Social Security - the goal vs. the process

[natedogg]

One problem with the Social Security debate is that defenders of SS see criticism of SS as an attack on the goals. But many of us critics just believe the goals could be better met with a different approach. WE aren't just evil greedy corporate slave lords who want to fill the streets with starving disabled retirees. In fact, many critics believe that Social Security does more to hurt the working poor than to help. (I discuss some numbers below to support that).

Painting reformers as monsters only serves to shut down the discussion before it starts.

If you support SS because it provides a minimal living stipend to retirees who have nothing, we only differ in that I think Social Security is a bad way to do it, because I support the goal.

Why bother with such a complex oversized program just to do something so simple? Just eliminate FICA and hand out subsistence aid to any retirees that are broke. Remember, average SS checks are less than $1000. That is a pittance. It's a travesty to suck all that productivity out of the economy (12.4% of all wages under 90K) just so a few seniors who need the $1000 can feel like it's not a handout.

Just give the $1000 to those elderly who need it and be done with it.

And for all you "progressives", you should be pleased to note that my plan will be a more direct wealth redistribution program than the current Social Security system because it take the income taxes of the rich and promptly gives it away to the very poorest retirees, while ending the regressive and onerous FICA. It also does away with all the smoke and mirrors of cross-generational "insurance" funding, which is nonsense anyway.

How could "progressives" not support that? They love that kind of thing. They love ANYTHING the even hints at confiscating money from the rich, and sometimes they even want to spend the spoils on the poor. They should LOVE my proposal.

The fact is, the FICA burden is currently so onerous it is part of the reason people end up retiring with nothing. There has to be a better way to keep the very poorest retirees from starving. Eliminating FICA will go a long way.

For example, a 32 year old who earned a mere $20K in 2004 (clearly one of the working poor who are supposed to benefit from Social Security...), let's look at what he can expect from the program.

He can expect to earn about $866K during his life. He'll pay $91,807 in FICA. He'll get $10,740 per year when he retires. He'll have to live to be 75.5 just to break even on the FICA he lost.

If he makes a whopping $30K, we're looking at $1.298 million lifetime earnings and $137,683 lifetime FICA. In exchange for that $137K he'll get $13,944 a year from SS. He'll have to live to age 77 just to break even on this tax.

The full income range is charted here from my website:

http://www.socialsecurityrant.com/images/breakeven.gif

This is a terrible deal for the person who supposedly needs it the most! What a joke.

And I'm only calculating FICA as 10.6%, ignoring Medicare and Disability. All earnings and benefits estimates were taken from ssa.gov's own benefits estimating tool. And of course, they assume no changes to benefits or retirement age....

Now imagine the benefits of a US economy with no FICA burden:

1. Wages climb 12.4% nearly overnight*.
2. Economy booms.
3. Fewer people reach retirement with nothing.
4. Those who do are cared for in much the same way they were under Social Security anyway.
5. Marginal taxes used to feed the poor (the leftists' holy grail)

I'd like to see just one rational, fact-based explanation of what's wrong with this proposal that doesn't resort to partisanship.

natedogg

*I'm ignoring the issue of Medicare for the moment, which is 2.9% of the 15.3% FICA taken out of your gross wages.

[fimbulwinter]

You realize this argument applies to almost all governmentally directed social programs. I'm sure you've heard the basket solution WR to welfare, same thing.

Your logic will not, however, swing people's opinions as the majority of people support SS not in its effacacy (sp?) but in its principles. An alternate program would be met with skepticism simply because it would replace SS, and therefore must be contrary to said principles.

fim

[natedogg]

[ QUOTE ]
You realize this argument applies to almost all governmentally directed social programs.

[/ QUOTE ]

I'm not sure what you mean.

[ QUOTE ]
I'm sure you've heard the basket solution WR to welfare, same thing.

[/ QUOTE ]

Actually I haven't. What is it?


[ QUOTE ]
Your logic will not, however, swing people's opinions as the majority of people support SS not in its effacacy (sp?) but in its principles. An alternate program would be met with skepticism simply because it would replace SS, and therefore must be contrary to said principles.

