I also understand that looking under the hood and feeling duped makes people angry. So I am not surprised about your reaction. It’s still important that we face the facts even if this makes us feel bad initially. We can’t afford to keep pretending Soc Sec is something that it is not.
It is not a savings program. It is not an investment. It is a government redistribution program and the only thing distinguishing it from all other welfare is that it has a dedicated funding source on paper that limits its borrowing authority in statute and applies limited meanstesting.
Government can keep seniors out of poverty as FDR promised but should otherwise leave Americans free to save and invest for their own retirement (which is something most rational people can plan for). A true social insurance program would insure against an unexpected event…like the disability program does. Getting old isn’t something that we can’t foresee although we may not know exactly for how long we can work as old age increases the incidence of disability.
Perhaps it would help to emphasize that Social Security has _always_ been a transfer from current workers to retirees. That’s not how it was sold. It was fine when the ratio of workers to recipients was 30 to 1. Last time I checked it was 3 to 1, and headed south.
The social security surplus was never invested. Congress wrote IOUs to itself and spent the money. The special T-bills in the filing cabinet in Virginia are worthless. President Bush was excoriated for pointing that out.
It’s as if you’re saving up for a new car. Every payday you write yourself an IOU, and spend the money you planned to save. When it comes time to buy the car all you have is a stack of worthless paper.
If you’re talking to the AARP, there will still be some older boomers in the audience. They might be receptive to arguments mentioning their grandchildren.
"If Congress fails to act, the law dictates that benefits will be cut by 21 cents on the dollar for all recipients starting in 2033."
No Social Security benefits will ever by cut. As 2033 starts to approach, there will be broad, bipartisan support for simply funding the shortfall with general revenues. Remember, all the concern right now about benefit cuts is because of a law that Congress passed, and Congress can pass new laws. We'll see legislators leap into action, with a bill that has a title like "Ensuring American's Right to the Retirement We Deserve!", and since everything is just going to getting added onto the national bar tab we'll increase benefits with another bill titled "Making Retirement Benefits Sustainable". In fact, once we've jettisoned the idea that the programs are supposed to be self-funding we might as well get rid of the payroll tax altogether with the "Economic Justice for All Act".
If you think deficit spending is out of control in 2024, just wait until we finally have to reckon with the impossible structure of the major entitlement programs. We will look back wistfully and yearn for the happy carefree days when we only ran annual deficits of $2T.
That's the big risk. As I write in the piece "The real danger lies in Congress avoiding tough decisions and opting to borrow more to avoid scheduled Social Security benefit cuts in 2033. Such an abdication of fiscal responsibility would exacerbate the national debt and burden future generations with higher taxes and inflation. It could also send a dangerous signal to those buying America’s debt that we’ve become less credit-worthy, which would drive up interest rates and could trigger a fiscal crisis. It shouldn’t take a fiscal crisis to adjust Social Security benefits to better match the times."
On the flip side, we're already borrowing hundreds of billions to fund Social Security benefits now. Over the next 9 years, Social Security will add $4.1 trillion to the national debt and that's under current CBO interest rate assumptions, which may well turn out to have been too optimistic.
…plus the even bigger issue is that the unfunded obligations of Medicare dwarf those of Social Security. If you fund SS from general revenue you will make it even more impossible to fund Medicare.
We're putting Medicare on the national bar tab as well.
Obviously, no one knows in advance the exact timeline how all of this will play out, but clearly over the next 20 years or so there will be consequences. Gen Z is so screwed.
And I fully agree with *part* of RB's thrust that increasing taxes is a bad way to address the problem.
But the fact that Medicare is a HUGE problem that *likely* will call for some increase in taxes as part of getting to a solution means that anyone of sound mind and good spirit - which you seem to be - should be strongly in favor of the elements of RB's proposal that neither increases taxes nor can be reasonably spun as a cut in benefits: changing the annual increase formula to be based on inflation rather than earning growth, and slowly raising the retirement age.
My point is that there is a lot of narrative around the SocSec program that people have bought into. It is primarily a welfare program. The government collects taxes from current workers to pay out benefits to current retirees. I don’t buy into the narrative of ‘paying in’ or ‘getting out.’ That was a convenient story to sell the American people on a government redistribution program at a time when the government creating a welfare programs was not politically palatable to most Americans. AARP loves to claim that ‘it’s your money, you earned it.’ It makes people feel better about themselves but does not reflect the real nature of Soc Sec—which redistributes money from workers to retirees. And like a Ponzi scheme relies on new workers to pay off old claims.
This is *only* true if you do the complete obverse of what you say others are doing and willfully ignore the ENTIRETY of the politics around SS and how it gained political support and popularity.
And surely you do not deny that the existence of SS has caused lower individual savings rates precisely because people have come to expect that they will get [a very large percentage of, at least] what they have been told BY THE GOVERNMENT ANNUALLY! that they will be getting.
And that added consumption has helped the economy on the margin.
