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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
WC, it is easy to forget how the system works. I am retired and collect SS. Your contributions now pay my benefits. My contributions 20 years ago paid you grandfathers. In other words if your taxes stop so do my benefits. That is why I called the architects of the system devious bastards. Your children will be paying your benefits. There are no accounts with money in them. There are no lock boxes. SS just collects checks from one group and sends them to another group. In the day of SS surpluses the surpluses were sent to the general fund and spent. Beginning a couple of years ago SS began to send out more than they were taking in. The money is being borrowed the same as money is being borrowed for any other deficit. The SS deficit last year was about $80 billion or roughly 10% of the deficit as a whole.
Song Writer, I was like you I paid by sides of the tax. I had a SS account at 12. I started paying at the top rate at 25. However I sold my business at 50 and no longer had earned income thus no SS taxes for the last 20 years. Un like you I don’t want the ice floe, I’ll take a Viking Funeral.
Right, I totally get that.
Unfortunately most
voterspeople don’t. We’re digging a hole anyway. Why not make it attractive to stop digging eventually by rewarding people for it now?As long as the program is in place, workers would be paying taxes into it. I’m just proposing dangling a nearly irresistible apple in front of them so that some day the program (and accompanying taxes) cease to exist.
WC,where is the way out? It is a doomsday machine with no fail safe. When the music stops all retirees lose after a life time of playing by the rules. I can handle that but abou 50 million can not. I wish I had a solution .
Everyone keeps saying “paid in.” Stop. You were taxed. Your employer was taxed. There was nothing voluntary such as when you pay a bill or purchase a product. Government took your money by force and gave it to someone else. Trying to tinker with the system to make it easier to conceal this fact or make us feel better about it going forward is disingenuous, at best.
ROBBED. FIFY
The “trust fund” gimmick happened under Reagan and it is shameful. It was not the fix advertised. In fact if I understand correctly it was worse than a fix, it was additional dishonest taxation. Basically it meant that Boomers were taxed more than required to pay their parents’ SS, and the money was spent on who knows what, and now that the Boomers’ bill is coming due it will become evident that that “trust fund” money was not “saved” in any sense.
The fairest and most honest fix that I can imagine is to keep taxes as they are, and adjust SS payouts to approximately equal income to the program. I think raising the age is a particularly evil way to adjust the payouts, but no method is perfect. I’d be satisfied with across the board cuts distributed as it is now, or some additional means testing by income or assets (that is also vicious as it punishes responsible people, but there is no good way out.) Perhaps we can limit the amount per year that payments drop to 2 or 3% inflation adjusted, which will require deficit spending. How much, would be key.
That would allow people some time to adjust their expectations and should make the program sustainable so current young payers get some return.
What happens to old destitute people when payments are 75% or 50% of poverty? Hopefully their kids or friends or relatives make room, or welfare could get expensive.
This is the biggest failing of the system and it’s fixes. Those who really need help, even help us heartless conservatives might be willing to give, are the ones hurt the most, and all so we can maintain the lie that this tax and spend program was ever anything but a tax and spend program.
The enclosed figure is behind the rationale for raising the age, very gradually at 1 month/yr. I believe SS began in full swing around 1940. You can see that we now live an average of about 5 yr longer beyond age of 65, and the trends are remarkable upward sloping as recently as 2010.
Not following you here. Plans like Christie’s apply a means test only to folks making $80,000 or more in retirement excluding SS receipts, and then beginning only gradually, escalating finally to the point where those making more than $200,000 excluding receipts receive nothing. The other provision of delaying the retirement age occurs very, very gradually, 1mo/yr, and, to be fair, we are all living longer after retirement – we justly should pay into the system longer before we start collecting, shouldn’t we?
These ideas do get toward a fix, but they maintain the lie that the program is anything other than welfare for the old. Why should anyone with a personal retirement income of $80,000 per year (over 50% above median income) receive a general pension from the government? What is the minimum we’re shooting for each person/household in retirement income? Why pay anyone who makes above that amount? If it’s because “they paid in” then please refer them to the various Supreme Court decisions that say, in short, you are owed nothing when government confiscates their taxes.
