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entitlement reform
Social Security Getting More and More Regressive

When politicians talk about reforming Social Security, it’s almost always in the context of fiscal discipline—that is, reducing benefits so that the program doesn’t consume an ever-growing share of the federal budget. While budget-conscious entitlement reform is a critical project, focusing only on the program’s impact on the government’s bottom line can obscure an equally important—and, potentially, equally destructive—defect in FDR’s signature policy innovation: the growing longevity gap between the rich and the poor means that the program is over time doing less and less for those it was supposed to help the most. The New York Times‘s Neil Irwin reports:

Social Security is designed to ensure that no workers go penniless in old age and also as an equalizer between rich and poor. It is structured to give more generous retirement benefits to low-income people, given the taxes they pay during their working years. […]

But in reality, a large body of research shows that the rich live longer — and that the life span gap between rich and poor is growing. And that means that the progressive ideal built into the design of Social Security is, gradually, being thwarted. In some circumstances, the program can actually be regressive, offering richer benefits to those who are already affluent.

Social Security is exhibiting a pattern common to blue model programs like student loan subsidies, occupational licensing rules, and strong unions: All these institutions once functioned reasonably well to support growth and expand opportunity, but the changing fiscal and demographic realities of the 21st century mean that they now increasingly favor the already-privileged at the expense of outsiders trying to break in.

Republican politicians are uncomfortable talking about how Social Security is tilted in favor of the rich because they are uncomfortable talking about inequality in general, and Democrats are uncomfortable talking about it because they worry that it will undermine support for the crown jewel of the American welfare state. As a result, we have Republicans floating proposals to privatize Social Security or raise the retirement age, while Democrats (and their fellow-traveler Donald Trump) promise to maintain or exacerbate the regressive and fiscally unsustainable status quo.

Any politically palatable version of Social Security reform will need to grapple seriously with the distributional as well as budgetary impacts of the program—and that means tying any benefit reductions to measures that ease the burden on working families. One way to do this is means-testing: reducing benefits only for people with income above a certain level. This is a sound idea that could be complemented by exempting the first, say, $10,000 of a workers’ income from the payroll tax, or taxing it at a lower rate (the 6.2 percent flat-rate Social Security tax is the largest tax that many working-class families pay).

But for any of these changes to be feasible, politicians need to do more than argue that Social Security as currently constituted is fiscally unsustainable. They need to argue that the compact Social Security was built on is no longer operative—that working and middle class people are increasingly getting ripped off by a program that was designed to serve them. Simply doubling down on such a system won’t do any good; what is needed is a reform that serves the interests of the middle class.

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  • M Snow

    This post doesn’t even mention the racial component of this mess. Social Security is essentially an income transfer program from black men to white women if you consider the average longevity of each group. It is one of the reasons for the great disparity of wealth between blacks and whites despite improvement in the differences in income. Black men just die too soon to give much in the way of inheritance to their children. And, by the way, the actual tax poor families pay is twice the 6.2 mentioned when you add in the “employer’s contribution.” Privatization, even partial privatization, would at least allow the heirs some access to what parents had paid in over the years. I would also be open to some sort of means testing but admit it might be tricky to administer.

    • Andrew Allison

      Social Security is by no means an income transfer program. It might be considered a wealth transfer program (from those who contributed more to those who contributed less). Comparing white women and black men is apples and oranges. The differences in longevity between blacks and whites, or black men and white men, etc. are relatively small, and your reasoning omits Asians and Hispanics, both of which have greater longevity than whites. And what does Social Security have to do with inheritance?

      • M Snow

        Ok, SS is an income (or money or wealth or whatever you want to call it) transfer program from black men to white, Asian and Hispanic women, all of whom live almost a decade longer than black men. You may consider 10 years to be relatively small; l don’t. SS (and its companion Medicare) guarantee that the people who built up wealth when black/white income disparities were greater than they are now can preserve their savings so that they can leave it to their children. Some years ago a pundit called it an Inheritance Guarantee Program for the middle class. Unfortunately I can’t remember his name.