You may point out that the lower savings rate has hurt the economy in the longer run; given QE and ZIRP I think it's hard to make that claim over the last 15 years at least, but at any rate I've gotten too far from the main point.
Which is that it is simply disingenuous of you to describe SS as "primarily a welfare program".
It is, of course, without doubt, an explicit interngenerational redistribution program from young to old. Which has its associated problems. But that is not at all the same thing as claiming that it is "primarily a welfare program".
Wow, I usually really like your posts. But even if I might agree with your general take, you make at least 2 dishonestly misleading statements:
“higher income earners receive excessively high benefits”. The “excessively” is the dishonest word here. Social Security was always sold as a program that you paid into and you get out of. You acknowledge the same later in the piece when you refer to “earnings”. You know very well that in fact those who earned more paid higher Social Security taxes along the way, and that in fact their additional SS benefit relative to the additional amount they earned is *lower* on a per dollar of taxes paid in. I.e. SS is a much better deal for *lower* earners than it is for higher earners.
Then there is this very misleading statement: ”And because of how initial benefits get calculated when someone first applies for Social Security, two workers with identical earnings histories can collect vastly different benefits depending on the years in which they applied. That’s because benefits are only loosely tied to actual working histories and tax contributions.“
Here you misleadingly mix together some very different things. First because you cite everything only in nominal dollars rather than real ones, you imply that someone who had earnings totaling $1M over the years 1980 to 2000 only deserves to get the same benefit as someone who earned $1M from 2000-2020, despite the fact that inflation has made the $1M earned in the second period worth a LOT less than that earned in the first period. And frankly that is the far bigger factor if you wanna talk “fairness”! And without the correction for CPI, government would have a massive incentive to inflate their way out of their SS obligations.
Now I fully understand that the fact that benefits are going up in line with average earnings rather than with the CPI is a “bad” thing that we cannot afford and should change, and that of course is the second component. But it is dishonest of you to present this as you have, combining that point with the inflation point when composing your narrative.
I fully understand the need to fix the unfunded portion of SS. I fully recognize that higher income people will need to “give” in the process more proportionally than others will, whether that is “fair” or not (tell me again about the morality of someone who works very hard and contributes a lot to society - including the income taxes let alone SS taxes that go along with it - and saves their money having to sacrifice more one more time for the able-bodied person who chose to work a lot less hard and save nothing along the way).
Unlike many other older people (and the politicians who need the votes of those older voters who vote more than the young), I fully accept that those of us over 55 and even 65 should “contribute” to fixing the problem, rather than limiting it only to those under 50 as is more politically palatable and would have been easier to do had this been taken on 20 years ago.
I’m not actually completely opposed to the idea that high earner benefits will be cut more than those of others as a part of the solution [though it seems to me that the order of importance of your four proposals should be 2), 4) and then 3) and 1)].
Say that high earners should “contribute” more to the solution because they can afford to more easily than others can, if you must.
But starting the conversation with claims that high-earners benefits are “excessive” when the objective reality is literally the *opposite* of this is a terrible, class-warfare mongering way to go about it. It’s also an easy way to allow the Dems to Bernie Sandersize-the issue and say the answer should be simply to tax the rich and take their benefits.
You can do better. I know you can, and I have seen it in the rest of the pieces on this Substack.
Thank you for your comments. I find the ROI conversation highly misleading because if you look under the hood Social Security is simply a tax and transfer program. Money in, money out. There is no saving and no investing taking place. Today’s workers pay taxes. Today’s retirees receive benefits. ROI doesn’t make much sense given this fiscal reality.
And I am not sure I follow your inflation concern regarding the illustrative graphic showing how wage growth exceeds inflation growth. What’s the issue?
So by excessive benefits I am referring to the size of benefits received by the highest income workers. A $117,000 benefit for a dual-earner household where both spouses earn the payroll tax max seems excessive to me. In the UK a similarly situated couple would only be able to collect about $34,000
You are carefully writing half-truths to obscure the fact that Social Security is a massively “progressive” redistribution program. “You get the benefits you pay for” has been central to its marketing since inception, but the pay-in to pay-out ratio isn’t remotely linear. It’s hard to take your writing seriously when you seem so intent on misrepresenting this.
“Social Security is a massively “progressive” redistribution program”
I agree with the rest of your comment. But right now it’s actually only a mildly progressive redistribution program, not massively.
And I’m actually ok with that reality. I could even be ok with it if as part of a complete solution it becomes a *little bit* more progressive still.
But like you I’m *not* at all ok that it’s being misrepresented, and I’m not ok with deceptive, vaguely socialist arguments. Which happen to be anti-marriage and a disincentive to work to boot if taken at face value.
I wish everyone in this thread would choose their words more carefully. Instead of pejoratively describing the language the other poster employed, please suggest alternatives.
We all see the same problem. Let’s collaborate on effective arguments.
I hear you re: your wish. As I’m am clearly one of the two people at whom your note is addressed, let me say that I actually agree with you that I wish all of the people on this thread avoided using pejorative language.
