Social Security

There has been quite a bit of wrangling lately about whether or not there is a Social Security crisis and if there is, exactly when it becomes a crisis.  Instead of wading in to that again, I'm going to talk about how Social Security has changed, and how it could change again.  (If you are interested in a good take on 'crisis' I suggest this post by Jane Galt.)  For purposes of this post, I will be talking about the old age portion of Social Security.  I'm aware that there is also a disability portion.  It is conceptually severable from the old age portion.  I'm aware that it exists, but it isn't what I'm talking about. 

At its inception, Social Security was politically positioned as a pension-like program.  You would work, pay into it, and if you got lucky you might get a little bit out of it when you retired.  The retirement age was set such that most men died before they would collect a single check and most of those who retired would collect checks for less than three years.  This made many choices about how to set up the program look very easy.  It made funding it in a pay-as-you-go fashion very attractive because there were dramatically more workers than there were pensioners.  Making it a universal program despite rhetoric about it as a safety net was a cheap way to broaden political support because most people didn't live very long after retirement.  In short, Social Security was designed around a number of assumptions which are no longer true.  Talking about changing it is not an attack on The New Deal.  It is a reevaluation of ideas which where enacted under a set of assumptions which do not apply to modern Social Security.  The heart of Social Security is protecting people from poverty in their old age.  The way it is set up now helps protect people from old-age poverty while paying tens of billions of dollars every year to retirees who are not poor. 

Even if it needs changing, why would we change it now?  If it isn't a crisis now, why not wait?  The answer to that is simple.  The system as currently set up, even if not immediately in crisis, represents a huge and growing portion of government expenditures.  It is also something that people make their long term retirement plans around.  If you are ever going to make changes to a program like this, it makes sense to phase them in over a long period of time so that those who have made plans under one set of assumptions are not damaged by the shift to another set of assumptions.  Social Security is exactly the kind of program for which if it is going to be in crisis in 40 years, you want to start phasing in the changes now.  The conceptual framework of workers paying into Social Security as we go along is not going to work 40 years from now to pay off all the benefits unless we have hugely unexpected amounts of long term economic growth.  If that happens, we have no problem under almost any proposal.  But if it does not, we will have more money going out of the program than coming in, a position which cannot continue indefinitely.  There are many ways which we could correct that imbalance.  We could dramatically raise the retirement age.  We could almost double the amount of payroll taxes taken in.  We could do something else.  The thing to remember is that there is no free lunch.  When more money is going out than is coming in, something has to give eventually. 

We have allowed the mechanics of Social Security to get away from us by drift instead of intention.  A plan which was designed to protect against old age poverty now give tens of billions of dollars a year to people who are not poor.  A plan which was designed to avoid paying most people by making a high retirement age now has a retirement age which can leave huge numbers of people in the system for more than a decade.  A plan which was designed with a 15-to-1 worker to retiree ratio faces a 3-to-1 worker to retiree ratio.  These changes have creeped up slowly but have changed the underlying deal dramatically. 

My proposal would be as follows.  Please realize that the concepts are more important than the precise numbers.  In other words the democratic process could negotiate the details.  First, an old-age poverty program doesn't need to pay wealthy and upper middle class retirees.  The cheap political cover isn't cheap any more.  It now costs tens of billions of dollars per year.  The mechanics of the current system (as influenced by the political pretense that it is a pension program) mean that the highest paid workers--those who are best able to plan and care for their retirement future--also get the highest benefits.  There is a slight climbdown from this by making the highest benefits taxable, but this does not change the underlying fact that richer people are getting higher payouts.  Much of this is tied into the conceit that this is a retirement or pension program.  The analogy with a pension program explains why people who make higher incomes get higher benefits.  It doesn't really make sense given the underlying justification for the program. 

Retired Americans are typically much more wealthy than their peers.  In each quintile of wealth, they are more wealthy (both with and without home equity) than all of their peer except those in the most wealth producing working years, 55-64.  (See Table F in the Census Report on Net Worth and Asset Ownership of Households).  They also have more wealth than those under 55 in the quintile above them.  So when I talk about the wealthiest quarter of retirees I am talking about a population significantly wealthier than the top quarter of the general population.  According to Table D, those in the the fourth quintile had an income of between $3,364 and $5,416 per month.  That is a very liveable income, especially if you own your own house which a large percentage of these retirees do.  Those in the fifth quintile of course have more income.  (Note about census household statistics:  elderly households are noticeably smaller than younger households so their per-capita wealth and income are understated by these statistics). 

We could slowly phase out the Social Security benefits of the top quarter of income earners and come to a very large savings in Social Security outlays.  I would suggest phasing benefits out at 3 1/3% per year over thirty years.  Since the top quarter of Social Security beneficiaries earn more than the top quarter of benefits, this would save more than a quarter of old-age Social Security benefits.  Gaming the system could be minimized by reducing the benfits on a less than 1 to 1 ratio compared with income.  The income situation for those retiring more than 30 years from now should be better than just the current income situation minus social security benefits for the top quarter as upper middle class and wealthy people save more to compensate for the knowledge of reduced benefits. 

What about privitization?  I like the idea of the government encouraging privately controlled accounts in theory, but I am skeptical of it in practice.  The major benefit of privitization plans is that it gets people used to actually being involved in decision-making regarding their retirement.  I am skeptical about privitization plans for very conservative reasons--I think such plans would lead to nearly inevitable government attempts to tinker with market outcomes.  Our financial system is not perfect, but it has a fair degree of efficiency.  I am loathe to put that at risk.  Even after a medium downturn of relatively short duration (say the market from 1999-2001) the pressure to meddle would become immense.  At least one of the following two things would happen:

1.  The government would intervene directly in the markets, ultimately making the markets much less efficient at exposing market weaknesses; and/or

2.  The government would make up the shortfall, eliminating many if not all of the projected savings from privitization.  Knowing this, some people may take especially risky investments, knowing that if they fail the government will bail them out. 

I'm not interested in a scheme which I suspect will lead either to little savings or extreme government meddling with the financial market structure. 

Comments

[Jesurgislac]

(If you are interested in a good take on 'crisis' I suggest this post by Jane Galt.)

And if you are interested in an accurate take on why Bush and his followers claim there is a "crisis", I suggest this post by Joshua Micah Marshall.

[Don Quijote]

A plan which was designed to protect against old age poverty now give tens of billions of dollars a year to people who are not poor.

The problem is that if you let SS to be turned from a universal program into a welfare program it will be demonized to death in a very short amount of time.

[kenB]

The problem is that if you let SS to be turned from a universal program into a welfare program it will be demonized to death in a very short amount of time.

Hmm, I'm very skeptical of this -- it's one thing to demonize low-income people in their working years, quite another to do the same with seniors. It'll be difficult enough politically to take the money away from even the wealthy aged.

[blogbudsman]

Jesurgislac, why do you believe Mr. Marshall's post is accurate? I'm a Bush 'follower' and I believe that any 'crisis' can be avoided if dealt with now, so you're post is at least that inaccurate. Your posts reeks of an ad hominem detraction quoting an ad hominem detractor. You're contribution from 'over there', while you're fully entitled to, seems to invert Jane Galt's response as interesting, but most likely untrue. I've lurked the sidelines through previous Social Security discussions trying to absorb what I can for the benefit of myself in a dozen or so years and my children and their children. The Obsidian Wings discussion may be one of the best in the blogosphere and can continue to be so if we can try to resist the political trolling. I know I open myself to counter attack, and so be it, but our Social Security is a huge, emotional issue to us. So to those with ulterior motives, at least try to moderate them somewhat. And Sebastian, I believe our President is strong enough to overcome the intense pressure to protect wealthy Social Security recipients (certainly the base of AARP's position) and make the necessary tough decisions to compromise many of the issues you touch upon. Great post. Thanks.

