Very good question...

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I included this as one of the points in direwolf's plan to fix SS a few days ago. I agree with you on this one. I also propose getting rid of the regressive cap on SS withholding tax.

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What a drag it is getting old. -- Stones

Depends in how much faith you have in the American people and their "savings" habits. Presently I have little to none.

The fact is that eventually all of us will be unable to work. Thus eventually all of us will retire. Many of us do not save at all for retirement and even more save to little.

The plain fact is that our country as a society will not sit around while our elderly eat dog food because they didn't plan for retirement. So in the end it becomes a retirement account for many.

The question then becomes. Do we want it to be another welfare program or do we want it to be a forced retirement plan?

IMO we, as a country, would be far better served forcing everyone to save for retirement than merely forcing everyone else to support those that failed to do so.

~Matt

For definition purposes I offer the following two items -

A discussion the Brookings Institution in 2000 (http://www.brookings.edu/comm/transcripts/20000525p2kqa.htm):
D. Schorr: May I ask one question, an uniformed question. When Medicare started in 1965, one of the things people were proudest of, that this was an entitlement without any means testing. Medicaid was where poor people went. And in some of the things I've heard from both of you, and in your case, Chris, most especially with regard to prescription drugs, I sense the beginnings of means testing, am I wrong?

G. Hubbard: Do you want to go first?

C. Edley: No, go ahead.

G. Hubbard: I don't know that I would quite put it that way. Let's go back to what you would hope Medicare would do. You would hope that a Medicare program provides social insurance and access to insurance for the elderly. Achieving that goal need not require the current Medicare program, you could have any of a number of programs that could have accomplished the same thing. In terms of means testing, means testing based on lifetime income, or things like that, is clearly something to think about. Means testing based on current income is almost always fraught with peril. So, I certainly wouldn't want to characterize Governor Bush's proposal as centering directly on means testing.



And an "issue brief" from the American Academy of Actuaries
(http://www.actuary.org/pdf/socialsecurity/means_0104.pdf):

Recently, public attention has increasingly focused on Social Security’s long-range financial problems. According to the most recent report of the Social Security trustees, the program will not have enough money to pay all benefits when due by the fifth decade of this century. A wide variety of possible reforms have been proposed to eliminate all or a portion of Social
Security’s long-range financial deficit. Among these proposed reforms is reducing or eliminating benefits for wealthy and/or high-income participants and beneficiaries, generally characterized as “means testing.” Advocates of means testing note that reducing or eliminating benefits for those whose income or assets exceed certain thresholds would help preserve Social Security as a safety net for those who truly need it.
This proposal raises some important issues:
- Would such a profound change in philosophy weaken public support for the program?
- How would such a change alter the balance between individual equity and social adequacy?
- Would other factors reduce the expected financial gains from means testing?
- How would means testing be administered?
- Are there other ways for achieving a similar degree of savings without changing the current program structure?

I think that people of means assume there will be means testing and they will be shut out of SS. I would consider myself of relatively modest means (better than lots of folks, but certainly not as rich as I'd like to be :) and I hold out no hope whatsoever that I'll ever see a dime of SS.

This would be a terrible idea. It would provide a big disincentive to save for retirement. The schlub who saves gets screwed while the guy who spent every dime gets a check.

We have plenty of welfare programs. We don't need every program to be a welfare program.

Direwolf, do you really want a 12.4% tax increase on the country's most productive citizens? If so, as a tax hiker you make Kerry look like a rookie. I doubt such a tax would raise any additional money at all anyway. Even if it did, the politicians would just spend it.

Explain to me again why having bonds in the trust fund helps anything. If it does, why not just put an extra few trillion into the trust fund. We could do that with the stroke of a pen tomorrow, though I really don't see how it would change anything.

This would be a terrible idea. It would provide a big disincentive to save for retirement.

In theory, I suppose, but not really. We have welfare now, but most people don't see it as a disincentive to work. A few total losers, maybe, but not a statistically significant percentage of the population.

We have plenty of welfare programs. We don't need every program to be a welfare program.

That's an interesting way of putting it. I look at it the opposite way: We don't need a mandatory government retirement program. All we need is a safety net program to make sure that those whose retirement funds are insufficient can stay out of poverty, or maybe a little better.

