Guest post: Why Means Testing Social Security Benefits Is More Trouble Than It’s Worth
Guest post by Nancy Ortiz
(Rdan here…Nancy is a long time reader of Angry Bear and has worked within the Social Security system professionally)
One of the many fixes now being considered as a remedy for Social Security and Medicare’s projected shortfalls is means testing benefits. The rationale is that rich people shouldn’t get SS because “they don’t need it.” Many people who ought to know better believe this would save a great deal of money and help fix the 2037 benefit gap. Sorry, people. This idea isn’t worth the paper it’s rotten on (as Dorothy Parker once said about someone else’s screen play). The short and long of it is that it costs more to means test benefits than to pay SS benefits without regard to the beneficiary’s income and assets.
How do I know this is true? The Social Security Administration (SSA) administers two programs: the basic SS program and Supplemental Security Income (SSI), a means-tested federal public assistance program for poor aged, blind and disabled people. You have to have worked 40 quarters to receive SS, but no work is required for SSI. It is a “welfare” program, not a social insurance program. SSI began on Jan. 1, 1974. In the intervening years, SSA has had plenty of experience trying to run this complex and challenging program. It has learned that SSI costs at least 7 times more dollar for dollar to administer than its regular SS program.
There are many reasons. The federal government establishes overall SSI eligibility and payment levels, but each state can pay optional amounts over and above those required by federal law. In effect, there are 50 different SSI programs across the country. Earlier this week, CBS ran an article online with an account of a House Ways and Means Committee hearing about SSA’s improper benefit payments. Here’s the link. http://www.cbsnews.com/stories/2011/06/14/in_depth_us/main20071107.shtml
SSA was third in the list of federal agencies making improper payments to its beneficiaries and recipients. The first two in order were DHHS (Medicare, Medicaid, and TANF with $71.4 billion ) and DOL (Unemployment benefits $17.5 billion). DOD is not mentioned in this article presumably because the amount of DOD’s improper payments cannot be determined. SSA’s total was $8 billion, including $4 billion in improper SSI payments, out of a total of $650 billion in benefits paid for all programs.
Congress has underfunded SSA since the 1980’s, sometimes more– sometimes less, but consistently for at least 30 years. The agency is understaffed as a result. This has produced a 10% error rate in SSI payments as compared to a .05% error rate in SS benefits. This is because SSI is very labor intensive. The recipients are poor, often functionally or completely illiterate, and don’t speak English well or at all. Interviews are longer, the topics covered more complex, the documentation requirements much more extensive than in the SS program. Furthermore, you have to reinterview recipients frequently to be sure they’re still eligible. So, not only is it harder to process the claims to begin with but also you have to do the work all over again every year. If you don’t have the staff, you can’t do the work fast enough or accurately enough to produce a low error rate.
SSA’s Inspector General summed up the state of SSA’s efforts to improve payment accuracy in his statement for the record at Ways and Means’ hearing. See http://waysandmeans.house.gov/UploadedFiles/ocarrol222.pdf SSA plans to spend $796M on quality control in 2011 and at least as much in 2012, budget permitting. This includes local office and end-of-line quality reviews, studies to determine causes of error, costs for computer matches in-house and out-of-house, Continuing Disability Reviews, redeterminations of eligibility, and the like. There are many more ways to reduce payment errors. But they cost more money than the ones listed above.
In SSI or any other means-tested program today, all income and any assets, no matter how small in dollar or market value, have to be reported. Any change in stated income and assets must be reported, recorded and verified. If the parents of a disabled child work, for example, they have to report all changes in their income whenever they occur. People who enter or leave the household cause a change in the payment level. Gifts of money or determinable value can reduce payments. Ownership of real estate other than a principle residence also count against the asset limit of $2000.00 for an individual ($3000.00 for a couple). So, if the recipient is a tenant in common in real estate having a value over the limit, s/he is ineligible. This is common in intestate estates in which numerous relatives may have a share in unmarketable rural property. I could go on, but your eyes are already glazing over.
The obvious response is to say that means testing SS could be designed in such a way as to get around these problems. But, the fact is that the limits set on income and assets are absolute dollar limits not subject to waiver or tolerances. So, means testing means one thing and one thing only. You have to check and recheck everything that affects eligibility every year for every eligible person. And, that takes staff which costs money. About 50 million people receive SS and SSI benefits. I cannot even guess what it would cost to handle that many new eligibility determinations. We must look elsewhere to find a fix for the coming SS benefit gap.
Means testing is ridiculous. What we should do is tax at reasonable rates so that the benefit of SocSec disappears at a given income level, through simple income taxes. This is how many benefits are administered in Europe: give them to everyone, and adjust the tax rates so that those who don’t need them pay enough taxes to recover them (indirectly). Our desire to identify and stigmatize poor people drives our ability to think right out the window. Also our desire to protect and coddle the wealthy….
Carolannie
We already do that. We tax benefits when overall income is above a certain amount. The tax does not confiscate the benefits but taxes them as part of ordinary income. Seems to me to work reasonably well.
The point about Social Security is that it is insurance, not welfare. You don’t know when you are paying your “premium” if you are going to be one of those who needs a little boost at the end of your career in order to have “enough” to retire on. Or if you are going to be one of those who does not. Your premium will go then, as in all insurance programs, to pay the costs of those who have the “insured event” (too poor to retire.) You never lose your whole premium… just some of the interest you “might have” earned on it. Even the richest workers get back in benefits as much as they paid in with an effective interest enough to cover inflation and equal the average growth in the economy over the years they have been paying the premium. The poorest workers get a great deal more than they could have “earned” on the market. The money comes from the growth in the economy. It’s no different from investing in a stock, really, except that the “company” you are investing in is The United States of America, and the USA is not going broke, whatever the lying politicians tell you.
Personally i think it’s a beautiful system. i wouldn’t mind people arguing about it if they think they can do better, but the fact is that the enemies of social security don’t argue, they LIe. And of course there are always the well meaning souls who have made money “on the market” and are sure that “everybody can.” Their arguments never withstand serious scrutiny, but are somewhat dangerous because most people are not capable of serious scrutiny.