[Jesurgislac]

Blogbudsman: Jesurgislac, why do you believe Mr. Marshall's post is accurate?

Why don't you? My reasons for thinking Joshua Micah Marshall's post on the social-security "crisis" in the US are based on my general reading of/understanding of the US economy - which I admit may be limited, but is certainly good enough to understand the large print of it.

My reason for citing JMM's post on this topic was simply to provide another view than Jane Galt's, which is certainly partisan, and which I also believe to be inaccurate.

It was not my intention, however, to get involved in a discussion on US Social Security, as it doesn't apply to me - whether or not Bush succeeds in dismantling it.

Therefore, since my choice of "accurate" to describe JMM's post offends you, I withdraw it from the discussion and replace it with "alternate", which I trust can offend no one.

I bow out of this thread.

[Slartibartfast]

which is certainly partisan

Partisan in which direction? And why on earth would partisan be a disqualifier for you?

, and which I also believe to be inaccurate.

What you believe is pretty much irrelevant to the conversation, unless you can substantiate that belief.

OT, but can we regard this stodgy, reactionary opposition to doing anything at all to Social Security as conservative?

[liberal japonicus]

Sebastian
Why do you put 'crisis' in quotation marks? Jane Galt suggests that there is a crisis (I think, I always have a hard time understanding where she is going), so do you think there is not a crisis, or are you being ironic about there not being a crisis and there actually is?

I also find it quite bizarre (though typical of her rhetoric) that JG suggests that liberals are on the right side of the argument, but if they really knew what they were voting for, they wouldn't be. She writes
Along with most liberals, I'm in favour of abolishing the payroll tax, with its ridiculous illusion of saving, rolling it all into a progressive income tax structure, and paying safety-net benefits out of general revenue.
I believe that we already pull 30 billion out of the general fund for SSI, which is administered by Social security but doesn't draw from the trust fund, so I don't know if she doesn't realize this or is just trying to suggest that we don't take money from the general fund to provide safety-net benefits.

bbm
I'm straining to find the ad-hom in Marshall's article and I thought that Jes was simply posting an alternative viewpoint. It's relatively clear (at least to me) that Social Security is going to play itself on several different fields and simply dismissing Marshall's viewpoint misses out on a lot of what is going on. My own opinion is that if one wants to get a handle on this, they are going to have to look at it from every angle.

[von]

OT, but can we regard this stodgy, reactionary opposition to doing anything at all to Social Security as conservative?

Bravo.

I differ with Sebastian in that I favor private accounts, but arguing that Social Security faces not a present crisis -- or that it's really just all a part of a general funds crisis -- is silly. Indeed, it's a bit like walking the deck of the Titanic and seeing an iceberg but deciding not to do anything about it because it's either too far away to be worth the trouble or maybe iceberg is more properly spelled "ice berg" and until we resolve the spelling debate we should avoid all action.

Incidentally, as I've written previously, the present SS system isn't a "success" as anything but a welfare account. So let's not pretend that we'll "stigmatize" SS if we call it what it is.

[JerryN]

A bit OT, but I wouldn't push those wealth statistics too hard for several reasons. First, there's the basic longitudinal arc of a person's net worth. In other words, Jane Doe starts out as head of her own household by renting an apartment and having little or no savings or equity relative to her college loans. Presumably, assets are accumulated over time peaking at or near retirement age. So, you would expect to see increases in the quintile medians as you go from one age cohort to the next oldest one. I was a bit surprised to see that increase continue from the 65-69 year cohort to the 70-74 group. But, then I read the fine print.

The householder is determined as follows:

Survey procedures call for listing first the person (or one of the people) in whose name the home is owned or rented as of the interview date. If the house is owned jointly by a married couple, either the husband or the wife may be listed first, thereby becoming the reference person, or householder, to whom the relationship of the other household members is recorded.

A household is defined as:

A household consists of all people who occupy a housing unit. A house, an apartment or other group of rooms, or a single room is regarded as a housing unit when it is occupied or intended for occupancy as separate living quarters ...

...A household includes the related family members and all the unrelated people, if any, such as lodgers, foster children, wards, or employees who share the housing unit. A person living alone in a housing unit or a group of unrelated people sharing a housing unit as partners is also counted as a household. The count of households excludes group quarters. Examples of group quarters include rooming and boarding houses, college dormitories, and convents and monasteries.

So, when Jane Doe can't afford to keep living by herself and moves back in with the kids, her household disappears. And that group quarters definition may mean that when Jane's cousin John goes into the nursing home because none of his kids want the old guy around, his household vanishes, too. What you're left with in the report are householders who are wealthy and healthy enough to live independently.

[Dantheman]

von,

"Indeed, it's a bit like walking the deck of the Titanic and seeing an iceberg but deciding not to do anything about it because it's either too far away to be worth the trouble or maybe iceberg is more properly spelled "ice berg" and until we resolve the spelling debate we should avoid all action."

With all respect, I believe it's more like walking on the deck of a ship which already has massive leaks, and pointing to the iceberg in the distance as the first priority for the crew to deal with.

[votermom]

You know, I think SS security could use some fixing, but I would rather wait until some other president's term. It's just that, given the past four years, I have no confidence in Bush's administration to handle money, this much money, responsibly and transparently.

[Edward]

You know, I think SS security could use some fixing, but I would rather wait until some other president's term.

That is the soundest argument I've read in any of this.

The question, of course, then becomes would some other president take it on? Bush is seen by many as the man to do it because he's willing...I just wish I was convinced we as also able.

[Slartibartfast]

I believe it's more like walking on the deck of a ship which already has massive leaks

So, your position is that we shouldn't pay any attention at all to Social Security until all other, larger problems have been addressed? By all means, then, let's have a prioritized list. But no multitasking allowed; that's far too advanced a concept.

[Dantheman]

Slarti,

"So, your position is that we shouldn't pay any attention at all to Social Security until all other, larger problems have been addressed? By all means, then, let's have a prioritized list."

Nice try at creating a strawman. Let's try for something closer to the example I gave. We should instead deal with the immediate dangers (current budget deficits, current balance of trade imbalances, increasing costs in Medicare, etc.) rather than exclusively focusing on a problem which is at worst decades in the future, instead of claiming it is the sole crisis.

[JerryN]

I guess that I'll take the contrary position (surprise, surprise) and argue that the change in the nature of the program is not "drift". The changing nature of employment in the US, as well as the very demographic shift that has increased the costs of the program have forced us to view retirement differently.

What I mean is that the demise of defined benefit pension plans in the private sector have left middle-class folks more dependent on their individual investment skills to cover retirement costs than their parents needed to be. Increased life expectancy means that they are also more likely to outlive their nest eggs. Given this and the abysmally low personal savings rate, I'd say that a lot more of the folks that are nearing retirement age will need that safety net than those who are currently retired.

[Slartibartfast]

You know, I think SS security could use some fixing, but I would rather wait until some other president's term.

Well, that's a decent fraction of the problem right there.

That is the soundest argument I've read in any of this.