[/ QUOTE ]

That's exactly my point. People are too religious about SS to realize that many reformers actually have the same goals in mind, just a better plan for reaching it. But religion requires you to blind yourself to reality, and the religion of SS is no different.


natedogg

[andyfox]

Some of the "reformers" are monsters. (They always are.) I can't imagine that Bush's argument that the system is in dire straits would be made unless he also wanted partial privatization. (In the same vein, I can't imagine that at least some of the flat taxers really just want a lower maximum marginal rate.)

Having said that, though, liberals ought to be ashamed of themselves for not using the current debate to come out 100% against the FICA tax. It's not only onerous, as you point out, inefficient at doing what it promises to do, as you point out, it's also regressive and come out of the first dollar earned. And it's disguised to look like only 50% of what it really is. Economists all across the spectrum correctly maintain that the 6.2% payed by the employer comes out of the employees' pockets.

At first glance, I like your idea. Why do we have a separate tax for retirement? Just pay for it out of general revenues. But do you think the economy would really boom so much that other government revenues would increase enough to make up the "missing" dollars from FICA?

[fimbulwinter]

[ QUOTE ]
[ QUOTE ]
You realize this argument applies to almost all governmentally directed social programs.

[/ QUOTE ]

I'm not sure what you mean.

[ QUOTE ]
I'm sure you've heard the basket solution WR to welfare, same thing.

[/ QUOTE ]

Actually I haven't. What is it?


[ QUOTE ]
Your logic will not, however, swing people's opinions as the majority of people support SS not in its effacacy (sp?) but in its principles. An alternate program would be met with skepticism simply because it would replace SS, and therefore must be contrary to said principles.

[/ QUOTE ]

That's exactly my point. People are too religious about SS to realize that many reformers actually have the same goals in mind, just a better plan for reaching it. But religion requires you to blind yourself to reality, and the religion of SS is no different.


natedogg

[/ QUOTE ]

1. your argument is that SS is grossly inefficient and could be essentially replaced by on-demand handouts for the needy at a much reduced cost with a great socioeconomic benefit to those who are not needy. such an argument holds true for ending the IRS, ending welfare, ending SS, etc.

2. basket solution is this: every tax dollar put into welfare results in 16 cents actually going to a welfare recipient. the rest is overhead, beaurocracy and money that somehow disappears. in reality, we would be better off taking all the money for welfare and directly converting it to pennies (or nickels or dimes or another small denomination item) and placing it in a massive basket somewhere. the people really needing money so badly would deal with the inconvenience in taking massive amounts of pennies to the bank/store to get their money/goods and the others would not abuse the system. the only overhead would be the labor to deliver the change to the basket.
therefore, a system that is better than our current system of welfare (which is atrociously bad) is one in which all the money is just thrown into a basket and people take what they need.

3. religion does not at all require one to blind themselves from reality. certain people use religion as an opiate that helps put the blinders on. that's just like saying that libertarian ideology must support genocide because it advocates international isolationism. certain people can use it as a justification for the toleration of human rights violations, but many others are willing to adapt the ideology to modern life. Just like religion.

fim

[thatpfunk]

A few questions...

IIRC, when SS was first created, the age at which they deemed one "ready" for SS was the avg age of death for an American... Would anyone be willing to push the age limit back, or am I just cruel? (And I'm a liberal too! /images/graemlins/ooo.gif)

Also, nate, your idea seems sound, but I dislike the idea of a retiree having to sign up for it, as many older people are too "proud" to ask for a handout... For many older individuals it may seem like begging, and they would much rather work. I don't know if this is good or bad...

What other solutions are there? What would a flat tax do? What exactly would privatizing it do (a link would be great, don't have to type it all out)? What options do we honestly have? Please, please, please, can we keep parisanship out of this and just give honest thoughts and ideas?

[jaxmike]

my thoughts on this issue are very clear. social security is illegal. i think it should be dismantled completely.

here is why.

