Bainbridge on Social Security

by Henry on April 29, 2005

Stephen Bainbridge articulates my suspicions as to what’s going on with the President’s proposal for means-tests on Social Security – that focusing the program more directly on the poor would weaken its political support (and thus make it easier to get rid of it in the long run).

{ 24 comments }

1

Barry 04.29.05 at 12:34 pm

I’d like to say that whenever I read Instapundit and Bainbridge, lawyer jokes pop into my head. But that’d be a lie; my feeling are far, far less charitable.

2

Hedley Lamarr 04.29.05 at 1:00 pm

“…focusing the program more directly on the poor would weaken its political support (and thus make it easier to get rid of it in the long run).”

Don’t forget the short run goal; to avoid having to pay out all the money owed from the trust fund, thereby enabling it to be used to cut the deficit,
and generally to recycle it back to the rich in a variety of ways.

3

mpowell 04.29.05 at 2:17 pm

Well, in this case, the rich would be paying for their own tax cuts through cuts in social security. But Brainbridge is right that the real thing here is the long term reduction in the popularity of the program. Frankly, it is scary to consider the possibility that the conservative planners are this shrewd.

4

jet 04.29.05 at 2:18 pm

And just what exactly would be wrong with getting rid of Social Security and instead having a welfare program for the old? It would certainly be a hell of a lot cheaper for the government to only have to pay out to those who don’t have jack. At least then we could call it what it is, welfare for the old timers, who through chance or choice, don’t have crap to retire on.

5

abb1 04.29.05 at 3:17 pm

I think their only goal now is to avoid paying back to the trust fund. The rest of it is irrelevant, it’ll be fixed somehow later, one way or another. Just a garden variety swindle, a few trillion dollars worth.

6

Harry 04.29.05 at 3:25 pm

jet,

how about massive disincentives to save (for those in danger of falling below the threshold), poverty traps, and, generally, constant political pressure to reduce benefits? Just a few of the many benefits of means-tested schemes like this.

7

mw 04.29.05 at 4:33 pm

Pffft. First of all, the idea that any program that does not benefit everybody is going to wither and die has a multi-billion dollar one-word rebuttal. Medicaid.

Also, I think that in avoiding one imagined trap, you’re falling right into the real one. I suspect that the point of the means-testing proposal is to expose the Democrats as pure obstructionists who will, for expected political gain, oppose any proposal Bush makes with respect to social security regardless of merit.

Means-testing social security is a fundamentally progressive idea. Opposing Bush even when he proposes progressive ideas is just dumb. How will it play out in 2025? I don’t know, and neither do you, but one thing I do know is that GW will be a distant memory at that point.

8

mw 04.29.05 at 4:35 pm

I think their only goal now is to avoid paying back to the trust fund.

No–the Bush admin isn’t ever going to have to face the prospect of paying back or not paying back the trust fund. The motivation doesn’t have to do with what’s going to happen to government finances 15 or 20 years from now, it has to do with the politics of 2005.

9

Neil S 04.29.05 at 4:57 pm

I believe that mw is on exactly the right track. Rather than mind reading and guessing at nefarious ulterior motives, perhaps we could have an honest discussion of the merits and deficiencies of means testing for Social Security (and Medicare as well).

I fail to see the benefit to society of having the federal government transfer money from workers to Warrren Buffet or G.H.W. Bush. My only argument with the Bush Proposal (as I understand it) is that he doesn’t go nearly far enough. I would prefer to see a system with an increased floor, and a complete phase out of Social Security benefits for retirees with very high income (or assets?).

10

mq 04.29.05 at 4:59 pm

The real rich — the kind of people who Bush truly benefited with his tax cuts — have very little reliance on SS. The top one percent or one-half of one percent could absorb a SS cut without blinking, they have already benefited far more than they will lose from the Bush tax cuts, and will make even more on the stock demand increase created by private accounts.

