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The Lie Upon Which Rubio’s Social Security Plan is Built
Marco 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
The first step to dealing with a problem is to admit you have one. Prawn has, most politicians really haven’t, giving us the equivalent of “I’m don’t have a problem with alcohol, I can quit whenever I want, so I’m going to taper off.”
Prawn and others have precisely summarized what’s wrong with “raise the “retirement age” (the age at which benefits can be collected).” A lot of people simply can’t do the job at 65 that they could do at 45, or 25. “Retraining” warbles the chorus of pols and commentators who figure truck drivers, welders, and nurses can learn to be web designers and marketing assistants.
I just turned 64. I expect to work until I’m 72, and probably beyond. But I sit in front of a computer, doing more or less what I’m doing now. Posting on Ricochet is fun, but I can’t see doing it all day when I can get paid for doing something a lot like it. My neighbor, who’s in his mid 40s is a construction worker, and he’s got severe back problems. I see him more likely to need to go on disability than work until he’s 70.
Means testing is just a fancy way of saying “We’re going to tax people who save, and work hard, some hundreds of thousands of dollars over their lifetime, then take the money and give it to some shiftless wanker who’s been on the dole most of his or her life and never put a penny by.”
My solution includes:
1. Stop micturating on our legs and telling us it’s raining. Level with the American people instead of lying at every turn about how the system is sound and it’s going to be there.
2. Stop with the nonsense solutions like raising the retirement age and means testing. Nonsense because the American people will fight on bloody stumps to avoid them.
3. Start with solutions that offer meaningful benefits for younger workers like “when you turn 50 the taxes we take from you and your employer go into a real account that is your personal property that you can bequeath to heirs.” Require it to be at least 50% invested in Treasury securities, allow up to 50% to be invested in an equity index fund. Give younger workers something real (or at least more real than what they’re being given now).
A while back, I helped build a restaurant in St. Louis. We used a union contractor. Contract negotiations came up while I was there, and I discussed the terms with the superintendent. One was that companies would go to four ten hour days. I said that I thought that the union would like that. He said, no, they had 63 year old carpenters, and they couldn’t work 10 hours in 90 degree weather. How much harder would it be for 68 year old carpenters?
I can easily work til I’m 70, if my mind and liver hold out. My job isn’t physically demanding. If I were still a carpenter? Not so much.
The problem with this sort of means testing is that while relatively few people have this kind of retirement income today, two factors will come into play:
1. Over decades, inflation will drive incomes up to the point where $80 or $200 k is sofa change.
2. Once the means testing membrane has been penetrated, politicians will play the envy card to drive the limits ever downward to the point where anybody who has more than $500 in assets of any kind is means tested out.
A couple of points that some may not know. First the first beneficiaries of SS never paid into SS. This included my Grandfather. Second benefits are already highly redistributive . Third ,in the last ten years payouts have shrink because of the way we now calculate inflation. Fourth, there is no lock box and SS paid out $ 80 billion more than SS took in this year requiring the money to be borrowed by the Treasury. Fifth, when I was thirty (40 years ago) I never thought I would collect a cent. Sixth , the designers of SS were devious bastards.
Finally (until I think of something else) “It’s a great, big, sh*t sandwich, and we’re all going to have to take a bite.”
This includes people who are currently collecting Social Security benefits. They have to have skin in the game too. They have to take a definite and meaningful bite of the sandwich like a 50% reduction in annual benefits COLA forever. Yes, we will be subjected to tear-jerking attack ads showing grandma being thrown over the cliff into the snow without as much as a dog biscuit to keep her warm. Other programs may need to be brought into play to help.
Those of us who are engaged and paying attention already know it’s a lie. Those who are more interested in keep up with the latest celebrity news wouldn’t know if a politician did the truth, and don’t really care about the truth anyway.
It’s been interesting reading the discussion. There is no good solution. For politicians trying to keep their job, only the edges will get nibbled because corporately they are not willing to take the career risk to overhaul the system (assuming there would even be agreement.
Agree, and good for him for doing it.