Direwolf, do you really want a 12.4% tax increase on the country's most productive citizens?

No, I'm not sure the rate should be that high. But I'm sure that it should not be a regressive tax. Why should Warren Buffet pay a much lower effective tax rate than a postal worker, e.g.? If you eliminated the cap ($90k, I think), you could probably lower the rate slightly. In any event, whatever the rate is, even a flat rate hurts a rich guy less.

If so, as a tax hiker you make Kerry look like a rookie.

BFD. I'm not interested in how I compare to Kerry. I'm interested in rational thought. When I hear a good argument for regressive taxes, I'll change my mind. Seems to me like a regressive tax is not very Christian, either.

Even if it did, the politicians would just spend it.

That's not a good argument for not raising the money. That's like a Grover Norquist scare tactic. Or maybe an argument for critiquing the budget. Anyway, I'd support some sort of an Al Gore "lockbox" arrangement for any additional funds raised by a SS tax increase.

Explain to me again why having bonds in the trust fund helps anything. If it does, why not just put an extra few trillion into the trust fund. We could do that with the stroke of a pen tomorrow, though I really don't see how it would change anything.

I don't understand this at all.

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What a drag it is getting old. -- Stones

I don't get your point about the tax rate at all. I don't think you get it either. Raise SS taxes high enough, the Warren Buffets of the world will structure their compensation to never pay a dime. If you think an increase in marginal tax rates of 12.4% will yield a bounty of tax revenue, you are just mistaken. Since WWII, despite the movement of tax rates around from a high of 91% to a low of 28% top marginal rate, the government's revenue is historically around 18% of GDP give or take a point or so.

I would expect a tax structured as you describe would wind up producing less revenue, not more. Increases in marginal tax rates are the single most incentive killing tax approach you can design.

If you want a lock box, support private accounts. That is what private accounts are, when you boil things down to the basics. It is just a way of locking up assets, real assets with claims on the private economy, in a form politicians can't touch.

You show your stripes when you say just because the politicians will spend, rather than save the money, is no reason not to raise taxes.

In between now and 2018, when SS taxes no longer support expenditures, there will be a SS surplus of $2.8 trillion dollars. Absent private accounts, politicians will spend every dime on other programs. If you raised taxes and actually did boost that number to, say $4 trillion dollars spent, explain to me how SS would be better off.

I don't know what there is to not understand about my suggestion that we simply put an extra few trillion into the trust fund. One sentence passed by Congress and signed by the president would suffice: The US Treasury is hereby directed to contribute $4 trillion dollars into the SS trust fund to be funded by bonds of such amount and maturity as it deems advantageous.

Now the trust fund has plenty of bonds to finance SS for the next 100 years. How would this change anything?

If you think an increase in marginal tax rates of 12.4% will yield a bounty of tax revenue, you are just mistaken.

I hear what you are saying. I'm not talking about increasing the marginal rate. I'm talking about increasing the cap above which people pay no taxes. I guess that's technically an increase over 0%. I find it hard to believe that most people earning $150,000 or $300,000 are going to totally restructure their compensation to avoid paying any extra SS tax. Some will, for sure. But I'm not sure that's a compelling argument for a regressive tax. I will take your data at face value, since I have not researched it. I do know that when the marginal rate gets fantastically high, like 91%, people get very creative or just stop working. But this is very far from that situation.

If you want a lock box, support private accounts. That is what private accounts are, when you boil things down to the basics. It is just a way of locking up assets, real assets with claims on the private economy, in a form politicians can't touch.

Part of me likes the private account idea for that reason. But there are some big problems with it. First, large transition costs. Second, private accounts don't provide the type of safety net that I think is the entire purpose of SS.

You show your stripes when you say just because the politicians will spend, rather than save the money, is no reason not to raise taxes.

Just as you showed yours. I thought I was just showing that you are addressing the wrong side of the equation. Spending is the problem. My lockbox idea is aimed at ensuring your spending problem won't come into play.

In between now and 2018, when SS taxes no longer support expenditures, there will be a SS surplus of $2.8 trillion dollars. Absent private accounts, politicians will spend every dime on other programs. If you raised taxes and actually did boost that number to, say $4 trillion dollars spent, explain to me how SS would be better off.

