Should Social Security Be Means-Tested?
Stuart M. Butler, Alison Acosta Fraser, and William W. Beach have developed a proposal for the Heritage Foundation entitled Saving the American Dream: The Heritage Plan to Fix the Debt, Cut Spending, and Restore Prosperity. It is well worth a look, but there is one particular which the estimable Amity Shlaes, author of The Forgotten Man: A New History of the Great Depression, does not like – and, frankly, I’m with her. The folks at Heritage want to means-test Social Security. They want to reduce payments to anyone who makes over $55,000 a year and eliminate them altogether – both for individuals who make over $110,000 a year and for couples who make more than $165,000 a year – and Tim Pawlenty has reportedly endorsed something similar.
Think of what this means. If we were to adopt this proposal, the federal government would tax one group and tax it heavily, as it has been doing for more than seventy years. Then, it would provide that group in return for its contributions with . . . nothing or next to nothing at all. This tax would be a form of punishment – designed for those who had had the effrontery to succeed. And, of course, like every other form of transfer payment, it would reward failure. It would be hard to think of any policy more likely to subvert the work ethic than this.
It would also turn our polity into a regime of broken promises. As Shlaes puts it,
Social Security is different from other entitlements. In their first great explanatory pamphlet of 1937, the members of the Social Security Board carefully presented the program as insurance, and they wrote in actuarial terminology: "payments are like premiums paid for fire insurance or accident insurance," or "saving for a rainy day."
Americans would pay a portion of their wages into Social Security's trust fund as they worked, helping to provide a safety net for the elderly, and in exchange the government promised to pay them reliable benefits when they retired.
That contract-and-account culture was preserved and promoted down the decades. Most Americans have, over time, considered Social Security a fairly good deal, a contract that was honored. The contractual aspect is important to retirees, especially those who may earn enough to be deemed "affluent" while still counting on Social Security's monthly payments. As Dean Baker and Mark Weisbrot pointed out more than a decade ago in "Social Security: The Phony Crisis," cutting seniors off from Social Security makes no more sense than telling them they are no longer entitled to interest payments on their Treasuries.
As Shlaes points out, it would be easy to fix Social Security. All that is required is to index “its base pension formula over time to inflation” to inflation (as opposed to wages) and to raise the age of eligibility. Both proposals make sense. Indexing the formula to inflation preserves the pension’s value (while indexing it to wages inflates its value), and raising the age of eligibility restores the program to its original purpose. Social Security was meant to be a form of insurance. In the 1930s, when it was instituted, only a small proportion of Americans lived past 65. The program was aimed at those who outlived their working years. Now most Americans live well past 65, and to an ever increasing degree they work past that age. To expect them to do so is hardly unjust.
Medicare and Medicaid are, Shlaes insists, programs of a different character – aimed at providing transfer payments. Reconfiguring these programs might actually serve the public good, and it has to be done – for there is no other way to contain the costs.
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Aug '10
Re: Should Social Security Be Means-Tested?
Quite right, Paul. The federal government has a massive spending problem. We shouldn't be talking about any new taxes of any kind until the massive waste and corruption in federal, state, and local government has been curtailed.
Did anyone see the story from yesterday that Obama has increased the fleet of limos by 73%?! This is despicable.
Re: Should Social Security Be Means-Tested?
Wow. Interesting. Thanks, Paul. You know, I always just reflexively said that we should means-test Social Security without really thinking about it.
Now that I've thought about it, I see your point. Means-testing would turn a quasi-insurance scheme into a transfer payment. It would turn a savings plan into a rip off.
Re: Should Social Security Be Means-Tested?
Rob Long: Wow. Interesting. Thanks, Paul. You know, I always just reflexively said that we should means-test Social Security without really thinking about it.
Now that I've thought about it, I see your point. Means-testing would turn a quasi-insurance scheme into a transfer payment. It would turn a savings plan into a rip off. · Jun 2 at 11:43am
It is already a bit of a rip-off. Those who earn very little and not for all that long do nearly as well as those who work for a very long time and earn a fair amount. But it still functions as a form of social insurance.
One could, of course, argue that social insurance is a bad thing. It reduces the incentives for having children. Were Social Security not in place, I would not be inclined to support its institution.