And that's a good chunk of the rest of it. votermom doesn't want to change SS because it would be Bush doing it, and Edward thinks that's something resembling a good reason to wait. Pray tell me, what do you think is going to happen if and when the right President is elected? My prediction is, your antiparticles on the right are going to have the same thoughts.

[hilzoy]

von: "arguing that Social Security faces not a present crisis -- or that it's really just all a part of a general funds crisis -- is silly."

I disagree. Arguing that SS does not face a present crisis just reflects the fact that the SS trust fund will be able to pay for SS benefits in full until 2042 or 2052, depending on whether you believe the SS trustees or the CBO. When you add to that the fact that both are (if memory serves) using fairly conservative estimates of both growth and productivity, plus the general uncertainty of economic forecasts of the distant future, the case for 'no present crisis' seems fairly clear to me.

We start arguing about a general funds crisis only in response to an argument offered by our opponents, namely: that more money goes out of SS than comes into it starting in 2018, and that this constitutes a crisis. We then say: it is indeed a very serious problem that the country is running serious structural deficits, and one bit of that problem is that we have been using the SS surplus to cover general funds. But the fact that we will have to start actually letting the SS redeem the bonds it holds, which we are legally required to do, is not part of a 'Social Security crisis'; it's part of a general funds crisis.

We also argue about a general funds crisis in response to the following argument: really , the SS trust fund doesn't exist; the bonds it holds are just IOUs from one part of the government to another. In response to this we say: (a) yes, it does too exist, but also (b) if you (our opponent) want to claim that it doesn't, and that the government is all one, then there is no reason to describe the need to repay these IOUs as a Social Security crisis, as opposed to a general funds crisis; and no reason to suppose that we have to make up the difference between money coming in through payroll taxes and money going out to SS beneficiaries by raising the payroll tax or cutting benefits, as opposed to just raising general taxes or cutting some other program.

The point is, in both cases we make the 'general funds' argument in response to arguments made by our opponents, which either construe a genuine problem with our federal deficits as a SS problem, or trade on viewing SS as just a part of the general fund when they want to make its trust fund disappear, but as a separate entity when they want to consider possible 'solutions' to the 'problem' they have, by this means, caused to appear.

[Dantheman]

"You know, I think SS security could use some fixing, but I would rather wait until some other president's term.

Well, that's a decent fraction of the problem right there.

That is the soundest argument I've read in any of this.

And that's a good chunk of the rest of it."

And another decent chunk is some people not responding to votermom's concern's, as stated above:

"It's just that, given the past four years, I have no confidence in Bush's administration to handle money, this much money, responsibly and transparently."

[Jadegold]

Let's examine Von's analogy using the perspective of someone who has commanded a ship (me) and see if it holds up.

Indeed, it's a bit like walking the deck of the Titanic and seeing an iceberg but deciding not to do anything about it because it's either too far away to be worth the trouble or maybe iceberg is more properly spelled "ice berg" and until we resolve the spelling debate we should avoid all action.

Icebergs are generally (and very effectively) dealt with using very minor course corrections. Icebergs are not dealt with by scuttling the ship and refusing to go to sea anymore.

Of course, course corrections may not even be necessary unless the risk of collision exists.

Incidentally, as I've written previously, the present SS system isn't a "success" as anything but a welfare account. So let's not pretend that we'll "stigmatize" SS if we call it what it is.

Cool. So we won't "stigmatize" the Iraqi misadventure by calling it this appointed administration's personal XBox game.

[Slartibartfast]

"It's just that, given the past four years, I have no confidence in Bush's administration to handle money, this much money, responsibly and transparently."

Ah, so she thinks Bush will do any SS reform badly because she has no confidence that he'll do it well. I don't see that this adds anything at all of substance.

[von]

I'm out for most of the day, but a quick response to JadeGold (and, by implication, some others):

"Icebergs are generally (and very effectively) dealt with using very minor course corrections."

What Bush is proposing, by all accounts, is a minor course correction. Private accounts will be limited and voluntary, and only available to younger workers. I'd prefer to see means testing -- rather than the current re-indexing and other regressive tacts that have been leaked -- make up the projected deficits that will result from the correction. But that's a fight to have after we actually see the proposal.

[Edward]

Slarti,

Alright, at the risk of hijacking the thread...let's explore, quickly, the validity (nonpartisan validity) of the the idea that "Bush is the wrong man for the job."

First he isn't representing the "problem" honestly. He's using scaremongering tactics (been there, done that) and calling SS a "crisis" when that's simply not the case. As Krugman explains, our biggest Social Security problem isn't that program itself, but rather the deficit and Medicaid/Medicare:

There are only two things that could endanger Social Security's ability to pay benefits before the trust fund runs out. One would be a fiscal crisis that led the U.S. to default on all its debts. The other would be legislation specifically repudiating the general fund's debts to retirees.

That is, we can't have a Social Security crisis without a general fiscal crisis - unless Congress declares that debts to foreign bondholders must be honored, but that promises to older Americans, who have spent most of their working lives paying extra payroll taxes to build up the trust fund, don't count.

Politically, that seems far-fetched. A general fiscal crisis, on the other hand, is a real possibility - but not because of Social Security. In fact, the Bush administration's scaremongering over Social Security is in large part an effort to distract the public from the real fiscal danger.

There are two serious threats to the federal government's solvency over the next couple of decades. One is the fact that the general fund has already plunged deeply into deficit, largely because of President Bush's unprecedented insistence on cutting taxes in the face of a war. The other is the rising cost of Medicare and Medicaid.

As a budget concern, Social Security isn't remotely in the same league. The long-term cost of the Bush tax cuts is five times the budget office's estimate of Social Security's deficit over the next 75 years. The botched prescription drug bill passed in 2003 does more, all by itself, to increase the long-run budget deficit than the projected rise in Social Security expenses.

Secondly, Bush seems hellbent on one "solution": privatization. A risky proposition that would guranantee only that Wall Street benefits.

To summarize: Bush doesn't understand (or isn't being honest about) the "problem" and yet he's stuck on one "solution." It's not that far-fetched to conclude he's the wrong man for the job.

[Gromit]

kenb: Hmm, I'm very skeptical of this -- it's one thing to demonize low-income people in their working years, quite another to do the same with seniors. It'll be difficult enough politically to take the money away from even the wealthy aged.

I don't think it would be all that difficult. All you have to do is portray them as different in some key way from regular, hard-working moral Americans. Say they frittered away their productive lives and now they want a handout. Say this is the domain of the churches and the charities, and shouldn't be extorted from those who will never see any benefit. Sick people get demonized in the national health care debates ("subsidizing unhealthy lifestyles", for example). The same could be done for the impoverished elderly without much more difficulty. I'm sure Frank Luntz will have focus groups rating key words and phrases before the ink is dry.

Don't forget that shrewd politicians convinced our citizens to support a tax rollback that benefits only millionaire heirs and heiresses. The willingness to outright lie helps, of course.

Slartibartfast: Ah, so she thinks Bush will do any SS reform badly because she has no confidence that he'll do it well. I don't see that this adds anything at all of substance.

How can you read the words "given the past four years" and then accuse votermom of begging the question? Whether you agree with her conclusions or not, wouldn't Bush's whole first term be sufficiently substantial evidence of his fiscal responsibility?

[Sebastian Holsclaw]

"But the fact that we will have to start actually letting the SS redeem the bonds it holds, which we are legally required to do, is not part of a 'Social Security crisis'; it's part of a general funds crisis."

