The question I always ask is that if we cut SS benefits, what are we going to get in return?
Lower taxes (for my personally)? Or is it just going to get spent on something else.
With SS as it is I don't have to support my mother. If SS goes away or gets cut a lot (even if some poverty wage remains) I will need to support her. That's bad for me. What do I get in return?
If we go to a flat benefit formula, are we also going to make SS taxes a flat tax. If I'm paying 10% of 165k and someone else is paying 10% of 16k obviously my benefit should be bigger (I'm not into welfare).
Look, I'm down with the idea of not having to pay payroll taxes for this dumb program, but I'm skeptical that the taxes will remain and just get re-directed to something I get even less of a benefit from then my mom getting a check.
If Soc Sec is supposed to be a real pension (not just an anti-poverty safety net for oldsters) it would make sense to index wages by the wage base, I think, which reflects economy-wide productivity improvements in addition to price-level increases. Wages at retirement reflect those improvements, as would defined contribution plan balances invested in the stock market, for example.
But I agree that Soc Sec should be mostly an anti-poverty safety net, which requires changing the whole I-paid-my-dues mindset. Good luck with your efforts on that (not being sarcastic). The last solution you offer - flat benefits - kind of does that, except in giving it also to rich people who don't need it, and renders all your other suggestions moot, right?
Seems like the first step should be to decide what we want Soc Sec to be.
My personal favorite solution: mandatory (maybe, sorry) defined contribution savings accounts with target-date-fund-like default investments with an anti-poverty safety net at retirement for those who need it - following a messy and contentious transition.
One other nit: if I understand (please correct me otherwise), you're counting "trust fund" depletion as an addition to the Federal debt. If you're just replacing the all-Tsy trust fund with debt held by others, how is that an increase in the Federal debt? Isn't the increase in debt determined by non-SocSec spending minus non-SocSec taxes? (At least until they start using general tax revenues to pay benefits?) The SocSec trust fund is just a holder of some of that debt. Replacing that debt as the trust fund is liquidated with debt held by others doesn't increase the debt - you're just refinancing existing debt. What's wrong with how I'm thinking about this?
One of the reasons politicians in both parties refuse to make these needed reforms to Social Security is purely political - they want to insulate themselves from attacks, especially after what President George W. Bush tried to do in 2005. Nobody wants to be accused of cutting anyone's benefits, but that belies a hidden truth. Just a guess, but I think many former "high-income" seniors would be very willing to cut our bloated benefits, which greatly exceed our pensions except for public and a few union retirees. Moving to a "flat benefit" as you propose to return Social Security to its purpose - a poverty prevention program featuring a supplemental retirement benefit - is long overdue.
The problem with Social Security is that it was a program designed to prevent the elderly from living their last years in abject poverty, "last years" meaning like 2 or 3 years for the relatively small number of people that lived past 65. (In 1940, the life expectancy was around 61 for men and 65 for women. Most people weren't expected to to get SS at all) Now, for better or worse, SS is expected to provide millions of people with a 20+ year end-of-life vacation, hence it is going bankrupt despite some enhancements over the years. If they truly wanted to restore SS's initial purpose they would need to raise the retirement age to ~78. But even 70 is a non-starter.
And it had the disadvantage of being invented before the development of the VAT and hence was tied to the wage tax. That in turn contributed to the illusion that it was actuarily sound, that benefits were just paid out of accumulated contributions and hence any reduction of benefits or increase in taxes was confiscation.
You say SS “was a program designed to prevent the elderly from living their last years in abject poverty”
But back when it was “designed”, as you suggest, the taxes were comparatively tiny and limited versus what they are now.
And it is definitely not merely “some enhancements over the years”. The “some enhancements” are a huge part of the problem. Eliminating them would solve most of the problem.
“The program [Social Security] operates like a Ponzi scheme:”
No exactly since a Ponzi scheme does not have universal participation and cannot change the pay-in and pay-out at will. It’s just welfare inadequately financed with a capped wage tax, not “like” anything.