Again: this is not a problem the government created. This is a human problem. If Social Security went away, if people were trying to save for their own retirement with no government redistribution whatsoever, this problem would still exist. Some people would be unable to continue their lifelong career past age 65, or 60, or 55. It would be a problem with your proposed solution: some people would be able to work as long as they wanted to supplement that invested account; some would not.
The fact that some people cannot work at that age is not a sufficient reason for us to pay everyone to stop working at that age.
That is a very important point.
People should make their own choices and live with them. The rest of us should not be on the hook because someone didn’t save for his retirement. If A thinks he will only be able to work for 30 years, then he has to put more away or arrange for more deferred compensation. If B is certain that his children will take care of him in his old age, he can spend all his money without thought of the future.
There is no reason for the rest of us to have to care what either of them does, or to be involved in paying for them, or them for us.
I disagree. The lack of a positive proposal doesn’t diminish the veracity of criticism. Just do something is not prudent when that something is a bad idea.
Yes, you should criticize. A bad plan doesn’t become good simply because no alternative is presented.
I have no idea what exactly we should do about Iran, but I feel quite free to say the President’s deal is a disaster.
Another point occurs to me to bolster the desirability of the system I described in #33.
Some people will have the goal of early retirement. The private system I favor allows each person to choose the length of his career, and to save more or less depending on when he wants to retire. So, for example, if A strongly desires to retire when he is 55, he can sock away more for his retirement, and it is all his to spend when he’s ready to retire. He doesn’t have to wait until he’s 66 or any other arbitrary age the government chooses for him. If he wants to work longer years, retire when he’s a bit older, he can save less, or save more and have a more affluent retirement.
Who said these plans were ‘good’? The point is, if you can’t improve on them, that is a sign that they might just be the best there are. Until you face the realities of life that are impressed on you in the process of formulating an acceptible alternative, until you see the compromises that must be made to sell any plan to the public, you will have little constructive to say. None at Ricochet probably really likes Social Security. Everyone here probably thinks it bites, ok? Are we just going to sit around and grouse about it, while we spit on our betters who are actually in the arena trying to resolve the insolvency issue?
Sure, but it’s not like SSI and SSDI can’t already be used for the same purpose.
During one really miserable moment of my youth, when I was racking up medical bills far in excess of my own ability to pay them, my family insisted that I apply for disability, too, in order to ease the burden I was imposing on the rest of them: when they put it that way, I couldn’t really refuse.
In retrospect, my family would have gotten a lot more out of the disability benefits if I had simply been better at whining and insisting on my own helplessness, instead of being honest that, yes, whenever I did feel a little better, I did what I could to help myself and my family. I thought my honesty would be taken as proof of good faith, but no: the system encourages folks to act as helpless as possible in order to qualify.
Asking for systems like this to not incentivize shiftlessness in any way is asking for the impossible.
Social Security is another example of the government’s solution to a problem being worse than the problem itself. The problem of elderly poverty can be addressed by a host of different methods, starting with not solving it for the elderly who are not in poverty.
I believe any attempt to solve the problems of Social Security should be predicated on ending it. If we want to be honest and redistribute income we can can do it in a more transparent way through a minimum income or some other plan.
Many of these programs are designed to seem self contained (lockbox). With taxes levied by various methods to be spent for a specific program, such as medicare, highway trust funds, and so on. This is an illusion.
In the end in comes down to money the government raises from taxes and borrowing, and outlays to all the programs and redistributions. The government is on the line for the spending whether or not the individual revenue streams for these programs can pay for them.
Simplifying both revenue collection and spending would forestall the inevitable end of overspending for a little while.
Sure thing. We will get right on dying for ya. Maybe you could have an open season on Boomers. I’m okay with it as long as I can try to take out a few Gen Xers and Millennials.
When early mistakes have destroyed all the good options, the only question left to ask is “what’s the least-bad option left available?”
If you don’t want to raise the retirement age, and you don’t want to means-test benefits, then you have exactly two options left: raise the social security tax, or reduce benefits for everyone. Those aren’t particularly palatable options either. But you have to do something.