Meanwhile the “fix” for Social Security’s projected shortfall is a simple raise in the premium to cover the projected greater costs due to longer life expectancy. That raise in the premium would amount to forty cents per week every year while wages are projected to rise about ten dollars per week every year over the same time.
This cost is so low no one would ever notice it… without the Big Liars screaming that it is a huge burden that will crush the young.
forty cents per week.
Thanks again Coberly. Even if I am not entirely convinced on the 40 cents a week, it is obvious that social security is a great and needed system and the idea of tweaking it by means testing or whatever is just part of the long run plan to kill it. Unfortunately, too many otherwise good hearted and sensible people fall into that trap. Dumbya’s tax cuts heavily favored the rich, but because a few crumbs were distributed to those with less income, our president could not just let them all expire last year and hence the mess we now have. Similarly, for very little aid to the economy, they further undercut social security’s financing with the partial payroll tax holiday that some are talking about extending. Once you means tests social security you have the beginning of the end.
Hmmm. What about a negative income tax for seniors?
Nancy,
Also, I don’t think people realize how far down into the benefits one would need to go to have the effect people seem to assume. So since an impactful level of wealth would be in a lower level than people presume, how do you measure middle class wealth which is not the same as income but is often income set aside to survive 30 years or more?
Assuming we are trying to “fix” SS by means testing and that, in order to means test at the level required to make a dent in the “long term”:
1) It is hard to see how to means test retirees anyway.
How much wealthier is a person who has a long term care policy or whose spouse has them as beneficiary on a life insurance policy? (Note if people who were not eligible for long term care or who dropped it because it became affordable or decided to “self-insure” were means tested for SS, they would drain their saving faster and shift the means test for SS to Medicaid if they end up in a long term care situation.)
How much wealthier is a person who has a defined pension? (Note that there is great disagreement as to how to assess the future value of a pension. Yes, I know you can choose assumptions and do it.)
How much wealthier is a person with a ex-employer subsidized health insurance policy? (Since this is a large part of a retiree’s income, it is relevant but it is also subject to numerous changes.)
Is a person with $1M between this person and their spouse, both with a defined pension wealthier than this person with one defined pension? No defined pension? (Eligibility for Medicaid is a household wealth test. Because of this one spouse can go from comfortable to poor in a few months or years.)
What is the value of a non-cola-ed pension vs. a cola-ed pension?
Would homes be wealth/means? If not, should I buy a more expensive house to shelter more income? (I won’t get into state and local tax disparities.)
2)And questions of hazard.
What is the cost of each dollar saved in retirement savings when it contributes to a reduction of SS benefits?
Should employers terminate all benefits and shift the costs to SS if providing these benefits results in employees above a certain income losing much of their SS?
3)Wouldn’t support for a SS system be weakened if people at and mid-way under under the “cap” knew they were paying for practically nothing other than to pay for low income retirees when people much richer paid into the “welfare” system as a progressively lower rate the higher their income over the cap?
You see, I cannot see that the call for means testing is anything other than an assumption that it would only affect the secure rich and not affect the insecure rich who are actuarially not rich at all unless they die early. People who are under siege do not appreciate the unintended consequences of pursuit of a Lenin […]
Terry
no need to doubt the forty cents. look up CBO’s “options for Social SEcurity. read option number three carefully. “raise the tax 3% over 60 years. that is one half of one tenth of one percent per year. one half of one tenth of one percent of an average workers pay today is forty cents per week.
yes the amount grows over time, but so do wages. the worker would see about a ten dollar raise every year, and out of that he’d have to pay an extra forty cents for his own social security… that’s so he can live longer in retirement at a replacement rate that is a fair measure of his own contribution to the rising standard of living that his neighbors enjoy, that he had before retirement, and that he paid for with his own money.
oh, god, min.
please not another “good idea.” forty cents per week per year will cover it. why play games?
Ah Anna,
aren’t you looking forward to your yearly visit to the government proctologist who will examine your assets?
Well, what do you mean “seniors”? And, how much would this neg income tax be and who would get it? What would the income limit be and what kind of income would count? And, you’re off to the races as I showed in my post. NancyO
“SSI is very labor intensive. The recipients are poor, often functionally or completely illiterate”
I am not supporting means testing, but I think that SSI administrative costs would likely significantly overstate the costs for means testing.
My knickers are off limits.
You know, in the abstract, it would be interesting how they answered these questions, if they did.
DI is means tested already. You have to be broke to apply.
The question is could means testing be implemented on high income workers to limit or eliminate OAS benefits. I can’t see why not as a practical matter. It is reported on IRS data. If one’s earned AND unearned income AND tax preference items exceed X, then benefits are reduced.
You may not like a means test for OAS. We can agure about that. But the idea that it could not be measured, well, that’s flat wrong.
Yep, Anna Lee. And that doesn’t even touch the assessments of wealth that could be made. The upper 1 and 2% of all earners number only a few hundred thousand individuals. Do we want them to pay more tax and then not benefit from their greater tax burden? If they don’t like SS now, imagine how they’d react to that change.
There are many more people who earn above average salaries up to around $300K (let’s say) and may not have much in the way of other resources. If they pay more taxes, shouldn’t they get the benefit of their advanced (and expensive degrees), special training, or success in self-employment with a higher SS benefit just like others who earned less? Raising the FICA cap doesn’t raise enough money and produces unfair outcomes.
Anna’s right when she says that this sensible sounding remedy would do more harm than good to the very people who think they’d be unaffected by it. But the greater harm would be to the idea underlying SS and its success as a long lasting, well administered program. People understand they pay in and they get what they paid for. The system is based on that most American notion of working hard and playing by the rules. You can’t improve on that with means testing or messing with the basic formula for benefits.
Coberly’s suggestion we pay more tax for higher benefits would work, is simple, easy to understand, and perfectly fair. So, why doesn’t it get more attention? You don’t suppose some people would like to see SS disappear, do you? 😉 NancyO
Arne–I ordinarily defer to your greater experience and knowledge of SS’s underlying financial structure. But, I have 32 years of experience that tell me otherwise in regard to means-tested programs. They are an administrative nightmare and cannot be made simple to administer. NancyO
BK–First, regarding eligibility for SS Disability Benefits under Title II of the Act, there is no income or assets test for eligibility. You must have stopped work because your medically determinable disease, injury or condition has made it impossible for you to work. This condition must be expected to last at least one year or be expected to result in death. Means testing has nothing to do with it.
