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How Chris Christie Will Try to Put a Pro-Growth Spin on Entitlement Reform
Yes, Governor Chris Christie is still going to run for president. And it appears that, just as pension reform has been a core part of his New Jersey agenda, entitlement reform will be key to his national presidential agenda. From the WSJ: “Gov. Chris Christie called for reduced Social Security benefits for retired seniors earning more than $80,000 and eliminating the benefit entirely for individuals making $200,000 and up in other income, along with raising the retirement age to 69 from 67.”
This proposal will get lots of attention for touching the “third rail” and all that. (Here is AEI’s Andrew Biggs on the Christie plan.) Republicans have recently seemed less enthusiastic in talking about Social Security and Medicare reform. House GOP budgets, for instance, have only called for a plan to create a plan on Social Security. But here’s where it gets interesting. Again, from the WSJ: “Mr. Christie’s speech comes at a moment when the fiscal austerity impulse in Washington has diminished.”
I am guessing that Christie will portray entitlement reform as pro-growth, not just as a way to shore up the programs and avoid a fiscal crisis. Here’s Christie yesterday: “Every other national priority will be sacrificed, our economic growth will grind to a complete halt and our national security will be put at even graver risk.” Christie economic adviser Robert Grady makes the growth argument in greater detail in a 2013 WSJ op-ed:
The president claims to be concerned about spurring private investment. But investors at home and abroad can readily see that his steadfast refusal to reform the country’s entitlement programs threatens spending on physical infrastructure, education, university research and other items that will contribute to the future productivity of the United States. That same unrestrained entitlement growth, and the debt that comes with it, will ultimately compromise the value of dollar-denominated assets. Public companies have trillions of dollars of cash to invest sitting on their balance sheets, but the Obama economy’s growth record is weak, and insufficient to attract capital investment. … If the goal is to deliver higher incomes and a better standard of living for the majority of Americans, then generating economic growth—not income inequality or the redistribution of wealth—is the defining challenge of our time.
This theory also syncs with what Alan Greenspan has been saying lately. Here is the former Fed boss on CNBC not so long ago: “[Entitlements] are effectively crowding out savings, and because savings are the critical aspect in investment, it’s crowding out capital investment, and capital investment is key to productivity growth.”
Well, there is an argument to be made, I guess. But will voters find it too abstract and distant?
Yes, it’s too abstract. This is what voters will hear, “Unless you have no retirement savings, you are going to get shafted on your Social Security benefits.”
Anyone who has saved a decent amount of money to retire on is going to be affected by this, and they are the ones who have likely paid in the most to Social Security. I personally find the idea that I will get a substantially decreased benefit after paying in so much for so long (especially since as a self-employed individual I pay twice the SS tax that the average person does), really infuriating.
The GOP plan is to turn Social Security into a pure welfare system. Gee, thanks.
Hi BThompson. I’m in more or less the same boat as you. I feel your pain.
But
The arithematic doesn’t lie. At the current pace, there will only be enough in the SS coffers to meet about 75% of its obligations. The money just isn’t there. You and I are going to see our benefits reduced no matter what. There just isn’t the money. If this plan – or one like it – can create an atmosphere where all entitlements are on the table for restructuring and reduction, then our sacrifice will not be in vain. But make no mistake. You and I are already screwed.
What’s particularly egregious it that it is not fiscally sound. This is Republicans getting Maoist to possibly get rid of a very small percentage of payments.
Somebody who has slaved away paying into the system for 50 years will get the shaft.
Meanwhile we totally break the bank by letting immigrants jump into the system with little or no pay-in.
I’m willing to take less, but I don’t think only people making 80,000 and above should take less. There are many ways to restructure SS benefits that don’t stick it so exclusively to a certain segment. I’m fine with raising the age at which we receive benefits. I also think that the calculation for increasing benefits should be changed. I would be fine with raising the amount of income that is subject to SS tax. The way the plan is phased in would be a big factor in how I feel about the reforms as well. But this plan just sounds like a hold up job to me.
Setting an across the board number for the amount of income which disqualifies one from benefits is just nonsense. There are doubtless many seniors in places like New York or the Bay Area who still have to worry about paying rent and for whom $80,000/year is not a big number. Is this just a ploy to corral all seniors into the remote and rural areas of the country so that they can make their dollars stretch?
I understand the math doesn’t add up. But this is a lazy and gutless solution to the problem.
Yes. Shame, because the plan is a good one.
Allowing means testing of entitlements only gives a blessing to the dishonest and corrupt power grab that the current welfare state is. It would be better to just declare Social Security bankrupt and unwind it gradually over the next 40 years than do this. Because once you say that it’s okay to tax people making $80,000 or more, that number will eventually just fall to the point that this program is a purely redistributionist policy with no hope for reforming it, or replacing it with something sustainable.
Since I won’t be getting any SS benefits under Christy’s plan, can I stop paying my SS taxes now? Fat chance.
