What to do about Social Security. It seems to have reemerged as the third rail of politics. As Andrew Biggs at NRO notes, The Bernie is now leading the way for Democrats on Social Security. That led to Obama recent comments.
Sidebar: It is nice to have company. Another Andrew, Kleven, thinks Obama is a nincompoop. We might want to discuss terminology but we basically agree. We think his comments on Social Security confirm the diagnosis. End Sidebar.
Obama was quoted by Biggs as follows:
“It’s time we finally made Social Security more generous and increased its benefits so that today’s retirees and future generations get the dignified retirement that they’ve earned,” he said. “And we can start paying for it by asking the wealthiest Americans to contribute a little bit more….”
Biggs header accurately describes this as a fairy tale. It is a fairy tale because Social Security is broke and it is an awful deal. One of the problems when Bill and Newt were trying to do a deal on Social Security was the awful returns to all but the low income groups. Here is a study from that era.
First point: expanding Social Security is forcing high taxes and low returns on individuals, unless of course, you know you will live to 105. It makes no sense to expand Social Security. You are doing a disservice to those folks.
Second point: asking the wealthiest Americans to contribute a little bit more does not even close the current gap. Obviously, it wouldn’t allow for expansion.
Third point: private accounts are a great idea but the transition with the current level of debt is probably unaffordable. We would need to pay off the current Social Security “clients” without any taxes from the folks in private accounts. It was a challenge before Obama but it probably can’t be done now.
What we need to do is decide on the purpose of Social Security. We like the idea assuring some dignity for everyone but not a retirement program for everyone. We would see a combination of:
Some additional taxes
Increased returns for low earners.
To reach this goal. Under this proposal, you could earn a million dollars every year and spend every red cent and get a bigger Social Security check then a person of modest means that scrimped and saved.
Means testing is a challenge. The tax concept Gross Income defined as all income from whatever source derived sounds helpful but then we come across except as otherwise provided. So a person with a billion dollars in tax exempt bonds earning tens of millions has no gross income. Although Gross Income will work for most folks it won’t work for everyone. We need an additional test based on Gross Gross Income or assets to work. We would start phasing in means testing now so the process could be evaluated.
We are in favor of a VAT or carbon tax to fill the void. We would reduce payroll taxes for low income individuals. Elsewhere we have given a more detailed tax proposal. You can find it on the blog.
Free stuff. We find the idea of helping the low income elderly compelling. We also find being honest with everyone compelling. If you say you want all you paid in the fact is it has already been spent. Even continuing the Ponzi scheme won’t provide a full retirement income for the middle class. Roughly, in 2016 dollars, we would recommend increasing the payments for folks earning less that $12,000 in retirement, keep them the same for $12,000-$100,000, reduce them for $100,000-$200,000, eliminate them for over $200,000. This is a rough outline and not a proposal etched in concrete.
We are interested in counter proposals. What do you want to do and how will you do it?