Second, consider this hypothetical. Suppose your wife becomes terminally ill in the middle of the year, you spend every nickle on her medical expenses and you are left with nothing? What would SSA say to such a person? How about, “Sorry, you started the year with too much money so we can’t give you the SS you paid for. Oh, I see here that you live in a house that’s worth more than our asset limit for houses and you’re not eligible for SSI or other benefits, either.”
Without regard to how easy such standards would be to design, do you think that such a program would produce morally acceptable results? As I have previously said, those who have no experience in administering SS and SSI think this idea is a piece of cake. It just isn’t. NancyO
Arne and Krasting
first, DI is a nightmare. It should be separated from OASI so we could talk sensibly about each of them on their own terms.
second, it can always be measured… but at what cost in money and human aggravation. Otherwise it will just be gamed, and once again the dishonest and those with good lawyers and accountants will save a few bucks while the poor are walked on.
meanwhile there is no need. raising the payroll tax one half of one tenth of one percent per year solves the problem forever.
that’s forty cents per week, or have i already said that?
or you could think of it as taking twenty years to raise the tax by one percent. or forty years before the average worker would see an extra one percent deducted from his paycheck… while his after tax income will have grown by at least 50%.
and mostly,
means testing turns SS into welfare as we knew it. and we know how that story ends.
SS is an insurance program for workers paid for by workers. Even the rich get back the money they put in while the poor… and we never know which we will be… get back “enough” for a basic retirement. “Enough” is so much more than “not enough.”
Means testing is just another way of killing Social Security which is what the lying bastards have wanted to do since 1936. They can’t stand the idea that ordinary people can save up enough of their own money to be able to retire and enjoy a few years of not having to say “yes, boss. will that be all, boss.”
Because of the way SS is counted in taxable income don’t we, for all practical purposes, already have a form of means testing of SS?
The level of taxation may not be as high as some would like, but the tax of SS income for people with higher incomes is still a form of means testing.
Krasting you are wrong. Again. You don’t have to be broke to claim DI, you have to be unemployable. Now there are complications in that people in occupations in information intensive fields might have a hard problem proving that, after all Steven Hawking makes a pretty reasonable income, but DI is not specifically income or asset based.
Plus your argument totally ignores Nancy’s post. Again. The big problem is accounting for assets that are not taxed until sold. I could have a billion dollar collection of art and not have a penny of its value show up in IRS data. And means testing would be a positive incentive to sheltering assets in precisely that fashion. Not to mention the encouragement to gold bugs/apocalypse soon folk, how are you going to audit those hidden supplies of bullion, bullets and bully beef?
On the whole we would all be better served if you just changed your screen name to ‘Flat Wrong’. More informative to us, less embarrassing to you.
Dale let me save people the trouble. Summary and links to Social Security Policy Options from the CBO Director’s Blog:
http://cboblog.cbo.gov/?p=1142
Angry Bear analysis by some guy:
http://www.angrybearblog.com/2010/07/cbo-scores-social-security-policy.html
Key graphic:
http://2.bp.blogspot.com/_fjW71B3WLTQ/TC3Bs2undtI/AAAAAAAAAYI/PQiTSfBitWo/s1600/CBO-SS+options+Fig+1.jpg
Scores as a percentage of 75 year GDP where 0.6% is CBO’s estimate of the current actuarial gap (SSA would have it up a little higher at 0.7%).
And a tiny correction to Dale. Option 3 only scores at 0.5%. So you might need to add a dime to that 40 cents to make up the difference.
I defer to Nancy’s expertise and experience on the nightmare it must be to administer means testing. I can easily do this as I have a relative who was a recipient of a means tested program for a few years. It’s a nightmare for the recipients. To paraphrase coberly, it’s like a visit to a government proctologist – but in some cases, it’s every 3 months.
The wealthy can, and do, manipulate their income and assets to retain/obtain the highest return. The poor sometimes can, and do, manipulate same. The difference is in how, and why. It’s much easier for the wealthy to hide assets and income – and any hassles associated with that are handled by paid lawyers, accountants, advisers, etc. Means testing on income only is the easiest of all for the wealthy to avoid.
Even setting all of that aside, as others have said, SS is already subject to taxation depending on income… and that kicks in at levels that might be high for a majority of SS recipients, but isn’t all that high compared to current average workers’ incomes.
Most importantly, the insurance concept is what makes SS work. Means testing destroys that concept and will ultimately destroy SS. Coberly expresses that much better than I do, but I continue to practice because it is THE most important thing people must come to understand when liars use the word “entitlements” (now, a “dirty word”) to drive a wedge between the old and the young. Young people may dislike paying for auto insurance or homeowner’s/renter’s, but they can understand the concept of pooled risk – especially if they need to make a claim.
Nancy FYI there are many more people in the top 1 percent of earners than you indicated. In 2008 the IRS reported 1,400,000 tax returns in the top 1 percent (earning $380K qualified as top 1 percent in 2008; thats just a little over the start of the the top tax bracket of 35 percent). Their total AGI was $1.685T and they paid $392B in income taxes, an average of 23.27 percent. Data here: http://www.taxfoundation.org/news/show/250.html
None of that means that I disagree with you one iota. I don’t. I believe SSA receives some money from the IRS based on their income taxes applied to SS benefits, which is the way to do this. And SSA would receive more in this manner if the tax rates at the top level(s) were higher as they should be.
Thanks for the correction. Sorry to introduce an error into the discussion. NancyO
Spencer, people whose SS will be taxed will still get the checks. Means testing does the reverse–stops or reduces checks before/when they’re issued. So, as I understand the phrase “means testing”, I would say it’s not a true means test. I see your point, however, and would like to see this provision changed. Unlikely to happen, of course, because this is one of those obscure facts that everyone at the table knows don’t matter. NancyO
The power of those code words like entitlements leads people to think it’s fair for them get behind the “shared sacrifices” that will keep SS and the whole govt. from going broke. But, neither one is going broke and SS is in great shape for long enough that as a practical matter might as well be forever.
