Allan Sloan on Social Security
September 16th, 2009 . by economistmom
I’m on the road again, in Chicago for a couple days, so I thought I’d do an easy post tonight by highlighting Allan Sloan’s very informative column on Social Security in Tuesday’s Washington Post. (Oh yeah, remember Social Security, that other entitlement program we haven’t gotten quite right just yet–despite the fact that it’s not subject to those nasty rising per capita health costs?)
I especially like Allan’s explanation of how little the immigration issue affects Social Security’s fiscal position:
Social Security has big problems, which was the point of my article, and readers wanted to know how much of that is attributable to illegal residents’ getting benefits.
The answer is, little or nothing. Here’s why. If you’re an illegal resident and get a legitimate Social Security number, and work long enough to qualify for benefits, you can collect if you move outside the United States. (However, you can’t collect if you stay here, under Social Security rules.) But paying those benefits — which illegal immigrants have earned by paying Social Security taxes, along with their employers — is the same as paying a legal resident who has similar payment history. Social Security is an earned benefit — it’s not like Medicaid or welfare — and those who have paid into the system, whether or not they’re here legally, have earned it.
If you’re an illegal immigrant with a phony Social Security number, you’re helping Social Security, because you and your employer pay into the system but you don’t get any benefits from it. The money is credited to a “no-match” account at the Social Security Administration.
And please, don’t deluge me with mail about illegal workers. I’m not taking a position on the broader issue of immigration, I’m simply answering a legitimate question about its impact on Social Security, which seems to be negligible.
And I like this reader’s honesty which reveals how even the most sensible of policies to reform Social Security (as I think raising the retirement age is) will not be an easy sell to the American people (Allan’s response follows), emphasis added:
I enjoyed your article except when I got to your proposal of raising the retirement age to 70. I retired early this year at age 64, and let me tell you, there is no way I could have hung on to age 70 doing my job well, and I’m not a manual laborer. There is something about mid- and late 60s that makes it very difficult to continue working mentally and physically. The body starts breaking down and the mind slows down. Maybe you are an exception.
– S.H.
AS: Would that I were — at 64, I’m definitely getting creaky. But we have to do some painful things to make Social Security financially secure, and raising the retirement age for white-collar workers is one of them.
“Painful things?” No thanks, the public says. We’ll stick with more benefits and lower taxes; after all, it’s worked out for us thus far.
Here’s the link to Allan’s August column that generated all that mail from which he quoted (and from which the photo above came). I liked how Allan explained today how his photo was doctored; that was more interesting than how I had altered mine (just blurring my number out) in my Obama “donut hole” post (from June 2008):
(And speaking of “painful things”–the fact that my spam blocker isn’t working and is letting some clearly inappropriate comments get by (Mom, don’t read them!) is really “painful” to me… Another reason for tonight’s no-brainer post.)
I hadn’t seen the article before. It was an interesting read with some interesting ideas in it. I’m in agreement with most of them. The one I disagree with is Alan’s opposition to means testing. Maybe it’s a generational thing or an orientation, but I have never considered social security a generational compact.
To the contrary, to me it’s a tax like any other tax designed to pay for a benefit I don’t receive. It is cold comfort to me to argue that someone else will pay the tax for me to receive the benefit at some point in the future as (1) given the issues with SS and Medicare btw, I don’t expect to receive benefits of the type recipients are receiving today and (2) it’s a very inefficient way to distribute money (take my money now and invest at a negative rate of return to give it back to me later).
So back to means testing, I personally see nothing wrong with it. To the contrary, I view the prospect of giving someones money to another person who may well have less financial need as a pretty awful way for a society to behave.
My favorite example is this. My grandfather recently passed away but he collected SS and Medicare for about 28 years. For about 20 of those years I was working. Over those 20 years, more than 100 percent of my SS and Medicare taxes went to him thus lowering his expenses. He then had more in his estate which he left to my dad and uncle and will eventually come to me. How is this remotely efficient? This is without considering the other people who also “contributed” to him, almost all of whom I would posit, had less wealth at the time than he did.
Finally, there is a moral hazard issue. SS is seen by many people as similar to a defined benefit pension where the benefit is “the income you need for your retirement”. It doesn’t matter that people like Alan and many others have said it isn’t so for a very long time. As long as that is the understanding, it reduces the propensity of people to save. By the time most realize their mistake, it is too late.
All of this makes me say major change is necessary, one that calls the existence of benefits, at least for some into question. In my view, that is far more equitable than raising the retirement age for all but I suppose this is the crux of the debate.
Diane, sorry about your spam issue. Good luck fixing it : )
“‘Painful things?’ No thanks, the public says.”
There is cause for hope on this front assuming Americans are willing to be educated on the issue in an unbiased way and someone (the President or congressmen (laughable) steps up to do that:
Americans Deliberate Our Nation’s Finances and Future: It’s not about taxes – It’s about trust
Dec. 2006
by Steven A. Rosell, Isabella Furth, Heidi Gantwerk
http://www.viewpointlearning.com/publications/reports/finances_future_1206.pdf
This ChoiceDialogue report shows that given an opportunity to work through the issues, Americans find a surprising amount of common ground. They were willing to support changes that require sacrifice, including program cuts and tax increases, but only if they could be assured that their tax money was being well spent and for the purposes intended. More information is available at http://www.publicagenda.org.