1.) its redistribution of wealth, this is something i find repulsive and totally unamerican.
2.) it wont last forever in its current incantation, for decades all the money paid into SS was spent by the government. they are to blame.
3.) people think that its a retirement savings. this is a very dangerous thing. the amount of money you get from social security is a joke. people don't realize this, they dont save for their own retirement, then when it comes time to get their check, they are shocked at how low it is.
4.) its outdated and not needed. this was started during the "new deal" or as i like to call it, "the socialization of america". if people had any sense of personal responsibility, there would be NO need for social security.

[thatpfunk]

[ QUOTE ]
my thoughts on this issue are very clear. social security is illegal. i think it should be dismantled completely.

here is why.

1.) its redistribution of wealth, this is something i find repulsive and totally unamerican.
2.) it wont last forever in its current incantation, for decades all the money paid into SS was spent by the government. they are to blame.
3.) people think that its a retirement savings. this is a very dangerous thing. the amount of money you get from social security is a joke. people don't realize this, they dont save for their own retirement, then when it comes time to get their check, they are shocked at how low it is.
4.) its outdated and not needed. this was started during the "new deal" or as i like to call it, "the socialization of america". if people had any sense of personal responsibility, there would be NO need for social security.

[/ QUOTE ]

Jax,
Those may or may not be great thoughts but we live in a reality in which it is considered 100% legal, it is now ingrained in America , it is needed, and we need to find a realistic solution to the mess we have ourselves in.

So, what are some proposals?

Abolishment is unrealistic and will not happen. SS reform (or similar lines of thought) are the only considerations worth contributing to this thread... I have my opinions about SS now as well but 1) they are irrelevant to our situation, they will not help anything in anyway and 2) will simply reduce an interesting and relevant topic to the typical shouting match.

[CORed]

Social Security has become such a liberal sacred cow that most of them just refuse to see that it is fundamentally flawed. Moving to individual accounts, is IMO, one of the few things that Dubaya has gotten right. Of course a strict libertarian would say that it's none of the governments damn businuess whether I put money away for retirement or not, and my problem if I'm broke in my old age if I didn't.

I say this even though this change will probably hurt me. I'm too old for the change to help me much, and the reduction of the payment into the old systerm will probably reduce my benefits. Social Security as it is currently constituted is a trans-generation Ponzi scheme. People pay in, with a promise of benefits when they retire, but their money is not invested; it is used to pay the current recipients of benefits, and also some is siphoned off to support other government functions. It is going to collapse for the reason all Ponzi schemes eventually collapse. Not enough suckers paying in to keep paying the dividends. It worked, after a fashion, as long as the population was growing. However, declining birth rates and increasing life span have reduced the supply of suckers. It was not unreasonable to start the system in that manner. In the Great Depression, there was an immediate need to help old people. However, it should have been structured from the beginning to transition into a true retirement plan where contributions were invested for the use of those paying in. Accomplishing this, however, would have required a reduction of benefits or an increase in taxes, neither of which would have been popular. However, the transition would have been much less painful when the demographics were more favorable.

[thatpfunk]

[ QUOTE ]
Social Security has become such a liberal sacred cow that most of them just refuse to see that it is fundamentally flawed.

[/ QUOTE ]
You are making a broad sweeping generalization. I am extremely liberal and know that SS is fundamentally flawed. So do 99% of my friends. So do my parents. So do my professors. So does my dog... It is not difficult to see that there is not enough $$ to go around.

[ QUOTE ]
say this even though this change will probably hurt me. I'm too old for the change to help me much, and the reduction of the payment into the old systerm will probably reduce my benefits. Social Security as it is currently constituted is a trans-generation Ponzi scheme. People pay in, with a promise of benefits when they retire, but their money is not invested; it is used to pay the current recipients of benefits, and also some is siphoned off to support other government functions. It is going to collapse for the reason all Ponzi schemes eventually collapse. Not enough suckers paying in to keep paying the dividends. It worked, after a fashion, as long as the population was growing. However, declining birth rates and increasing life span have reduced the supply of suckers.

