The Lie Upon Which Rubio’s Social Security Plan is Built

 

Social-Security-CardMarco Rubio has laid out his plan to save Social Security in the 21st century at National Review Online. As with pretty much every other Republican candidate’s plan save Huckabee’s, it basically entails three steps.

The first: Raise the retirement age for receipt of Social Security benefits:

With Americans now living longer than ever before, the strain on Social Security’s finances is steadily increasing. … First, we must gradually increase the retirement age for individuals under 55.

This is often (nearly always) the first idea. Were this healthcare, it would be called rationing. Yes, people live longer today than they did when the system began. The system was never designed to pay a person for 20 years of inactivity in the labor market. Well, duh: The system was never really designed to pay out at all. It was merely a tricky, feel-good way for the government to confiscate even more of a person’s wages. People were to pay into the system their entire working lives, and if they won the genetic lottery, maybe collect a few years of benefits before the Reaper made his appearance.

Well, innovation has again thwarted the money-grubbing politicians, and people are living long enough to force the system to make good on its so-called promise. The most immediate and obvious solution is to change the promise. Sure, government may have said you were paying into an “insurance” program, investing in your own future with the backing and surety of the United States Government, but it was a lie. The Supreme Court long ago decided that taxes paid into the Treasury belong to the government; the government is at liberty to spend the money as it sees fit; and taxpayers have no rightful claim on any money once the government takes possession of it. Government can, should it will, simply alter the time and amount of “return” you get after a lifetime of seeing 12.4% of your wages confiscated and squandered by the government. This leaves the question of whether or not it should.

To those who have never done physical labor, it probably makes sense just to inch up the retirement age. Sitting at a desk shuffling papers and staying awake through gawdawful PowerPoint presentations is one thing, humping load chain and slinging it over cargo on a flatbed is something altogether different. Working past 65 because you’ll live beyond that (with whatever quality of life that entails) is a completely different experience for different people in different occupations. At 43, I already fear doing my job at 53, and I cannot imagine being physically capable of performing it at 63 or 70.

This ties into Rubio’s second step, means-testing Social Security benefits:

[W]e should do more to protect seniors on the bottom of the income scale, who are too often consigned to poverty in old age. This can be done by reducing the growth of benefits for upper income seniors while making the program even stronger for lower-income seniors.

Again, this is a very common approach to the problem. Return more to those who require more. The stink of Marx is all over the idea, but that’s another problem. Those to whom this is directed are likely the very same ones the first idea tries to kill by keeping them in the labor force longer. The amount of physical exertion required in an occupation seems to often be inversely proportional to the compensation received for it. Like the first, this suggestion is rationing. It is worse because it returns more to those who contributed less financially, and makes the redistributive quality of the program more blatant without acknowledging it plainly. It embodies the Marxist maxim, “From each according to his ability, to each according to his need.”

Rubio’s third idea (also standard conservative dross) is the least bad of the set, but comes with its own negatives. He calls for private retirement:

[W]e must empower our people to save more for retirement. Social Security should be one component of retirement security along with employment-based plans and personal financial assets like IRAs, mutual funds, and personal savings accounts. Americans should also be able to save for retirement without paying taxes on their retirement investments. My tax-reform plan eliminates taxes on interest, capital gains and dividends. Educating Americans on the benefits associated with retirement saving and planning is also important.

This is a model the government is already mostly behind, at least for its own workforce. People make a big deal of federal government pensions, but for a couple of decades these have been a tripartite system comprising a small pension, Social Security, and the Thrift Savings Plan (a contribution-based retirement account with some employer matching contributions). If such a system is good enough for the Feds, surely it’s good enough for everyone else. What the Senator describes is exactly what is already in place for him and his staff. In this system, Social Security becomes less important to one’s retirement. The individual is mostly left to sink or swim based on savings and wise choices about how that money is invested and grown.