Ok, and? (Though I may note that this is a very new way of looking at it. Decades of democrats since Carter have talked about a Social Security crisis in the exact terms that Republicans are now talking about it.)

Social Security is a system with a long term imbalance--there are more and more retirees in the system than there ever used to be and fewer and fewer workers than there used to be. There are a essentially a very few options you can use to correct that imbalance. You can crush the current workers with taxes. You can reduce the benefits. You can reduce the number of beneficiaries. You can do some of each. The problem is easily forseeable. The forseeable problem is potentially huge. In the interest of fairness it is best to deal with retirement issues well in advance so that people can plan their retirements. In the interest of fairness it doesn't make much sense to pay rich people for an old-age anti-poverty program. Therefore, I don't see a problem with slowly phasing out payments to upper middle class and higher income retirees. And if the economy does well enough to make it (in retrospect) a non problem, rich people will have done great so who cares?

[rilkefan]

Slart, have you approved of Bush fiscal/monetary policy? Did you think the Medicare reform process was admirable? Did you think the run-up to the Iraq war was argued coherently and openly by the admin.? From my perspective the "responsibly and transparently" argument adds all the substance necessary - though I'm happy to have Krugman and DeLong on my side.

von - re "silly" - I don't think this is a useful word to describe the opinion of interlocutors (though I admit with regret having done so, in reference to a sentence of yours no less). I think it's especially unuseful when those disagreeing with you can cite Krugman etc.

[blogbudsman]

liberal japonicus, I agree with examining every angle, but at some point you want to peel the onion and narrow down the arguments to those that advance the specific issue at hand. I was trying to place my palm on the forehead of the 'Bush and his followers' rant and hold it at arm's length. I truly don't want to bury Jesurgislac's viewpoint because I know she represents a real portion of the world's stage that we need to listen to and address.

And JerryN, both of my folks live with me, in fact I have four members of my family living with me, those two on Social Security and two on disability. I'll bet that blows the curve a bit.

And Edward, gather up some faith man, America is not a one man show. Let's hammer this out, form some semblance of consensus, and make those folks do our bidding.

[votermom]

Ah, so she thinks Bush will do any SS reform badly because she has no confidence that he'll do it well. I don't see that this adds anything at all of substance.

I try to select the insititutions and professionals that handle my personal affairs carefully -- I research the investment firms, I research the doctors, the surgeons, the schools ... everything. It's just the way I am, financially conservative and rather risk-averse.

This administration had four years to gain my respect and admiration for their fiscal policies; but they didn't. Quite the contrary.

[Slartibartfast]

How can you read the words "given the past four years" and then accuse votermom of begging the question?

There must be another "Slartibartfast" posting here, because I haven't done that. I have, however, pointed out DantheMan's error in asserting I haven't addressed votermom's points. If she wants to flesh out her argument a bit, I may address fresh points.

Edward, I'd not quote Krugman on this subject, because it wasn't all that long ago that he was saying nearly the exact opposite of what he's saying now. Back when the economy was booming, SS was in dire straights. Now that it's kind of easing along with a much lesser degree of enthusiasm, SS is just fine. If he's going to change his story on SS so radically, the least he could do is acknowledge his previous position and explain the about-face.

And wasn't it Clinton that wanted to save Social Security first? Was he wrong in thinking that?

[JerryN]

Sebastian identifies 3 ways to reduce the gap - increase revenue, reduce benefits, reduce beneficiaries. One thing that strikes me about the changes that are being hinted at by the administration is that they have so far been pretty emphatic about not increasing the revenue side of the picture. No changes to the tax rate - see here for example - and presumably no change to the income cap. (BTW, Sebastian, "You can crush the current workers with taxes" is a bit harsh, kind of like saying means-testing forces the elderly to beg for their money.)

Here's a thought that also addresses Sebastian's issue regarding payouts to higher income retirees: lift the cap on employee contributions. I know that it won't close the gap by itself, but it does help. It also reduces the regressiveness of the the tax without burdening employers.

[JerryN]

blogbudsman - just to be clear, if the house is in your name, then in the survey the age cohort of the blogbudsman household is your age cohort, not your parents. Regardless, the household net worth is the combined net worth of all members of the household, which also does interesting things to the survey numbers.

[Slartibartfast]

First, votermom, not saying you don't have a valid reason for not wanting it to happen under the Bush administration. Just that it doesn't make a case for convincing others.

Now. rilkefan:

Slart, have you approved of Bush fiscal/monetary policy? Did you think the Medicare reform process was admirable? Did you think the run-up to the Iraq war was argued coherently and openly by the admin.?

In order: No, no (with the qualifier that I find very little that happens in government rises to the level of "admirable"), and yes. What would be the most convincing argument to me would be an something to the effect that Bush would be incompetent to properly reject any flawed proposal drawn up by Congress, given his reticence with the veto pen. The thing that pissed me off the most was Bush's failure to reject the especially egregious pork in post-9/11 budgets.

[Anarch]

von: What Bush is proposing, by all accounts, is a minor course correction.... But that's a fight to have after we actually see the proposal.

In a fair, rational world, yes. As it stands? No way. Any support now, however tenuous, will be pilloried as rankest hypocrisy should people change their mind upon seeing the actual implementation of the proposal in question. Or have you forgotten "I was for the war before I was against it"?

As others, including votermom, have pointed out, Bush doesn't walk into these negotatiations (or, more generally, this term) with a blank slate. He has a history, and by his history shall he be damned.

[Anarch]

BTW, von:

I differ with Sebastian in that I favor private accounts, but arguing that Social Security faces not a present crisis -- or that it's really just all a part of a general funds crisis -- is silly.

"faces not"? I'm not sure what you're trying to say here...

[rilkefan]

Slart, the alleged "about-face" seems to me to rest on the confusion between the general fund crisis and the supposed SS crisis. At least from a quick read your link shows not inconsistency on Krugman's part but error on his detractor's part.

[Slartibartfast]

Seems clear to me, Anarch. And given von's Grammar-God status (or at least, demiGod), I'm going with it being fair usage.

Faces not == does not face. Just as does not == the opposite of does.

[Anarch]

As for Sebastian's main post, there are two separate things floating around here:

1) Maintaining the fiscal equilibrium of the Social Security fund by, e.g., raising taxes or cutting benefits.

2) Altering the form of SS by, e.g., privatizing accounts.

Proposals of type #1 are aimed at restoring fiscal balance to the system and, as such, can fairly be described as proposals to "save" Social Security.* Proposals of type #2 do not qualify for this descriptor unless it can be proven (to some reasonable degree of certainty) that the altered form will in fact provide the systemic rebalancing required.

Both types of proposal are legitimate, I hasten to add, regardless of my view of their individual merits. What drives me up the wall and round the twist is when people erroneously describe proposals of type #2 as being proposals of type #1; all the worse when this mistake is pursued deliberately (as it seems the Bush Administration is bent on doing) to push through an ideological change without adequate scrutiny. Whatever discussions we plan to have about SS will be hard enough without this kind of obfuscation and dishonesty.

And since it appears as if I don't have anything useful to say, I'll shut up now :)

* How much saving it actually needs is a separate question and one I'm not qualified to tackle. To my inexpert eyes, though, the wealth of the evidence says that SS doesn't need "saving" though it would probably be a generically good idea to streamline it somehow.

[Slartibartfast]

Surely you jest, rilkefan. Before, there was a crisis; now, well, it's just not that important anymore.