Steve: I am genuinely torn about the issue of means testing. On the one hand, we cannot afford to honor our current commitments via the entitlement programs, and it seems that means testing is one at least socially-efficient way to trim government spending. (Especially if indeed we have to cut government spending and not just rely on tax increases.) On the other hand, means testing the entitlement programs means there will be fewer Americans who will directly benefit from the programs, and I do see how that tends to undermine public support for those programs. I think my seeming disdain for the “tea party” movement is because I interpret most of the participants as saying they don’t want to pay taxes that go to programs that don’t directly benefit them–that there is a somewhat selfish and short-sighted and narrow-minded view that is revealed (to me at least) by the “don’t tax me” message. So I’m not sure that means testing ultimately makes it easier to “make ends meet” in the final analysis. I’d actually like more Americans to pay taxes (”participate” in the tax system, even beyond payroll taxes I mean) and more Americans to either directly receive (or indirectly comprehend) the benefits of government spending, because then you get fuller participation in government and fuller support as well as accountability.
I want to associate myself with SH, and on the issue of age/social security. For manual laborers, it’s more difficult by the month after about sixty to scrabble around on roofs, to snake wire through small chases, to cut brush, turn patients over in bed.
Maybe it’s tangential, but we have always had an assumption of an upward trajectory in life - large bureaucracies give seniority wage increases, senior associates in firms get a cut from the billing from juniors, etc. and this gets to be a more and more difficult fiction to maintain as the fraction of workers with declining powers gets higher.
How to deal? You need some way to get 65-yo-teachers out of the classroom if they cannot keep order among 13-year-olds anymore, roofers, etc. And this means going and handing out hot samples at Costco? or something less grand than what they have been doing, but still productive.
Maybe you set it up so that everyone pays taxes on all of his income, including social security. So if you start working after ‘retirement’, you don’t have a huge hit, you make something on top of what you have - dunno. But you need a way for people to retreat from the heights without disgrace and with a reward for staying in the game somehow.
Diane,
Thanks for your post. Every time I read one, I get a text and a subtext and both are helpful. This one in particular is interesting. I take it your central thesis runs like this.
1. Americans, by and large, won’t support government unless they get things.
2. Government therefore needs to be large enough that most Americans get things.
3. Burden must be distributed in such a way that only a limited number of people are getting something for nothing.
If that’s remotely accurate, it’s entirely fascinating to me because it is so wildly different from the way I think about it which would be more along the lines of.
1. Government by and large is there to do things we cannot do as individuals. Its benefits are widely distributed and have little perceived and direct impact on our day to day outcomes unless we are sufficiently poor that we cannot support ourselves.
2. That said, we support it as part of the privelege of living in the United States, as long as it actions and takings are reasonable.
3. The question of personal ROI therefore is irrelevant. It’s more a question of limiting the spheres of government so we don’t overinvest without payback.
4. Burden sharing should be notionally equitable although it will never be the case that all perceive it that way.
This probably explains why we might have a different point of view on means testing. I see it as a way to limit the sphere of government. If I am going to have no personal ROI and only societal ROI, I want to limit the I to places where it really matters. I also don’t worry about the erosion of support since I look at most government programs and very few people qualify and we continue to support them. I would argue there is more support for WIC than for almost any other program despite (or maybe because of limited eligibility). For you, because of the direct link between benefits to me and support from me, it’s a greater concern.
This definitely goes in my learn something new every day file. I’ve had many long discussions about matters like this but somehow that line of thinking never quite soaked in.
Thanks
I am a bit concerned with getting too much into means testing for benefits, and the reason is is not directly related to program popularity or ROI as it is usually considered, the reason is based on contingency. To be fair too I am reacting to the provisions I have usually seen on these things where the means testing legislation is coupled with some sort of super-IRA for those who opt out.
The contingency I am thinking of is know as downward mobility. Currently there are a lot of people close to or in retirement who have seen the value of assets and overall wealth decline rapidly.
But I am not reacting just to that, this is something that is very persistent, and not limited to historic market disruptions. The US is a very dynamic economy. To illustrate let’s take one group in particular that earn well and foster advances in goods and services productivity — the self-employed, and business owners. They risk their capital every day and are subject to more volitility than most groups. This group has members who unwittingly rely on socia security and it also contains members who are more umm, “whitting” about that — both would suffer if they were means-tested out with a super-IRA, and the economy might suffer as well, should the “more whitting” account for the greater risks they might be subject to under these sorts of proposals, and look for a job instead of creating a few out on their own.
Something to think about, perhaps.
correction - in the first paragraph I mean means-test out, not “opt-out.”
Jason,
To be clear, I was not referring to an opt out. I was simply suggesting that all would pay what they pay now but fewer would receive benefits than receive them today. I don’t think an opt-out system would work, in part for the reasons you describe.