Nov '10
Re: Should Social Security Be Means-Tested?
Yes and no. On the one hand, it's true that people think Social Security is an insurance scheme rather than a government handout. But just because people believe it doesn't make it true. It really is a wealth transfer program, isn't it?
So which is worse: to let people go on believing, falsely, that they are getting out of Social Security just what they put in? That at least has the merits of encouraging people to think of themselves as being responsible and hard-working, rather than as parasites, and perhaps then discourages the welfare state mentality, but it costs us more money. Or is it worse to rip the mask off of Social Security, get those who get it to own up honestly to needing a government handout, but save some of the money?
I am assuming that either approach would not affect those who are beyond or close to retirement, but would probably hit me and my cohort, and even so I'm not sure which approach I prefer.
Jun '10
Re: Should Social Security Be Means-Tested?
Raising the retirement age can present a different type of injustice. If you do manual labor--even when you enjoy it--working until age 70 is big hill to climb. Much bigger than for someone who works at a desk.
Apr '11
Re: Should Social Security Be Means-Tested?
The most obvious quick fix for SS is to eliminate the cap (currently $106,800). It seems this would have to breathe some life into it I would think. I'm sure there's a study out there about this, but I'm too lazy to look for it right now.
Personally, I'd love to be able to opt out. They can keep what they've gotten from me up until now, keep taking the 1/2 my employer is contributing and let me have my half to save (or have my employer and I each contribute 1/4 and then I can negotiate a higher salary since my true cost to my employer will be less).
I've been saying for as long as I can remember that SS won't exist when I get to retirement, so I'm not counting on it. On the other hand, it was sold to the previous generation(s) as an insurance program (clearly a lie, it's a tax), so they feel entitled to get their money back. I don't blame them. I think the solution lies with giving people choices such as the one I've described.
Edited on Jun 2, 2011 at 12:12pmJan '11
Re: Should Social Security Be Means-Tested?
Indexing to some means-test formula would create incentives to hide assets, increase compliance costs, and cause the financially stable people who paid into this scheme to (rightfully) get upset at the unfairness of it.
Since was compulsory insurance designed to pay in the event you outlived your ability to earn an income then it should stay that way. I think that the only sensible solution is to up the age to somewhere in the mid to late 70s and to immediately stop using any surpluses [are there even any of those any longer] to pay for current federal spending. I know that I want to opt out of this thing, like right now, and forget about ever getting any benefit in spite of the years that I've contributed to it.
Sep '10
Re: Should Social Security Be Means-Tested?
I don't think very wealthy people get completely shafted by Social Security. For 2010, they paid 6.2% of their income up to $106,800 (if I read this correctly). That means that for individuals who make, say, $250,000, they are not actually paying 6.2% of their total income, whereas someone like myself, who makes less than $50,000, does end up paying 6.2% of her total income because she's never able to pay in enough to reach the yearly limit. Plus, if I'm not mistaken, the monthly amount that wealthier people get back at retirement is greater percentage-wise than what someone in my bracket would get back, again because they reached the yearly limit. I do not begrudge anyone great wealth. Not at all. But for folks who aren't wealthy and do pay the total percentage throughout their working lives, are they not kind of getting shafted because they didn't make a higher salary?
Jan '11
Re: Should Social Security Be Means-Tested?
Sure it is. But the bigger injustice is for this to continue on and have future generations of workers contribute to something that they will never benefit from. In fact, I tell younger people not to tolerate it. I explain to them what's happening, if they're paying attention, I tell them that they should vote for what's in their self interests through the voting process: voting for politicians that promise to scale back on the benefits. This has to be a shared sacrifice and these potential injustice claims by older folks is not resonating with me at all.
Feb '11
Re: Should Social Security Be Means-Tested?
Means testing SS means changing it from something of a transfer program (as Pevensie notes) to a out-and-out welfare program. As conservatives I think we all hate transfer programs and welfare programs, but the former are actually more devious in some ways. Transfer programs give all Americans an interest in seeing big government take care of them. On the other hand, SS as a welfare program would be limited and could one day fall victim to the argument of unfairness. It would become comparable to food stamps and vulnerable to the same conservative argument: i.e. the goal should not be how many Americans we can get into the welfare state, but how many Americans we can free from government dependency.