And, of course, as Linda also points out, anyone in the upper one percent of earners would find it easy suddenly to receive no earned income at all, or receive stock in lieu of earnings from employment, or defer capital gains and the like. People in the $60-$100K range are less likely to manage such a disappearing act. And less likely to realize how easy it is for the upper 1% to do things that the rest of taxpayers don’t know are possible to avoid taxes. SS is not just another “transfer program”. People have worked for it, have earned it, and have a right to it. And that should be the end of the great SS Crisis myth. Nancy Ortiz
Bruce
no. Option three closes 5/6 of the 75 year actuarial gap over 60 years. By running it another ten years it closes the entire gap.
the forty cents per week “combined” is the same answer we get by analyzing the SSA report… an average of 20 cents per week “each” closes the 75 year gap.
what is not noticed by some who should know better is that because the tax has been raised the “last year” problem is also solved, and by looking fairly carefully at the SSA “infinite horizon” estimate, it can be shown that the infinite horizon problem has also been solved.
these things are a bit too complicated to explain all in one mouthful.
Good enough. Add a dime more for the first sixty years or just extend the 0.03% increase for the rest of the projection period. Either way we are talking couch change or more formally a small fraction of the projected increase in Real Wage over either that 60 or 75 year time frame. In the bigger picture machts nichts.
PJR thanks.
The entirety of the tax on SS benefits is credited to the Trust Funds, and the amounts are broken out and reported as such in the Annual Reports..
agreed.
CBO option 2 closes the entire actuarial gap over twenty years by raising the tax a full tenth of a percent per year… or eighty cents per week per year in today’s terms.
this doesn’t seem to me like serious money either. but it would leave the last year problem unsolved.
by frontloading the tax increase, you pay for the actuarial gap with “interest” on the larger trust fund you would have created. this might work out fine for everyone… congress would have more money to borrow, and the SS problem would be solved for 75 years
except the Big LIars would immediately start yelling “Social Security will go broke in 75 years!”
that’s because the new Trust Fund created by the higher tax would “run out” after 75 years, and then Congress would be faced with having to raise the tax another 2% or so to pay for SS “over the infinite horizon.”
i’d rather avoid all the yelling. But I am willing to let the people of 2086 or so solve their own problems.
The fact is that by paying the one half of one tenth of one percent per year over 70 years, the tax rate would then be high enough so that no further raises would be needed, and everyone who was going to live longer would have paid for it.
I assume your 00.03% increase is a rounding up of the 0.025% “each” increase that would be required by CBO option 3 over at least the first sixty years.
fact is we can’t estimate any of this that closely. but the “ballpark” ought to be obvious by now.
Oh, not to save social security. Social security does not need saving, except from the heartless people who want to destroy it. But social security is still inadequate for a lot of people, right?
Well, Nancy, this being the good ole U. S. of A., it seems to me that a negative income tax would be better than the bureaucratic, paternalistic, dehumanizing, expensive BS system that needy people have to endure. Consider the egregious inhumanity of the political debate last year over extending unemployment benefits, and we still did not extend them for the really long term unemployed. And then the Dems did not even make it an issue in the campaign! How much of the stimulus consisted of giving poor people money? Something that would have been both easy to do and efficient. Unemployment insurance provided effective stimulus without any legislation having to be passed. A negative income tax would also have been effective.
Now, America is currently too stingy for a negative income tax, but a place to start might be with seniors, for those whose social security benefits are inadequate. Having a negative income tax for seniors would also help to allay the fears of younger citizens, who would be less vulnerable to fear mongering about social security.
Nancy,
You really need a reference to the potential savings from means testing for your post to be useful.
If we use the report referenced in this AB post, http://www.angrybearblog.com/2011/03/means-testing-for-social-security.html#more
we find this: “A means test that phased out benefits at 20 cents for each dollar of additional income over $40,000 of non-Social Securtiy income would save the program 4.65% of annual benefits”
So if we extrapolate to phase out say 100% of benefits for those who make over $40K per year in non-social security income, this would save the taxpayer approximately 25% of SS Retirement benefit payments, while still leaving the retired with at least $40K in income (which is above the average earnings of the working population).
This would save the Federal government approximately $160 B in the first year, and about $4T over the next 10 years.
You need only to use income tax data, so you don’t need a big bureaucracy to do the asset tests.
So your statement: Means Testing Social Security Benefits Is More Trouble Than It’s Worth
is NOT TRUE.
Min
yes. there is plenty of room to do something more for seniors and other poor people. but i get nervous when people want SS to do everything.
so yes, if you want to start another program, be my guest. but not in the same breath with SS.
gosh min
do you mean that sending money to the unemployed would have been a more effective stimulus than giving the employed their retirement money to spend on a spree at Walmart?
or give it to their bosses to hire more workers when there is no demand?
hush, boy, some politician might hear you.
coberly,
forty cents per week per year will cover it.
If this is true then the reverse is also true: Since the ratio of taxpayers to beneficiaries is 5:1, then beneficiaries need only take $2 per week cut ( 5 x 40 cents). That’s about 1/2 of a latte per week. Isn’t it worth a latte every 2 weeks to save Social Security?
Sammy
you seem to be saying the government should steal the Social Security retirement savings of everyone who has managed to supplement their SS with other retirement income. Not the sort of idea I would have expected from a conservative.
Also you err in thinking “the government” would be saved this money, or “the taxpayer.” Social Security is paid for by the people who get the benefits. All you would be doing would be robbing the people who paid for their own benefits.
coberly,
Social Securiy was meant to keep the elderly out of abject poverty, not to top off other retirement plans or to keep wealthy people from dipping into their assets in retirement. Remember, the check the wealthy elderly cash comes directly from some other, most likely less wealthy, citizen who is struggling to raise a family.
Not the sort of idea I would have expected from a conservative.
Coberly,
Social Security payments are not anyone’s right or property. They are dependent on the Federal government’s whim, and ability to extract other people’s money.