Mind you, the same disparity exists here as it does in the other points of reform. Those who make less have less to save; their physically useful work life limits the amount of time they can contribute to their own savings; and, let’s face reality here, they may not have the wherewithal to give appropriate attention to the husbandry of their retirement accounts. The same people who work harder will still have less to show for it, and they will be just as dependent on the benevolence of government in the end. Things could turn out better for them, but there’s no guarantee. So it’s easy to see why Huckabee’s call to keep the status quo is appealing to the blue-collar segment of the electorate. Of course, using the tax code to compel desired behaviors is yet another un-conservative idea that’s widely accepted when couched in the right terms.

Well, smarty Prawn, you might ask, what exactly is your prescription? I can’t lay out a nice three-point plan to save Social Security or provide comfort in old age to the populace. I hate to point out a problem without suggesting a solution, but this matter is way bigger than me. The key thing, in my uninformed opinion, is to start hacking away at the very root of the problem: The entire Social Security system is a lie. This is not an insurance plan where you pay your premiums and receive your reward when it’s your turn.

Social Security is a direct payment welfare program. The wages of the barista at Starbucks, struggling through on $11/hour (or $15 in Seattle), are confiscated and given immediately to her grandmother. The young are taxed to subsidize the old. This often takes from those with the greatest need and just as often gives to those with the least. If we really believe this program satisfies a collective moral obligation, then let’s treat it as such. Let’s abolish the myriad taxes and replace them with “one tax to rule them all.” Take from all without bias or favor, give to those actually in need. If we must redistribute wealth, if we must ration the redistribution, then let’s do it all above-board and honestly. If we want our elderly population to live in dignity, if we believe a redistributive welfare program accomplishes that goal, then let’s do exactly that and nothing else with the taxes we confiscate for that purpose.

Rubio’s plan is tinkering around the edges and playing with the balance sheets. But never touches the real problem, which is the lie upon which the system is built.

Published in Domestic Policy, Economics, Elections, General
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  1. The King Prawn Inactive
    The King Prawn
    @TheKingPrawn

    Big Green: I doubt it will ever receive a complete overhaul, at least not in our lifetimes.  It will bump along a receive a semi-permanent fix or two.  Quite undesirable but not the end of the world either.

    I fear the fixes will turn out to be counterproductive. They appear to be kicking the can down the road or debasing the program to the point that it is more symbol than substance. If we really believe in the end goal of the elderly living in dignity and of sufficient means then we’re working away from achieving the goal rather towards it with tweaks.

    • #31
  2. SEnkey Inactive
    SEnkey
    @SEnkey

    Manfred Arcane,

    Good point about the viability of the plan (via google). These changes would go a long way towards shoring up the program, unfortunately as King Prawn and others pointed out, it almost defeats the purpose of the program.

    When I was in college I worked for the Ground and Maintenance crew. There was one other young guy but my boss and the other four workers were all over sixty. They previously worked in construction, factories, or other blue collar jobs. It was evident they were just trying to keep working until they could retire. Great guys all of them, but a lot of work fell to the other young guy and myself. We didn’t mind, we genuinely cared for our coworkers and worried about their health. I still keep up with those guys, although all but one are now on Social Security.

    I work as a principal at a school. It’s tougher on your body than you may think, but nothing like when I did construction as a youth or worked with the above mentioned crew. Raise my retirement age? No problem. SS would be a big loss of income any way and I’ll work as long as I can. But for men like my father and uncles, and my old coworkers, it just may not be viable. Penalizing them for retiring “early,” especially when their bodies are just beat and they may not have long to live anyway, seems cruel.

    By the way, I’m in that under thirty crowd. I’m not counting on SS to be there in forty years.

    • #32
  3. Man With the Axe Inactive
    Man With the Axe
    @ManWiththeAxe

    The criticism that SS is a ponzi scheme is correct. The solution has to be to replace it with a non-ponzi system. That requires each person to save for his own retirement.

    I am retired and on SS. I have calculated (accurately, I might add) that if I had been allowed by law to take the exact amount of the contributions made by me and my employer over my working life and instead put them into an S&P 500 Index Fund, at retirement I could have purchased an annuity for the remainder of my life expectancy that would pay me 5 times the amount SS actually pays me now.