I understand your point, Manfred; you did not seem to get mine. That longevity is not evenly spread, and the negative effect of delaying retirement is not evenly spread. The point of delaying retirement is to minimize cutting the amount of monthly benefits, right? So that works out all right if you have a secure, non-physically demanding job and are healthy at current retirement age. A one year delay may be a 5% cut for you. For someone who had to quit working at 63 due to health reasons or physical demands, and who is not going to live past the new retirement age, it’s a 100% cut.
I imagine that the people living longest have statistically had the easiest lives and are least in need of the income. To preserve their benefits at the expense of those who die earlier due to harder lives is wrong. Keeping the age and cutting benefits is fairer.
Also note that current law has already increased retirement age from 65 to 67.
1) retirement age of 67 is being phased in. Doesn’t become legit until 2022, I believe.
“Cutting benefits”, as you seem to advocate, instead of increasing the retirement age, will not fix the shortfall. Otherwise Christie&co. would not have proposed both. Now, I suppose you could reduce the income level at which benefits get cut back. Christie’s plan starts trimming payouts to those making $80,000/yr in retirement exclusive of SS payments. You might have to really lower this number a long way to fix the problem. I doubt it works out though (even Christie’s ‘solution’ was calculated to close only ~60% of the shortfall according to link I had earlier).
While I don’t dispute some of your observations, I must push back here a little on some of these points. I am a mean, lean fighting machine at 63 yr of age. Unless unlucky in the gene pool, I am going to live a long, long time because of my health consciousness. There are an awfully lot of folks getting close to retirement who have a considerably higher health risk than I because they failed to manage their weight, get proper exercise, etc. Do you want to reflect on this dynamic a bit? People who work at staying healthy will generally outlive those who don’t. How does that fit into your concept of fairness?
Or it means the hassle of applying for SSDI, which already factors old age and nontransferability of prior work skills into its approval process.
I’m not saying SSDI isn’t a racket in itself. But it is there for people below the standard retirement age who are already incapacitated. Just like an incapacitated 40-year-old can currently apply for SSDI despite being far short of the current standard retirement age, if the retirement age were raised, 65-year-olds with bodies broken from a life of hard labor would have a very good shot of qualifying for SSDI benefits, and I imagine SSDI would become the standard source of relief for such people if the retirement age were raised.
Snake SSDI IS in worse shape than SS.
But would that stop 65-year-olds from applying to it if the retirement age were raised? I doubt it would.
I don’t think you’re following me. That one-time buy-out window slides all the way down to whatever age you get your first job, at which point,
Republicansgovernment cuts you a citizenship bonus check and calls it good.;-)
MFR, I don’t know much about SSDI, but I gather you have to beg for it. I don’t think manual laborers should have to beg so that office workers’ entitlements are preserved.
Manfred, congratulations on your fitness, but I don’t believe it does affect this discussion. If people are sick and die younger because of poor habits I don’t think that is an excuse for the government to shaft them financially, too. And not all of them are disabled from lack of exercise; some are disabled due to excess exercise in their job, and some are just unlucky. I am a sloth but due to genetics will probably live to 90.
Of course benefits could be cut instead of raising the retirement age. It’s a matter of how much of a cut.
Yes, the retirement age is in the process of being raised, but it is already raised in current law to 67 for those born after 1960. So a plan for “delay” now means past 67. There are a lot of people, even able-bodied, unable to find jobs at that age. It’s wrong to make them spend their savings to protect the eventual monthly payments of those who do have jobs.
One of the most irritating ideas is the contention the “government must empower” anyone to do anything.
Empowerment is not within government’s purview.
So if the best acceptable solutions to the basic math problem is raising the retirement age AND rationing benefits doesn’t that demonstrate unequivocally what a steaming pile the whole program is?