Sammy, that goal did not dictate how the program was set up. It was set up as insurance that everyone pays into and everyone may collect from when they reach the specified age – including the “wealthy elderly.”
Linda,
Things change. We are more affluent, live longer, health care is better/more expensive, jobs are less physical, the Government has taken on many more “general welfare” responsibilities since 1936. Why shouldn’t SS change with the times?
NanO, when I see an article comparing worth and trouble, I expect to see something written on those two subjects. Comparative costs, comparative benefits/troubles are expected at the minimum. Until Sammy provided them, we didn’t even have any related numbers. All we have here is even another unsupported personal opinion.
Sammy, look around you. Very few people these days have any significant resources of any kind other than their earnings, such as they are. Wages are flat relative to corporate profits despite significant productivity gains. People are afraid of losing their jobs or, having lost a jobs, can’t find a new ones. 30% of peoples’ equity in their houses or real property investments now sits in the wallet of a trader at Goldman Sachs. Government employees are taking pay cuts or getting laid off. Those ghastly teachers are getting fired en masse or losing their bargaining rights, state pensions and health benefits. All very encouraging economic trends, right?
Jobs are less physical if you have a college degree. Otherwise, people take whatever comes along. Standing, bending and lifting as one does in many retail, service, restaurant, and hospitality jobs is physically demanding. Look at someone who has been stocking shelves for 20 years. You’re not looking at someone who is in great shape. On the bright side, it can take you 20 years to pay off your student loans depending on your subsequent earnings levels. According to you, everything’s lovely. According to me, economists discussing this recession, and my annoying experience, t’ain’t so, McGee.
Put it this way, sammy. Do you want to get welfare when you retire? Want to be one of those inferior, loathsome poor people who have to line up for sandwiches in soup kitchens? If you yourself don’t want to end up that way, why in the Hell would you wish that on anyone? Oh, don’t forget to kill Medicare and Medicaid and throw people in nursing homes out on the street. Doesn’t matter. They shoulda thought of saving when they had the chance!
Why shouldn’t SS change with the times? It should, for the better. General increases in benefit amounts are long overdue and other measures to protect peoples’ retirement investments are in order, too. You may be content to live in a country in which the whims of the government determine your future, but I prefer one with laws. NancyO
sammy
arithmetic is a little more complicated than you think. the forty cents per week is per year, so it adds up. the other moving variable is that wages are going up at the same time, so the accumulated increase will always be ‘felt’ as no more than 40 cents per week would be felt today.
moreover the reason the raise would be needed is that the ratio of workers to retirees is approaching (asymptotically) something like 2:1.
what the picture looks like in the long run is that you would need … if you were going to be alive in 2086 to pay about an extra 16 dollars per week out of an income that was about a thousand dollars per week bigger than it is today. or you could save that 16 dollars per week and cut your pension from about a thousand dollars a month to about 750 dollars per month.
i realize you can’t follow all the complexities of this, but here is a little more help: that 16 dollars a week is about 70 dollars per month, your boss contributes another 70, for a total of 140. meanwhile that other worker (to get the 2:1 ratio) and his boss contribute another 140… for a total of 280. An average-low SS benefit today is about a thousand dollars a month… so if you save that 16 dollars a week while you are young and making about 2 thousand dollars a month you could find yourself trying to live on 750 a month when you retire… as opposed to the thousand a month you would have had if you hadn’t been so short sighted stupid and greedy.
but i am glad you think its worth a half latte per week to save social security…. just save it when you are young and can afford it. trying to save it when you are old and living on 750 dollars a month just isn’t going to work for you.
sammy
no. you don’t understand social security at all. the poorer person paying his social security is paying for his own eventual retirement. the richer person paying is social security is paying insurance in case he ends up poor. at the end of the day, it’s the richer person contributing to the poorer persons retirement.
sammy
the short answer is that the people calling for the changes are liars, or ignorant fools like…
you just throw out words that sound good to you that have no bearing on reality at all.
sammy
the only whim i see here is the whim you have to say whatever pops into your alleged head without knowing anything about it.
people pay for their own goddam social security. they have as good a right to their benefits as any person has a right to withdraw his savings from his own bank account.
yes the government can change the law. but the government won’t change the law unless the liars can convince enough fools to let them change it.
CoRev
sorry, sammy’s numbers are like your reasons. they don’t add up.
but like the LIars numbers they can make the rubes go OOOH! that was a big one!
one of the complications i left out of the above is that because the economy is growing, and benefits are pay as you go, the 16 dollars a week the worker of 2085 is paying in order to supply the missing 250 dollars per month of the THEN retiree… will come back to the worker forty years later when he retires as about 750 dollar per month.
part of this is inflation, but about half of it is “real” “interest”. pay as you go is just another way of getting compound interest out of growth in the economy.
and even the part that IS inflation would be damned hard for the worker to find when he needs it… finessing inflation being one of the huge advantages of SS.
sammy
i am not sure i understand the article you reference. close reading raises some questions.
first, the article says that 90% of benefits are paid to people whose total income is less than $40,000 per year. It that is true, it would seem that cutting ALL of the benefits of people whose total income (including Social Security) is greater than 40k could only save 10% of SS costs.
Then they talk about cutting 10 cents in benefits for every dollar in non-SS income earned over 40k and arrive at a savings of about 2 and a half percent. Cutting 20 cents for every dollar results in a savings of about 4 and a half percent. You should notice that the savings does not rise linearally with the size of the cut. I don’t know why this is, but it should warn you that you can’t just multiply the 20 cent cut by 5 (to cut benefits one dollar for every dollar earned) and multiply the 4 and a half by 5 5o get 22.5% savings.
So I regard the analysis as incomplete. I wouldn’t jump to any conclusions. But meanwhile even if the numbers are close to what you expect, you would not have answered all of Nancy’s warnings about the high cost of means testing… with a wave of your hand toward your friends at the IRS.
and as a matter of logic “means testing is more trouble than it is worth” is not even addressed by your numbers. rather than proving that “it’s not true”, you have merely shown that if you don’t count the trouble, but only the “savings” you imagine you will get, means testing will get the savings you will get if you don’t count the trouble.
Bruce Webb is back! Nasty as ever I’m happy to see!