    If every person were required to do the same (i.e., put those contributions into a fund) the government would be released from its obligations to the elderly, who would all be better off.  The program need not be compulsory, either. But we would have to agree that the ants will not be there to take care of the grasshoppers.

    Obviously current retirees and those close to retirement cannot be kicked out of the current system, but over the next 40 years all workers could be moved to the new system.

    • #33
  4. The King Prawn Inactive
    The King Prawn
    @TheKingPrawn

    Imagine the amount of boost to the economy with that much investment flooding in.

    • #34
  5. Doug Kimball Thatcher
    Doug Kimball
    @DougKimball

    KP – I took a unique look at this problem two years ago and suggested an approach to resolving it.  Set the wayback machine to August 13, 2013

    • #35
  6. Great Ghost of Gödel Inactive
    Great Ghost of Gödel
    @GreatGhostofGodel

    Leigh:If social security were ended, we would still face that same dilemma at the age when our jobs become unworkable. That is a problem that exists in the world apart from government — it is not one Social Security created.

    Exactly. So where did the fiction that the government, of all entities on God’s green earth, could make it go away come from, and why does anyone with two brain cells to rub together buy it?

    • #36
  7. Mark Camp Member
    Mark Camp
    @MarkCamp

    Excellent post!  Great to see that so many Ricocheteers are aware of the deception.  We can’t have an honest debate as a nation until most citizens have the facts about the current program.  Education must come first; until we again have an educated electorate, we must resign ourselves to the slow, continuous descent into collectivist serfdom that began over a century ago.

    • #37
  8. The King Prawn Inactive
    The King Prawn
    @TheKingPrawn

    Mark Camp:Excellent post! Great to see that so many Ricocheteers are aware of the deception. We can’t have an honest debate as a nation until most citizens have the facts about the current program. Education must come first; until we again have an educated electorate, we must resign ourselves to the slow, continuous descent into collectivist serfdom that began over a century ago.

    The vast majority of people believe it is their money to which they have a right, an entitlement. I laugh every time one of my coworkers talks about how the government owes them at least what they paid in taxes. They don’t realize that the money is long spent. It’s like asking for the change after turning a teenager loose in the mall for a couple of hours. That [expletive] is gone.

    • #38
  9. Manfred Arcane Inactive
    Manfred Arcane
    @ManfredArcane

    Doug Kimball:KP – I took a unique look at this problem two years ago and suggested an approach to resolving it. Set the wayback machine to August 13, 2013

    How about contrasting yours with Christie’s for us?  Since he was the first of the nominees, let’s compare all other’s relative to his.  Makes it easy.

    PS. For those wanting to turn back the clock with 401K’s replacing SS, is this even possible?  GWBush tried something like that, was excoriated for it.

    It does no good to imagine what could be the case had the world evolved differently.  We are where we are now.  Look at what Bush suggested, look at the contumely he brought down on himself and the Republicans, then come to terms with the situation we are in.  If, as I suspect, it doesn’t look feasible, so let’s move on.  The clock is ticking.

    Which of the Republicans has the best plan?  We resolve this here at Ricochet, shucks we resolve this here in this thread, then before you know it, the ‘solution’ will be the law of the land.  But no more b___ing and m____ing about where we went wrong.  We’re Americans, darn it;  we fix things, and don’t just talk about doing so… But the clock is ticking….

    • #39
  10. Salvatore Padula Inactive
    Salvatore Padula
    @SalvatorePadula

    I think Trump has put forth the most appealing solution to the Social Security problem: make the Chinese, Saudis, and Mexicans pay for it. They’ll be happy to do so.

    • #40
  11. Casey Inactive
    Casey
    @Casey

    I think you people look at these things too closely. This is an interview answer to an interview question. There’s no answer that will get you the job but the wrong answer could cost you the job. So you foul it off and wait for the next pitch.

    Twenty presidents from now we’ll hear the same answer.

    • #41
  12. Man With the Axe Inactive
    Man With the Axe
    @ManWiththeAxe

    Casey:I think you people look at these things too closely.This is an interview answer to an interview question. There’s no answer that will get you the job but the wrong answer could cost you the job. So you foul it off and wait for the next pitch.