A hybrid approach is probably the best bet – a little bit of all of it. For example, you can have a social security minimum benefit that is just barely subsistence, and then add in low-income benefits. That’s effectively a means-test, but at least everyone gets something.
You can also compromise on raising the retirement age. Just give out a portion of your social security if you retire younger than the new age. That way, hopefully you can survive on it if necessary, even if it’s painful (but you’d only have to do so for two years). So if you wanted to retire at 65 instead of 67, and we change the schedule so that retirement at 65 gets you only half the income but it goes back to full income at 67, then you only need to save enough to supplement that lower income for two years. If we give a 10-year notice before the age goes up, that gives people 10 years to save enough to survive for two years on a half social security income.
None of these are great choices, but that’s because there are no great choices left.
All that said, Social Security isn’t the big problem. The real problem is Medicare. That’s going to go bust in a big way.
Finally someone takes up the sword and shield to do battle against the dragon, rather than grousing about how bad the dragon is. I believe Christie’s plan is consistent with most of this.
I’m seeing a lot of band-aids suggested when major surgery is indicated.
So I missed what happens to the SS system when you no longer have these 50+ year olds contributing to it. Since the SS system is pay-as-you-go, not as it was ‘intended’ as a retirement fund, you will lack moneys to pay the folks receiving benefits at the time you implement your system, won’t you?
And the partial means testing will affect at most 5-11 percent of recipients, and only the top 1% would get no SS (Christie’s plan), so the voting public could very well agree to these type of plans after all. The well-off would be subsidizing the less well-off, and the public seems to be buying into that these days. The Democrats make their living off that philosophy, unfortunately.
What they should have done in 1935 was to set up two systems: 1) for people over a certain age, say, 30, a pay-as-you-go system with retirement benefits to be paid out of general revenues, and 2) for people younger than that age individual retirement accounts that were actually invested in productive assets and owned by the individual. If they had done that, the government would have been relieved of any further retirement obligations by about 1970.
But since they didn’t go through such a transition then we will have to bite the bullet and do it now (or someday, but now is better). Start the private accounts for the young. Use general tax revenues to take care of the older during the transition period.
Anything less is road-based can-kicking.
The last chance to fix this mess was in the 80’s with Reagan. That ship sailed a generation ago. I’m pissed, because as I reach 60, having paid into it for more then half it’s existence and most of my life, and at the maximum rate every year, frequently paying both the employee and employer portion, it’s about to blow up.
Get rid of it. Admit what it always was, welfare for the old. Treat it exactly as that. Means test it, if you meet poverty definition, you get welfare just like everyone else. Pay for it out of general revenue. For the younger folk it will be a wonderful object lesson in the outcome of Ponzi schemes and the folly of big government, and let them finance their own retirement however.
G W Bush formulated a similar plan in 2004:
“, [Bush]: “we also have the responsibility to make the system a better deal for younger workers. And the best way to reach that goal is through voluntary personal retirement accounts.” This approach, the President argued, would offer younger workers a “better deal”: The rate of return would be higher than in the traditional system; the accumulation could be passed on to children and grandchildren; and “best of all, the money in this account is yours, and the government can never take it away.””
http://www.brookings.edu/~/media/research/files/papers/2007/9/21governance-galston/20070921.pdf analyzes failure of Bush to convince Congress:
“After weeks on the defensive, the President admitted in mid-March that “Personal accounts do not solve the issue. They make the solution more attractive to the individual worker.”12It was not until late April that the President addressed the system’s fiscal gap, proposing a formula change, “progressive indexation,” that would have cut benefits for the upper 70 percent of future retirees, with those at the top losing the most. Some conservatives rejected, on principle, the proposition that the level of sacrifice should rise with income. “That’s an idea that comes from the left typically—means testing,” said Rep. Paul Ryan (R-Wis).13 Others urged the president to reject the old framework altogether and embrace far larger private accounts that would moot the fiscal problem altogether . . . or so they claimed.”
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I think you and I are recommending the same course of action.