Unfortunately, RB started it by using the unequivocally pejorative word “excessive” in describing certain SS benefits, then doubled down on her claim.
I expect more from someone working at the broadly libertarian Cato Institute - and whose other posts I’ve read show none of this pejorative language that plays directly into the leftist narrative - than to use pejorative language and make socialist, politics-of-envy comparisons.
It’s one thing when such language comes from those on the left. When it comes from those supposedly (and perhaps actually) on the right, it is especially objectionable. And so I apologize not one whit for calling it out.
Of course in addition to calling it out, I have in fact made several suggested alternatives.
Best to you. I respect that we are each trying to see the right thing accomplished, I think we do all see the same problem, even if we clearly disagree significantly on the best way to achieve solutions to that problem.
“A $117,000 benefit for a dual-earner household where both spouses earn the payroll tax max seems excessive to me. In the UK a similarly situated couple would only be able to collect about $34,000”
So are you advocating for those who paid less than half the taxes of those dual earner households to receive less than half their current benefits?
Are you advocating for unmarried people each of whom earn the payroll tax max to get more in benefits than a married couple that earned identical amounts? You want even more of a marriage penalty than we have now in our tax code?
You even literally wrote the word “earn” and then the words “payroll max”, so you know full well that the benefits received relative to the tax collected historically is the opposite of “excessive” on a dollar of taxes paid basis. Social Security has always been sold to the public as taxes paid in, benefits later received. You’re *not *actually proposing changing that fundamental structure. You are just using leftist words like “excessive” in a dishonest fashion.
Your arguments are becoming more disingenuous and pure leftist socialist. Unlike anything I’ve seen you write prior to today.
" I find the ROI conversation highly misleading..."
I never used the phrase or acronym ROI, did I?
You are not denying that on a per dollar basis of taxes paid, someone who paid in less receives higher benefits than someone who paid in more, are you?
Will your argument next be that SS taxes should remain as they are now, but that all recipients should receive an identical benefit, regardless of how much they paid in??
That everyone should receive the same benefit as in the UK ($34,000) per couple? That given that SS today is underfunded, that people who arranged their lives around SS as an income source, some of them should take cuts of 70%+ while others take none at all and actually get an increase?
See how that works for you.
Because now you have gone from a dishonest narrative to claims that SS should instead be a more massive wealth redistribution system than even JDFree above was suggesting.
But if - as I suspect - you are *not* seriously advocating anything of the sort, then let me strongly suggest you stop making socialist arguments to deflect from your dishonest positioning.
You really don’t follow my concern that you implied that the taxes paid on $1M earned 20 to 40 years ago are only deserving of the same benefit as someone who paid the taxes on their benefits only in the last 20 years? And that in fact inflation is the main - and 100% valid - reason why the first person deserves more benefits (in addition to the 2nd factor of increasing benefits based on average earnings growth where I *do* agree with you that they don’t deserve to receive more)?
My comment was not about the graphic at all, it was about the words I cited. Though if you want me to comment on the graphic let me suggest that it’s likely not a coincidence that you chose 1995 as your baseline, since that covers a period of legitimately and then artifically low inflation thanks to QE and ZIRP, rather than a different baseline which would have shown much more the affects of inflation.
That said, I have already noted that I fully agree with your point about the increase in benefits based on wage growth adjustment. So perhaps it’s the case that what I call dishonesty about the first two sentences of that paragraph covering inflation and wage growth-based increases was just poor writing and communication rather than any deliberate attempt to deceive. If so, my apologies; I was likely "excessively" distracted 😏
Again, you are referring to the chart and later language, about which I have no complaint.
My complaint in this context is SOLELY about the first two sentences of that paragraph, where you do not call out this distinction, but instead make the misleading claim "That’s because benefits are only loosely tied to actual working histories and tax contributions".
Everything after those two sentences on the subject of inflation versus wage growth I fully agree *is* pretty reasonable, as I noted above.
“A $117,000 benefit for a dual-earner household where both spouses earn the payroll tax max seems excessive to me. In the UK a similarly situated couple would only be able to collect about $34,000”
There is another bit of dishonesty in the numbers used in this statement that I only realized upon closer inspection.
The $34,000 U.K. figure is for those claiming benefits starting at age 66.
Your $117K figure is based on someone delaying taking their benefits from age 66-or-67 to age 70. As you well know, the 8% increase in annual benefits for each year's delay in benefits starting is designed to be actuarially fair versus taking the benefits at "full" retirement age of 66-67 (or whatever the exact such age is based on birth year).
So you have made a fundamentally dishonest claim in using the $117,000 annual figure rather than the apples-apple comparison of 100%/132% * 117,000 = ~$88,600 figure for the couple claiming those benefits at age 66.
Is it your goal to outlaw / eliminate people delaying the date they start claiming benefits?