So, how about you? How'd Clinton's "save Social Security first" campaign sit with you? Was it utter hogwash at the time?

[Anarch]

Faces not == does not face.

I agree that that's how the sentence should be parsed as written but that's a syntactical formulation that hasn't been part of SAE in about a century. [The current formulation would be "SS does not face".] I was wondering if von had omitted a few words, or if he was just being twee.

[Sebastian Holsclaw]

"Here's a thought that also addresses Sebastian's issue regarding payouts to higher income retirees: lift the cap on employee contributions. I know that it won't close the gap by itself, but it does help. It also reduces the regressiveness of the the tax without burdening employers."

This could be a useful additional approach if we rid ourselves of the silly idea that Social Security is in any way related to a retirement fund/pension fund. So far people on both sides have been loathe to do that with any kind of consistency. Whenever people talk about Social Security, the rhetoric eventually returns to 'retirement fund' or 'pension' or 'promises made' rhetoric. Of course your proposal goes together quite easily with not paying rich people old-age anti-poverty funds. ;)

[JerryN]

Slarti -

How about: a decade or so later, the steps that were taken have reduced the severity of the problem? The projected date of revenue shortfall has been pushed out signifcantly. In the meantime, subsequent events, like say the rapid and continuing growth of the deficit in the General Fund, have become more important.

[Dave Schuler]

First, Arnold Kling has a IMO very brief, fair summation of the debate on Social Security reform here.

Second, I've argued on my own site that proponents of Social Security reform need to build a case for whatever plan they're proposing. There's not much of that going on right now. If the objective is to put the Social Security system on a sound actuarial basis, the plan they propose should do that. Sebastian in the original post here points out the (IMO politically sound) reasons that private accounts won't restore actuarial soundness to the system. If the plan proposed abolishes Social Security, proponents need to build that case.

One of the reasons that the Social Security system is not sound from an actuarial standpoint is that income growth has been too slow in the middle quintiles (which pay the most FICA) for many years. If income growth is going to be in the top quintile then one way to bring actuarial soundness to the plan is to make more of that income subject to FICA. FICA max should be eliminated. As has been pointed out that would remove the most objectionable regressive character from the the tax.

In my opinion eliminating or at least substantially raising FICA max, making all salaried workers subject to FICA, very modest means testing, and very slight raises in the Social Security retirement age are enough to solve the problem. What we really need to do is grasp the Medicare nettle.

I do have one major problem with private accounts. If adopted they would result in a major inflow of money into mutual funds. Mutual funds tend to be very heavily invested in stock of Fortune 500 companies. Stocks are a commodity like peanut butter or automobiles. If there's more money chasing the same amount of stock, stock prices will go up in the short term. Since Fortune 500 CEO's tend to have a good part of their compensation in stock options the adoption of private accounts will result in a substantial increase in income for Fortune 500 CEO's that can't be considered performance-based by any stretch of the imagination.

I have no problem whatsoever with Fortune 500 CEO's making big incomes. But I don't think they (or financial managers) should be granted big incomes by government fiat.

[Sebastian Holsclaw]

"How about: a decade or so later, the steps that were taken have reduced the severity of the problem?"

What steps were taken? I don't remember much happening other than the tech-bubble making the economy look fantastically good for a few years.

[rilkefan]

"Surely you jest, rilkefan."

Non-responsive. There has long been an impending general fund crisis, because Greenspan et al. addressed the boomer problem by the irresponsible mechanism of hiking payroll taxes on the middle class with the unenforceable promise that the wealthy would kick in later. Now later's arriving and the deal's been conveniently forgotten.

Re Clinton, I was in Europe at the time, but I wouldn't be surprised if he was pushing a mix of political triangulation and general-fund responsibility; will investigate a bit as time permits.

[JerryN]

While the major step was taken in 1983 with the creation of an SS surplus by design, the Welfare Reform act in 1996 also had an impact. First, it eliminated SSI payments to many aliens. In addition, it can be argued that it drove some of the increase in labor force participation that occurred, resulting in increased contributions.

[Jadegold]

That Clinton saw the same problems with SS that Dear Leader is now addressing is a canard.

In our last democratically-elected President's SotU address in 1998, Bill Clinton mentioned we had an obligation to 'save Social Security' first.'

How did he propose to do this? To funnel "every penny" of the projected federal budget surplus, if needed, to keep SS solvent.

Let's see; fiscal discipline and preserving SS. How radical.

BTW, it's telling that those organizations (Heritage Foundation, Cato) criticized Clinton's plan then. Today, however, they tout him as sharing their beliefs on SS.

[Slartibartfast]

Non-responsive.

Tell me why. Krugman then thought there was an impending SS crisis; now he doesn't. It's certainly possible that I've misinterpreted, but that's a little different from being non-responsive.

because Greenspan et al. addressed the boomer problem by the irresponsible mechanism of hiking payroll taxes on the middle class with the unenforceable promise that the wealthy would kick in later.

Greenspan levies payroll taxes? But that's not important. SS itself being a payroll tax, I'd think you'd be all over the notion of it being needs-based and part of the general fund, which would eliminate it as a payroll tax and make it more...progressive in nature.

[Slartibartfast]

That Clinton saw the same problems with SS that Dear Leader is now addressing is a canard.

And I'm sure it's a real thigh-slapper for those who are into the projection thing. That certainly not being the case with you, the humor quotient has got to be rather small. No, the point (as you surely realized) is that Clinton said that SS needed attention. The idea that it suddenly doesn't is hence a little baffling.

But, to repeat myself, you knew that.

BTW, it's telling that those organizations (Heritage Foundation, Cato) criticized Clinton's plan then. Today, however, they tout him as sharing their beliefs on SS.

Criticising a plan of action to address a problem isn't the same as maintaining the problem doesn't exist. Certainly it's possible that Heritage denied there was any problem at all then, but that's irrelevant. It's a little ironic perhaps that equal amounts of backpedaling are occurring on both sides of the aisle, but one outfit's inconsistency is hardly for everyone to indulge.

[Bernard Yomtov]

Count me among those who, like votermom, do not trust the Bush Administration to produce a sensible proposal. This is not begging the question, slarti, as you indeed accused votermom of doing. (How else should we interpret "Ah, so she thinks Bush will do any SS reform badly because she has no confidence that he'll do it well. I don't see that this adds anything at all of substance., but as such an accusation).

It is an assessment of future performance based on the Administration's past performance and its misrepresentations of the problem as cited by, for example, Edward, above.

But at least Bush's proposal, whatever it is, will be public long enough for there to be some debate about it. What happens when it hits Congress? I trust the Hastert-DeLay-Frist team even less than I trust Bush. And they have a nasty habit of last-minute changes and secret processes and the like that make me shudder at the thought that they are going to redesign Social Security.

Whatever the the rational arguments in favor of change, I am absolutely convinced that any changes made by the present Congress will make the system worse.

[Slartibartfast]

This is not begging the question, slarti, as you indeed accused votermom of doing.

Get over it, Bernard. I don't really care that she substantiated one position with an opinion; that's perfectly ok with me that she does so. I just noted that it's not persuasive.

I trust the Hastert-DeLay-Frist team even less than I trust Bush.

Great. And what'll happen when you guys get control over either (or both) the Legislative and the Executive, those like me are going to be awfully leery of Nancy Pelosi, etc. making the decisions. At this point we may as well just give up and not entrust the government with any powers at all. Which would make us...what, libertarians?