        • Andrew Allison

          Get your facts straight. The difference in longevity between blacks and whites is four years, that between males five and that between females 3 (http://www.infoplease.com/ipa/A0005148.html). Your “pundit” had his head you-know-where. Given that SSA is paying out more than it is collecting, those who have paid more are subsidizing those who paid less. Medicare, of course, is the exact opposite of what you suggest; payments are income-based but the same benefits apply to all. Furthermore, the savings rate is abysmal for both blacks and whites. The biggest problem with Social Security is that has given people an equal-opportunity excuse not to save.

          • M Snow

            My original post compared black males to white females. The average black man lives to be 71.8 in the latest information I found. White women live to 81.1. The difference is 9.3–almost a decade. I’m not sure that the biggest problem with SS is the destruction of the savings rate, but it certainly is one of the problems. I’d pick the high taxation rate on young people as the worst problem.

          • Andrew Allison

            Since black women live longer than white men, you should add them to the list of miscreants [grin]. Your original post argued racism, but compared apples and oranges. Racism is about color, not gender, and black longevity is four years less than white. Please understand that I’m not suggesting that there are not disparities, but that Social Security (the subject of the post) is not the cause.

          • M Snow

            I wasn’t arguing or even implying racism. I was talking about unintended effects just as the original article talked about the regressive effects of SS. Surely they were not intended by the framers of the law, but they happened nonetheless. The whole scheme is just a God-awful mess. If it were up to me, I’d just figure out what all currently alive people paid in, add interest, send them checks, and be done with it. Earlier I said that the high taxation of young people was the worst problem, but I’ve been thinking about it and now I believe it’s the entitlement mentality that SS (and every other welfare program except disability payments) has fostered throughout the country. I still believe that part (not all, of course) of the disparity between black and white wealth is caused by blacks retrieving less of what they put in than whites from SS because they die younger.

          • Andrew Allison

            “This post doesn’t even mention the racial component of this mess.”

          • M Snow

            There is a difference between “racism” and “racial.” There was no intent that SS would harm black people, but that is what eventually happened in my view. Of course, it did so much else wrong that this is probably not in the top five of its mistakes.

  • Andrew Allison

    The first paragraph quoted is nonsense, Social Security was NOT designed as an equalizer between rich and poor but, in the words of FDR, to protect against a poverty-stricken old age. Furthermore, the disparity in longevity of rich and poor is far less than threat between 1935 and today.
    TAI is as confused as the NYT in suggesting that “exempting the first, say, $10,000 of a workers’ income from the payroll tax, or taxing it at a lower rate” represents means testing. This would reduce a workers contributions, not increase their benefits. Note also that there’s a maximum benefit payable regardless of contributions and that income between $25,000 and $34,00 on a single return or between $32,000 and $44,000 on a joint return, up to 50% of benefits can be taxed. That’s a means test. “. . .that working and middle class people are increasingly getting ripped off by a program that was designed to serve them.” is also rubbish. Quite apart from the side from the class-warfare rhetoric, the program was never designed to protect the middle class.
    The real issues are what the minimum benefit, including the many other benefits received by the poor, should be and how will it be paid for.

    • Fat_Man

      Remember the Earned Income Tax Credit, which does just what the post suggests.

      • Andrew Allison

        Nope, it’s just one (along with Medicaid, etc., etc.) of the many other benefits which the poor receive and which should be included when considering minimum income.

  • Daniel Nylen

    Social ownership and group rights will always compete directly against private ownership rights. Add in unintended consequences, and we are left with a mess. That said, I’m sure everyone who has paid into the “system” for years believes that they have an “ownership right” to certain outlays from that system. We’ve already taken the low hanging fruit by taxing SS income for middle class retirees. The only ways left are direct redistribution and that will not grate on the average and above middle class who pay the lion’s share of SS.

    • Fat_Man

      I paid into the system for years, and I knew it was a tax and I never expected to see a nickle of it. I also maxed out my IRA, and have plenty to live on without the Social Security benefit. The only thing that concerns me is that the US will probably go Argentina and confiscate my IRA.