(continued…)
“And while surveys indicated strong support for limiting benefits going to the wealthy, few Americans believed that workers earning $25,000 a year fell into that category. But that is where the President’s formula change began to bite. Workers earning about $36,500— again, no one’s idea of the “wealthy”–would have seen a long term benefit reduction of about 20 percent. (By contrast, a proposal the President did not offer—namely, raising the cap on income subject to payroll taxes—enjoyed solid 60 percent support among the people.14)
As Douglas Arnold has argued, President Bush’s proposal faced a structural obstacle that no adjustment of details could overcome. While advance-funded retirement systems have several advantages over pay-as-you-go—promoting national savings and insulating program funding from large demographic shifts, among others, they have a large political liability: “They deliver no benefits in the near term for which politicians can claim credit.” Indeed, the costs precede the benefits by decades. Although Social Security began as an advance-funded system, within five years it had shifted to pay-as-you-go, a transformation that was “easily accomplished . . . because it united a diverse coalition of interests.” Shifting in the other direction is difficult; the more mature the system, the greater the difficulty.15
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“By 2005, Social Security had matured to the point that shifting even a part of the system to an advance-funding basis would entail transition costs of at least one trillion dollars. No one was proposing benefit cuts for current retirees or for workers near retirement age, so for decades the system would have to pay those benefits in full while at the same time allowing younger workers to divert a portion of their payroll tax into private accounts. Advocates argued that this merely made explicit the cost of existing obligations. Whatever the validity of this claim, it was a very hard sell politically. ”
So, Bush couldn’t get the investment in retirement accounts that promised higher returns to workers upon retirement – owing to the elephant in the room – namely that there would need to be at least “one trillion dollars” in bridge revenue to replace the payroll taxes diverted to those retirement accounts. This was too high a mountain for Bush and the Republicans to surmount – and it stares down at us today.
KP, that was great stuff. This Rubio plan (as represented here) is an echo of what Rand Paul outlined in his first Well speech, but Paul included caveats about how we might as well just admit it’s a welfare program and call it taxes on the other end.
Going whole-hog as you have soggested here does sound like a far more accurate and sustainable method. It also has the benefit of needing to sink or swim for the goat it is, and not be sustained as a lamb.
SS is supposedly untouchable, but that CW is the same George Will conservatism that thinks Trump has no following — they do not see the massive change. SS will become malleable in the near future, as a generation just beginning to feel a chill wind from the future embarks upon what I used to call “Plan C”.
Okay, lets say the unfunded liability for SS over the next 75 years is 10 trillion. What’s a trillion here or there??
This is going to sound totally crazy, but I think it deals with moderns’ inability to delay gratification and may actually help us buy some dang votes for change. How about a phased “buy out.”
VotersPeople of a certain age “get what they’re entitled to” in a lump sum, with the expectation that, as they reach that age (let’s say, 50, since I’m under 55 and want to make sure I get mine), their retirement is no longer tied to government. You get “what’s coming to you” and you’re responsible for making it last.Then, every, oh… picking random intervals here… four to eight years, you lower the buy-out age, so that in 75 years or so, everyone’s out.
I’m not talking about making the program solvent. It won’t matter much once Medicare goes belly-up. I’m just trying to change attitudes while eliminating SS.
I’m 61 and have been self-employed (Or self-unemployed, depending on how you choose to look at it) my entire career. When my accountant explained SS to me (nearly 40 years ago), I asked if there was a way to opt out. I realized way back then there was no way I would live to see the money I paid in returned to me. Even at age 50, I would have willingly walked away from future SS benefits in return for not having to pay any more into the system.
Now – it’s too late for me. We Baby Boomers (who have been skewered in this thread) have paid into this god-awful scheme our entire careers. Our options are now severely limited. But if my kids (now in their 30s) had the opportunity to dismantle SS today, I’d tell them to do so, even if it meant putting me and the missus on the proverbial ice floe. (I pray one of them would be willing to take Mom & Dad in when we reach our dotage.)
KP is right about SS being a Ponzi scheme. A con so great as this perpetuated by anybody other than the government would have landed the con artists in jail long ago.