“[The difference in average income of person paying in those receiving benefits] creates a system in which the federal government effectively redistributes hard-earned dollars from poorer workers to wealthier retirees.”
If we worry about SS transferring consumption “upward,” we should be worried that the income tax system does not transfer enough consumption downward. 😊 inter alia because some of SS benefits are not taxable.
“Old Age and Survivors Insurance (OASI)—the largest federal program—spent more than $1.2 trillion in 2023 but collected only $1.1 trillion in revenues”
Yes, it’s inadequately financed welfare. When we do not collect as much in revenue as we expend the result is called a “deficit.” Why didn’t someone mention that in 2017 when we passed the “Tax Cuts for the Rich and Deficits Act?”😊.
“Those reforms [to SS] should focus on eliminating its fiscal shortfall and reducing the payroll tax burden on workers by slowing the growth in future benefits and reducing benefits for wealthier retirees.”
We could eliminate the burden on workers qua workers by switching to a VAT. We could reduce benefit to wealthier retirees by having a progressive consumption tax. As for the way benefits are indexed, there is no “right’ or “wrong” way. The changes reduce benefits. Why do that instead of just paying for the benefits with the VAT.
“Social Security’s early and full retirement ages should be increased by three years each, to 65 and 70, respectively, and indexed to increases in longevity afterward.”
Great idea, more to undermine the idea of age-related “retirement” than to reduce expenditures.
“Transforming Social Security from an earnings-related scheme intended to replace income into a flat benefit scheme focused on poverty prevention [but related to years worked]”
But if that’s the purpose, why relate it to years worked at all? And if the objective is to make benefits less dependent on lifetime income, that woud make sense only if we transformed the personal and business income tax into a progressive consumption tax that would encourage greater individual savings for old age.
The fundamental concern is, if we reduce benefit to reduce the deficit in the SS trust funds, how sure can we be that this will reduce the overall deficit by the same amount? Might not the lower SS deficit just allow a larger tax cut for upper income taxpayers?
Even more fundamentally, if we want to create a less regulated, more dynamic and faster growing economy – and why else do we want smaller deficits, merit-based immigration, and freer trade -- does than not suggest needing a MORE robust social insurance system albeit one that does not itself slow growth by transferring resources from investment to consumption?
If you are going to include your last recommendation - “Transition to a flat benefit scheme” - why do you bother with all of your others? This one would more than solve the problem.
Conversely, if you want people to consider your other proposals (even the ”remove COLA for wealthier retirees” one with which I strongly disagree), the rest of which vary between “duh, of course” and at least reasonable, why do you include the utterly politically tone-deaf final suggestion? It destroys the credibility of the rest of the proposals.
We might want to index the retirement age to income. Check with an actuary to see how income correlates with lifespan. It would look more fair. I don’t know what it might cost.
I’m not certain it’s effective rhetoric to call SS a Ponzi scheme. Maybe link it to retirees’ children and grandchildren?
How about we do away with the government trying to save for Americans retirement. Put it back in the hands of the people themselves. Our form of government was not created to meddle in the lives of its citizens. We know how well the government manages finances!! Look at the debt we the citizens are saddled with because of the fiscal irresponsibility of this government!
Again, SS was never supposed to be retirement savings - only a safety net. And a large number of us truly don't need it. But we have decades of the mindset that "I paid into it; I should get at least that amount back, if not more." It should be considered charity for those who fall on hard times. If you just failed to save responsibly for retirement, well that's on you.
You say “never” supposed to be. But that’s not true.
The only thing that is true is that it ORIGINALLY was not supposed to be retirement savings.
And ORIGINALLY the taxes were comparatively tiny and limited versus what they are now.
If you would like to consider your SS benefits as charity, I very much encourage you to give yours to a worthy charity. That would be a wonderful thing you would do.
“If you just failed to save responsibly for retirement, well that's on you.”
Easy for you to say. But absent the SS taxes taken - with the promise of benefits from them down the line - folks could have saved a LOT more for retirement, couldn’t they have?
The question I always ask is that if we cut SS benefits, what are we going to get in return?
Lower taxes (for my personally)? Or is it just going to get spent on something else.