At the Federal level there is no capacity to tax assets. Only income. And yes income is only realized when assets are sold. But that IS the system we have. So we have to work with what we have.
IRS picks up all income. Including passive income (rent) and other income like tax free income from Muni’s. I want the means test on the top line. Not the bottom line.
If I only own gold or art and don’t sell anything It will not show up. So you are right there. But that is not how investments are made. The bulk is still in financial obligations like stocks and bonds or their derivatives like hedge funds.
I get an S1 on all this stuff and pay taxes accordingly. It would be a slam dunk to use this data as the basis for elligability.
The top 10% have reported taxable income of $9 trillion. In my book few of them should get benefits.
Again, I undertand why you are apposed to a means test approach. It would go a long way towards ending the popular support for the program, something you don’t want to see.
But tax increases to address the problem? You folks are dreaming. That is simple not going to happen.
You guys love SS. Fair enough. But you should realize that what you are proposing is the surest way to kill it. So I’m still wondering about your motives.
bk
So here I am reading through yet another prolonged and protracted discussion regarding “the saving” of Social Security in spite of there being no need to save the program any mmore so than there has been since 1935, or there abouts. I’m left thinking, “What the fuck!!!!” Do we never learn? I know that some of you out there think that these discussions are valuable even thjough the crux of the antagonists’ argument is bogus. To debate is to legitimize the alternative to the obverse side the argument, but in this case the coin is a slug with no enscription on the reverse side. Social Security is in no dire straights, now or later.
The general budget is fucked up by a decade of profligate militarism. That in addition to a continuing and grossly distorted income distribution that is additionally distorted by a tax code that coddles great wealth at all others’ expense. The several major issues of economic ill that our country suffers come out of that combination of fascist like policies. More people have o earn a better living. More taxes have to be collected from those who already command the greatest share of the economic wealth. And less militarism has to be the initial step in redirecting what resources the economy can muster. A more robust economy with a more balanced spread on income will put Social Security right back in the black with a wide margin to spare.
Jack, I see your point. However, consider how the notion that “SS is welfare” seeped into the public’s mind. People let it go unchallenged in the face of a concerted misinformation campaign that started in the 80’s. It may be late in the game to counter these ideas, but I’m among many people who are trying to do just that. By the same token, you point out that militarism is undermining our economy from the federal budget on down through the food chain. I hope more people come to understand that very basic fact. Until then, SS has to be defended and militarism attacked. NancyO
Where is Huey Long when you need him?
Yes, of course the bullshitters are spreading their crap all over the media for public consumption. Stop debating and say it clearly. Peter Peterson, Alan Simpson and their cohorts are feeding the public lies. They have their pile of cash and they’re trying to peddle a pile of crap. Tell the public, “You paid for your Social Security entitlement. That’s shy you’re entitled to it.” It isn’t charity. It isn’t welfare. The Fund is the result of your sweat and your savings (obligatory, but savings none the less). Corporate America copped out of the pension process for employees to a large extent. What pensions remain are mostly the workers’ private accounts and the stock brokers and financial managers couldn’t be happier. Only public employees continue to have some semblance of a classic pension system, and that is under attack daily. The result is that Social Security is more critical to workers than it has ever been or was ever thought to become. It’s all you’ve got between senior citizen status and the poor house.
Don’t argue with the liars. Just call them out for what they are because they never tire of telling the lies in hopes that they will be thought to devolve into some aberrant form of the truth. They are lies and as such do not qualify for anything more than derision. Call a liar just that or you legitimize their claims as being worthy of argument.
Krasting I am curious because IRS data show the top 10 percent having AGI totaling under $3.9 trillion in 2008. Does your $9 trillion figure refer to something else? (Data in Table 1 here: http://www.taxfoundation.org/news/show/250.html )
actually… that young worker will be making about two thousand dollars a WEEK at that time.
he would expect a pension of about 800 dollars a week, or 3500 a month… this is real dollars. living standards are going up… at least in dollars… at the regular replacement rate.
but if he falls on his head or something at age forty and ends up with a lower than average lifetime earnings, his pension could be about a thousand a month… unless it has been cut by then about 25% in order to save that 16 dollars a week.
you get the picture. by now I hope.
and no, workers in 2086 WON’T want to work longer or accept a “price indexed” pension that would hold them to 2009 standard of living.
that would be like giving you a pension today indexed to 1936 prices, ignoring the increase in real wages over this time, and expecting you to live wihtout a car, a telephone, a regrigerator, or indoor plumbing.
I agree, Jack. Just what I’m doing. I tend to be short of patience with liars. But, you do have to tell people the truth at the same time. Otherwise, we let them get away with having their own facts, as well as their own opinions. NancyO
Krasting
I don’t wonder too much about yours. In all of this time you have never shown any evidence that you understand the first thing about Social Security.
Those rich people paid for their benefits. They were insurance in case they didn’t end up rich after all. It is their payments that make the system work for those who do not end up rich after all.
What you are proposing would steal about 400,000 dollars from them in benefits they paid for. I don’t think, rich as they are, that they would like that.
Jack,
In my heart I know you are right. But if i just call them liars, the professional manners minders call me bad names.
So I try to give them answers in the hopes that some new person might read them and think.
Just be certain that the liar statement stands out first and foremost. It can’t look like a debate because it is not an issue up for debate. You don’t debate with a liar. You call them out for what they are and then provide the truth of the issue so that it stands out in contrast to their lies. But first and foremost they are liars; deceitful scum if you prefer.
Jack/coberly/Nancy,
You are acting like 5 year olds who have just learned the word “liar.” As soon as someone says something you don’t want to hear regarding Social Security, you start with the “liar, liar” as if you don’t understand what the word means.
sammy,
Better affluence, living longer, better, if any, health care etc applies to certain parts; maybe the top quintile, or tenth of the the US demographics. The lower 80% are on hold, and it gets worse as you view different ethic groups.
Jack,
Militarism, phony empire, has harmed national (US) productivity as predicted by Frederic Bastiat, in the mid 19th century and by the plundering Ike warned of in 1953 and 1961.
