Allan Sloan, semi-retired from the Washington Post wrote a report today entitled "Soaking the 'rich' won't fix Social Security." In it he announces that he is "launching what I hope will become a series of Social Security truth-teller articles." He poses himself as in the obviously Very Serious Center between "conservatives [who] agitate to cut benefits and liberals [who] agitate to raise them." Unfortunately his first outing makes it look like he is engaging more in truthiness like so many other VSPs at WaPo whom he seems to be joining, such as Fred Hiatt, Robert J. Samuelson, and Ruth Marcus, all of whom regularly bloviate obsessively on all the things that should be done to Social Security because it is so awful and messed up. Sloan appears to be joining their Truthiness Gang.
His targets in this article are Chris Christie on the right who wants to reduce benefits for those earning over $80,000 per year, with those earning over $200,000, and Elizabeth Warren on the left, who wants to raise benefits and also raise the maximum wage cap for paying the fica, currently at $118,500. What has him really steamed is a general idea he claims they both share that "the rich" are getting too sweet a deal out of Social Security as of now.
His evidence in his "fact-filled" report for this is an estimate he had done by Social Security actuaries on his and his wfe's own situation, with them having been at the max wage cap for 35 years. Apparently according to this, no details on how this was calculated, the current value of their future [expected] benefits is only 75% of what they paid in, with this lowered further by his working longer and having in the future to pay taxes on his benefits. While one could argue about this calculation, I shall not do so. Let this be his big fact from which he argues that "the rich," or those whose wage incomes exceed the max wage and thus do not pay more in fica than anybody else at the max wage or above, are actually getting the shaft.
Now, I shall give him credit that in fact he agrees that it is not unreasonable that the Social Security system be on net a moderately progressive system, taking account of both taxes and benefits, and in fact this has been known for decades based on studies by people like my major professor, Eugene Smolensky and others dating back at least to the 1970s and re-confirmed since. This is not really news, even if Sloan thinks it is.
The problem comes later, in particular when he conflates in the end the political bottom line of what Christie and Warren propose. His final paragraph declares, "Either of these turns Social Security from an earned benefit that is subtly means-tested into welfare. And we all know what tends to happen to welfare in this country." Ooops!
Clearly what is involved here is a matter of perception above all, and on how Christie's proposal will be perceived, simply paying no benefits at all to people above a certain income level, that is indeed how it will be perceived: that Social Security will have become "welfare." Indeed, this is why liberals have consistently opposed doing that, with it not at all surprising that is someone on the right, even if on the center-right, who has put this forward. It is a recipe for draining support from the program over time.
But the proposal of Warren, with or without a benefits increase, and with or without some general lowering of the fica tax rate that could be done if the max wage cap is raised so as to still make at least current revenues, does not lead to that outcome. As Sloan admits, the program already is mildly progressive, and thus if one wishes to push it, already sort of a "welfare" program. But it is not perceived as such. Yes, raising the cap, whatever else is done, pushes the program more in that direction, makes it more progressive, more of a welfare program, but does not fundamentally and qualitatively change it from what it is now. I would contend, and I really do not see how Sloan can claim otherwise, as long as higher income people get the benefits that they have always gotten, with no reduction in that for them, I doubt that many of them will view Social Security as having become a "welfare program." They may not like the tax hike and oppose it, but as long as they get those benefits, they will not call it a welfare program because they are getting those benefits, and if there is anything a rich person does not like being called, it is a welfare recipient.
Sloan is going to have to do better than this if he is going to avoid simply being another member of the pathetic and egregious WaPo Social Security Truthiness Gang.
Barkley Rosser
So,
Studies from the 1970s are irrelevant at best and intentionally misleading at worst. At that time, everyone made money - a lot of it. The cap was less than the median income.
ReplyDeleteToday is very different. To suggest that higher income people get the benefits that they have always gotten is laughable. People now ON AVERAGE get a negative return - according to Urban Institute and SSA.
That is not the intent of Social Security. That isn't social insurance. It has become welfare for some, mainly retirees up to the early 00s. Now we are trying to figure out who will pay the cost of the welfare transfer.
The problem with Sloan's commentary is that his comparison using investment adjusted dollars. Absent SS, he could have invested those dollars, yes. But SS didn't invest the dollars. That money was used to pay-off existing retirees.
At 75% he can say that SS has been a bad deal for himself. At more than 2 to 1, he is a bad deal for Social Security.
Joe studies that show a negative return generally discount the lifetime insurance benefits to zero, apparently on the grounds that they were never claimed. But this is ridiculous, presumedly prudent worker/investors would in many cases have taken steps to provide alternative survivor's insurance which in turn would have reduced the amount they had available to invest in higher risk/higher return instruments.
ReplyDeleteSecond the devil is in the details. My recollection is that a lot of those Reports compare the ROI based on first month return from the difference between a theoretical nest egg made up of contributions plus an implied ROI and Social Security. But don't actually include the price it would take to convert that nest egg into an inflation protected lifetime annuity. Perhaps the studies you allude to don't make this point. But since you don't provide citations it is not like you can challenge my own claim here.
And Joe anyone who claims that "everyone made money" in the 1970s either didn't life through those times or did so in a bubble. Perhaps in a back room in the Hamptons. Certainly not in major urban areas or in most of rural America.
ReplyDeleteAs to your empirical claim. Here is a table of income caps: http://www.ssa.gov/oact/cola/cbb.html
I am having difficulty finding numbers from the 70's but this table showing both average and median net compensation still at a lower level in 1990 than the cap numbers in the 1970s, and by significant amounts.
http://www.ssa.gov/oact/cola/central.html
Got some better side by side numbers?