17 December 2004

Social Security "Reform"

Krugman has another excellent piece on social security in today's Times.

I agree with Krugman. The entire idea of social security is to have a guaranteed minimal pension for old people, REGARDLESS of their knowledge and ability to make investment choices, and regardless of the vagaries of the market. It's a pretty meager minimal income, at that. Reducinig the benefits guaranteed is just mean and typically Republican.

As Krugman points out, the only real beneficiary of "privatization" is Wall Street, which stands to reap huge management fee income. His earlier article (last week) on the subject also pointed out that the idea that social security is in crisis is simply a myth, propagated by vested interests. The Government's own actuaries predict solvency at the current (high) rates of payroll taxes (which disproportionately fall upon the middle and lower-middle classes), the present benefit system, complete with projected cost of living increases, will remain solvent until 2042.

"Privatization" would greatly INCREASE the cost of the program. Social security is a system of current workers paying for current retirees... a tax-based transfer program, in economic terms.... not an insurance program. This is what it ALWAYS HAS BEEN.

Substantial payroll tax increases, EACH OF THEM of significantly larger proportion than what would be needed to extend the solvency of social security INDEFINITELY into the future (again, by the Government's own estimates) have been imposed REPEATEDLY in the past... in the 1950s, 1960s, 1970s and 1990s. (The one in the 90s was huge, and was supposed to solve social security's solvency problems permanently).

I simply do not believe that the presently proposed "reforms" are justified by any reasonable economics. They are favored by those who support them for purely ideological reasons, or, in the case of the Investment industry, out of sheer greed. The damage which would be wrought by these "reforms" would require a few years down the line a whole new system of "reforms" to make sure there was some kind of old age pension left. The all-but-certain result: lower benefits for future retirees at higher cost, and large transfers of wealth not from the revenue to recipients, but from revenue to special interenst vendors (brokerage houses and banks).

If you want to consider real reforms to social security, designed to make the system solvent till the end of the 21st century, I can suggest three:

1. Repeal Bush's tax cuts on those earning more than middle class incomes, which have had the effect of shifting the burden of government down the income scale; and prevent the government from borrowing without interest against social security revenues; use the social security revenues to gain income for the future program by issuing interest bearing bonds earmarked for social security trust fund. (Repealing the tax cuts for wealthy Americans would have the added effect of easing the pressure on the budget deficit and helping the government to return to fiscally conservative balanced or nearly-balanced budgets);

2. Means test social security benefits for those earning more than a middle class retirement income; let's say income over $75,000 per year adjusted for inflation going forward would begin a phaseout of benefits; those earning more than $90,000 would receive no benefits.

3. Increase retirement age one time only, to 68, for those born after 1965 or so.

These measures would result in a completely solvent, efficient, and effective, social security system for the indefinite future, and make a HELL of a lot more sense than Bush's special interest proposals.


  1. This comment has been removed by a blog administrator.

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  3. The following was left anonymously as a comment. I delete anonymouns comments, but I will leave this one in place, in order to address its points:

    >>Krugman is a leftist hack. Read Luskin's analysis of the Krugman hypocracy.

    The merits of the 3 step plan aside, I find it interesting that those earning a certain amount should be deprived of tax cuts and now social security benefits. I think that what we should do is triple the social security tax on Americans who do not have children. It is just as fair. <<

    My response:

    I will not respond to the ad hominem attack on Krugman. I leave the link in place to allow those who wish to to read the material, and, I trust, consider the source. Anyone who thinks THESE people don't have both an ideological and vested-interest axe to grind I can't help.

    Apart from wondering how an attack on my suggestion is in any way "aside," I respond that the purpose of social security is exactly what this reader apparently opposes: a noblesse oblige recognition that those who have more, at the largesse of the economic system which is largely supported by the sweat of working people, OWE it to the poor elderly to TRANSFER some of their wealth to them to see to it that the aged do not live in dire poverty. Every even halfway civilized country in the world has some kind of system to do this. Thus, those who do not need this transfer should not have it, but SHOULD pay for it. This is not "left-wing" it's Mainstream democratic-government program. (in the international sense, i.e. countries like Poland, Japan, Germany, England, Italy, Spain, Chile, Australia).

    The suggestion that taxes be increased on the childless makes no sense at all to me. Why is society, in an increasingly overpopulated world, benefitted by constructing penalties to those who choose not to add to the problem? And what on Earth does that have to do with social security? Interestingly, a number of conservatives have weighed in with the idea that those who are wealthy should not receive social security, the whole idea of which is to act as a small safety net against poverty in old age.


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