In 2005 dollars an average of $500B has been wasted each year on occupations and phoney wars or perparing for phoney wars since 2003. That is more than spent in 1968.
With only terrorists to defend from.
Free up $500 a year or 3 % of GDP wasted on war profiteering and the rest of the [non war] economy will go to work.
Sammy
Liar is easy; one who lacks the truth. Ass hole is more complex; one who doesn’t know the difference between the truth and a lie.
I’ve no longer any patience for either liars in the political and economic arenas or ass holes who help to prop up the crap that the liars are shoveling out as quickly as we can try to block it.
sammy: “ They are dependent on the Federal government’s whim”
Only if the Republicans are in power. Any responsible gov’t would not treat its obligations as something that depends upon whim.
Jack: “in spite of there being no need to save the program any mmore so than there has been since 1935, or there abouts.”
If people would stop attacking Social Security — including the current Democratic President, for Chrisesakes! — there would be no need to defend it.
Jack: “It can’t look like a debate because it is not an issue up for debate.”
Hear, hear. In private conversation, you engage with the other person. If they are spouting falsehoods, perhaps they are mistaken or misinformed. Simply telling them that they are wrong does not work very well. But in the public arena you have to attack the falsehoods, and not act as if there is a reasonable debate.
Regarding administration, the simplest solution would be to impose the offsets like the annual earnings test. If that were the put in place, 90% of means testing would be done automatically through automated IRS matches, etc. This doesn’t get to the problem Bruce Webb mentioned of the million dollar art collection, but it’s really the only way means testing coud be done. Income would stand as a proxy for means.
Even here, the problem is, keeping track of work for OAS beneficiaries under full retirement age is already a significant percentage of SSA’s workload despite th fact that beneficiaries subject to the annual earnings test only make up about 10% of the beneficiary population. There are around 6 times as many beneficiaries over full retirment age as there are beneficiaries subject to the AET. In other words, means testing would pretty much swamp all of the agency’s missions. (Missions that, due to attrition, the hiring freeze and OT cuts are already piling up in the backlog.) And that’s before considering how deep this means testing would have to be.
For the elderly, only the top two quintiles receive more than 6% of their income from earnings. And even the second quintile, ie the 60-80th percentile, still receive more of their income from Social Security than any other source. The middle quintile receives, on average, 3/4s of their income from Social Security. The bottom two, 89%.
Ninety-three percent of beneficiaries make less than $50,000. Ninety-eight percent of beneficiaries make less than $80,000. And since the distribution of benefits among earners is relatively flat, the savings would be relatively miniscule.
some guy,
the savings would be relatively miniscule.
Dean Baker and the CEPR (liberal and anti-means test) have done the hard work and crunched the numbers here: http://www.cepr.net/documents/publications/ss-2011-03.pdf
On page 2 we find the statement:
A means test that phased out benefits at 20 cents for each dollar of additional income over $40,000 of non-Social Securtiy income would save the program 4.65% of annual benefits.
If we extrapolate to phase out benefits at 100 cents on the dollar for non-social security income over $40K, that would save the program almost 25% of outlays. In 2012 that adds up to $125B, by 2020 it would be $240B. Over the 10 year period 2012 to 2022 it would save around $2T (corrected from my last comment). This is not miniscule. Or do Baker/CEPR have it all wrong?
Don’t you get it? Cutting benefits because of other income puts Social Security benefits, at least partially, into a welfare format. The benefits have to be based upon the prior contributions on order to retain the fairness character of the program. That is essential to the program’s success over all these years. Even the well off, if not the super rich, understand that they too can find themselves in financial straits in the last decades of life. They recognize the life line character of the program and the wisdom of their own participation. Such participants do not, on the other hand, want to see themselves as potentially contributing for the sake of others rather than for their own sake in an unforeseeable future. Means testing, or any form if benefits reductions based on other income, destroys the fairness aspect of the program and thereby destroys the programs nearly universal citizen support.
Jack,
If we means test at $40K, that only eliminates the top 10%, the richest 10% who don’t need the money. If 90% recieve benefits, there is no stigma.
Social security is welfare as currently constituted. Lower lifetime earning participants already get a much better deal than higher contributors. It gives all the elderly a subsistance income, but it is not equitable (and I don’t really care, I do not want the elderly to be poor either). The DI and Survivors benefits are nothing if not welfare, but I do not begrudge them either. I just don’t think Bill Gates should get a social security check.
Sammy we could save a lot of money if we set that income limit at half or one-quarter of that $40K. Seriously I think that the means testing proposal comes from a notion–which probably would poll well–that rich folks who don’t need those benefits shouldn’t be receiving them. Even you refer to Bill Gates as an example of someone who shouldn’t get SS benefits. As Some Guy explains with data, however, there aren’t a lot of people in this category. If we define $40K as rich enough not to need SS benefits, I suspect support for the means test notion would drop precipitously. $40K is not Bill Gates.
The first comment to this posting, by Carolannie, offered the key point: higher income taxes on high incomes, i.e. on those who don’t need those SS benefits, is the way to address the sentiment behind the means testing notion. For example, person might get $20K/yr in SS benefits but pay $20K more in taxes if income is high and we have a sufficiently progressive income tax regime. Because SS is self-financing, however, addressing the sentiment in this manner does not help SS (except for the portion of taxes attributable to SS benefits). Even if it did, I’m not sure our effective tax rates are sufficiently progressive to address the sentiment in this manner.
Thinking out loud and maybe it’s stupid, but “what if” the SSTF received income taxes from each person up to the amount of benefits that person received? For example, if you received $20K in SS benefits, the first $20K of your income taxes would go the the SSTF. If you only pay $2K in income taxes for the year, the $2K goes to the SSTF; a high earner who pays $50K in income taxes for the year would be returning all of his SS benefits to the SSTF. And nobody’s income taxes have to go up.
pjr,
example, person might get $20K/yr in SS benefits but pay $20K more in taxes
True enough, and it would accomplish the same thing. Except, raising tax rates to higher levels to recapture the SS payments has deleterious effects on other people besides the elderly rich. For example, if you raise the corporate tax rate to say 50% you will find a lot of companies moving offshore. Also, higher tax rates on investment returns also reduces investment, etc. etc.