[votermom]

Why not have a public referendum on whatever the full proposal is?

(Assuming all the electronic voting machines have paper trails for the referendum).

[Dantheman]

Slarti,

"And what'll happen when you guys get control over either (or both) the Legislative and the Executive, those like me are going to be awfully leery of Nancy Pelosi, etc. making the decisions."

2 responses:

1. The democrats did trust Reagan to make decisions like this in the 1980's. Thus, it's not that Democrats don't trust Republicans, it's that they don't trust these Republicans.

2. These Republicans have given good reason not to be trusted. See Edward's comment "To summarize: Bush doesn't understand (or isn't being honest about) the "problem" and yet he's stuck on one "solution." It's not that far-fetched to conclude he's the wrong man for the job." or Bernard's "And they have a nasty habit of last-minute changes and secret processes and the like that make me shudder at the thought that they are going to redesign Social Security."

If you aren't willing to respond to the substance of what's being said, you're not giving reason why we should treat your objections as anything other than purely a preference for R's over D's.

[Sebastian Holsclaw]

"To summarize: Bush doesn't understand (or isn't being honest about) the "problem" and yet he's stuck on one "solution." It's not that far-fetched to conclude he's the wrong man for the job."

How fatalistic. We don't live in a totalitarian state. If you don't like his 'one' solution, propose another solution. I'm not super-thrilled with privitazation, so I am proposing what I would like to see. Maybe I haven't hit the blogosphere big time like Katherine, but I'm trying to get my ideas out there and discussed. Are you going to whine about how you don't trust Bush for 4 years? Are you going to put everything on hold? If you think the priorities are wrong, propose something useful pertaining to Medicare. Sheesh. We live in one of the freest countries in the world, where practically anyone can try to get their ideas out there. So try to get your ideas out there.

[Slartibartfast]

If you aren't willing to respond to the substance of what's being said

How many times do I have to note that it's the lack of said substance that I was responding to before any of you (who, by the way, I wasn't addressing to begin with) get it?

it's that they don't trust these Republicans.

Yes? And who are you going to run for President in 2008? These Republicans are the ones you have.

Why not have a public referendum on whatever the full proposal is?

I'm all over that idea in theory. But looking at ballot measures that have passed in Florida the last couple of go-rounds, people will vote for practically anything that the loudest voice tells them to vote for. Maybe a state-by-state ratification? That's not the law, certainly, but neither is your idea AFAIK.

And now I'm fresh out of ideas.

[fdl]

why the insistence that SS is not a pension? seems to me that it shares many of the characteristics of a privately-funded pension plan. Most critically, there is a strong insurance component; the longer you live the more you get back.

second, and much more importantly, Sebastian and many of the posters here are failing to think through the impact of their proposals on the investment strategies of the middle class.

Take me, for example. 40ish, 1 wife, no kids, oppressive mortgage. Annual household salary of $1xx,000. Historically made max. contributions to 401k until i became self-employed and income stream became much more erratic.

Now, under Sebastian's proposal, i WILL NOT KNOW whether i qualify for SS until i retire, at which point the SS Admin will (presumably) investigate my net worth and tell me what i get.

So, I have two possible investment strategies over the next 20 years: (a) very speculative, hoping to hit it rich and (if i fail) relying on Soc Sec; or (b) recognizing that i have lost a completely secure income stream, invest very conservatively until i have an income stream equal to that which i lost.

now, we already know (see Brad DeLong) that americans invest too conservatively; that is one source of the equity premium. remove the safety net for the middle class, and investment strategies will become even more conservative.

put simply, the safety net has overall societal value even for people in the highest quintile.

Francis

p.s. determining annual income is hard enough; determining wealth is orders of magnitude harder. I have seen people go through incredible efforts to stay broke in order to keep their qualification for medicaid. Medicaid is minute compared to ss; think of the immense time, effort and money that will be spent in retirement planning in order to ensure that the retiree qualifies.

p.p.s. Rising property taxes, and the perception that people were being forced out of their homes, sparked one of the first great tax revolts in this country in modern times, California's Prop. 13. Forcing people to spend their equity before obtaining SS will be the death of any program that has a wealth-based determination of qualification.

[Dantheman]

"How many times do I have to note that it's the lack of said substance that I was responding to before any of you (who, by the way, I wasn't addressing to begin with) get it?"

I don't know. Maybe until you actually answer the substance of what's been said.

[Slartibartfast]

I don't know. Maybe until you actually answer the substance of what's been said.

What substance? Said by whom?

[Edward]

Sebastian, I was merely arguing the point...

Read back up thread and you see I introduced it as an exercise, not a manifesto. "let's explore, quickly, the validity (nonpartisan validity) of the the idea"...

I recently went so far as to write the words "Well Done, Mr. President" on another issue (and if you don't think that hurt a bit, you haven't been reading my stuff), so "Are you going to whine about how you don't trust Bush for 4 years?" seems a bit unfair.

[Dantheman]

Sebastian,

"How fatalistic. We don't live in a totalitarian state. If you don't like his 'one' solution, propose another solution."

No, we live in a representative democracy, where only our elected representatives vote on these matters. Since I am not a member of Congress, my proposing solutions is not too useful. Far more useful, in my opinion, is getting people to realize that the President's proposed solutions make the problems worse, not better, in the hopes they will be rejected.

[Dantheman]

"What substance? Said by whom?"

When you respond to what's being said below, then we can talk.

""To summarize: Bush doesn't understand (or isn't being honest about) the "problem" and yet he's stuck on one "solution." It's not that far-fetched to conclude he's the wrong man for the job." or Bernard's "And they have a nasty habit of last-minute changes and secret processes and the like that make me shudder at the thought that they are going to redesign Social Security.""

[Slartibartfast]

Far more useful, in my opinion, is getting people to realize that the President's proposed solutions make the problems worse, not better, in the hopes they will be rejected.

Which proposed solutions? And, well, I thought that Congress had some small say in matters.

[Anarch]

Which proposed solutions?

And therein lies the rub.

[votermom]

failing to think through the impact of their proposals on the investment strategies of the middle class.

Oh -- good point. Similar case in college savings -- for some households it makes sense to save nothing for the kids' college tuitions so that they can qualify for aid. In both cases, by making the money need-based rather than universal, one discourages saving/investing.

[Slartibartfast]

One was written by Edward, and the other by Bernard. I was responding to what votermom said. As always, I reserve the right to not respond to anything I'm not actually responding to, unless I actually respond to it. My failure to respond to anything written by those I've not so far responded to should not be assumed to constitute either agreement or disagreement, until such time as I respond to it. Then you can figure it out for yourself.

Or, judging from the length of this exchange, maybe not.

[Slartibartfast]

And therein lies the rub

Certainly, but it does rub both ways.

[votermom]

Maybe a state-by-state ratification? That's not the law, certainly, but neither is your idea AFAIK.

Sounds good to me. Will that be on our ticket when we run for President/VP? :)

[Dantheman]

"One was written by Edward, and the other by Bernard. I was responding to what votermom said."

Except you responded to other portions of the post where I originally said that by stating "How many times do I have to note that it's the lack of said substance that I was responding to before any of you (who, by the way, I wasn't addressing to begin with) get it?". Are you trying to be a flip-flopper?

[Dantheman]

"Far more useful, in my opinion, is getting people to realize that the President's proposed solutions make the problems worse, not better, in the hopes they will be rejected.