[/ QUOTE ]

As I replied to Jax, complaining about how it doesn't work does not help us find an effective solution. You may believe that people are undeserving of handouts, I may believe they are, however, our personal opinions are completely irrelevant. SS is in place and it is destined to fail. We can not just wipe it out because the people will throw a [censored] fit, so what should we do?

[ QUOTE ]
It was not unreasonable to start the system in that manner. In the Great Depression, there was an immediate need to help old people. However, it should have been structured from the beginning to transition into a true retirement plan where contributions were invested for the use of those paying in. Accomplishing this, however, would have required a reduction of benefits or an increase in taxes, neither of which would have been popular. However, the transition would have been much less painful when the demographics were more favorable.

[/ QUOTE ]

Also, as I said to Jax, IIRC the original age for SS to be recieved was actually the avg age of death. Also, hindsight is 20/20, what do we do now?

[natedogg]

So, what are some proposals? Abolishment is unrealistic and will not happen.

Abolishment is inevitable. It will probably happen right around the time we (30 somethings) all retire. Right around the time that is supposed to be "not a crisis" according to Chuck Schumer and others.

Abolishment is inevitable because the system cannot work. It doesn't just work poorly. It cannot work. The reason is that you must collect surpluses to prepare for the future and you cannot keep surpluses. A catch 22 that can only spell the doom of any program like this.

natedogg

[natedogg]

Some of the "reformers" are monsters. (They always are.) I can't imagine that Bush's argument that the system is in dire straits would be made unless he also wanted partial privatization.

Andy this is part of what I'm talking about. Wanting "partial privatization" does not make Bush a monster. He may very well be spinning the "crisis" harder than it merits in order to get his way, which is what you do in politics. But wanting to privatize does not mean you're a monster. Hell I support full abolishment, much less privatization, and my reasons are because I think the poor will be better off.

natedogg


natedogg

[andyfox]

I didn't say Bush was a monster. I said some of the "reformers" are, and I put reformers in quotes, because whenever there are politicians involved, there's subterfuge and disingenuousness in the equation by definition. Monster is the wrong word. Duplicitous politician seems better. The same description applies to the opponents of reform as well, of course.

I note that Mr. Greenspan has given qualified approval to privatization. In today's WSJ, they editorially chastized Bush for (apparently) giving an OK to raising the cap on income for the payroll tax. Their argument was that an income of $90,000 or even $150,000 makes you middle class in many areas of the country and adding a 12.4% to your tax burden would effectively negate the positives of the Bush income tax cuts and be an onerous burden on the middle class.

If they're so concerned about the middle class, why not support having the payroll tax not be effective on the first dollar of income, like the income tax? That way the burden would fall on higher income individuals. They could make the payroll tax effective on each dollar of income between, say, $50,000 and $150,000, instead of on the first $90,000. The amount you're entitled to upon retirement could still be computed as if you paid the tax from the first dollar earned, since the idea that you get out what you put in is a fiction anyway.

[scalf]

doggie, nate nate..:

the real purpose of social security is to piss as many people off as possible, giving nobody security...you think i am joking..boy oh boy ..it's my supposedly conservative senator who has been proposing doing away with the 90k cap and taxing all of someone's earnings...back when i worked in an auto factory during college summers; the factory workers lowest hourly maxed out in august..no joke..they are the ones who have been the bandits..

gl

/images/graemlins/grin.gif /images/graemlins/diamond.gif

[lastchance]

[ QUOTE ]

1.) its redistribution of wealth, this is something i find repulsive and totally unamerican.

[/ QUOTE ]
While I agree with the rest of your points, redistrubution of wealth happens every day due to market forces. Every business transaction redistributes wealth. Labor agreements and minimum wage redistribute wealth. The government is susceptible to market forces, not the other way around. Everything the government does, every policy it makes somehow redistributes wealth in a manner.

The government should be trying to redistribute wealth as effeciently as possible to increase average (mean, and median) income and decrease number of people in poverty.