You have magically "disappeared" the 4 * ~$88,400 = ~$353,600 NOT paid out to the couple that delayed getting their benefits until age 70 rather than start taking them at 66 as did your baseline U.K. couple!
As you well know, "actuarially fair" means it cost the government on average approximately nothing to pay a higher annual payment for delayed benefits. [In truth, given adverse selection bias it probably does cost the government some *minute* amount in the long run (25-30 year perspective).] And of course if you did outlaw/eliminate delaying taking benefits, it would actually *cost* the treasury a small amount in the first several years after such a change, as well as cause a few productive people to retire earlier than they might otherwise.
You want to hold politicians to the standard of looking honestly at the numbers. You owe it to your readers and the American people to change the false comparison (benefits starting at age 70 vs those starting at age 66) to a proper one.
But of course you would have a much harder time making your politics of envy "excessive" claim stick when it is that *proper* number.
...and a more difficult time still if you then used the ~$44,300 per retiree max benefit figure rather than implicitly arguing for a marriage penalty for high earners to marry and remain married to each other in retirement with your choice of doing a comparison with a max-earning couple.
There’s also a take on Eddie Murphy’s parody of Mister Rodgers:
“Can you say ’We’re just like Argentina!’? I bet you can! Go to Washington D.C. and say it to Congress. Did they slap you? Then you know you said it right.”
“America is undergoing a big demographic shift with older Americans living longer and collecting more Social Security over their lifetimes, as the number of working-age Americans funding their benefits is declining because people have fewer children than they did in the past. It’s because of this imbalance that Social Security has been running deficits since 2010 and…”
While I don’t think this bit is deliberately dishonest, I’ll note that despite all of the other legit issues you note, had we *only* adjusted the SS retirement age along the way to go along even *somewhat* with the increases in life expectancy, the problem would be pretty much entirely - and perhaps wholly - gone. And so I would argue that that single thing is a FAR bigger reason than the combo “this imbalance…” you suggest as *the* reason SS has been running deficits, and so it should be first and foremost the biggest part - but of course because we’ve delayed so long can regrettably no longer be the *only* part - of the solution.
We might raise the minimum retirement age less for those receiving less. A low wage earner’s life expectancy might be lower on average. An actuary would have a better idea.
In practice, however, there’s no reasonable way to do this, imo, as it would make things unbelievably complex and thus more opaque.
But as this involved mucking with the actual “full retirement age” not merely the benefit number calculation, people would be left uncertain as to when they are allowed to retire if/when their earnings increase near the end of their working life (which is the majority of people) pushing them into a higher retirement age “bracket” (as surely you are not proposing that the retirement age be day-by-day different for different Americans).
If what you meant is merely that the benefit calculation at retirement would be tweaked to reflect this as their “effective” full retirement age, then I’m back to merely my minor critique in my first two sentences above.
But besides being more complicated, now you are suggesting something that is the opposite of what Romina suggests is goodness, because you are back to “valuing” earlier real earnings higher than more recent one
"How do you suggest that we fix it without becoming Argentina?"
How to fix Social Security?
RB's suggestion 2), plus her suggestion 4). Period.
First replace the average earnings increase with increase with inflation. According to a post on *this* Substack just last month, that would fix almost 80% of the problem!
Second, raise the retirement age. You need not raise the age 62 when one can start taking reduced benefits, but of course that means the benefits when retiring at 62 will become lower over time.
(Then if you want to be more generous to lower income people who you suggest might be actuarially likely to live less long, have the reduction in benefits for taking SS at 62 be less severe for those with far less than max benefits. That said, you would then create the different problem of incentivizing early retirement for those people, which for the ones who do live to the actuarial average and beyond is doing them no favors.)
Those two changes are all that’s necessary. Given that the first one solves ~80% of the problem, that enables the retirement age changed to be phased in and not as draconian as one might otherwise fear.
If politically you need to include something that makes it more progressive, take out two years of the average wage growth vs. inflation delta for the highest benefit amounts, including for those already retired (but good luck getting it passed when this one thing can be demagogued as *cutting* Social Security).
The solutions to fixing Social Security ain’t that hard. And they don’t require politics of envy framing from those on the right. It will just require a little bit of political backbone, something the Democrats and Trump both lack re: entitlements. Addressing it solely with those two changes allows everyone to say they didn’t raise taxes and they didn’t cut anyone’s Social Security, so it’s politically more palatable than anything else one proposes (even if leftists and some who would go along with them might prefer a solution that makes things massively more redistributionist, that ain’t gonna fly politically).
By contrast, fixing Medicare ain’t gonna be easy. Even if I now strongly believe “premium support” (a.k.a vouchers) is the key component of the best way to go.
I also understand that looking under the hood and feeling duped makes people angry. So I am not surprised about your reaction. It’s still important that we face the facts even if this makes us feel bad initially. We can’t afford to keep pretending Soc Sec is something that it is not.
It is not a savings program. It is not an investment. It is a government redistribution program and the only thing distinguishing it from all other welfare is that it has a dedicated funding source on paper that limits its borrowing authority in statute and applies limited meanstesting.