With SS as it is I don't have to support my mother. If SS goes away or gets cut a lot (even if some poverty wage remains) I will need to support her. That's bad for me. What do I get in return?
If we go to a flat benefit formula, are we also going to make SS taxes a flat tax. If I'm paying 10% of 165k and someone else is paying 10% of 16k obviously my benefit should be bigger (I'm not into welfare).
Look, I'm down with the idea of not having to pay payroll taxes for this dumb program, but I'm skeptical that the taxes will remain and just get re-directed to something I get even less of a benefit from then my mom getting a check.
If Soc Sec is supposed to be a real pension (not just an anti-poverty safety net for oldsters) it would make sense to index wages by the wage base, I think, which reflects economy-wide productivity improvements in addition to price-level increases. Wages at retirement reflect those improvements, as would defined contribution plan balances invested in the stock market, for example.
But I agree that Soc Sec should be mostly an anti-poverty safety net, which requires changing the whole I-paid-my-dues mindset. Good luck with your efforts on that (not being sarcastic). The last solution you offer - flat benefits - kind of does that, except in giving it also to rich people who don't need it, and renders all your other suggestions moot, right?
Seems like the first step should be to decide what we want Soc Sec to be.
My personal favorite solution: mandatory (maybe, sorry) defined contribution savings accounts with target-date-fund-like default investments with an anti-poverty safety net at retirement for those who need it - following a messy and contentious transition.
One other nit: if I understand (please correct me otherwise), you're counting "trust fund" depletion as an addition to the Federal debt. If you're just replacing the all-Tsy trust fund with debt held by others, how is that an increase in the Federal debt? Isn't the increase in debt determined by non-SocSec spending minus non-SocSec taxes? (At least until they start using general tax revenues to pay benefits?) The SocSec trust fund is just a holder of some of that debt. Replacing that debt as the trust fund is liquidated with debt held by others doesn't increase the debt - you're just refinancing existing debt. What's wrong with how I'm thinking about this?
Thanks
One of the reasons politicians in both parties refuse to make these needed reforms to Social Security is purely political - they want to insulate themselves from attacks, especially after what President George W. Bush tried to do in 2005. Nobody wants to be accused of cutting anyone's benefits, but that belies a hidden truth. Just a guess, but I think many former "high-income" seniors would be very willing to cut our bloated benefits, which greatly exceed our pensions except for public and a few union retirees. Moving to a "flat benefit" as you propose to return Social Security to its purpose - a poverty prevention program featuring a supplemental retirement benefit - is long overdue.
What sunk Bush's "reform" was its dishonesty. He tried to reduce benefits by lying about benefits being reduced.
The problem with Social Security is that it was a program designed to prevent the elderly from living their last years in abject poverty, "last years" meaning like 2 or 3 years for the relatively small number of people that lived past 65. (In 1940, the life expectancy was around 61 for men and 65 for women. Most people weren't expected to to get SS at all) Now, for better or worse, SS is expected to provide millions of people with a 20+ year end-of-life vacation, hence it is going bankrupt despite some enhancements over the years. If they truly wanted to restore SS's initial purpose they would need to raise the retirement age to ~78. But even 70 is a non-starter.
And it had the disadvantage of being invented before the development of the VAT and hence was tied to the wage tax. That in turn contributed to the illusion that it was actuarily sound, that benefits were just paid out of accumulated contributions and hence any reduction of benefits or increase in taxes was confiscation.
You say SS “was a program designed to prevent the elderly from living their last years in abject poverty”
But back when it was “designed”, as you suggest, the taxes were comparatively tiny and limited versus what they are now.
And it is definitely not merely “some enhancements over the years”. The “some enhancements” are a huge part of the problem. Eliminating them would solve most of the problem.
A few quibbles:
“The program [Social Security] operates like a Ponzi scheme:”
No exactly since a Ponzi scheme does not have universal participation and cannot change the pay-in and pay-out at will. It’s just welfare inadequately financed with a capped wage tax, not “like” anything.