    Twenty presidents from now we’ll hear the same answer.

    Probably true regarding presidential politics, but it is a real problem that needs to be solved.

    • #42
  13. Leigh Inactive
    Leigh
    @Leigh

    Great Ghost of Gödel:

    Leigh:If social security were ended, we would still face that same dilemma at the age when our jobs become unworkable. That is a problem that exists in the world apart from government — it is not one Social Security created.

    Exactly. So where did the fiction that the government, of all entities on God’s green earth, could make it go away come from, and why does anyone with two brain cells to rub together buy it?

    If I read correctly he’s just saying if we’re going to go the subsidization route anyway we at least need to make sure it is reaching those who need it most, and that includes those who work physically demanding jobs that may force early retirement.  Is that a fair summary?

    My answer would be that raising the retirement age would force us to come up with a free-market solution to that problem.  If we were ever to meaningfully reform Social Security we would need one anyway, so that would be a genuine step in the right direction.

    Or do you believe there is no non-governmental solution?

    And if we must have a governmental solution, surely there is a better one than subsidizing everyone starting at an age where many to most could still work.

    • #43
  14. Leigh Inactive
    Leigh
    @Leigh

    Man With the Axe:

    Casey:I think you people look at these things too closely.This is an interview answer to an interview question. There’s no answer that will get you the job but the wrong answer could cost you the job. So you foul it off and wait for the next pitch.

    Twenty presidents from now we’ll hear the same answer.

    Probably true regarding presidential politics, but it is a real problem that needs to be solved.

    If we actually did have a real solution or anything approaching meaningful reform in the next four years, it is not likely to come from a presidential candidate.  It will come from the one who didn’t run — Paul Ryan.

    • #44
  15. John Penfold Member
    John Penfold
    @IWalton

    It’s a political problem more than an economic problem.   There is no future in promising to fix it, but once elected a president might try, but it should be as part of radical tax reform that shifts obligations to general revenues for folks already receiving it near retirement age, and privatize the rest.   We privatized federal retirement by giving people at middle age a choice, young people had no choice and older employees stayed with defined benefits.   Privatization will increase savings, create incentives for people to stay in the work force as long as they want to.   Or we can just live with it as is.  The primary harm it does is create the illusion of savings and it taxes work and raises labor costs.  It is better to fund the growing  SS  obligations by borrowing than by taxing work and savings.  Our low savings rates translates into external  debt.  So get the tax code right.  Feasible first best,  privatization,  second best is also privatization.   Third best, get rid of it entirely and do not tax savings or investment only income or consumption or both.  Wait, that’s first best.

    • #45
  16. Mendel Inactive
    Mendel
    @Mendel

    Great post, KP (and Doug)!

    When I was in college I had a nice bike which got stolen. A few weeks later, I found it being ridden by someone else – the thief had quickly re-sold the bike (to this unwitting person), then skipped town. A classical dilemma: we both had a legal and moral claim to the bike, but there was no way of resolving the situation without at least one of us getting unfairly screwed.

    The situation with Social Security is exactly the same: there is no resolution/fix/patch which does not involve at least one group in society getting unfairly screwed. We can point blame at past errors, lies, and obfuscations, but that’s now water under the bridge.

    If we automatically grant that unfairness is a reason to veto any proposed SS reform (such as “it’s unfair to raise the minimum age for people who performed manual labor”), we will never solve the problem.

    • #46
  17. Pelayo Inactive
    Pelayo
    @Pelayo

    People who make a living doing physically demanding labor will end up claiming Disability Benefits before they are old enough to retire at age 67 or 70.  I agree with you that very few people can perform that kind of work past 62, much less 67 or 70.  Taxpayers are going to be supporting those folks one way or the other.  However I do see an overall savings by not having to support someone with a desk job who is capable of working until age 67 or longer.

    I would love to see SS become a true retirement account where the money an individual puts in is held specifically for them when they retire, but that is impossible to implement given the Ponzi scheme that has existed for decades.  How would we bridge the gap while young people who join the workforce today put money into their accounts?  Social Security is here to stay and while Rubio’s plan is flawed, at least he is willing to admit we have to make improvements to some extent.