11

mq 04.29.05 at 5:03 pm

Some people above seem not to understand either Bush’s proposal or the current SS system. Bush is talking about major cuts for people who make $50-60 K a year, in other words the middle class. Cuts only for the truly rich would hardly save any money, since there are very few of them and they do not draw much SS.

Some people also seem not to understand that SS is already quite a progressive system within the range of taxed income (when one looks at benefits net of payments in). If you want to make it even more progressive, raising the upper tax limit is the way to go. Eliminating benefits for the middle to upper middle class (who are the ones who will get hit here, not the rich) is just a way to destroy support for the system.

12

riffle 04.29.05 at 11:51 pm

mq wrote: “Some people above seem not to understand either Bush’s proposal or the current SS system. Bush is talking about major cuts for people who make $50-60 K a year, in other words the middle class.”

This is a vital point and deserves to be repeated often, particularly to people making sixty grand and below. The benefit cuts will hit the middle and lower-middle class. Many will be hurting in retirement based on this plan.

Those who, based on the 1983 rejiggering, have been paying more into SS to ensure solvency will be ripped off of their front-loaded funds. And if trust fund bonds are defaulted on, the wealthy will get a nice redistribution of still more wealth up to them.

So, it’s a sock to the middle class two ways, and a boon to the wealthy. Hardly what I call “means-testing.”

But perhaps that’s what Republicans and Bainbridge mean by that term.

13

Thomas 04.30.05 at 12:05 am

mq–A couple of points:

Retirees with income of $50-60K are comfortable, to say the least.
The top 10% of earners take more than 10% of social security benefits, don’t they? So if we, say, didn’t pay them anything, that’d represent significant (i.e., greater than 10%) savings, wouldn’t it?

And, how does this political mechanism you refer to work–you can raise taxes on the upper-middle class without destroying support for the system, but you can’t keep their taxes where they are and reduce their benefits? Perhaps they’re using an unusual discount rate…

14

abb1 04.30.05 at 2:56 am

No—the Bush admin isn’t ever going to have to face the prospect of paying back or not paying back the trust fund. The motivation doesn’t have to do with what’s going to happen to government finances 15 or 20 years from now, it has to do with the politics of 2005.

It is 2005 politics – making the 2001-2003 tax cuts permanent. Stealing a few trillion dollars worth of your and mine payroll taxes is a prerequisite for that. That’s all there is to it.

15

trotstky 04.30.05 at 9:10 am

Thomas,

If I understand correctly, we’re not talking about retirees with 50-60K per year, but retirees who, when working, had been earning 50-60K per year. Social Security replaces only a smallish fraction of that now, and that share would gradually decline, relative to the rest of the economy, over time.

16

Eric 04.30.05 at 9:59 am

I as well think it’s important to emphasize that this is the SECOND whammy on the middle class. If we have not been paying double into the SS trust fund all these years, we could have been saving much more ( or spending it ). Rather than extend taxation for SS into other areas with either a level or progressive tax, this double tax fell squarly on the middle class.

Now the republicans have been happy as pigs in shit spending this extra cash ( clinton was the only one to make a dent in this trend ). Now that they have givin away the savings they want to claim poverty again? It’s disingenous at best, a boldface decepton at worst and it makes me sick.

I hope I will never NEED social security, but for all I’m paying into the system it’s nice to know it’s there. Hell after you add up all we pay in double and triple taxation, healthcare costs, housing costs,… canadian taxes don’t sound that bad, hell once you add up all the hidden costs I’m paying between 30-50% of my salary to some taxation.

17

Mario 04.30.05 at 11:11 am

Could it be that the goal of Bush’s program is to demonstrate how stubborn and closed-minded “Timberites” are? Nefafious theories are much easier to swallow than the prospect of (gasp) Bush actually wanting to fix the long-term problems with social security.