Objection. Assumes facts not in evidence. See also lock box proposal and argument above.

I don't know what there is to not understand about my suggestion that we simply put an extra few trillion into the trust fund. One sentence passed by Congress and signed by the president would suffice: The US Treasury is hereby directed to contribute $4 trillion dollars into the SS trust fund to be funded by bonds of such amount and maturity as it deems advantageous.

Now the trust fund has plenty of bonds to finance SS for the next 100 years. How would this change anything?

Well, that's great for the SS program because it can continue to operate without running out of money. However, I think most economists would not advise floating $4T in debt. That's like fully pre-funding my own retirement account by maxing out my credit cards.

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What a drag it is getting old. -- Stones

I agree that spending is the problem. Private accounts by themselves don't solve anything. Putting money where Congress dare not spend it might cause them to spend less.

I don't know what facts that you refer to that are not in evidence. Are you referring to my assumption that, if Congress gets an extra trillion, they will spend an extra trillion? Don't you think that has been proven every time?

By raising SS taxes 12.4 %, you will lift marginal tax rates for the affected people from 36% or so to 48%. You are talking a major difference. Behaviors will change. You will have a recession for a time. Income patterns will adjust. The tax will probably not raise more revenue after all that sorts out.

Al Gore's lock box was no lock box at all. It was in the control of the government. Every penny was borrowed to finance spending. No lock. No box.

Our SS retirement accounts are fully funded via the government's credit card. The net result of the legislation I suggested would be zero. It is just a matter of recognizing the SS obligation formally. The obligation is there and is not going away. Ignoring it by not issuing the bonds to pay for it is of no consequence. The obligation is there. The markets know it is there. It doesn't matter whether it shows on the balance sheet or not.

When you reference private accounts in this thread, you are speaking of the 3-6% (it has ranged that much, I think they are at about 5% these days) of income correct? Or do you mean having all of the current SS dollars that go to bonds go into private accounts?

I actually like the premise of a small % of SS dollars going into private accounts. To me the current ideas from the President on SS reform (as well as most other progrms) indicate we're going finally admit that what was once a safety net is now a full-fledged government mandated required retirement program. As such, I think private accounts are a good way to diversify this de facto required retirement program. And I'm not necessarily it's bad that this is now a forced retirement plan, but I think it is contrary to the usual views most fiscally conservative republicans, democrats (the few that there are), libertarians, and independents.

And how'd we get so far away from "means testing"? :-)

"And how'd we get so far away from "means testing"? :-)"

Because "means testing" is entirely dependant on how you define SS. If it's a "forced retirement plan" then there is no reason for means testing, everyone gets out what they put in...well hopefully pluss some interest. The only time means testing would be necessary is if we are to define SS as another welfare program.

"but I think it is contrary to the usual views most fiscally conservative republicans, democrats (the few that there are), libertarians, and independents"

I'd agree with that. I think historically and "Utopianly" these groups would argue that the individual should get the money and spend or save it as they will. If they don't plan for retirement they are SOL.

Unfortunately as I posted before our society won't sit around and allow our elderly to eat dog food EVEN if they are in that situation due to poor financial choices and irresponsbilty. The compromise is to force people to save. In a sense not a "tax" as people *SHOULD* get it back but a behavioral modification.

~Matt

When I talk about private accounts, I mean contributing maybe 1/4 of the SS tax payments into private accounts. That would be about 3% of wages.

I guess I don't understand your take on SS. I have always thought about it as a forced retirement plan. That is exactly what I think it should be, and I support it in that regard.

Upper income tax payers pay nearly all the income taxes in this country. I really don't think it is asking too much that the ordinary taxpayer fund his own retirement. I guess tax policy along these lines could be described as regressive, but so be it.

I think these topics address means testing fairly directly, since they address the underlying rationale for the program.

The current plan is for ~5% of SS tax payments right? Somehow I get that confused in my head.

Well, I think your confusion on my stance on SS results from the fact that the government has never officially said "SS is now a mandatory government run retirement program." If they did, then they'd have a better charter to alter its fundamental operating and funding methods. Since it is still a social safety net program it is contingent upon those who "have" to help those who "don't". At least that's how I see it.

I'm lucky enough to be young and to "have" so I have no qualms with helping the elderly or indigant who "have not".