Which proposed solutions?"

Try for example: http://abcnews.com.go.com/Politics/wirestory?id=384212

[Edward]

link didn't work Dantheman...

e

[Slartibartfast]

Nope, didn't take. Tell you what: you backtrack and look at the sequence of the posts that led up to that, and then tell me where anything anyone I said that I quoted has got any bearing on this tiresome thing you're perpetrating.

And what part of "who, by the way, I wasn't addressing to begin with" led you to believe that I was in fact addressing you?

[Anarch]

Certainly, but it does rub both ways.

Given that Bush is the one nominally proposing the legislation that would change SS, I'd say it rubs him harder than it does anyone else.

Also, hello to the imagery...

[Slartibartfast]

I think he means this. And very early in it, it says the plan will be unveiled in February.

[Slartibartfast]

Also, hello to the imagery...

I try not to pass up an opportunity. What I meant by that was, of course, that the flipside of there being no plan, is that criticism of the plans is a little...premature.

[Sebastian Holsclaw]

Edward, I was responding to Danetheman who was quoting you to support his "Can't do anything but resist" argument (which he reiterates later). But since I just quoted your part, I can see that it looks as if I responding to you. Sorry.

But that said (and now I'm addressing everyone), I would love it if we could get some alternate proposals from different people instead of just resistance to Bush proposals. Don't you think it would provide better insight (on a whole range of topics) if we broaden our view from "like/don't like" to "while we are talking about it I have the following thoughts..."

[Dantheman]

"Nope, didn't take. Tell you what: you backtrack and look at the sequence of the posts that led up to that, and then tell me where anything anyone I said that I quoted has got any bearing on this tiresome thing you're perpetrating."

Ah. So in other words, you feel free to comment on portions of what people said and not others, but then say they are not raising substantive issues, when they did in the portions you do not comment upon. Wake me when you actually feel like having rational debate.

[JerryN]

OK, Slarti, I'll play. While I can't claim to speak for everyone on my side of the fence, I can certainly explain my reason for not wanting this Congress to act on the issue.

Let's put aside the somewhat academic discussion of how best to deal with the projected shortfall. We can do this because the hints that the Adminstration has dropped about their plans have also had little to do with this. What they have hinted at is a program that will significantly increase individual risk to those at or below the median income combined with a drastic reduction in guaranteed benefits. Oh, and they've indicated a willingness to play accounting games to cover up the short term costs of the changes. Of course, we can't be sure of the details, but nothing that they have said to date contradicts the above.

Then, we have a House that, based on recent past perfomance, will take the Adminstration's plan and increase the level of pork while simultaneously reducing the fiscal soundness of the proposal. The Senate will likely pass a less repugnant version of the legislation. Again, based on the recent past, the bill that results from conference will include most of the worst excesses and throw in some last minute whoppers to make up for any good that might have been done. This will then be passed by both houses with the barest minimum of time for review.

The mess will have never, of course, been seriously threatened by a veto. It will be triumphantly signed into law with perhaps some mild protest about one or two of the changes.

I'm glad to have a discussion here about what changes can be made to make Social Security more fiscally sound and / or adjusting the focus of the program. But I have no illusions about what's on the table in DC.

[sidereal]

I like 401k-style government-matched savings accounts (with the % of match graduated by income) to encourage saving, coupled with a minimum standard of living infrastructure that guarantees no American will be without shelter, food, and medical treatment.

I'll be setting up my campaign headquarters in Des Moines this weekend.

[Edward]

the flipside of there being no plan, is that criticism of the plans is a little...premature.

Cough, Cough, Er, uh, does nobody read my stuff around here?

Bush uses this so-called "lying and fear-mongering phase" of any campaign to get folks to go on record, so that he can later accuse them of flip-flopping if they don't agree with him. It works like this

Senator X agreed that now is a good time to work on Social Security but reserves judgment on the best way to do that (he doesn't want to be "premature" with any criticism even though privatization was the only "plan" he heard Bush mention throughout the campaign). Down the road, Bush successfully sells the idea to the public that the best way to fix SS is privatization. Senator X knows that Bush used false premises to sell that plan. Senator X objects to the plan and tries to expose the false premises. But TeamBush has laid the groundwork very carefully, building the "solution" into the selling of the "problem" without admitting to doing that. Bush points to Senator X's earlier agreement and calls him a flip-flopper.

It is not premature to criticize Bush's plan. His plan is to set up his opponents, via a refusal to announce his plan until he has widespread buy-in on the need for some plan. After which, he'll spring what had been his only plan all along. By then, though, criticism comes too late.

[sidereal]

Also, like JerryN I believe that it is criminally negligent to discuss proposals idealistically, without addressing the incredibly corrupt sausage making that actually goes into crafting policy (especially under the DeLay watch: <- requisite partisan jab), such that a major overhaul of anything will more likely than not just turn into a new slogan for the termites to work under.

[fdl]

what could i live with? how 'bout the following:

1. Remove the salary cap above which SS taxes are not imposed (about $85,000 these days?)

2. Dramatically expand tax-deferred private savings programs.

3. add a death benefit for those who pre-decease the break-even point -- to address the complaint that the program is unfair to the short-lived.

4. more explicitly describe/market/finance the program as a taxpayer pension program. (no, i really have no idea what i just wrote actually means.)

Francis

[votermom]

Cough, Cough, Er, uh, does nobody read my stuff around here?

Well, I was on vacation, so I actually did miss that post ...

[Edward]

RE Sebastian's request for constructive suggestions. Here's three:

1. Roll back Bush's tax cut on the wealthiest 1% and reduce the deficit. See this article that Katherine linked to yesterday, if you don't think they can spare it. ([B]etween 1979 and 2000 the real income of households in the lowest fifth (the bottom 20% of earners) grew by 6.4%, while that of households in the top fifth grew by 70%. The family income of the top 1% grew by 184%).
2. Raise the retirement age to 70.
3. Make it less painful to withdraw money from 401K plans early. I suspect many people would put more away if they weren't worried they'd need it and not want to lose so much if they have to take it. The penalties probably curb their contributions.

[Bernard Yomtov]

JerryN,

Thanks for fleshing out what I was saying.

DantheMan,

Thanks for making the point about this Congress. I can in fact imagine a Republican Congress that would pass a decent plan. I can imagine plans that I would disagree with ideologically, but would nonetheless regard as honest in the sense of:

Using honest arithmetic and accounting
Not involving crazy giveaways
Having some chance of achieving its stated goals
Being passed after open and extended debate

I don't believe the current Congress will do this.

Sebastian,

I don't like your general scheme of reducing benefits. I think if we are going to means-test then it is best to do it in a "soft" fashion. What I mean is not reducing benefits per se, but rather trying to recover benefits paid to the wealthy through other means. For example, benefits could be taxed more heavily than they are now (I'm not sure of the current rules, so I don't know what scope there is for this). Raising the cap on contributions without raising benefit schedules also is a form of soft means-testing, as would be imposing a special estate tax.

One big advantage would be the absence of a need for a whole new mechanism for determining income, wealth, or whatever, as well as avoiding the bureaucratic wrangles a retiree would face in the event of a change in financial circumstances. Another would be that the slippery slope to elimination of Social Security would acquire some friction, it seems to me, since everyone would still be getting a monthly check.

