Could means-testing of SSI and Medicare be pushed through?

Great Debates
61

Solid middle class incomers might or might not make out better if they invested their money elsewhere. But those making less than that, the ones we are discussing here, will not, for several reasons:

– Those making minimum wage would not see all the employer’s share of this reflected in their paycheck, unless we upped the minimum wage. Whatever your feelings on the minimum wage might be, not raising it would effectively lower the minimum wage.
– SS payments come in brackets, with the lower bracket receiving 85% of their average monthly income. This comes out to more than they would have received if they had invested 13.5% of their income at a 4% post-inflation rate of return.*
– Even this rate of return is optimistic because it may not hold true for all periods of time, and an influx of capital would lower the rate of return, since the new investment opportunities unlocked by the new capital would return less, on average, than current ones, or else someone would have invested in them already!

That said, when you get to solid middle class (around 50K of income or slightly higher), I am more agnostic about forced SS, because even with the decreased capital returns that would come with increased savings, the average return for them would be the same or even greater than SS would bring.

I would not mind a system that guaranteed an income for everyone in retirement, but capped out at 10K or so. Except for the fact that I’ve been paying for a “silver” system for 20 years of my life, and I don’t want to be suddenly be downgraded to a “bronze”.

If we started on this plan now, with a combination of cap increases, and slightly lower payroll taxes to enable more savings, and marginal decreased benefits for those making more than minimum wage, then while I would still not receive as much when I retire as SS says that I should get, the system wouldn’t chug along its merry way right up until I retire and I get hit with only getting back 70% of what the previous generation got (while paying the same in taxes).

*Yeah, I discounted Medicare. 15% of minimum wage would definitely not pay for retirement and senior medical expenses!

62

Do not call other posters “Liar” in Great Debates and this certainly qualifies as an accusation of lying.

[ /Moderating ]

63

All right, you’re still wrong.

Oliver Garland at David Frum’s blog.

HuffingtonPost: Tea Party Group Finds Tepid Support Among Conservatives For Medicare And Social Security Overhaul

Marist-McClatchy Poll: 75% of self-identified Tea Party member do not think Medicare nor Social Security should be cut. (Page 8 of the raw data)

Rolling Stone’s Matt Tabibi: The Truth About the Tea Party

Not all that hard to find.

Of course, my experience - facing down Tea Party groups in political debate at their meetings (I was a candidate, the ONLY D candidate to accept their invitation) - is anecdotal. Yet I assure you, it happened.

64

Social Security needs to be converted into a defined-contribution, variable benefit program with virtual accounts. The value of your virtual account is then converted into an annuity when you retire. The virtual account growth rate (during the investment period) will be indexed to some factor of the growth in real incomes per capita and the fixed percentage of the annuity (during the payout period) will be based on whatever the average real income growth rate per capita was over a window of time several years prior to the retirement date.

65

I just spot checked that one for accuracy, and that’s not quite right. The question that was asked was whether major cuts in SS and M should be part of the deficit reduction plan. What about “minor cuts” or just “regular ol’ cuts”? It also misses the nuance as to whether any cuts should be immediate (IOW, affecting people who are currently dependent on those programs) or in the future (affecting people able to plan for such cuts a decade or so out there).

66

Further (and I’m not saying you do this, Jonathan), it’s popular around here to call people hypocrites if they draw SS, but want to reduce or eliminate it. But a lot of people feel that since they paid into the damn program all their lives, they’re entitled to get something out of it, even if they would prefer that we had a different program in place. Not to mention that the idea of cutting SS benefits feeds into the notion that we were tricked all along by the government.

So, one might rationally consider that a long term fix is needed, included reducing benefits with added incentives for private savings, while maintaining that people currently receiving benefits should not be affected. That was, in fact, GWB’s so-called “privatization plan” for SS.

67

Flash! Medicare is already means tested.

Premiums for Medicare Part B are indexed by income and can be up to triple the standard rate. Part D premiums are indexed as well.

www.socialsecurity.gov/pubs/EN-05-10536.pdf

68

I hear you but I just hear too many people who feel like return on equities are almost guaranteed to exceed bonds over any reasonably long period of time.

Do you know how long it took to recover your money in the stock market after the crash of 1929? It wasn’t 5 or 10 years, it was something like 35 years before the Dow made new highs after 1929 in real dollars. It was significantly longer than that for the Dow to exceed the risk free rate.

I’m not saying don’t invest in equities but the notion of rolling the dice with the national pension system seems a bit short sighted.

OR we could keep it the way it is. It sounds like you just want to skin the cat a bit differently and have a less progressive payout.

69

As usual, it’s very important to distinguish between the gullible and the gullers. The gullers know exactly why investing SS funds in the stock market is good for them.

70

The system I proposed actually adjusts as population does, which is something that doesn’t happen with social security. It also has clear-cut rewards for the longer you work, because the longer you work the larger your virtual account is. Social security as it is structured can (and it is highly situational) incentivize not working. There are some people who for example would probably continue to work (because they enjoy it) past age 65 but take retirement because they feel they are “leaving something on the table” if they don’t.

71

You seem to be getting rid of progressivity in the payout. Maybe I’ve got that wrong. BTW, I am pretty sure that social security is already indexed. I am also pretty sure that you can collect social security while you are working, just ask any Wal mart greeter. Sure there are situations where you would retire because the extra money wouldn’t be worth it but then you are talking about a category of “sitational” that is fairly rare.

http://www.ssa.gov/retire2/whileworking.htm

72

I have no idea what you mean by “progressive payout.”

Many people will have earned enough quarters of work at a certain rate to hit capped SS payouts of like $22k/year or whatever in retirement 15 years before they retire. Under my proposal (which is just a straight copy of the Swedish retirement system btw), your annuity grows the more you earn, so there is no cap to how big you can make it by continuing to work. With SS most people are already hard capped, or capped as high as they will ever get with their realistic earning potential, before they ever reach 62/65/67, so they have no incentive to continue working to build their benefit any larger. Since the payout is based on, I believe, highest average 35 quarters, logically if you hit the maximum wage base for 35 quarters then you get maximum benefit and there is no social security incentive to work one more moment (and in fact every quarter you work additional to that you’re paying a tax for which you can mathematically receive no benefit.) Even for someone making $35k/year, if they are 65 and have worked for 40 years at a roughly equivalent (inflation adjusted) wage, then realistically they’ve already got in their 35 highest quarters too–and thus have no benefit from continued work.

73

Actually, the maximum benefit for 2013 age 66 is closer to $30K per year. Cite.

Also, there is an incentive to keep working since you eliminate lower compensated years and have a higher total earnings in the 35 quarters used for the calculation here (pdf).

74

Minimal benefit, it only makes sense if you are making substantially more right now than you were in your lowest benefit quarters. The simple fact is there is a straight line, significant improvement in your benefit for every dollar earned under the system I’ve proposed.

Under Social Security it’s, “well, if you divided the 35 highest earning quarters, and one of them is the current quarter, then you’re helping your payout a bit.” That’s not much motivation–and for many people it will be no motivation at all if they are already capped out or if they have not really moved up very much over time in terms of income. Not everyone who has made $35k the last 5 years can just decide at 65 it’s time to double their salary to $70k.