Should Social Security be means tested?

Great Debates
1

I read in an old SF Chronicle article by Herb Caen about a weathy socialite, who got her 1st SS check & blew it on a case of champagne for her freinds at her bar. Now, that’s a lifeboat case, but why should we pay aid to the rich? Now, I am defining “rich” here as an Adjusted Gross Income (AGI) of over $100,000. If we cut out this aid to the wealthy, none would go hungry, few would even recognize it, and it would stave off the Collapse by about a decade (just guessing based on US Treasury figs). Even better, it would stave off a drastic increase in FICA we should see proposed soon.

Now, I know you’re saying “Well, we/they paid IN, so we/they should be able to get $$ out”. First, the “paying in” is about 10% of the “paying out”. Next, you “pay in” to FUTA ( unemployment) and you get that based on need/means and on qualification. You can’t get FUTA if you fail the means test, no matter how much you paid in. (Or maybe we could limit the “paid out” to wealthy to = (on a monthly basis)what they paid in.)

Now, suggesting this would be political suicide. Seniors vote, we don’t (as much), and the Politicians buy the Senior votes with our $$. But let’s argue it anyway.

2

This is the problem with “one size fits all” social insurance systems: unintended bad consequences that are politically impossible to eliminate. Here is another as it relates to SS - benefits are paid out only after you reach the retirement age (currently you can begin receiving reduced benefits at 62, with full benefits at age 67, IIRC). If you look at life expectancy statistics, you’ll find that the better off you are financially, the longer you will live; therefore, the more benefits you will take from SS. The system is built so that the more likely you need the benefits due to your economic circumstances, the less likely you will ever receive them.

3

Unless I am misreading this claim (certainly possible), I don’t believe this is true at all. From what I’ve read, I can expect a 1-2% return at most on what I pay into SS. And that is only if the pyramid doesn’t collapse. Actually, I have no faith that I will ever see any of my money back once I hit retirement age.

To answer the OP, no, I don’t feel SS should be means-tested. I didn’t contrive this Ponzi scheme, but I’ll be damned if I sit back quietly after paying into it for 40+ years and then have someone say that I’ve worked too hard to be eligible to at least get my money back while some slack-jawed loser cashes checks that I helped write.

4

No. If social security becomes means tested, it loses its social base,i.e., becomes a program for the poor. Middle class support would evaporate, making the program vulnerable to the machinations of demogogic politicians.

5

Frankly, the moment they decide that SS is going to be given out as “need based” aid as opposed to money you have coming to you because you already paid into it, what stops anyone from saying, “Well, my daddy is rich and I am in school where even if I don’t make good money for my profession, I’m still putting more in my 401k plan than some people make. As such, I do not want to pay any Social Security, knowing full well I forfeit my right and ability to get it back when I retire.”

Now sure, this person might be taking a risk. But one they are prepared to take, and one with little risk according to them.

Like it or not, if we are saying everyone has to put in, I think it’s only fair that everyone get out. If I happen to be well-off when I retire and don’t need my SS money, I’ll give it to charity.

Yer pal,
Satan

I HAVE BEEN SMOKE-FREE FOR:
One month, one week, two days, 12 hours, 18 minutes and 4 seconds.
1580 cigarettes not smoked, saving $197.56.
Life saved: 5 days, 11 hours, 40 minutes.

6

The “pyramid” is not going to “collapse.” Whether you desire SS reform of a special type or not, statements such as “I have no faith that I will ever see any of my money back once I hit retirement age” are simply ignorant.

The following reflects 1999 info, the latest I have handy. Last year’s economy pushed these years somewhat further in the future. Unfortunately, it also made it more possible for politicians to ignore this issue.

-Current taxes collected exceed what is needed for benefit payments. The excess goes into the trust fund, which earns interest.
-SS income from taxes will exceed benefits paid through approx 2011.
-Thereafter, benefit payments exceed tax collections.
-From 2012 through 2018, taxable income plus interest earned on trust funds is sufficient to pay all benefits due.
-From 2019-2028, taxable income plus the actual trust funds is sufficient to pay benefits.
-In 2029, trust fund reserves are expected to be depleted, and SS will not have enough to meet all of its financial obligations.

This does not mean SS will be BROKE in 2029.
If NOTHING is done to reform SS (which no one is advocating), incoming taxes will be sufficient to cover approximately 75% of benefits due. Sure, it may not be everything you expect, but is is significantly more than nothing.