Government can keep seniors out of poverty as FDR promised but should otherwise leave Americans free to save and invest for their own retirement (which is something most rational people can plan for). A true social insurance program would insure against an unexpected event…like the disability program does. Getting old isn’t something that we can’t foresee although we may not know exactly for how long we can work as old age increases the incidence of disability.
Perhaps it would help to emphasize that Social Security has _always_ been a transfer from current workers to retirees. That’s not how it was sold. It was fine when the ratio of workers to recipients was 30 to 1. Last time I checked it was 3 to 1, and headed south.
The social security surplus was never invested. Congress wrote IOUs to itself and spent the money. The special T-bills in the filing cabinet in Virginia are worthless. President Bush was excoriated for pointing that out.
It’s as if you’re saving up for a new car. Every payday you write yourself an IOU, and spend the money you planned to save. When it comes time to buy the car all you have is a stack of worthless paper.
You're on the money! Policy brief in the works with helpful analogies such as the one you shared to really drive that point home.
If you’re talking to the AARP, there will still be some older boomers in the audience. They might be receptive to arguments mentioning their grandchildren.
"If Congress fails to act, the law dictates that benefits will be cut by 21 cents on the dollar for all recipients starting in 2033."
No Social Security benefits will ever by cut. As 2033 starts to approach, there will be broad, bipartisan support for simply funding the shortfall with general revenues. Remember, all the concern right now about benefit cuts is because of a law that Congress passed, and Congress can pass new laws. We'll see legislators leap into action, with a bill that has a title like "Ensuring American's Right to the Retirement We Deserve!", and since everything is just going to getting added onto the national bar tab we'll increase benefits with another bill titled "Making Retirement Benefits Sustainable". In fact, once we've jettisoned the idea that the programs are supposed to be self-funding we might as well get rid of the payroll tax altogether with the "Economic Justice for All Act".
If you think deficit spending is out of control in 2024, just wait until we finally have to reckon with the impossible structure of the major entitlement programs. We will look back wistfully and yearn for the happy carefree days when we only ran annual deficits of $2T.
That's the big risk. As I write in the piece "The real danger lies in Congress avoiding tough decisions and opting to borrow more to avoid scheduled Social Security benefit cuts in 2033. Such an abdication of fiscal responsibility would exacerbate the national debt and burden future generations with higher taxes and inflation. It could also send a dangerous signal to those buying America’s debt that we’ve become less credit-worthy, which would drive up interest rates and could trigger a fiscal crisis. It shouldn’t take a fiscal crisis to adjust Social Security benefits to better match the times."
On the flip side, we're already borrowing hundreds of billions to fund Social Security benefits now. Over the next 9 years, Social Security will add $4.1 trillion to the national debt and that's under current CBO interest rate assumptions, which may well turn out to have been too optimistic.
…plus the even bigger issue is that the unfunded obligations of Medicare dwarf those of Social Security. If you fund SS from general revenue you will make it even more impossible to fund Medicare.
We're putting Medicare on the national bar tab as well.
Obviously, no one knows in advance the exact timeline how all of this will play out, but clearly over the next 20 years or so there will be consequences. Gen Z is so screwed.
Well, we agree on your last sentence.
And I fully agree with *part* of RB's thrust that increasing taxes is a bad way to address the problem.
But the fact that Medicare is a HUGE problem that *likely* will call for some increase in taxes as part of getting to a solution means that anyone of sound mind and good spirit - which you seem to be - should be strongly in favor of the elements of RB's proposal that neither increases taxes nor can be reasonably spun as a cut in benefits: changing the annual increase formula to be based on inflation rather than earning growth, and slowly raising the retirement age.
Of course we are in complete agreement. But I hope you appreciate my names for the legislation.
My point is that there is a lot of narrative around the SocSec program that people have bought into. It is primarily a welfare program. The government collects taxes from current workers to pay out benefits to current retirees. I don’t buy into the narrative of ‘paying in’ or ‘getting out.’ That was a convenient story to sell the American people on a government redistribution program at a time when the government creating a welfare programs was not politically palatable to most Americans. AARP loves to claim that ‘it’s your money, you earned it.’ It makes people feel better about themselves but does not reflect the real nature of Soc Sec—which redistributes money from workers to retirees. And like a Ponzi scheme relies on new workers to pay off old claims.
"It is primarily a welfare program."
This is *only* true if you do the complete obverse of what you say others are doing and willfully ignore the ENTIRETY of the politics around SS and how it gained political support and popularity.
And surely you do not deny that the existence of SS has caused lower individual savings rates precisely because people have come to expect that they will get [a very large percentage of, at least] what they have been told BY THE GOVERNMENT ANNUALLY! that they will be getting.
And that added consumption has helped the economy on the margin.
You may point out that the lower savings rate has hurt the economy in the longer run; given QE and ZIRP I think it's hard to make that claim over the last 15 years at least, but at any rate I've gotten too far from the main point.