Admittedly, this is a long-term, obtuse argument, but then again, SS is a long-term obtuse program.
Sep '10
Re: Should Social Security Be Means-Tested?
Do away with the entire program.
The elderly indigent can apply for the same general welfare benefits as the middle aged and youthful indigent.
Aug '10
Re: Should Social Security Be Means-Tested?
Lucy, you just took the words right off the two tips of my forked tongue.
I could see means-testing social security as the first step to getting rid of the "Social Security" System -- and the Social Security tax -- as such. Why should they use "saving our retirement" as an excuse for taking chunks out of our paycheck when we all know they're doing no such thing with the money? And couldn't most of us do a better job with that money planning for retirement in our own way?
An "insurance scheme" that doesn't allow you to arrange your own affairs in the way you feel best secures your future isn't much of an insurance scheme.
Edited on Jun 2, 2011 at 12:29pmJan '11
Re: Should Social Security Be Means-Tested?
Many of them were or will be in the long run. High wage earners typically have the resources to use the services of financial planners. When it's all said and done [because you know the means-tested will get scr**** out of the return on their compulsory investment], the wealthy that will be required to make the sacrifices could have done much better if they never were forced to participate in this generational-wealth-transfer scheme.
Aug '10
Re: Should Social Security Be Means-Tested?
Mark Belling Fan: Do away with the entire program.
The elderly indigent can apply for the same general welfare benefits as the middle aged and youthful indigent.
Exactly.
Now, is it possible that means-testing could be the first step to the whole program's abolition?
Sep '10
Re: Should Social Security Be Means-Tested?
Walter Williams offers a reasonable solution..
By the way, thinking about the looming Social Security disaster, I believe that a person who's 65 years old and has been forced into Social Security is owed something. But who owes it to him? Congress has spent every penny of what he put into Social Security. Any check he receives comes out of the hide of young workers in the labor force. I think that's unfair. The young worker has no obligation to that senior citizen, but Congress has.
I have a one-time fix to give us some breathing room to make reforms. The federal government has huge quantities of wasting assets — assets that are not producing anything, 650 million acres of land — almost 30 percent of the land area of the United States. It owns 80 percent of the land in Nevada, 70 percent in Alaska, 60 percent in Idaho and 50 percent in California and Oregon. I would be willing, and I suspect many others, to make a deal with Congress whereby I forsake all Social Security and Medicare benefits for, say, 50 acres of land in Alaska.
Re: Should Social Security Be Means-Tested?
Actually, it is both.
Re: Should Social Security Be Means-Tested?
What percentage of sixty-year-olds are still doing manual labor?
May '11
Re: Should Social Security Be Means-Tested?
That a conservative think tank is proposing this is the most discouraging thing I have read today. Ms Schlaes' proposal makes much more sense although I think it assumes low to neglible inflation which has historically been difficult to maintain in the era of fiat money. I think exempting manual labor from the raise in retirement age would be appropriate. I also think it would be good if there were an incentive in place to voluntarily postpone collecting benefits but I don't know how to do that. As a brief asside, when I was a child my mother, a liberal social worker (pardon the redundancy) insisted that our black maid get registered with social security so that she could withhold the proper taxes. As soon as Ruby was enrolled, she filed for disability and my mom had to find a new maid. My mother complained about the ingratitude for years.
Dec '10
Re: Should Social Security Be Means-Tested?
As long as we get the mineral rights.
Midget Faded Rattlesnake
An "insurance scheme" that doesn't allow you to arrange your own affairs in the way you feel best secures your future isn't much of an insurance scheme. · Jun 2 at 12:24pm
Edited on Jun 02 at 12:29 pm
It's much worse, IMO, than a lousy insurance scheme. It isn't even fair to Ponzi to call it a Ponzi scheme. At least when he squandered your money, you knew who to sue. Instead, your neighbor is actively working against your interests by electing the guy who continues the farce. It pits old against young, etc. It is the worst, most deceptive kind of social engineering.
Jan '11
Re: Should Social Security Be Means-Tested?
Agreed! Either the Heritage Foundation is getting progressively more pragmatic [read: less principled] or I am hopelessly becoming more of a minarchist with less tolerance for the type of pragmatism that does little to address the government-created problems we face.