Second point - payback time. Sure, if you had the opportunity to invest your SS contribution yourself, and did so consistently and wisely, and avoided disability or early death, you could have done better than you will get from SS. Depending on your income level, and the economic assumptions you chose, the internal rate of return is calculated around 1.7%. Payback times vary. For an average income worker born in 1949 and retiring in 2015, it will take 30 months to earn back what he paid in, and 137 months to earn taxes and interest. For low income individuals the times are 22 and 111 months respectively, and high income is 45 and 229. Of course this considers only the worker’s contribution.

Just thought these figures might add to the discussion.

Don’t forget, SS is more than a retirement savings plan. If you become disabled tomorrow, you start drawing right away. If you die, your survivors get benefits. And it is skewed to give more to those with less.

I certainly don’t want to sound like a jingoistic supported to SS, but I have little sympathy for folks who are very successful saying, “Darn it, I should have more.” SS is one element of what make our country such a great place to live. At some point taxes become excessive, yes. But also, at some point, a person is earning enough that I don’t have too much sympathy for their complaints of excessive taxation.

And to those who say, don’t change the rules in the middle of the game, the rules have changed throughout the history of SS. Unfortunately, until now converage has been consistently expanded. But the rules are not written in stone.

I’ll stop now.

7

I like the Costello sig, spiny one.

Means testing has an upside and a downside. The upside is that funds do not go to those who do not “need” help.

The downside is the disincentive effect of implicit taxation over the range of withdrawal of the benefit.

Suppose the phaseout range begins at $100 a week and that the benefit is clawed back at 50c in the dollar. This means that over that range the individual faces an effective tax rate of 50% + the personal and consumption tax rates. If you look at means tested welfare systems (Australia and NZ are particularly keen on them) you find that people on quite low earnings face an effective tax rate of 80-90%.

This is the poverty trap effect of means testing. Withdrawing assistance beyond a certain income level can make it more difficult to escape poverty.

picmr

8

Dinsdale, You may think that my lack of faith in a government program is “ignorant.” However, that is what I believe. I admire people who have so much faith in our goverment to feel secure about the status or solvency of a program decades into the future.

About the so-called “trust fund.” Here are but a few thoughts I found with a search: (bolding mine)

from http://www.heritage.org/library/backgrounder/bg1256es.html

Also

Jack Anderson
The State Journal-Register (Springfield, IL)
December 18, 1996

David Brinkley
“This Week with David Brinkley” (ABC News)
August 16, 1992

Erik Eckholm
The New York Times
August 30, 1992

Michael Kinsley
“Crossfire” (CNN)
February 1, 1993

Charles Krauthammer
The Washington Post
March 13, 1995

Also, Dinsdale maybe you do not quite understand my meaning when I use the term “pyramid.” A pyramid scheme needs an ever-widening base of cash inflow to prop up (i.e., monetarily support) the upper levels. Since there are ever more older folks drawing out SS, there has to be a larger and larger base.

Population replacement rates in this country will not allow this to continue. Hence, my contention that eventually this pyramid will collapse. All such schemes eventually do. I do realize the debate lies in what changes are necessary in the program; not chugging along like we are with little to no worry. I do think the rules have to be changed, and I don’t have any easy answers. But I will have more to say on this once I get home from work.

You’ll have to help me out here. My father died last month. I would consider myself his survivor. I get none of his SS money. My stepmother, also, would be considered a survivor. Is she entitled to his SS? We have been advised that she is not. Have we been misinformed? She is 57.

And I still contend that when I retire, I most likely will not see anything close to what I put in. Best-case scenario? Maybe 2% above. Believe me, if I can get 2%, I’ll be ecstatic.

9

I used “ignorance” simply to convey “lacking in knowledge.” SS simply will not run dry? Will it be unable to meet 100% of it’s obligations if nothing is done? Certainly. Any time I hear someone say they don’t think they will ever get a dime from SS, I suspect they are lacking knowledge of relevant facts, which I believe strongly otherwise. Certainly believe whatever you wish, however.

Concerning worthless IOUs, I am unsure why the treasury bonds representing investment of the SS trust funds are considered more worthless than those held by you or me. I thought such securities were generally considered on the safe and secure side. Full faith and credit and whatnot. An argument could certainly be made that some of your sources have reasons to use hyperbole. I tried to simply provide some numbers. Yes, those numbers came from government publications. And of course, all such projections depend upon the economuic assumptions you choose.