    • #47
  18. Amy Schley Coolidge
    Amy Schley
    @AmySchley

    Pelayo: People who make a living doing physically demanding labor will end up claiming Disability Benefits before they are old enough to retire at age 67 or 70.

    Nice thought, but SSDI is going to go bankrupt long before SS will.

    • #48
  19. Mendel Inactive
    Mendel
    @Mendel

    Amy Schley:

    Pelayo: People who make a living doing physically demanding labor will end up claiming Disability Benefits before they are old enough to retire at age 67 or 70.

    Nice thought, but SSDI is going to go bankrupt long before SS will.

    I don’t think the concept of bankruptcy/insolvency has much bearing when it comes to government entitlement programs in an age of limitless deficits. If the contributions to SSDI can no longer cover its expenditures, but the political will is too great to stop cutting checks to beneficiaries, the government will find one way or another of maintaining its funding.

    • #49
  20. Man With the Axe Inactive
    Man With the Axe
    @ManWiththeAxe

    Pelayo: I agree with you that very few people can perform that kind of work past 62, much less 67 or 70.  Taxpayers are going to be supporting those folks one way or the other.

    But if we adopt the scheme I propose in #33, market forces would determine that the wage paid to people doing physically demanding work would have to include enough for the workers to save enough to retire at the appropriate age for the demands of the job. Much in the way policemen and firemen have an early retirement instead of higher wages. Those who take the jobs calculate the promise of early retirement into their decision to take the job or not.

    • #50
  21. Leigh Inactive
    Leigh
    @Leigh

    Man With the Axe:

    Pelayo: I agree with you that very few people can perform that kind of work past 62, much less 67 or 70. Taxpayers are going to be supporting those folks one way or the other.

    But if we adopt the scheme I propose in #33, market forces would determine that the wage paid to people doing physically demanding work would have to include enough for the workers to save enough to retire at the appropriate age for the demands of the job. Much in the way policemen and firemen have an early retirement instead of higher wages. Those who take the jobs calculate the promise of early retirement into their decision to take the job or not.

    It will take a long time for the market to work that out, thought.  It would be too late for those already in their 40s and early 50s.

    • #51
  22. The King Prawn Inactive
    The King Prawn
    @TheKingPrawn

    And the market can be a heartless bastard.

    • #52
  23. Mendel Inactive
    Mendel
    @Mendel

    Man With the Axe:

    Pelayo: I agree with you that very few people can perform that kind of work past 62, much less 67 or 70. Taxpayers are going to be supporting those folks one way or the other.

    But if we adopt the scheme I propose in #33, market forces would determine that the wage paid to people doing physically demanding work would have to include enough for the workers to save enough to retire at the appropriate age for the demands of the job.

    With the first result being to increase the costs of manual labor so drastically that those jobs would either get shipped overseas or given to illegal workers (immigrants or not).

    Not to say I wouldn’t like to see the market have more influence over these things, but since Social Security has been distorting the true price of manual labor, the initial “shake-down” would almost certainly be very painful.

    • #53
  24. Man With the Axe Inactive
    Man With the Axe
    @ManWiththeAxe

    Leigh: It will take a long time for the market to work that out, thought.  It would be too late for those already in their 40s and early 50s.

    Right, but if we do nothing 40 years will go by and we’ll still be stuck with a ponzi scheme and a lot of workers doing physical work that they are too old to do.

    We need to adopt the new plan for younger workers and find a way to transition the current workers.

    • #54
  25. Amy Schley Coolidge
    Amy Schley
    @AmySchley

    Leigh: It will take a long time for the market to work that out, thought.  It would be too late for those already in their 40s and early 50s.