This is just another income redistribution scheme you’d expect to come from a Socialist/Democrat. Sorry, but having just written a check for an obscene amount to fund the govt’s current redistribution schemes, I’ll take a pass on this new one.
I help take care of the truly needy the old fashioned way – by contributing to private charities.
The looming SS trust fund disaster can be handled by allowing individuals to invest in private equities. The 50 yr return on the stock market has been what, 7-8%? The return our federal overlords have gotten on SS funds has been about 2%. Tough choice.
How about this idea ( courtesey of a David Goldman article )
“The distribution of rewards and penalties is manifestly unfair. The current crisis is particularly unfair to those who brought up children and contributed monthly to their pension fund, only to watch the value of their savings evaporate in the crisis. Tax and social-insurance policy should reflect the effort and cost of rearing children and require those who avoid such effort and cost to pay their fair share.” …..
….. “Shift part of the burden of social insurance to the childless. For most taxpayers, social-insurance deductions are almost as great a burden as income tax. Families that bring up children contribute to the future tax base; families that do not get a free ride. The base rate for social security and Medicare deductions should rise, with a significant exemption for families with children, so that a disproportionate share of the burden falls on the childless.”
This is interesting in light of a comment I thought that I heard Byron York make on Bill Bennett’s show that he thinks HRC will run on a campaign to significantly increase social security payments thereby taking advantage of all the baby boomers that have retirement resource angst. Of course those type of payments may include such facets as taking the caps off of FICA; increasing the rates; substituting the 401-k deduction for higher payments to SSAN, etc. I keep telling you the the tax-deferred money sitting in IRAs and 401-ks is too tempting a target particularly if the political class believes that low interest rates are forever.
I realize this is a conservative site and we would prefer dramatic solutions to the Social Security budget problems, but means testing and raising the retirement age reduce the amount that the government has to tax to pay for the program.
Have to stop letting the perfect be the enemy of the good.
The problem with means testing is that, as Andrew Biggs says, it discourages work and saving. Why should I work to increase my 401k if I know that it will just cost me my SS benefits? We need more saving in this country, not less.
I do think, however, that raising the retirement age does make sense given current longevity. This would also encourage folks to work longer which would be good for the economy.
Christy’s idea to stop charging SS tax to individuals over 62 is a great idea since it will encourage seniors to work longer and it will make employers more likely to hire them since they will not have to pay payroll taxes.
Properly done entitlement reform of course is pro-growth: it leaves more money in the hands of us citizens and so in the private sector. Christie’s plan is a good start, if only because it opens the Social Security up to a discussion of serious reform. It’s only a first step, though.
And, yes, many voters will find Christie’s (and Greenspan’s) arguments too abstract. But I think, in the main, voters aren’t as stupid as the Left or the NLMSM make us out to be. Most of us will get the idea.
Eric Hines
Had lunch with a vendor rep today, he told me that my former employer just canned its twelve most senior reps. I’m sure the decision was performance-based.
I’m not a big fan of means testing SS bennies, but the plan as a whole doesn’t seem too bad. I do think we can do better if we have the Presidency and both houses, though.
Ummmm, no it doesn’t. This solution is a tax hike, only the hike is concentrated to soak the “rich And “rich” will get gradually defined down. This is a bandaid that doesn’t really fix Social Security, it only makes it an even more unfair scam and opens the door to making it a pure redistributionist system down the line. Means testing is capitulation to class envy arguments, period. Reindexing the benefit adjustments is a way better idea than means testing.
What this is in simple terms:
Social Security circa 1934 (or whatever) “Everyonre pays in, you have your own account and you get money monthly after a certain age till you die”
Sidebar: ” Of course not! The Social Security number will NEVER be used for dentification purposes or tracking citizens, you are being a paranoid conspiracy theorist!
Congress spent the money on other things and then it became an outrightPonzi scheme.
Now, to fix this problem, Christie and others want to make this scheme into a retroactive wealth redistribution agency.
You now make 200,000? The all the money government took from you while you were struggling for 10-20 years to “make it” is no longer yours. Poof! It’s gone. YOU DON’T NEED IT. Now. Other people who didn’t work on weekends or forgo vacations or make other sacrifices to excel deserve your money and you don’t”
PS “We Lied”
This proves that no law passed taking money and promising a return has any credibility whatsoever.
I can’t bel;ive people “on the right” are unable to understand how egregious this is.
Some of you are absolutely pathetic.
I’d be for raisningthe age to 67 or even later. That would affect everyone equally and it makes sense because people are living longer, and above all, it’s not retrocative wealth redistribution and defacto creatinganother system that transfers wealth. They can always lower the cap from 200,000 once this is agreed to.
And of course this is just what Christie would think is a good solution. Can we have fewerRepublicans who think like him?
Hi Franco.
Re: Social Security circa 1934 (or whatever) “Everyonre pays in, you have your own account and you get money monthly after a certain age till you die”
You’re kidding, right? You do know that Social Security never, ever worked that way … Even back in the 1930’s.
