Here’s a proposal for Social Security that was on the New York Times‘ op-ed page yesterday (2/20/13):
Wealthy…or super-wealthy? (photo: Thee Erin)
The top third of beneficiaries (by lifetime income) [would] receive no annual cost-of-living adjustment in retirement. The middle third would get half of today’s adjustment, and the bottom third would receive the same annual increase they do now. Such a reform…would reduce Social Security spending by more than a tenth over a decade and fix the program’s long-term financing.
This is part of Paul Ryan adviser Yuval Levin‘s attempt to find “common ground” on the entitlement issue: “Both sides should agree at least to spend less money on the wealthy.” So who are these “wealthy” people who would be getting a benefit cut equal to the rate of inflation every year? According to the SSA, about 34 percent of people over 65 have family incomes of $50,000.
Now, you can argue about what “wealthy” is, but I think you would find pretty widespread agreement on what wealthy isn’t: $50,000 a year. If you sent the New York Times an op-ed outlining your plan to balance the budget by raising taxes on “wealthy” people who make 50k a year or more, it would be put in the same pile that gets the submissions about Elvis’s UFO diet. But when you’re talking about cutting entitlements, if you want to call those people “wealthy,” that’s perfectly reasonable.
But wait! Those aren’t the only people who are getting too much from the government and need to have their benefits cut–the middle third of the elderly are also “wealthy” and need their benefits cut–but by only half the rate of inflation per year. The ones making more than $50,000 must be the super-wealthy, the regular wealthy make…between $25,000 and $50,000, roughly.
For comparison purposes, the poverty line for a family of four is $23,350. Talk about a shrinking middle class!
This idea of “means testing” as a painless way to solve the supposed entitlement crisis is very popular among wealthy pundits. It’s not hard to understand why. One of the principles Levin suggests we should all be able to agree on is “give less to the wealthy rather than take more from them.”
OK, so let’s say you’re wealthy–not Levin’s pretend wealthy, but truly super-rich, in the top 0.01 percent of income. Average income in this group is about $24 million a year. So you can easily afford to give up their whole Social Security paycheck. If you’ve paid in the maximum possible amount and retire at 66, that’s $2,513 a month–or $30,582 a year. You have sacrificed for your country.
But let’s say that instead of taking away your Social Security check, we tax your income–which comes entirely in the form of investment income, since you’re a wealthy retiree–at the rate for regular income rather than at the special lower fat-cat rate. So instead of paying (very roughly) $4.8 million in federal income tax, you’ll be paying about $9.5 million.
Now, you can surely afford to live on $14.5 million a year rather than $19.2 million–just as you can afford to give up your Social Security check. Somehow, though, making the latter sacrifice is probably going to seem more appealing.
And the thing is, there aren’t that many really wealthy people who won’t miss their Social Security checks–so in order to save any appreciable amount of money, you have to take a substantial chunk away from people who actually aren’t very wealthy at all. That’s a principle we can all agree on. All of us making $24 million a year, anyway.
Means testing would not save much money and would only add a layer of complexity and bureaucracy to the system. That is because maximum SS benefit is limited and there are only few rich people in number.
Priority should be for government to pay back money borrowed from social security trust fund. Social security trust fund should have a priority status over other investors in government debt since those investors voluntarily invested and took risk when buying government bonds.
Social security is easily fixable but it involves some unpopular measures. Basically you can do one of three things: Increase contribution, reduce benefits or increase retirement age (similar to reducing benefits).
Here is a handy web calculator to explore how to fix Social Security:
http://www.actuary.org/content/play-social-security-game
Own a cell phone, and you’re a member of the undeserving poor.
Own a cell phone company, and you’re a member of the underserved wealthy.
Orwell lives on
Although I have to imagine he would like to be able to rest in peace.
Mirza: There is a 4th alternative which I notice you don’t include. How about raising income taxes on unearned income — as suggested by Jim’s article — and paying back the money that has been robbed from the rest of the people; the ones who “earn” money by … … doing actual work. Burning calories. Serving others.
You refer to the SS trust fund. That, too, unfortunately, is a bit of a myth. It is a trust fund only on paper because there is no “lock box” meaning the money is distributed out of general revenue, not some huge pile of money sitting safely in a separate account someplace.
I wish that when SS was created they had gone the lock box route. Tuck THE PEOPLE’s money away in a safe place somewhere, where it can accumulate — omg — INTEREST on wisely-invested things like social welfare programs, real education (not charter school profiteering), and rebuilding highways and bridges.
Why not?
The proposal quoted at the top is from someone at the AEI (Biggs). But the op-ed’s author recommends means testing by lifetime earnings (as opposed to income), which would cut even deeper into people who worked for a living. Social Security benefits are calculated from 35 years (almost a lifetime) of earnings, and it appears that about $1500/month benefits and above is the top third.
Social Security is mostly designed to help low and middle income people in retirement, and so you can’t cut significantly without hurting them. I am opposed to any cuts at all in Social Security (as, I think, are a solid majority). I think a good compromise is gradual small increases in taxes if and when needed to keep benefits at currently scheduled levels.
what about losing this word: “entitlements”? maybe never writing it.. then never saying it and finally completely forgetting it.
Ultimately, the whole society would save more with more generous benefits instead of pound-foolish cutbacks…
Wish I had said all that :) Brilliant
Ah, yes more doublespeak, just what we need. When will we be ushering out those emperors with no clothes? Soon, I hope.
Means testing for Social Security is the “poison pill” that would eventually destroy Social Security.
http://www.thomhartmann.com/blog/2011/09/transcript-thom-hartmann-big-picture-republican-plan-end-social-security-23-august-11
Entitlement? hell yes. We have paid into this insurance program, and expect to collect. And so should the young people (being wrongly told “it will not be there for you”– hell no) who are TODAY paying into it. Social Security is a very efficient bureaucracy. It keeps careful track of all YOUR contributions, young and old. If you’re on their books, you’ll collect. The trick, nowadays is to get employers to enroll (young) employees into the program. It should be the number one bargaining chip in negotiating salary at a new job. Do you collect FICA on my behalf?
First of all, many experts have explained over and over that Social Security has no impact on the country’s debt. And It is like any insurance program: We pay into it all our working lives with the solemn promise of collecting when we reach retirement age. So we have earned it What is needed is for everyone, including the very rich, just to PAY THEIR FAIR SHARE! What I really wanted to say though, is that I regret that the NY Times has lately been giving voice to more and more right-wing extremist (Tea Party) points of view which can be seen on Fox News (sic) every night. At least have an opposing Op-Ed to rebut at the same time.
I am offended to read that retirees receive money “from the government”. Social Security is NOT government money. If there is going to be a short fall in 20-30 years, that should be dealt with separately, not part of deficit reduction talks. A cut to the cost-of-living will amount to a cut to future participants’ projected earnings and also their future benefits. The decreased earnings in thirty to forty will probably amount a cut in benefits of 24%. So why should we even do anything now?