If that means SS goes broke, then all the better.

    1. They can keep what they’ve taken If I could opt out now.

      1. Sign me up. And I’ll only be contributing for about another five years if things go the way I hope.

        I think the next five years of SocSec contributions, with 12 years of earnings, will probably be worth more than whatever I might collect after I become eligible in 17 years.

    2. But the problem is that *everyone* is promised more than their money back. That’s why the program is in trouble. It has absolutely never taken in enough money from someone in order to pay off their own benefits, even invested in 30 year Treasuries or whatever.

      The *only* reason why it could maintain being funded was because of the worker-retiree ratio.

      Besides, the damn thing is already “means tested” anyway. Your benefits are based on a complex formula with several inflection points that determines how much you get based on what you put in, but not everyone gets the same rate of return.

      Means testing it would be as simple as adjusting that formula so that the upper middle class only roughly gets out what they put in, instead of everyone being promised an unsustainable amount more than what they put in plus interest.

  15. Reasonoids, I don’t understand the social security is broke argument with respect with to the trust fund argument. Doesn’t the existence of a trust fund show that social security was for a period of time solvent at least in the 90’s? I know there is no trust fund so to speak, and the government spent the money on tiling a light way to the center of our galaxy. Since the government had a trust fund to blow away, the social security taxes was for a period of time too high in the first place for a trust fund to exist.

    1. “Doesn’t the existence of a trust fund show that social security was for a period of time solvent at least in the 90’s? ”

      Since the government doesn’t keep it’s books on an accrual accounting basis – or according to GAAP (which would rule out pretending govt IOU’s issued to itself held by the “trust fund” is an “asset”), it doesn’t really prove anything.

      The unfunded liabilty for SS and Medicare is mucho trillions.

    2. SocSec was solvent (in the sense of current income was enough to pay current liabilities) from its inception until, what, this year, last year?

      Its impossible to say that SocSec was solvent or insolvent on an asset basis (assets sufficient to pay future liabilities), since it never had any real assets.

    3. It had a trust fund in the sense that it collected more money right then than it had to pay out right then.

      However, it never actually collected enough money from people at the time in order to pay off their promised benefits when they themselves were retired. It was never actuarially balanced.

      The only reason why it had enough money at the time to pay off benefits is because of the ratio of workers to retirees.

      1. So, same as Bernie MAdoff?

  16. Let’s see. My neighbor buys a bass boat and I save the ten grand. He eats out every night, I cook cheap meals at home. Neighbor buys a big screen with surround sound and I stick with my old tv. And the government is going to give retirement benefits to him when he retires poor and deny them to me because I have a retirement account? Fuck that. End the program and give help to only the worst case seniors.

    1. If the popular response to the “housing crisis” is taken as a model you can expect that the public will not only support supporting you neighbor but scold you for being an uncaring brute and lecture you about how the spendthrift bastard “deserves” the help as well

    2. Yeah this aspect is what really pisses me off.

      Leftists constantly blather about the “haves and have nots” – never about the earn and earn nots.

    3. I can relate. My mom was in a nursing home – cost $60,000 yr. out of her savings. Women in next bed was widow of a physician. She’s on medicaid.
      But couldn’t stop bragging about the trip to Nepal, London every year, and all the other cool shit they had blown their money on.

      1. maybe a “lifetime earnings” test instead of an assets test. you want medicaid, okay, let’s see 20 years of 1040s first.

  17. Since I know blanket opt-out is a political impossibility, I want Congress to enact legislation giving people under a certain age–let’s say 45 and under–the ability to opt-out of Social Security permanently effective January 1 of the following calendar year post-passage. We don’t get our money already paid in back, but we no longer must pay Social Security or Medicare taxes. Income tax will never go away, so leave it in.

    1. But then they wouldn’t get to borrow your money at a negative interest rate.

    2. Wouldn’t work. Without your SocSec taxes, there wouldn’t be enough current collections to pay current benefits. Which will get paid out of the general fund (read: your income taxes/debt you will foot the bill for).

    3. Generations of people have already been paid out more than they put in, by consuming future taxes. This has taken advantage of the worker:retiree ratio. There’s no way to pay out the currently promised benefits without continuing the Ponzi scheme in some fashion or another.

      We could get it closer to sustainable in a variety of ways– the currently preferred Democratic one is a sudden massive benefit cut of 21% in 2031, or possibly in reality massively raising taxes.

  18. We’re so fucked.

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