[rilkefan]

Slart, the "surely you jest" part was esp. non-responsive, but I also meant my broken-recordness, repeated a final time before I leave the argument to be continued till 2052 or whenever by abler commenters:

"Krugman then thought there was an impending SS crisis; now he doesn't. It's certainly possible that I've misinterpreted..."

Again, I think he was and is asserting there is a general fund crisis, not a SS crisis. As far as I can tell, what sort of crisis the US is facing is the main knot of disagreement in these discussions. That and the question of when to face the indisputable health care crisis.

[Slartibartfast]

Bush uses this so-called "lying and fear-mongering phase" of any campaign to get folks to go on record, so that he can later accuse them of flip-flopping if they don't agree with him.

Well, that was just about 100% speculation, Edward. In reality, you have no idea.

By then, though, criticism comes too late.

How so? Getting agreement that a plan is needed does not equate to every plan being equally good.

I'll be setting up my campaign headquarters in Des Moines this weekend.

I'd seriously consider voting for you regardless of party affiliation. But I'd want to see the platform just in case.

1. Remove the salary cap above which SS taxes are not imposed (about $85,000 these days?)

I can get behind this. But if you don't increase the payout accordingly, you're going to be moving away from it being a pension plan and toward something else.

2. Dramatically expand tax-deferred private savings programs.

I'm behind this, too, but I'm not sure that it fixes anything.

And, Edward:

3. Make it less painful to withdraw money from 401K plans early. I suspect many people would put more away if they weren't worried they'd need it and not want to lose so much if they have to take it. The penalties probably curb their contributions.

I could go along with removing the penalty altogether. You'd still have to pay tax on it, but zinging people for hardship is not productive. If you can give people a break for home purchase, other kinds of financial needs are usually far more urgent and less well-planned than a home purchase, so zinging people's savings for stuff like this isn't exactly conducive to savings. That said, though, the penalty was never a disincentive for ME to save; having low income and high outgo was.

[Edward]

Well, that was just about 100% speculation, Edward. In reality, you have no idea.

Perhaps, but not my speculation. It's Joshua Marshall, the Wall Street Journal, and the Boston Globe's speculation.

[Sebastian Holsclaw]

"Make it less painful to withdraw money from 401K plans early. I suspect many people would put more away if they weren't worried they'd need it and not want to lose so much if they have to take it. The penalties probably curb their contributions."

This is interesting, but I'm not sure how we would differentiate it from a general savings plan.

"For example, benefits could be taxed more heavily than they are now (I'm not sure of the current rules, so I don't know what scope there is for this)."

I'm for this, but I'm skeptical about how much money could be saved without such a huge tax rate as to effectively be similar to my proposal only less honest.

[Slartibartfast]

Josh Marshall's speculation isn't really any better than yours, Edward. I don't really buy into the idea, though, that when Congress authorized the President to conduct war against Iraq, they really meant that he ought to come back and check right beforehand to make sure.

[rilkefan]

popping back in to point to a nice chart from Kevin Drum showing the president's rumored approach projecting worse than the status quo, deficit effects aside.

[Edward]

that when Congress authorized the President to conduct war against Iraq, they really meant that he ought to come back and check right beforehand to make sure.

we'd need a different thread to do that justice Slarti...but specifically with regard to whether Bush is playing a game with this "information gathering phase" of his SS campaign, the Wall Street Journal, whose speculation I assume you place a bit more stock in (no pun intended), published:

The president has yet to lay out specific ideas for changing the entitlement program; he and his aides are focused first on selling the idea of change. "For a while, I think it's important for me to continue to work with members of both parties to explain the problem," he said in a Monday news conference. This would suggest that we're now in the lying and fear-mongering phase of the campaign, which would be followed of course by a later phase in which a specific policy remedy is brought forward, nominally meant to address the fake problem.

[JerryN]

I'll toss in some (I hope) constructive thoughts. First, I really do believe the assumptions that underlay the projected revenue shortfall are too conservative. If the gap is smaller, less drastic actions are needed. I'm with Bernard on "soft" means tests, such as raising or eliminating the payroll cap. Rolling back some of the breaks that were granted to high income retirees a few years ago vis-a-vis taxability of benefits would work for me, too.

As I sort of said upthread, I'm concerned that the current levels of personal savings and consumer debt will make us more reliant on the "safety net" in the near future. One of the keys here is getting healthcare costs under control. I really don't have any solid ideas regarding Medicare. But, any plan that makes dent in healthcare costs should have a positive effect on personal savings by reducing out of pocket expenses for consumers. If it had the secondary effect of reducing Medicare costs that would be good, too. If it also makes businesses more competitive globally, so much the better.

I thought Kerry's catastrophic insurance idea had some potential if a mechanism was included to guarantee that some of the insurer's savings would be passed on to conumers. I'm sure we can find some combination of programs, regulations and incentives that will have an impact without going as far as a nationalized plan. [partisan snipe] It would have been nice to have a real debate about this say, a dozen or so years ago instead of Harry & Louise [/partisan snipe].

[Sebastian Holsclaw]

See you all, that wasn't so hard.

[JerryN]

Oh, let me add one other item - immediate repeal of last year's Medicare prescription drug benefit. To quote the GAO from this past March:

The new drug benefit is one of the largest unfunded commitments ever undertaken by the federal government. The Trustees of the Social Security and Medicare trust funds will include an official estimate of the discounted present value cost of this new benefit over the next 75 years in their annual report, which is scheduled for issuance today. Preliminary estimates of its long-term cost range up to $7-8 trillion in discounted present value terms over a 75-year period. To put that number in perspective, it is as much or more than the total amount of the federal government’s gross debt outstanding as of September 30, 2003.

It's also roughly double the projected 75 year Social Security shortfall. BTW - after you read that testimony, you may need a stiff drink.

[Slartibartfast]

I know my memory is failing--isn't that the plan that was criticized by AARP as being horribly insufficient?

[Sebastian Holsclaw]

I'm all for getting rid of the awful Medicare drug benefit. But I'm also going to note that it was the benefit which Democrats said didn't spend enough.

[Josh]

I'm all for getting rid of the awful Medicare drug benefit. But I'm also going to note that it was the benefit which Democrats said didn't spend enough.

Please outline the connection between those two sentences.

[JerryN]

Slarti & Seb - Big Fat Hairy Flippin' Deal. Whatever bill passed would have been a sop to seniors. In the end, even the target constituents hate it. Why should I support a huge unfunded mandate at a time of growing government debt? That the Dems were bad too doesn't change anything. You wanted ideas for fixes - you're getting them.

[Sebastian Holsclaw]

We are discussing the fact that there is a general fund crisis in which the Medicaid benefit strongly outweighs the benefit to cutting Social Security. Many Democrats complained at the time that the Medicaid drug benefit should have been much larger. Which makes complaints about high spending on it now....

[JerryN]

I counted to ten, but that didn't work. I'll apologize to all and sundry who have to watch this but:

Where and when did I argue for increased Medicare benefits?

(I just tried telling myself a knock-knock joke and that didn't work, either.)

[kenB]

immediate repeal of last year's Medicare prescription drug benefit.

No, don't do that -- it's such a wonderfully convoluted addition to an already substantially convoluted system that it significantly increases our clients' reliance on us to provide software to help them deal with it.

[Anarch]

What I meant by that was, of course, that the flipside of there being no plan, is that criticism of the plans is a little...premature.

I know. My point is that *engage snark* the anti-flipside of there being no plan is that we could end up invading Iraq again. *dump snark at the altar and run off with lamentation*