18

Mario 04.30.05 at 11:12 am

Typo: Nefarious not Nefafious in my comment above

19

Nicholas Weininger 04.30.05 at 2:58 pm

harry: if the President’s proposal actually involved not paying higher-income retirees SS at all, or paying them less than lower-income ones– in short, if it were anything like the traditional version of a “means-tested” program– you’d have a good point.

But as far as I can tell, it doesn’t do this. What he seems to be proposing is a phased transition to a guaranteed-minimum-income version of SS, like Milton Friedman’s negative income tax idea but limited to retirees. The end state is one where everyone, regardless of income level in their working lives, gets the same defined SS benefit. You get to the end state from the current world, in which those who made more get considerably higher defined benefits, by slowing the rate of increase for the higher-income workers until the benefit level for the lower-income ones catches up.

This cannot properly be called means testing, since those who do not need SS benefits still get them– they just don’t get *higher* benefits than everyone else. And unlike truly means-tested programs, it doesn’t have the problems you cite; there’s no marginal rate spike when you cross a means threshold, so no disincentive to save.

Please do correct me if I’m wrong about the meaning of the proposal. But unless the plan actually will end up paying smaller benefits to higher-income workers than to lower-income ones, it is either ignorance or dishonesty to call it means-testing.

20

mq 04.30.05 at 4:34 pm

“Retirees with income of $50-60K are comfortable, to say the least.”

It’s not retirees with an income of 50K I’m talking about — it’s working people with current work incomes of 50-60 K who have their retirement benefits cut under this proposal. Look at the actual proposal, not the propaganda used to sell it.

“The top 10% of earners take more than 10% of social security benefits, don’t they?”

Not when you net out their contributions, no.

But if you’re talking about taking away full benefits from the top 10% of earners in retirement, I wouldn’t be in favor of that, but in any case Bush’s proposal reaches down much further into the income distribution.

“And, how does this political mechanism you refer to work—you can raise taxes on the upper-middle class without destroying support for the system, but you can’t keep their taxes where they are and reduce their benefits?”

When people are completely outside the system, they don’t support it. When they are taxed for it they insist on their benefits. It’s politics, not pure economic rationality.

21

abb1 05.01.05 at 4:57 am

Mario,
Could it be that the goal of Bush’s program is to demonstrate how stubborn and closed-minded “Timberites” are? Nefafious theories are much easier to swallow than the prospect of (gasp) Bush actually wanting to fix the long-term problems with social security.

Taking politicians at their word seems like pretty much a definition of being ‘closed-minded’. OTOH, doubting, being skeptical and asking questions is known as ‘open-minded’.

22

videlicet 05.01.05 at 10:12 am

billmon acknowledges that…

I’m half inclined to accept the cynical interpretation, which is that the Rovians know the battle is lost and are simply doing a little populist grandstanding to try to keep the Democrats off balance and cover the retreat. (The fact that a Wall Street “Democrat” provided the plan in question only feeds this suspicion.)

but comes out much, much more cynical :D

once America finally maxes out on its Asian Express Card, and can no longer borrow 80-90% of the world’s available capital flows on concessionary terms, eliminating the Social Security deficit in the year 2041 is going to go from ranking 4th on Brad DeLong’s list of big macroeconomic problems to about 40th. Whether we will even have a Social Security system could be on the table then – a few decades ahead of the GOP schedule

btw

one of the most widely discussed alternatives is still on the table: imposing Social Security taxes on earnings above $90,000 a year. That one change would affect 6 percent of all workers, the very highest earners, but actuarial experts estimate that it would raise almost enough money to eliminate the projected shortfall without needing to cut benefits at all

cheers!

23

Matt Weiner 05.01.05 at 1:36 pm

First of all, the idea that any program that does not benefit everybody is going to wither and die has a multi-billion dollar one-word rebuttal. Medicaid.

By multi-billion dollar you are referring to the $10 billion Medicaid cuts in the recent budget resolution?

24

jet 05.03.05 at 9:10 am

Republicans think 1926 was a high point, Democrats think 1936 was a high point. Never shall the two meet.

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