Which is that it is simply disingenuous of you to describe SS as "primarily a welfare program".
It is, of course, without doubt, an explicit interngenerational redistribution program from young to old. Which has its associated problems. But that is not at all the same thing as claiming that it is "primarily a welfare program".
Wow, I usually really like your posts. But even if I might agree with your general take, you make at least 2 dishonestly misleading statements:
“higher income earners receive excessively high benefits”. The “excessively” is the dishonest word here. Social Security was always sold as a program that you paid into and you get out of. You acknowledge the same later in the piece when you refer to “earnings”. You know very well that in fact those who earned more paid higher Social Security taxes along the way, and that in fact their additional SS benefit relative to the additional amount they earned is *lower* on a per dollar of taxes paid in. I.e. SS is a much better deal for *lower* earners than it is for higher earners.
Then there is this very misleading statement: ”And because of how initial benefits get calculated when someone first applies for Social Security, two workers with identical earnings histories can collect vastly different benefits depending on the years in which they applied. That’s because benefits are only loosely tied to actual working histories and tax contributions.“
Here you misleadingly mix together some very different things. First because you cite everything only in nominal dollars rather than real ones, you imply that someone who had earnings totaling $1M over the years 1980 to 2000 only deserves to get the same benefit as someone who earned $1M from 2000-2020, despite the fact that inflation has made the $1M earned in the second period worth a LOT less than that earned in the first period. And frankly that is the far bigger factor if you wanna talk “fairness”! And without the correction for CPI, government would have a massive incentive to inflate their way out of their SS obligations.
Now I fully understand that the fact that benefits are going up in line with average earnings rather than with the CPI is a “bad” thing that we cannot afford and should change, and that of course is the second component. But it is dishonest of you to present this as you have, combining that point with the inflation point when composing your narrative.
I fully understand the need to fix the unfunded portion of SS. I fully recognize that higher income people will need to “give” in the process more proportionally than others will, whether that is “fair” or not (tell me again about the morality of someone who works very hard and contributes a lot to society - including the income taxes let alone SS taxes that go along with it - and saves their money having to sacrifice more one more time for the able-bodied person who chose to work a lot less hard and save nothing along the way).
Unlike many other older people (and the politicians who need the votes of those older voters who vote more than the young), I fully accept that those of us over 55 and even 65 should “contribute” to fixing the problem, rather than limiting it only to those under 50 as is more politically palatable and would have been easier to do had this been taken on 20 years ago.
I’m not actually completely opposed to the idea that high earner benefits will be cut more than those of others as a part of the solution [though it seems to me that the order of importance of your four proposals should be 2), 4) and then 3) and 1)].
Say that high earners should “contribute” more to the solution because they can afford to more easily than others can, if you must.
But starting the conversation with claims that high-earners benefits are “excessive” when the objective reality is literally the *opposite* of this is a terrible, class-warfare mongering way to go about it. It’s also an easy way to allow the Dems to Bernie Sandersize-the issue and say the answer should be simply to tax the rich and take their benefits.
You can do better. I know you can, and I have seen it in the rest of the pieces on this Substack.
Hi Andy,
Thank you for your comments. I find the ROI conversation highly misleading because if you look under the hood Social Security is simply a tax and transfer program. Money in, money out. There is no saving and no investing taking place. Today’s workers pay taxes. Today’s retirees receive benefits. ROI doesn’t make much sense given this fiscal reality.
And I am not sure I follow your inflation concern regarding the illustrative graphic showing how wage growth exceeds inflation growth. What’s the issue?
So by excessive benefits I am referring to the size of benefits received by the highest income workers. A $117,000 benefit for a dual-earner household where both spouses earn the payroll tax max seems excessive to me. In the UK a similarly situated couple would only be able to collect about $34,000
You are carefully writing half-truths to obscure the fact that Social Security is a massively “progressive” redistribution program. “You get the benefits you pay for” has been central to its marketing since inception, but the pay-in to pay-out ratio isn’t remotely linear. It’s hard to take your writing seriously when you seem so intent on misrepresenting this.
“Social Security is a massively “progressive” redistribution program”
I agree with the rest of your comment. But right now it’s actually only a mildly progressive redistribution program, not massively.
And I’m actually ok with that reality. I could even be ok with it if as part of a complete solution it becomes a *little bit* more progressive still.
But like you I’m *not* at all ok that it’s being misrepresented, and I’m not ok with deceptive, vaguely socialist arguments. Which happen to be anti-marriage and a disincentive to work to boot if taken at face value.
Especially on *this* Substack.
I wish everyone in this thread would choose their words more carefully. Instead of pejoratively describing the language the other poster employed, please suggest alternatives.
We all see the same problem. Let’s collaborate on effective arguments.
I hear you re: your wish. As I’m am clearly one of the two people at whom your note is addressed, let me say that I actually agree with you that I wish all of the people on this thread avoided using pejorative language.