  • Jacksonian_Libertarian

    The Solution:
    Have the Fed payoff all foreign holdings of US Treasuries, about $6+ Trillion and put that with the Fed’s $2+ Trillion in reserves from all the recent “Quantitative Easing”. And create individual, inheritable, and tradeable, Social Security accounts for every naturally born citizen (immigrants should be required to fund their own accounts to become citizens) of about $30,000. This would have the effect of increasing everyone’s net worth by $30,000, fixing the stupid Ponzi Scheme Social Security system, and putting about $9 Trillion in capital into the Stock and Bond markets. It would also devalue the Dollar on world markets for the first time in 4 decades, reversing the trade deficit into a trade surplus for the first time in many people’s lives. In addition, it would have the effect of kicking the economy out of its present destructive deflation, and back into a growing economy’s inflation. Unfavorable trade agreements could be renegotiated from a position of strength. And finally it would make America’s export sector boom, which would suck foreign investment into America, while at the same time dragging the rest of the economy out of the ditch, creating jobs.

  • Fat_Man

    Worse than Nonsense. Nonsense on stilts. The NYT being a shill sheet for the Democrat Party, has regurgitated the usual partisan talking points, while ignoring or concealing key data.

    For example The correct way to compare benefits is to present value them at the initial dates. The NYT just calculated the befits flat with no time discount.

    For example, there is no unfairness in reflecting life style choices in benefit payments. It is a sad fact that a major reason that poor people smoke more than rich people, and have higher rates of obesity. Any comparison of benefits between the two classes that does not reflect the longevity disparities caused by the different life style choices is invalid.

    For example, the NYT does not adjust its benefit calculations for the taxability of the Social Security benefits to a person who has more than $35,000 of income.

    For example, the NYT does not mention the way that the disability program is being used as early retirement for discouraged low wage workers.

  • FriendlyGoat

    A “reform” that serves the middle class is one that does not seek to preserve the Trust Fund so far into the indefinite future that it is never. ever produced in cash for use on its dedicated purpose. The payers of income tax have borrowed over two trillion dollars from the payers of payroll tax and have no capability or plan to return it. We will therefore hear ideas for reducing benefits in order to “save” that money for a time that never comes—–while calling for more income tax cuts.

    • M Snow

      Not sure I understand your first sentence, but I would ask, What party and President started the raid on the Trust Fund? Of course, they are all complicit in this mess now.

      • FriendlyGoat

        Yes, both parties are complicit. But my reference pertains to what we often hear about “if we don’t do something, Social Security will only be able to pay 70-75% of promised benefits starting in 2034”.

        That assessment presumes that the Trust Fund is sitting there in cash to be drawn upon for all the years between now and 2034, when presumably it would run out. One problem is that no such fund is sitting there in cash at all, so we will hear politicians wanting to cut now, rather than wait until 2034. I predict some of those calls will be cloaked behind the idea of saving the Trust Fund they DON’T HAVE in cash (only on paper) for the benefit of people in the distant future—after 2034. If we hear that, we’re being lied to.

        • M Snow

          Well, I don’t know a single person who actually believes there is a Trust Fund of any sort so I don’t imagine such lies would be very effective. I could be wrong though considering who the frontrunners in both parties are right now.

          • FriendlyGoat

            A spreadsheet of the receipts, expenditures and Social Security Trust Fund balance for every year since 1957 can be seen here:
            https://www.ssa.gov/oact/STATS/table4a3.html

            Not to be saying this in a sarcastic tone, but we should be telling “every single person” we know to look at it. All of the money has been loaned to the combined federal budget, or in a sense to the past and future payers of income tax. The loan is an account receivable from them. The idea that it was okay to spend it all once on the Iraq war and spend it all again on the so-called “Bush” tax cuts of 2001 and 2003 is not just “okey-dokey”.

