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Posted at 3:17 PM ET, 02/14/2011

White House calls for Social Security talks

By Ezra Klein

This hasn't gotten a ton of attention, but the budget includes a pretty explicit call for Congress and the administration to commence talks on Social Security reform. The administration even lays out its starting position:

The President believes that we should come together now, in bipartisan fashion, to strengthen Social Security for the future. He calls on the Congress to follow the example of great party leaders in the past — such as Speaker Thomas P. O’Neill, Jr. and President Ronald Reagan — and work in a bipartisan fashion to strengthen Social Security for years to come. Guiding the Administration in these talks will be the President’s six principles for reform:

• Any reform should strengthen Social Security for future generations and restore long-term solvency.

• The Administration will oppose any measures that privatize or weaken the Social Security system.

• While all measures to strengthen solvency should be on the table, the Administration will not accept an approach that slashes benefits for future generations.

• No current beneficiaries should see their basic benefits reduced.

• Reform should strengthen retirement security for the most vulnerable, including low-income seniors.

• Reform should maintain robust disability and survivors’ benefits.

For an idea of the kind of reform they're talking about, check out the proposal Christian Weller produced for the Center for American Progress.

By Ezra Klein  | February 14, 2011; 3:17 PM ET
Categories:  Social Security  
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Ezra, does Soc. Sec. still have the caps on taxes paid? If so, why don’t they just eliminate the cap so everyone pays a flat amount on all incomes? Maybe even a lower rate for everyone paying into the kitty would still add more $$$$ coming in.

Posted by: deconstructiva | February 14, 2011 3:49 PM | Report abuse

and why aren't we focusing on the real problem of Medicare and Medicaid?

Posted by: visionbrkr | February 14, 2011 3:50 PM | Report abuse


Bernie Madoff ran a successful retirement program for a while too. Except, he didn't have the benefit of the power of taxation to maintain his Ponzi finance scheme like the US Government.

Here's what we need to do to make SS fiscally sound for the future:

With age phase-in, eventually convert SS into a defined contribution program instead of its current defined benefit structure. In other words, move toward a system where you get what you pay for rather than getting what you vote for. This will strengthen Social Security's political appeal. Chris Weller and all the other Left-wing schemes to "reform" social security rely heavily on wealth redistribution by raising the eligible wage subject to taxation (front-end) and imposing income taxes on benefits (back-end).

Converting SS into a defined contribution plan is easy. Each worker paying SS taxes gets his own Treasury Mutual Fund Account, run by the US Treasury. The Treasury will use SS contributions to purchase a basket of outstanding US Debt Instruments to create the mutual fund. Interest earnings on the portfolio would be reinvested into buying more outstanding US Debt.

Instead of relying upon phony intra-governmental "Trust Fund" debt as collateral, each worker will have his mutual fund shares in publicly held instruments with a contractually enforceable claim. In an accounting sense, we eventually convert all the Trust Fund debt into publicly held debt.

Unlike privatization schemes proposed by Republicans, this structure does not divert tax revenues away from the Treasury so there wouldn't the adverse fiscal impacts associated with a Paul Ryan style plan.

Also, if we give workers the right to include their SS Mutual Fund holdings in their estate, then they can bequeath their earnings to their children, spouse(s), or same-sex lovers/spouses. We can dispense with all the rules and regulations governing survivorship recipients. As for disability insurance, give workers the option to purchase it if they wish, or just be explicit and make it a separate welfare program.

We also avoid the problem of where to set the retirement age and what inflation index to use. People will work as long as they feel is necessary based on what they've contributed into their personal savings account at the Treasury and elsewhere. No need for the feds to make policy on that.

However, some safeguards should be in place to ensure workers cannot outlive their savings. Using actuarial tables, a maximum annual withdrawal limit should be set, and benefits could not be withdrawn prior to a set age (e.g. 62).

This splits the difference between what Republicans and Democrats want, but more important we can fiscal discipline to ensure SS would drain the federal coffers.

Posted by: ElGipper | February 14, 2011 3:58 PM | Report abuse

"the Administration will not accept an approach that slashes benefits for future generations."
-what is there left to negotiate about then? if no benefit cuts are on the table (and lets be honest, whether it's indexing it to inflation, or raising the retirement age, nearly all reforms besides tax increases for SS are all benefit cuts), then it's only a one-way ratchet for how to raise payroll taxes.

Posted by: jfcarro | February 14, 2011 4:01 PM | Report abuse

The elephant in the room: Medicare and Medicaid. The rest of the budget dance from GOP to Obama is just kabuki theater. Tackle Medicare and Medicaid.

Maybe the Obama team wants to tackle these separately?

Posted by: jasonr3 | February 14, 2011 4:08 PM | Report abuse

For the bulk of SS, any slashing should be for the current retiring generation that didn't put enough of the money aside to prepare or their own futures- starting with the richest folks. We must begin a slow conversion to defined contribution in personal (but not private) accounts. Defined benefit is mortgaging the future.