Unfortunately, RB started it by using the unequivocally pejorative word “excessive” in describing certain SS benefits, then doubled down on her claim.
I expect more from someone working at the broadly libertarian Cato Institute - and whose other posts I’ve read show none of this pejorative language that plays directly into the leftist narrative - than to use pejorative language and make socialist, politics-of-envy comparisons.
It’s one thing when such language comes from those on the left. When it comes from those supposedly (and perhaps actually) on the right, it is especially objectionable. And so I apologize not one whit for calling it out.
Of course in addition to calling it out, I have in fact made several suggested alternatives.
Best to you. I respect that we are each trying to see the right thing accomplished, I think we do all see the same problem, even if we clearly disagree significantly on the best way to achieve solutions to that problem.
“A $117,000 benefit for a dual-earner household where both spouses earn the payroll tax max seems excessive to me. In the UK a similarly situated couple would only be able to collect about $34,000”
So are you advocating for those who paid less than half the taxes of those dual earner households to receive less than half their current benefits?
Are you advocating for unmarried people each of whom earn the payroll tax max to get more in benefits than a married couple that earned identical amounts? You want even more of a marriage penalty than we have now in our tax code?
You even literally wrote the word “earn” and then the words “payroll max”, so you know full well that the benefits received relative to the tax collected historically is the opposite of “excessive” on a dollar of taxes paid basis. Social Security has always been sold to the public as taxes paid in, benefits later received. You’re *not *actually proposing changing that fundamental structure. You are just using leftist words like “excessive” in a dishonest fashion.
Your arguments are becoming more disingenuous and pure leftist socialist. Unlike anything I’ve seen you write prior to today.
" I find the ROI conversation highly misleading..."
I never used the phrase or acronym ROI, did I?
You are not denying that on a per dollar basis of taxes paid, someone who paid in less receives higher benefits than someone who paid in more, are you?
Will your argument next be that SS taxes should remain as they are now, but that all recipients should receive an identical benefit, regardless of how much they paid in??
That everyone should receive the same benefit as in the UK ($34,000) per couple? That given that SS today is underfunded, that people who arranged their lives around SS as an income source, some of them should take cuts of 70%+ while others take none at all and actually get an increase?
See how that works for you.
Because now you have gone from a dishonest narrative to claims that SS should instead be a more massive wealth redistribution system than even JDFree above was suggesting.
But if - as I suspect - you are *not* seriously advocating anything of the sort, then let me strongly suggest you stop making socialist arguments to deflect from your dishonest positioning.
You really don’t follow my concern that you implied that the taxes paid on $1M earned 20 to 40 years ago are only deserving of the same benefit as someone who paid the taxes on their benefits only in the last 20 years? And that in fact inflation is the main - and 100% valid - reason why the first person deserves more benefits (in addition to the 2nd factor of increasing benefits based on average earnings growth where I *do* agree with you that they don’t deserve to receive more)?
My comment was not about the graphic at all, it was about the words I cited. Though if you want me to comment on the graphic let me suggest that it’s likely not a coincidence that you chose 1995 as your baseline, since that covers a period of legitimately and then artifically low inflation thanks to QE and ZIRP, rather than a different baseline which would have shown much more the affects of inflation.
That said, I have already noted that I fully agree with your point about the increase in benefits based on wage growth adjustment. So perhaps it’s the case that what I call dishonesty about the first two sentences of that paragraph covering inflation and wage growth-based increases was just poor writing and communication rather than any deliberate attempt to deceive. If so, my apologies; I was likely "excessively" distracted 😏
Andy—we adjust the amount for inflation, so as to only call out the addition from wage growth. Inflation is already considered.
Again, you are referring to the chart and later language, about which I have no complaint.
My complaint in this context is SOLELY about the first two sentences of that paragraph, where you do not call out this distinction, but instead make the misleading claim "That’s because benefits are only loosely tied to actual working histories and tax contributions".
Everything after those two sentences on the subject of inflation versus wage growth I fully agree *is* pretty reasonable, as I noted above.
“A $117,000 benefit for a dual-earner household where both spouses earn the payroll tax max seems excessive to me. In the UK a similarly situated couple would only be able to collect about $34,000”
There is another bit of dishonesty in the numbers used in this statement that I only realized upon closer inspection.
The $34,000 U.K. figure is for those claiming benefits starting at age 66.
Your $117K figure is based on someone delaying taking their benefits from age 66-or-67 to age 70. As you well know, the 8% increase in annual benefits for each year's delay in benefits starting is designed to be actuarially fair versus taking the benefits at "full" retirement age of 66-67 (or whatever the exact such age is based on birth year).
So you have made a fundamentally dishonest claim in using the $117,000 annual figure rather than the apples-apple comparison of 100%/132% * 117,000 = ~$88,600 figure for the couple claiming those benefits at age 66.
Is it your goal to outlaw / eliminate people delaying the date they start claiming benefits?