Come on now. The increase to 67 was phased in over decades. How can you make it look like it happens all of a sudden, so folks suddenly find out they had to find another job? They will plan for these years well in advance of them, right?
And folks live longer these days because they are generally healthier at 65 than once they were, isn’t that true?
You keep bringing these points up, and while they sound like a simple solution, the reality would be anything but.
First off, “use general tax revenues to bridge the gap” would actually mean “raise all income taxes to at least 50%”. The predicted Social Security shortfall is so great that there is no way to cover through general revenues without either absolutely killing our economy or inflating our way to Weimar.
Second, private retirement accounts – while absolutely the most desirable option – will not simply spring up overnight. Like personal bank accounts, these will be considered “too important to fail”, and Americans would demand their private retirement savings be guaranteed in case of market fluctuations. That would introduce a new regulatory system into the stock market (and with it, the entire American economy) which would have enormous ripple effects.
You mistook my concern, Manfred. Not everyone is fortunate enough to be in a secure job at 65 where they can work till 67. Even fewer will be in a secure job at 67 where they can work till 69 or whatever.
This is not getting across. Here is the key: Even if the average person is healthier at 65, many people are NOT healthy and securely employed at 65 or 67, and raising the age puts an enormously disproportionate part of the burden of making Social Security solvent on those people. Largely, it’s sticking it to the lower classes.
I don’t deny that having to actively beg for an entitlement is more humiliating than passively begging for it by age cutoff. But then, the whole system is a racket, has always been a racket, and those office workers anticipating a guaranteed entitlement just for reaching a certain age are still allowing themselves to become beggars to the system, even if the passive nature of their begging allows them to better pretend that their own begging isn’t really begging.
How does this alter the fundamental economics? You would need some pretty severe cuts, I think, to forego increasing the retirement age. You can cut the wealthier folks benefits more, (aka, ‘means’ testing) but there are too few in that category to be squeezed for much.
That leaves raising the payroll tax as last resort (if you don’t raise the RA). And that is when you get massive blowback from the public.
Neither cutting benefits or raising payroll taxes will have a large constituency. Since there are far more folks adversely hit by increased payroll taxes than hit by reduced benefits, the latter is what politicians will push, isn’t it.
Yes and no. First, people tend to notice tax incremental increases (especially to a more-obscure tax such as FICA, which is partially paid by the employer) less than someone 100% dependent on their SS check will notice a decrease in their benefits.
Second, it is well-known that retirees vote at higher rates than working-age citizens.
Thus, I can imagine there being at least as much political pressure against cutting benefits than raising FICA taxes. Indeed, this is probably why even the boldest officeholding reformer – such as Paul Ryan – start off any presentation of their reforms with the postulate that current benefits are sacrosanct.
In that regard, kudos to Jojo for being one of the brave outliers on the subject.
Well then you will have to jack up up payroll taxes. That affects all workers, several times as many folks as the delay in retirement age affects. You are going to need some adept salesmanship to convince the younger generations to go along. Not saying I have a preference either way, just don’t think fixed retirement age is sustainable with medical science pushing up lifespans as fast as it is. (look at the slope on the right hand side of that earlier chart – very steep).
You make my point, directly in observing that the public is very averse to lowering annual benefits (contrary to JoJo’s druthers), and indirectly by the fact that no one seems to be proposing that the payroll tax be increased. These two ingrained public preferences constitute the barrier to fixing the retirement age. The general increase in life expectancies just further aggravates the situation.
One dilemma which gets short shrift in these discussions is an odd organic phenomenon: we have made incredible advances at increasing lifespan, but have not made commensurate advances in keeping people productive longer.
Even if they’re living longer, most people still can’t imagine continuing working in their jobs once they hit 65 – they’re exhausted (and yes there are exceptions, but these have always been around). And from the other side, the marketplace also does not seem to have much of a desire to employ over-65s.
It doesn’t really matter how we jigger the system – if people keep living longer but don’t find ways to contribute to the economy longer, the fiscal maw will keep growing.