If people like Bill Gates don’t need the income from SS, and certainly they don’t, then tax that other source of income to a greater extent and leave the SS benefits formula out of the issue. What goes in must come out in order for the entire program to maintain its legitimate insurance character. Remember, it’s the Federal Insurance Contribution Act, FICA!!! Do the initials sound familiar? Look at your pay stub. That’s what is being deducted, contributions to a federally administered insurance plan. Keep it that way. We all roll the dice to some extent when we venture out into the work world. Winners and the less fortunate have the same safety net that awaits them in their senior years. Its not meant to be a big payoff. It is necessary that it retain its basic financial security structure.
Tax the upper tiers on their earned and unearned income. That is fair. Those who have plenty in their later years and may not need that extra $2,500 monthly (at the top end of the scale) can therefore afford to pay more in general income taxes. Tax the source not the benefits.
“..if you raise the corporate tax rate to say 50% you will find a lot of companies moving offshore. Also, higher tax rates on investment returns also reduces investment, etc. etc.” sammy
You are either ideologically deceitful or the dumbest MFer on Earth. Corporations already pay nest to nothing in taxes regardless of the rate. They have expatriated their profitability here, there and every where and they’re holding on to every dime rather than investing it because they don’t think there is enough demand. How can there be enough demand? They haven’t shared the largess for nearly three decades or more. Educate yourself or shut your lying mouth.
min
probably only you and i would understand that.
sammy
i think i have avoided calling anyone a liar today. i have come to accept that you and Krasting just have, ah, ordinary human limitations on reasoning and fact gathering. CoRev I am not sure about. Most of the time he sounds to me like a person with serious brain failure, but there are times when he sounds like a sophisticated liar. And there are times when I agree with him.
But mostly I will go with the ordinary human limitations on reasoning. Trouble is, when I point that out, people go bananas about that.
SAmmy
no. you have it wrong. means testing would steal hundreds of thousands of dollars in earned benefits from people who have paid for those benefits. and it would destroy Social Security and replace it with a welfare program.
Not sure how much of that 2 Trillion dollars you expect to get. But in fact you wouldn’t get any of it.
You are not “saving” anything. You are stealing money. The question is who would get it?
Or are you talking about saving the workers from having their tax raised by forty cents per week each year… money they would get back when they retire… if you don’t steal it.
sammy
you are incoherent. BillGates paid for his Social Security check. He helped pay for the checks of a few other people who didn’t end up as rich as he is.
meanwhile if you buy fire insurance from the same company Bill Gates buys fire insurance from and you have a fire and he doesn’t, is your check from the insurance company welfare? or if Gates has the fire and you don’t, should the insurance company refuse to pay Gates because he is rich?
meanwhile
i note how jack was suckered into arguing with sammy, in spite of knowing better.
thing is sammy, there is no reasoning behind your reasons. you say whatever sounds good to you, and if someone tries to point out the consequences, you say something else that sounds good to you… any fact that you don’t want to know about never penetrates the armor that keeps you believing all the dumb things you need to believe to feel like you are the victim.
you don’t want to tax the rich … but you are perfectly fine with taking away the money they paid for their social security.
you can’t tax the rich because they will go offshore. but you can take away their social security because social security is socialist. something like that?
or is it just a dumb lie… you can yell about Bill Gate’s social security check and 50 million other dumb people will say, “yeah, that’s not fair. we need to means test Social Security!” and that way you get to destroy social security by pretending you are only taking welfare checks away from the rich.
jack is right. arguing with you is like swimming in a cess pool.
Sammy, I learned to tell when someone else was lying by the time I could walk and I’ll bet you did too. I can tell when people are relying in all sincerity on misinformation, no matter how obtained. It’s not a question of not liking some hideous previously unknown fact that I reject because it offends my sensibilities. I have learned a lot about SS that other people haven’t had the opportunity to learn. I’m not gonna sit still and let errors go unchallenged.
I don’t give up just because someone is determined to hold an erroneous idea. I keep trying to show them the facts as reflected in the law. And, this is about law–not feelings, or beliefs, or political views. Law. NancyO
Nice to hear from you, Some Guy. Regarding IRS interfaces, I remember from the early 80’s a statute forbidding such exchanges of information with SSA. This was very long ago, but if still in effect, it would prevent the easy exchange of information that would be necessary to run computer matches. However, IIRC, the imposition of a payment reduction on SS payments is an initial decision and subject to due process and appeal rights. With all that implies. Just what we need–another massive appeals workload.
I am more concerned with the notion that SS is a essentially a welfare program subject to restrictions based on “need”. It isn’t welfare. And, there is no need to means test it anyhow. Ya know, the argument I’m making is to your advantage. You don’t have to let the Billionaire Boys’ Club steal your benefits. NancyO
Sammy, I give up! NancyO
coberly
No, I wasn’t suckered into an argument. I was just pointing out that sammy is either a bald faced liar or a dumb mother f___ker. And I’m trying to be polite.
Nancy,
Don’t give up! Next time just bring some facts to the table and we can have a debate.
To quote Lucy, ARRRRRRRRRRRGGGGGHH! NancyO
Nice to read your words here. Thank you for this article. The administrative costs are probably one of the most difficult aspects of means testing to pin down.
There used to be a firewall between IRS and SSA. But now SSA automatically gets IRS data in May and November to run benefit recomputations and to impose work deductions which, as you note, are subject to due process. I think this was instituted in the nineties when SSA got rid of reporting requirements for beneficiaries.
As to the policy issues… can’t we wait until the crisis to “fix” Social Security? Who knows? Mayber some solid income growth concentrated in the bottom 90% could happen in the 25 years or so. Or maybe we’ll have converted to an ammunition / canned food based economy.
sammy
you are an idiot. no offense.
you don’t even realize that you are calling for a 100% marginal tax rate on income over 40,000 dollars.
it is impossible to debate with an idiot. you can use him as a straw man to attempt to clarify points for others who may not be clear. but at the end of the day you just have to thank him for his thoughtful comments and go on to something more useful.
sorry cant figure out how to just send this to me. trying to do homework. if you read this and want to send your opinion feel free to shoot me an email.