            Seriously, “every single person” should look at the history of citizens over-charged on payroll taxes year by year to build this Trust Fund.
            There is something about the chart which focuses the mind on “Yes, Virginia, there is (was) a Trust Fund.”

          • M Snow

            I agree every person should be aware of how the government spends the tax revenue it receives, but I’m not sure why you seem only to mention Bush when the President who initiated this practice was LBJ, who wanted the Great Society along with the Vietnam War and didn’t want to raise taxes to pay for either. Both parties have used SS as a slush fund for their pet projects over the years. And when that started to run low, we started borrowing trillions from China and others. It is beyond horrifying. I think I’ll get my husband to pour me a Scotch.

          • FriendlyGoat

            If you look at that chart, you will discover that there was not really enough excess cash coming off of Social Security in the sixties for LBJ to use it as much of a slush fund. I mentioned Iraq and the “Bush” tax cuts not just because they occurred in Bush’s time but mostly because they were horrible ideas which cost trillions of dollars EACH.

          • M Snow

            Well, since LBJ was the the one who devised the combined budget ploy, I believe he deserves dishonorable mention in any discussion of the topic. As for costing trillions, how about the welfare state? Is there any doubt that subsidizing out of wedlock births has helped propel the illegitimacy rate into the stratosphere? A horrible idea that has left millions of children to grow up without fathers. And it cost even more trillions.

          • FriendlyGoat

            Hard to say what conservatives dislike most. Abortion or live births with no fathers?

          • M Snow

            Abortion.

          • FriendlyGoat

            Perhaps LBJ thought the same.

          • M Snow

            I highly doubt that since abortion was just beginning to percolate up to the federal level from the states and nobody really noticed the rise in out of wedlock births until Daniel Patrick Moynihan and Charles Murray began to sound the alarm much later. Besides, LBJ had other things on his mind, like escalating the war in Vietnam and passing landmark civil rights laws. Perhaps you were kidding, but let me turn your question around. What do liberals like more? Abortions or live births with no fathers.

          • FriendlyGoat

            I wasn’t “kidding”. I was expressing some frustration with the perception one can easily glean from the political right (not necessarily from you) that every abortion must be stopped AND every “welfare” program for the resultant babies and their mothers must be stopped (or cut back) at the same time.

            You are probably correct that Johnson was not all that focused on abortion, but we do know that he was focused heavily with his vision for a war on poverty and a Great Society.

            As to your question about what liberals like. I don’t speak for all of them—-only for me. On abortion, I would like for us to have a much larger message to men and boys to not cause them. It would be fine with me if public schools doubled, tripled, even quadrupled the present emphasis on sex education—–including a heavy duty on boys to not use, mistreat, disrespect or endanger girls by POSSIBLY by THEIR actions allowing any girl to be in the position of needing either an abortion or to be an unprepared mother. This, in my view, would include getting completely beyond our squeamishness to hit the boys HARD and EARLY with the (secular) truth, whole truth and nothing but the truth about women and sex. I base this view now on the acknowledged fact that many-to-most boys 11 and up are finding their way into “education” from porn sites on the Internet.

            It’s fine for the churches to tell kids that premarital sex is a sin against God and tell the girls that abortions are a sin against God.
            But there is more than that to say. Exposing a girl to unintended pregnancy at a time when she is unprepared, unsupported and unsuitable for motherhood is a grave humanistic sin against another person (her.) She should not face a choice between abortion or poverty motherhood because some guy was not in control of himself and in control of the situation. We need the boys saying “no”, and/or at least the boys leading in contraception.

            Then we need completely unfettered access for the girls to emergency contraception (morning after pill in a 5-day max time window) plus access thereafter to other chemical abortion administered ASAP in the next few weeks. No woman or girl should be needing any kind of later-term procedures except in the cases of later-discovered severe fetal abnormalities. As for whether “choice” should be a matter for women or for mostly-male legislators, I firmly believe “choice” belongs with the women, period. But—as above—women should be enjoying MUCH more help from men in culture meaning MUCH fewer untimely conceptions to begin with.

