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The case against reforming Social Security

In my previous post, I wrote that "if you're worried about [Social Security]'s finances, you can really only do one of two things: Lower the amount of money the program sends out or increase the amount of money it brings in."

That's pretty much true. But there's no real reason to be worried about "Social Security's finances." What we're worried about, rather, is the federal government's finances. If Social Security is proving a drag on the federal budget, then one option is make changes to Social Security, but another option is to make offsetting changes elsewhere in the federal budget.

And increasingly, that's my preference. It's a testament to Social Security's efficiency that every option for balancing its books is a bad option. Raising the retirement age hurts real people. Raising taxes also hurts real people. Cutting benefits hurts -- well, you get the point. Social Security is adding value. Any change you make will either increase how much we're spending for that value or decrease the total value we're getting from the program.

Conversely, there's plenty in the federal budget that isn't so zero-sum: We spend much more on defense than we need to spend. We have an absurdly inefficient tax code that could raise more money while doing less to harm growth if we cleaned it out. We have a health-care system that's about twice as expensive as the OECD average but isn't delivering better results. Cutting and reforming these programs might be politically difficult, but we'd be doing ourselves good, rather than harm, if we could manage it. Comparatively, cutting and reforming in Social Security is politically difficult and does us harm.

By Ezra Klein  |  August 30, 2010; 11:56 AM ET
Categories:  Social Security  
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Comments

Republicans WANT to hurt [non rich] people! That is why they attack Social Security, but would never consider uncapping FICA. Why they wail about the deficit, but would never consider cutting zillions to big "defense" companies, fossil fuel subsidies, etc.

Posted by: AZProgressive | August 30, 2010 12:10 PM | Report abuse

The financial bail-out and stimulus package exceed amount spent to finance the world wars, the Korean war, the New Deal, and Marshall Plan combined. All of this was to combat a recession from the bursting of the housing bubble, which was propped up by distorted incentives, such as artificially low interest rates. Another economic shock on America, such as a run on the dollar or financial collapse of a large sovereign other than our own, would certainly put your point that we shouldn't worry about social security sustainability to shame.


Yes, there is no free lunch. We can't afford social security or Medicare in their current forms. We can't afford guaranteeing state pensions. You are either living in denial or drinking the politician's Kool-Aid. We have to cut them all: we have to cut benefits of state workers (politicians lied to them about the stability of government work just as they lied to people about the benefits of owning a home), we have to raise the retirement age and privatize Medicare and Social Security, and we have to cut Medicare benefits. And after cutting government spending, we will have to raise taxes thanks to the 30-year spending binge of the baby boomers.

Posted by: RandomWalk1 | August 30, 2010 12:15 PM | Report abuse

To say that "Social Security is adding value" is arguable. For a person willing and able to make decisions about his own future, there is no value, only tax: for a person unwilling or incapable of planning his own financial future, the program acts as a crutch, purchased by the labor of others.

There is no right to "social security" and one possible solution to the "problem" is to refrain from interfering in individual social security decisions.

How about a compromise? If a person reaches a certain age and has not saved enough to provide for his own later years, levy a substantial penalty -- reduce his wages to the minimum wage, if necessary -- and maintain the penalty amount in a personal account until his savings are sufficient. Individual responsibility was a hot topic during the health care debate... but it seldom arises when discussing other entitlement programs.

Posted by: rmgregory | August 30, 2010 12:36 PM | Report abuse

There is no problem with Social Security's finances. The problem of Boomer retirement was recognized decades ago and dealt with by running a large surplus in SS, which was invested in government bonds. The combination of ongoing tax revenue plus past bond investments will finance SS quite nicely for many decades into the future.

The only "problem" is that conservatives have become accustomed to having large SS surpluses available to subsidize artificially low income tax rates and they want the free lunch to continue. The "debate" about SS has nothing to do with the solvency of SS. It's all about continuing to use SS as a piggy bank for the rest of the government.

Posted by: tl_houston | August 30, 2010 1:07 PM | Report abuse

Double the FICA cap. Problem solved.

Next?

Posted by: Hieronymous | August 30, 2010 1:09 PM | Report abuse

Yeah, I think Ezra's being a little too reductive here. It's not just a question of "Find a way to 'fix' Social Security in a way that doesn't hurt" but "Is there a problem with Social Security? If there is, what's the easiest/best way to fix it?"

Some modification or elimination of the cap makes a lot of sense and I've seen plenty of good ideas in various posts on this site (and, I hope, contributed one or two). I don't really think there's a problem with Social Security, or at the very least that it's problems are nowhere near as pressing as defense and medical spending. But if we decide that we really do need to "fix" Social Security, it really doesn't seem like a very hard problem to me.

Posted by: MosBen | August 30, 2010 1:27 PM | Report abuse

Whoops, my post is mostly referring to Ezra's original post on SS.

Posted by: MosBen | August 30, 2010 1:42 PM | Report abuse

rmgregory, I applaud your forthrightness and hope you can convince Republicans everywhere to add your recommendations as planks to their platforms. I'm sure your program to enslave the foolish will spread a lot of happiness. Maybe you can get Sarah Palin to endorse it.

Posted by: dfhoughton | August 30, 2010 1:59 PM | Report abuse

I guess I'm confused. As a populace, we've paid taxes to fund a security account for our later years. Legislators have been borrowing against the account in order to reduce deficit spending. Now that it has become too difficult to pay back the loans, the GOP wants to default on its obligations so that they can give tax breaks to the wealthy. And more than 25 people in this country favor that?