    To quote Flemming v. Nestor, the case that established that one has no rights to Social Security payments:

    But each worker’s benefits, though flowing from the contributions he made to the national economy while actively employed, are not dependent on the degree to which he was called upon to support the system by taxation. It is apparent that the noncontractual interest of an employee covered by the Act cannot be soundly analogized to that of the holder of an annuity, whose right to benefits is bottomed on his contractual premium payments. …

    That program was designed to function into the indefinite future, and its specific provisions rest on predictions as to expected economic conditions which must inevitably prove less than wholly accurate, and on judgments and preferences as to the proper allocation of the Nation’s resources which evolving economic and social conditions will of necessity in some degree modify. To engraft upon the Social Security system a concept of “accrued property rights” would deprive it of the flexibility and boldness in adjustment to ever-changing conditions which it demands.

    In other words, even SCOTUS agrees that we can’t let the notion of what is fair to those who have relied on SS control us, because otherwise we’d never be able to administer it in response to changing conditions.

    • #55
  26. Leigh Inactive
    Leigh
    @Leigh

    Man With the Axe:

    Leigh: It will take a long time for the market to work that out, thought. It would be too late for those already in their 40s and early 50s.

    Right, but if we do nothing 40 years will go by and we’ll still be stuck with a ponzi scheme and a lot of workers doing physical work that they are too old to do.

    We need to adopt the new plan for younger workers and find a way to transition the current workers.

    Amy Schley: In other words, even SCOTUS agrees that we can’t let the notion of what is fair to those who have relied on SS control us, because otherwise we’d never be able to administer it in response to changing conditions.

    I’m not arguing against raising the age (as you’ll see above, I’ve actually been defending Rubio on this point).  Just acknowledging that this is not fair and is not easy.

    • #56
  27. Man With the Axe Inactive
    Man With the Axe
    @ManWiththeAxe

    Leigh: I’m not arguing against raising the age (as you’ll see above, I’ve actually been defending Rubio on this point).  Just acknowledging that this is not fair and is not easy.

    Ultimately, fair isn’t obtainable in such a dire situation. The best that we can do is to transition slowly into a plan as described in #33 while trying to minimize the dislocations suffered by those caught in the middle.

    Something like Rubio’s plan might be all that is politically possible in the current moment, but we will have to soon move past the band-aids to major surgery, or the patient will die.

    • #57
  28. ShellGamer Member
    ShellGamer
    @ShellGamer

    Mendel: When I was in college I had a nice bike which got stolen. A few weeks later, I found it being ridden by someone else – the thief had quickly re-sold the bike (to this unwitting person), then skipped town. A classical dilemma: we both had a legal and moral claim to the bike, but there was no way of resolving the situation without at least one of us getting unfairly screwed.

    Not to say its totally fair, but the bike was taken from you involuntarily, while the other guy had a choice whether to part with his money. The law would give the bike back to you, and let the other guy chase the culprit (whom he could at least identify).

    Just pointing out that there are less bad and worse alternatives in any bad situation, even SS.

    • #58
  29. Leigh Inactive
    Leigh
    @Leigh

    Man With the Axe: Ultimately, fair isn’t obtainable in such a dire situation. The best that we can do is to transition slowly into a plan as described in #33 while trying to minimize the dislocations suffered by those caught in the middle.

    Sure.  My only point in that comment is that saying the market will eventually solve the problem does not reduce the pain for those who are “caught in the middle.”

    • #59
  30. ShellGamer Member
    ShellGamer
    @ShellGamer

    I think the Royal Shrimp is onto something. The truth may set us free.

    The most important thing to understand is that the federal government cannot help anyone save for retirement. Unless the feds invest the money in productive enterprises (at cure worse than the disease), all the feds can do is either spend the money or take it out of circulation. Neither approach helps build a nest egg.

    Putting IOUs in the trust fund doesn’t help–future taxpayers must still repay the IOUs.

    So the system is necessarily transferring money from current taxpayers to current beneficiaries. If we start by admitting this, then the solution might be straight forward: stop playing shell games with the system.

    Stop pretending there are surpluses, trust funds and deficits in the system. Stop talking about social security going broke. Say: social security is (and has always really been) a pay as you go system. We’ll continue to charge an essentially flat tax and use the money exclusively to pay benefits. This means that the projected taxes over the next ten years will be X, unless benefits are reduced.

    Telling voters what the bill really will be, and that they will pay it, should provide the appropriate impetus for reform.

    • #60
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