“[The difference in average income of person paying in those receiving benefits] creates a system in which the federal government effectively redistributes hard-earned dollars from poorer workers to wealthier retirees.”
If we worry about SS transferring consumption “upward,” we should be worried that the income tax system does not transfer enough consumption downward. 😊 inter alia because some of SS benefits are not taxable.
“Old Age and Survivors Insurance (OASI)—the largest federal program—spent more than $1.2 trillion in 2023 but collected only $1.1 trillion in revenues”
Yes, it’s inadequately financed welfare. When we do not collect as much in revenue as we expend the result is called a “deficit.” Why didn’t someone mention that in 2017 when we passed the “Tax Cuts for the Rich and Deficits Act?”😊.
“Those reforms [to SS] should focus on eliminating its fiscal shortfall and reducing the payroll tax burden on workers by slowing the growth in future benefits and reducing benefits for wealthier retirees.”
We could eliminate the burden on workers qua workers by switching to a VAT. We could reduce benefit to wealthier retirees by having a progressive consumption tax. As for the way benefits are indexed, there is no “right’ or “wrong” way. The changes reduce benefits. Why do that instead of just paying for the benefits with the VAT.
“Social Security’s early and full retirement ages should be increased by three years each, to 65 and 70, respectively, and indexed to increases in longevity afterward.”
Great idea, more to undermine the idea of age-related “retirement” than to reduce expenditures.
“Transforming Social Security from an earnings-related scheme intended to replace income into a flat benefit scheme focused on poverty prevention [but related to years worked]”
But if that’s the purpose, why relate it to years worked at all? And if the objective is to make benefits less dependent on lifetime income, that woud make sense only if we transformed the personal and business income tax into a progressive consumption tax that would encourage greater individual savings for old age.
The fundamental concern is, if we reduce benefit to reduce the deficit in the SS trust funds, how sure can we be that this will reduce the overall deficit by the same amount? Might not the lower SS deficit just allow a larger tax cut for upper income taxpayers?
Even more fundamentally, if we want to create a less regulated, more dynamic and faster growing economy – and why else do we want smaller deficits, merit-based immigration, and freer trade -- does than not suggest needing a MORE robust social insurance system albeit one that does not itself slow growth by transferring resources from investment to consumption?
Non- rhetorical question:
If you are going to include your last recommendation - “Transition to a flat benefit scheme” - why do you bother with all of your others? This one would more than solve the problem.
Conversely, if you want people to consider your other proposals (even the ”remove COLA for wealthier retirees” one with which I strongly disagree), the rest of which vary between “duh, of course” and at least reasonable, why do you include the utterly politically tone-deaf final suggestion? It destroys the credibility of the rest of the proposals.
We might want to index the retirement age to income. Check with an actuary to see how income correlates with lifespan. It would look more fair. I don’t know what it might cost.
I’m not certain it’s effective rhetoric to call SS a Ponzi scheme. Maybe link it to retirees’ children and grandchildren?
How about we do away with the government trying to save for Americans retirement. Put it back in the hands of the people themselves. Our form of government was not created to meddle in the lives of its citizens. We know how well the government manages finances!! Look at the debt we the citizens are saddled with because of the fiscal irresponsibility of this government!
Again, SS was never supposed to be retirement savings - only a safety net. And a large number of us truly don't need it. But we have decades of the mindset that "I paid into it; I should get at least that amount back, if not more." It should be considered charity for those who fall on hard times. If you just failed to save responsibly for retirement, well that's on you.
You say “never” supposed to be. But that’s not true.
The only thing that is true is that it ORIGINALLY was not supposed to be retirement savings.
And ORIGINALLY the taxes were comparatively tiny and limited versus what they are now.
If you would like to consider your SS benefits as charity, I very much encourage you to give yours to a worthy charity. That would be a wonderful thing you would do.
“If you just failed to save responsibly for retirement, well that's on you.”
Easy for you to say. But absent the SS taxes taken - with the promise of benefits from them down the line - folks could have saved a LOT more for retirement, couldn’t they have?
The transition would be awkward.
As would the “Transition to a flat benefit scheme.”