Posted by: staticvars | February 14, 2011 4:24 PM | Report abuse

ElGipper, I'm not sure what you mean by US Debt instruments. A publicly run investment plan or a privately run investment plan end up at the same place; a risk of some proportion that someone gets nothing. This is why SS was designed as a pay as you go program.

In the 1980s Reagan changed this to generate a surplus that would guarantee long term solvency of the program. The program HAD to "invest" this surplus in safe government bonds. In other words, the transfer of the surplus to the general budget was mandated by law. This is why most economists don't treat SS as a separate part of the gov't or budget.

What you are proposing is the similar to what we have now, take the money and invest it in government debt. The only difference is that your plan would not take part of a high income acct and transfer it to a low income acct, as is done today. Whether the debt is "sold" to the public or not, it is still the same government debt. Technically the debt held by the SS administration is "contractually" enforceable but given SS is a government entity it's unlikely they will ever enforce that contract and your plan changes none of that.

But you are correct, the Republican plan is far worse as it transfers all the market risk to the SS acct, much as 401K plans do today. The market abuses most 401K holders, often selling from mutual funds to benefit their biggest private investors, and leaving the 401K participants to absorb the losses. This is one of the big myths of the 401K, that these investors can share in market gains. They can't. The system is rigged against them, deliberately. IRA's are far better in that they can be actively managed, second by second if need be, to get the best return. 401Ks are not set up to do that. The idea that buy and hold is the way to go is a long dead 1960's way of thinking. Now its hold and get the crap kicked out of you. The best, safest, long term retirement vehicles today are savings accts and CD's. Anything else needs to be actively managed and that's something most 401K investors cannot do.

Posted by: elkiii_2008 | February 14, 2011 4:39 PM | Report abuse

Eliminate the caps on the payroll tax.

Posted by: MosBen | February 14, 2011 5:10 PM | Report abuse

I, for one, would feel a lot better about SS if I had some kind of assurance it will still be around when I retire in 40+ years.

Posted by: will12 | February 14, 2011 5:25 PM | Report abuse

Let's get out of bankrupting wars. Also, do we need to have 700 military bases overseas? Do the locals pay for these bases or are they just a money drain? The intelligence agencies appear to have bloated budgets. Let's see where cuts can be made to the defense budget and the intelligence agencies' budgets.
Social Security, I believe, is holding 2.5 trillion dollars' worth of treasury bonds because Congress "borrowed" money from the Social Security fund. Social Security should cash in those treasury bonds.

Posted by: wjm3 | February 14, 2011 9:05 PM | Report abuse


An individual has no guarantee of what his SS benefits will be when he retires. The Supreme Court has ruled on that question, already. Trust Fund debt is owed to the government (left hand gives to the right hand), not to any individual. So it has no force of law that matters at an individual level.

My plan gives SS taxpayers contractual rights to a share in a pool of outstanding US Treasury Bills and Bonds. The full faith and credit of the US stands behind the debt. So my plan represents a substantial change from the status quo.

SS taxpayers would become shareholders who could monitor the value of their holdings just like any other privately-run mutual fund. They know what they have available to retire on any given day.

In contrast, today's retirees are at the mercy of political winds. An individual retiree doesn't have any guarantee of his benefits. Congress could change them at any time. However, the worse part is that as retirees make up a greater share of the electorate, they will have a tremendous urge to transfer wealth from young workers to themselves in a massive intergenerational wealth transfer.

SS is a Ponzi scheme. It is an ill-conceived design. Any private group that tried to set up a plan with a similar structure would be incarcerated. Anyone who supports the current defined benefit payout structure is not a serious individual with any sense of fiscal responsibility.

Posted by: ElGipper | February 14, 2011 9:48 PM | Report abuse

I read the report in the link. It is the same tired stuff. It is time that someone looks at this from above the level of SS.

Yes it is true that there is a Trust Fund. A big one. This will be the "cushion" that gets us to the mythical 2037 date when the fund is exhausted.

The problem however is that the run down in the Trust Fund has to be matched, dollar for dollar, with an increase in debt held by the public.

We are already issuing too much debt to public to fund the deficits. And now you want to add another $3 trillion to the borrowing calendar.

Sorry. That will not work. It will prove to be much easier to amass a big Trust Fund than to wind one down.

We will never make it to 2037 with this plan. And the people the "progressives" say that they must want to protect, will be hurt the most.

Killing the broad economy to save SS is a bad plan. It will backfire and we will all regret it.

Bruce Krasting

Posted by: bkrasting | February 14, 2011 10:20 PM | Report abuse

Current beneficiaries darned well SHOULD have their precious benefits on the table. They, more than any generation, took out far more than they put in to these social programs. My grandmother (God bless her soul) has collected Social Security for FORTY ONE YEARS and never paid into it. Grandpa, long ago passed, only paid for a few years but still collected for over twenty years.

Of course, Grandma keeps complaining about how she has had to go two years in a row without a COLA increase. Never mind that most of her grandkids, myself included, are making no more than we were five years ago.

Posted by: brickcha | February 14, 2011 10:20 PM | Report abuse

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