Since there is no Social Security “lockbox”, Christie has just endorsed a 12.4% tax increase on a segment of the population that already pays the majority of the income tax. I thought the conservative position was that tax rates were already too high and punitive of economic productivity.
I understand the need for entitlement reform, but this just seems to make the entitled even more so.
Look, Social Security is primarily the Old-Age, Survivors, and Disability Insurance (OASDI) program.
Insurance. You are paying an insurance premium not buying an annuity.
Like auto, fire, and flood insurance. You pay the premiums and hope you never have to make a claim. God willing, if I’ve done my part, my retirement income will be such that I would be one of those receiving reduced benefits under this proposal. Would I like to receive full benefits? Sure. I’m not turning down free money. But. I’m not willing to bankrupt my kids to get it. And that is basically the choice. There isn’t enough money to pay more than about 75% of benefits in the future. To get full benefits, my kids taxes would have to go up dramatically. I won’t do that to them.
So … If I am in a position that I don’t NEED the SS money (and I hope I will be) I’ll do without it. Like with insurance, I’ve paid the premiums, but if I don’t have to make a claim, I won’t.
I agree. But an awful lot of people were led to believe they’ve been paying annuity premiums. As is so often the case, if a business did anything like what the government does routinely, it would be shut down and the managers put behind bars.
This is false. You are laboring under the impression that the money you paid into social security belongs to you. It is an entitlement program, not a retirement savings plan.
It’s forced insurance. That’s a very bad sign. We’ll take your money, and then we will decide to use it in your best interests.
If your kids are going to go bankrupt because SS wasn’t fixed properly – even though everyone knows it is a complete scam – then I feel sorry for you and your world-view. Just give your kids the money in the form of education, sustence. Not pay some untrustworthy government to provide a pension for their old age. That’s NOT taking care of your kids.
No, you claimed that Christie’s plan would reduce the amount of taxes necessary to keep the program solvent. It does no such thing, it merely postpones the taxes for people until they’ve reached retirement age and then imposes them on a small minority of the population. It’s the exact same amount of taxation required, but sticks the burden for it solely on the people who have already done the most to maintain Social Security in the first place, because they amount to far fewer votes and therefore are easily screwed by the political process. It’s a gutless and lazy proposal.
Social Security has always been a redistribution scheme. Everybody under the age of 40 already plans on not receiving any SS benefits and views it mostly as a welfare program for the elderly.
Hi Franco. I think you may have misinterpreted my earlier post.
We have to face facts and deal with the world AS IT IS not as we’d wish it was. Nobody thinks SS is anything like a real, private sector retirement plan. Its a legalized Ponzi scheme. But its a Ponzi scheme thats been ongoing for 80 years and has 300 million people caught up in it. And like all Ponzi schemes, the day has come when there aren’t enough new ‘investors’ to pay off the the old ones. The jig is up. What do we do now?
Nobody alive voted for for SS. We can call it a scam. We can wring our hands and wish it wasn’t designed the way it was. We can wish it was never enacted at all. But it was. And there is no going back for a do-over. It is what it is. The question is….What do we do now?
There are those who feel “we don’t want to hear it…we paid into SS for 30-40 years we want ALL the benefits promised! Gov’t made us pay in, they’d better find a way to pay us out in full!” If we try to adopt that as a solition it will bankrupt the future generation. That’s what I’m trying to AVOID!
Christie’s plan is a first step to try to dig us out of the mess FDR has contrived for us. I’m not married to Christie’s proposal, but it isn’t a bad idea. And it opens the door for additional discussion about not only SS but all entitlement programs.
Like I said. FDR has left us a mess. Nobody likes it. But it is what it is. The question is … What do we do now? Ball is in your court, Franco. What do we do now?
Hi BThompson. I’d be interested in hearing your version of a gutsy and energetic proposal regarding SS.
I’ve already laid it out. And it’s not even that gutsy. Raise the age for benefits. Index the benefit adjustment to cost of living, not inflation. Raise the amount of income that is subject to SS tax. Its not that hard, but for some reason the GOP won’t stand up to the democrats on the issue of reindexing benefits and would rather tax people in retirement than people who are still working.
If we raise the cap, do we likewise adjust the benefit payout calculations as well?
You could phase in a benefit payout increase that would be owed to higher income earners gradually, say over say 25 years. That would be fair because many people affected by the change would only be paying on the higher income cap for a short time before retiring, so they wouldn’t get the full increase in benefits as if they had been paying at that higher level their whole careers. By the time the increase in benefits was fully phased in, that would be mitigated to a large degree by having reindexed benefits to cost of living rather than inflation.
I think the reason you would increase your 401K is that the potential returns on good investments and the power of compound interest deliver a FAR greater return that SS ever would. The point of means testing is to allow those who have successfully saved to live off their investments and not bleed dry the entitlement system. Christie’s means testing only kicks in for retirees who have 200K or more a year in interest income. You are talking 4-5M in liquid assets to draw that kind of income. Are you really worried about “your gov-ment” SS benefits at that point?