Paul Ryan isn't a responsible policy wonk with working ideas. He's a thief who's ideology has perverted his sense of morals.

Posted by: miles120 | August 30, 2010 2:58 PM | Report abuse

There are high costs to social security. 12%+ tax on all wages and the investment return is negative for the majority of workers with no ability to pass on assets to the next generation. Social security is ravaging poor and disadvantaged communities by denying any inability for inter generational wealth transfer for low income groups.

Posted by: cdosquared5 | August 30, 2010 3:48 PM | Report abuse

To ti_houston: You are right on, the freeloaders are the upper income types who have been sheided from paying increased income taxes because working folks were kicking in 15%+ (including the employer contribution) of every doolar earned into the SS slush - er, trust - fund.

To miles 120 - unfortuantely, there are a lot more than 25 financial illiterates in the country. Look at the level of support for repeal of the 'death' (estate) tax among folks who are not going to leave two nickels to rub together when they go.

To Ezra: I'm not sure I agree that raising the cap on covered earnings, prefereable in stages, really falls into the category of 'hurting real people.' It would definitely screw higher paid married women, but we are totally screwed by social secuity anyway in terms of return bang-for-the-buck, so what the hey, anyway.

Posted by: guesswhosue | August 30, 2010 4:07 PM | Report abuse

To ti_houston: You are right on, the freeloaders are the upper income types who have been sheided from paying increased income taxes because working folks were kicking in 15%+ (including the employer contribution) of every doolar earned into the SS slush - er, trust - fund.

To miles 120 - unfortuantely, there are a lot more than 25 financial illiterates in the country. Look at the level of support for repeal of the 'death' (estate) tax among folks who are not going to leave two nickels to rub together when they go.

To Ezra: I'm not sure I agree that raising the cap on covered earnings, prefereable in stages, really falls into the category of 'hurting real people.' It would definitely rip off higher paid married women, but we are totally screwed by social secuity anyway in terms of return bang-for-the-buck, so what the hey, anyway.

Posted by: guesswhosue | August 30, 2010 4:08 PM | Report abuse

Eliminate the income cap on payroll taxes.

Problem solved.

Doesn't hurt anyone except people who can afford to be hurt a little, and also gives them an investment in thinking of tax liabilities beyond just income taxes.

Posted by: pj_camp | August 30, 2010 4:23 PM | Report abuse

"To ti_houston: You are right on, the freeloaders are the upper income types who have been sheided from paying increased income taxes because working folks were kicking in 15%+ (including the employer contribution) of every doolar earned into the SS slush - er, trust - fund."

The upper income types receieve the worst return on Social Security, pay the lion's share of income taxes, and yet somehow they are still somehow freeloading.

Posted by: justin84 | August 30, 2010 5:15 PM | Report abuse

Because its not like people don't work in the defense industry, or the tax preparation industry, or anything like that....

If you don't care about those folks, fine. But someone has to pay for the lunch, right?

Posted by: krazen1211 | August 30, 2010 5:47 PM | Report abuse

"We have an absurdly inefficient tax code that could raise more money while doing less to harm growth if we cleaned it out."

Single-payer health care has a better chance of happening than revision of the tax code.

Taxes are the main instruments of Congress's power. They are how — no matter which party is in charge — Congress rewards behavior it wants and punishes behavior it doesn't want, more so than spending on benefit programs. Taxes come right out of everyone's paycheck every payday.

Congress will never give up that power by reforming the tax code, which effectively negates any chance of savings by that avenue.

Posted by: tomcammarata | August 30, 2010 8:53 PM | Report abuse

Social Security is more than a retirement program, it also provides disability and survivor benefits to children under 18. It is not a drag on the federal budget as its revenue is separate from general revenue that is from federal income taxes. Reagan raided the fund in the 80s to cover his massive tax cuts for the wealthy and corporations, and along with Greenspan double the payroll taxes to create this current surplus.

Conservatives do not want to cut Social Security for deficit reduction, they want to get rid of it for ideological reasons. These conservatives do not believe that the poor, working class, or the middle class should have help of any kind, and should accept what the economic and corporate elite give them.

A solution to Social Security is this: eliminate all caps on all forms of income, whether earned or passive income. The wealthy and corporate elite live off the rest of us like parasites.

Posted by: wcook289 | August 30, 2010 8:58 PM | Report abuse

You finally have stumbled on to the correct answer for Social Security ... also you might add that the surpluses from SSA over the last 25 years have benefited the the entire non-SSA budget so no that we need to repay the funds it makes sense that the the parts of the budget that benefited from the surplus should be required to participate in the repayment.

Now the tough question ... Why did Obama select Alan Simpson a true Social Security hater to co-chair the Fiscal Commission?

Obviously he doesn't agree with you and me.

Posted by: cautious | August 31, 2010 8:40 AM | Report abuse

I'm sure that members of Congress see themselves as hard-working middle class folks. Why don't we raise the cap on FICA to the level of Congressional salaries? That way we could always be assured of that level rising regularly. And at least part of the shortfall will be accommodated.

Posted by: oldbob | August 31, 2010 10:12 AM | Report abuse

I can see this topic cuts across all party lines but try to understand my point of view. I checked it out that SS has been reported to run out around 2037 to 2041 on average. Well I just have to say my future is screwed. I will not be able to get my SS checks until 2045 and so I guess I have two options get rich or work till I die. Lets fix this problem with out raising taxes or else the future is not good.

Posted by: djtoman | September 1, 2010 1:53 AM | Report abuse

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