You have magically "disappeared" the 4 * ~$88,400 = ~$353,600 NOT paid out to the couple that delayed getting their benefits until age 70 rather than start taking them at 66 as did your baseline U.K. couple!
As you well know, "actuarially fair" means it cost the government on average approximately nothing to pay a higher annual payment for delayed benefits. [In truth, given adverse selection bias it probably does cost the government some *minute* amount in the long run (25-30 year perspective).] And of course if you did outlaw/eliminate delaying taking benefits, it would actually *cost* the treasury a small amount in the first several years after such a change, as well as cause a few productive people to retire earlier than they might otherwise.
You want to hold politicians to the standard of looking honestly at the numbers. You owe it to your readers and the American people to change the false comparison (benefits starting at age 70 vs those starting at age 66) to a proper one.
But of course you would have a much harder time making your politics of envy "excessive" claim stick when it is that *proper* number.
...and a more difficult time still if you then used the ~$44,300 per retiree max benefit figure rather than implicitly arguing for a marriage penalty for high earners to marry and remain married to each other in retirement with your choice of doing a comparison with a max-earning couple.
There’s also a take on Eddie Murphy’s parody of Mister Rodgers:
“Can you say ’We’re just like Argentina!’? I bet you can! Go to Washington D.C. and say it to Congress. Did they slap you? Then you know you said it right.”
“America is undergoing a big demographic shift with older Americans living longer and collecting more Social Security over their lifetimes, as the number of working-age Americans funding their benefits is declining because people have fewer children than they did in the past. It’s because of this imbalance that Social Security has been running deficits since 2010 and…”
While I don’t think this bit is deliberately dishonest, I’ll note that despite all of the other legit issues you note, had we *only* adjusted the SS retirement age along the way to go along even *somewhat* with the increases in life expectancy, the problem would be pretty much entirely - and perhaps wholly - gone. And so I would argue that that single thing is a FAR bigger reason than the combo “this imbalance…” you suggest as *the* reason SS has been running deficits, and so it should be first and foremost the biggest part - but of course because we’ve delayed so long can regrettably no longer be the *only* part - of the solution.
We might raise the minimum retirement age less for those receiving less. A low wage earner’s life expectancy might be lower on average. An actuary would have a better idea.
I agree in theory that this is not a bad idea.
In practice, however, there’s no reasonable way to do this, imo, as it would make things unbelievably complex and thus more opaque.
But as this involved mucking with the actual “full retirement age” not merely the benefit number calculation, people would be left uncertain as to when they are allowed to retire if/when their earnings increase near the end of their working life (which is the majority of people) pushing them into a higher retirement age “bracket” (as surely you are not proposing that the retirement age be day-by-day different for different Americans).
If what you meant is merely that the benefit calculation at retirement would be tweaked to reflect this as their “effective” full retirement age, then I’m back to merely my minor critique in my first two sentences above.
The arc of earnings may be similar, but it still ends at different levels. Maybe we could weight the ending earnings less in the calculation.
But besides being more complicated, now you are suggesting something that is the opposite of what Romina suggests is goodness, because you are back to “valuing” earlier real earnings higher than more recent one
How do you suggest that we fix it without becoming Argentina?
"How do you suggest that we fix it without becoming Argentina?"
How to fix Social Security?
RB's suggestion 2), plus her suggestion 4). Period.
First replace the average earnings increase with increase with inflation. According to a post on *this* Substack just last month, that would fix almost 80% of the problem!
https://debtdispatch.substack.com/p/debt-digest-how-to-fix-medicare-and
Second, raise the retirement age. You need not raise the age 62 when one can start taking reduced benefits, but of course that means the benefits when retiring at 62 will become lower over time.
(Then if you want to be more generous to lower income people who you suggest might be actuarially likely to live less long, have the reduction in benefits for taking SS at 62 be less severe for those with far less than max benefits. That said, you would then create the different problem of incentivizing early retirement for those people, which for the ones who do live to the actuarial average and beyond is doing them no favors.)
Those two changes are all that’s necessary. Given that the first one solves ~80% of the problem, that enables the retirement age changed to be phased in and not as draconian as one might otherwise fear.
If politically you need to include something that makes it more progressive, take out two years of the average wage growth vs. inflation delta for the highest benefit amounts, including for those already retired (but good luck getting it passed when this one thing can be demagogued as *cutting* Social Security).
The solutions to fixing Social Security ain’t that hard. And they don’t require politics of envy framing from those on the right. It will just require a little bit of political backbone, something the Democrats and Trump both lack re: entitlements. Addressing it solely with those two changes allows everyone to say they didn’t raise taxes and they didn’t cut anyone’s Social Security, so it’s politically more palatable than anything else one proposes (even if leftists and some who would go along with them might prefer a solution that makes things massively more redistributionist, that ain’t gonna fly politically).
By contrast, fixing Medicare ain’t gonna be easy. Even if I now strongly believe “premium support” (a.k.a vouchers) is the key component of the best way to go.