Re survivors: for you, most likely only if you are a child, or young adult enrolled in qualifying school program. For your stepmother, depends on her age, health, and other factors. See 20 C.F.R. § 404.330 et. seq. for both.
Better yet, call your local SS office. Or call 1-800-772-1213. And ask about the lump sum death benefit while you are at it.

10

A pox upon me for my execrable typing and proofing. Please replace the 1st “?” with “!” or “.”. 2d to last sentence in 1st par should end “strongly suggest otherwise.”

Awareness of one’s shortcomings is a requisite first step towards overcoming them. But should one fail to do so after having become aware …

11

PICMR: you have a good point, re the ‘downside’. This is why I suggested the “cap” at $100,000. Nobody at that level is “clawing their way out of poverty”. I admit, $100000 is not filthy stinking rich, but you’re not eating cat food by a long shot. :smiley:

DINSDALE: thanks for the stats, nice post :cool:

12

So can I assume you plan to burn down your house, murder your wife and drive your car off a bridge to get back all that money you’ve paid into homeowners, life and automobile insurance?

13

Life insurance is my choice. Likewise I could choose to insure my home against fire, flood, or whatever if I wanted. Insuring the value of my car is also my perogative.

No one asked me if I wanted 7.5% of my pay collected from me for social security. I have no choice, no matter how hard I try to convince someone that I could put this money to better use for my future.

Now, I realize that my 7.5% is not going into an account to provide for my future, but rather for the security of others who will receive it; and that it will be up to the funds of others to provide my social security when it comes time.

I also do not want this reply to suggest that I think the concept of social security is wrong. Only that if I am forced to pay into a program that obstensively provides for old folks (and some others); well, then when I become an old folk, I want the return. Call me greedy I guess.

14

Danielinthewolvesden: there are two problems with setting the cap at $100 000: first, although it might prevent the odd splurge on cases of champagne, it is not going to save much money. Second, at this income level it tends to be possible to rearrange income through various devices (private companies, discretionary trusts and so on) to make taxable income appear lower. Means testing increases the incentive to do this. But certainly, the higher the cap, the less the downside.

Incidentally, whilst it too much to call these sorts of schemes a fraud, there are serious questions about viability. There is nothing inherently unsound about paying current liabilities out of current contributions and positing that projected contributions will service future outlays.

It is not clear however, that current intergenerational transfer systems (I have only a passing familiarity with yours) can continue to work. This is particularly the case in health care, where spending on the elderly is increasing rapidly. The problem is that there is both a demographic “spike” approaching and that justifiable medical spending on that group is increasing rapidly.

Sooner or later, the young will refuse to participate if they see that the numbers won’t still add up when they are old. Then there will be a very nasty crunch. The question is whether the hard decisions to prevent this will be taken. Improvements in government accounting standards since the Reagan era give some hope.

picmr

15

Not true, actually. In most states, automobile insurance is required. Also, try buying a house without having to have some degree of homeowners insurance on it until its paid off. And unless you have the money floating around to buy a house with cash, you are paying off your property for 40 years or so.

So, yes, you are required to have insurance for your automobile in most states, and there’s not a financer around who will give you financing for your house unless you consent to insuring it under the terms of the contract (and that might be a law as well for all I know).

On the bright side, you don’t have to kill your wife, since life insurance is not mandatory…

Yer pal,
Satan

I HAVE BEEN SMOKE-FREE FOR:
One month, one week, three days, 13 hours, 13 minutes and 53 seconds.
1622 cigarettes not smoked, saving $202.75.
Life saved: 5 days, 15 hours, 10 minutes.

16

.

In no state I am aware of is one required to insure the value of one’s automobile. That is how I stated my original point precisely. I was referring to a previous comment comparing SS to “driving my car off a bridge” which to me would entail insurance against a loss of property.

As far as homeowner’s insurance goes, I’ll will have to admit some ignorance. I have never owned a house. I was aware that mortgage insurance was required in many instances, but not a homeowner’s policy. What about all those people who lose their homes to tornados, floods, earthquakes, etc? I always felt sorry for them for their losses. The Federal Government seems to come around with the grants and low-interest loans in many cases. Are you telling me these people have insurance on their losses? As a homeowner, I am required to have insurance? What does it cover if not the above Acts of God? Please enlighten.

I should have been an homeowner’s insurance agent. Imagine a business where it is against the law not to make use of my services. Talk about a repression-proof guarantee!