            On the abortion issue, I am mad at Republicans for constantly using this to advance high-end tax cuts as do and did people such as Mike Huckabee, Ben Carson, Jeb Bush, Ted Cruz and others.
            What Republicans really deserve politically is for their opposition to abortion to have caused tens of millions of births in the poverty ranks over the last four decades—-live people who almost certainly would have voted nearly all Republicans and their economic ideas out of office for the rest of their lives. I doubt they ever think about the ironic trade-off they might have legislated against themselves, but I sometimes do.

          • M Snow

            Well, I meant you were probably kidding about LBJ as you have now agreed that he was not particularly focused on abortion as as your earlier post suggested. Yes, I also only speak for myself, not all conservatives. In fact I would say a majority of my conservative friends are pro-choice and consider the the social issues to be a massive distraction from what they really care about–national defense, crime and taxes. Of course, I live in the West, not the South, so my conservative friends tend to lean Libertarian. And, many are quite aware of the “ironic trade-off”you mention. They like it.

            I am glad to hear that you are at least considering the moral issues involved with abortion. Many of your fellow Liberals are so doctrinaire on the issue that they will go to the mat to defend abortion up to 9 months minus a day. In fact when a state senator Barack Obama even indicated he would vote against a bill that ordered doctors to provide medical care in the rare, but not non-existent, cases of accidental live births after abortion. Most people call that infanticide.

            While I certainly approve of telling young men that they have a responsibility not to get any girl pregnant when they don’t plan to raise the child, I’m not willing to let women off the hook for their part in an unwanted pregnancy. And I do believe many are quite happy to let the govt be their “husband.” Because, really, the govt may not be generous, but the govt does not demand that dinner be on the table every night when it gets home from work. Or much of anything else for that matter.

            I agree about the fetal abnormality exception, but have mixed feelings about the morning after procedures. You sound like a safe, legal, and rare guy and if most liberals gave any indication that the were working to make abortion rare, I might join in. But when they fight every reasonable restriction, such as parental notification for minor girls or late term limits for mom’s “mental health,” I just don’t believe they are trying for rare.

            I don’t see Republican’s as
            “using” this issue to promote tax and deregulation policy. The pro-lifers I know sincerely believe that life is a human right but generally also believe in limited govt. Are there some politicians that cynically use the issue? No doubt, but that happens on both sides. Remember when the Rev. Jesse Jackson was opposed to abortion? Then he decided to run for President in the Democratic Party. Suddenly he was pro-choice.

            Finally, I’m in total agreement that there is a serious lack of parental supervision to enforce what you call sexual kindness and I’d call sexual responsibility.

          • FriendlyGoat

            I had a conversation here with a church guy here the other day and reminded him that Republicans have it fixed where one CANNOT vote for their platform items of pro-life, anti-gay, school choice, anti Common Core or any other social issues they advertise without voting for high-end tax cuts and deregulation of business practices. That’s how these issues are “used”. You didn’t escape the last 40 years of American politics and you’re not escaping this one.

            I wish women were not so eager to blame women—-so you lost me with the government as a husband nonsense. You probably need to just be happy with your conservative friends. You all will undoubtedly enjoy the bash-fest set to commence for six months on Hillary Clinton’s head.

          • Jim__L

            Hi FG,

            If the GOP is the only game in town where people can vote for pro-life, pro-religion, pro-local-control, and pro-classics, doesn’t responsibility for that belong squarely with the Democrats who are violently opposed to those points of view?

          • FriendlyGoat

            Nope. There should be a Christian Republican Club that does not intentionally deceive people about the supposed virtues and benefits for citizens of high-end tax cuts, deregulation of business practices and undefined small government while selling on anti-abortion, anti-LGBT, anti-AGW and pro gun—-but there is not one that I know of.

            As for “pro-classics”, I have no idea what that is. If you Google the phrase, the top search returns appear to be related to a line of shoes.

          • Jim__L

            Common Core is not a classical education. I favor the latter.

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