But if you view SS as a mandatory retirement plan, or a social safety net, then that will really shape your view on what level people should contribute. Since I see it as a fall back plan, I'm ok with the upper income tax payers funding most of SS (I will also note that I don't believe that just because you pay a the most in taxes it means you make the most money in America, the wealthiest % of people pay a lot of money to get out of paying taxes).

I think means testing can fall into this, but that's just a non-threatening way to say "We're going to cut payments and benefits". Since it isn't yet a government mandated retirement plan that means it isn't a "You get out what you pay in" system. If it gets changed to be like that, then I'm all for changes more like what you reference. However, till it is like that, I think society in general must shoulder the responsibility as good people to help those that we can, and a major part of that is a social safety net program. What we have to do is make people realize it is NOT a retirement system. Never was supposed to be, and can't properly act as such.

I don't think your opinion of SS as not being a forced retirement program matches the opinion of the general public. I admit that your vision of it as basically a welfare program does correspond to reality in part.

If you ask a senior citizen if he is receiving welfare when he gets his SS check, he would probably be insulted at the question.

I guess tax policy along these lines could be described as regressive, but so be it.

As a policy matter, how does one ever justify a regressive tax? I think of it as fundamentally unfair. As I mentioned before, it also seems very un-Christian.

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What a drag it is getting old. -- Stones

Very simple. Retirees vote, have a huge, well organized lobby (AARP), and have plenty of time to write letters to their congressman.

I don't remember seeing that shalt not levy regressive taxes in the Bible anywhere. I don't see your reasoning on the un-Christian angle.

Most taxes are regressive. RE taxes, sales taxes, VAT, usage fees etc. The only exception I can think of is income taxes. Your restaurant bill is regressive.

What is wrong with having people fund their own retirement? They manage to fund their own houses, their own cars, etc.

It would provide a big disincentive to save for retirement.

I don't know about that logic, Art. It kind of strikes me the same way that old Supreme Court ruling about random stops- it's unconstitutional to randomly stop an individual, but somehow it's OK if we set up a check point and stop everybody without probable cause. Huh?

Or: If means testing would be a disincentive to save for retirement, why is it you don't think universal coverage is an even bigger disincentive to save for retirement? Isn't that a big part of the problem, in fact- haven't people looked to SS as a retirement fund, and accordingly paid less attention to their own savings?

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"People think it must be fun to be a super genius, but they don't realize how hard it is to put up with all the idiots in the world."

Well sure SS is a disincentive to saving for retirement. No way around that for any program that hands out checks.

Two people make the same amount of money and pay the same SS taxes. One saves his money; the other blows every dime. Do you really want to cut off the guy who saves his money and subsidize the guy who spent the money faster than he got it?

That is not a plan in my book. Both should get the same SS check.

Two people make the same amount of money and pay the same SS taxes. One saves his money; the other blows every dime. Do you really want to cut off the guy who saves his money and subsidize the guy who spent the money faster than he got it?

I'm not sure yet. But at least we can dispense with the disincentive argument.

As for these two hypothetical guys . . . How likely is that scenario? Knowing that there's going to be no social security check unless one is below a certain means, how many people are going to blow off their retirement fund? Now that I think about it, might means testing not actually provide a pretty strong incentive to save for retirement? (Assuming, of course, that Social Security benefits under this plan would be rather meager.)

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"People think it must be fun to be a super genius, but they don't realize how hard it is to put up with all the idiots in the world."

Premise: A regressive tax is one in which the proportion of one's income that one pays in taxes is larger for people that are poor.

Oh goody - now I get to quote scripture! The Bible says things like:

Prov. 29:7. The righteous is concerned for the rights of the poor; the wicked does not understand such concern.

Deut. 15:7. If there is a poor man among you, one of your brothers, in any of the towns of the land which the LORD your God is giving you, you shall not harden your heart, nor close your hand to your poor brother; but you shall freely open your hand to him, and generously lend him sufficient for his need in whatever he lacks.

Lev. 19:19ff. Now when you reap the harvest of your land, you shall not reap to the very corners of your field, neither shall you gather the gleanings of your harvest. Nor shall you glean your vineyard, nor shall you gather the fallen fruit of your vineyard; you shall leave them for the needy and for the stranger. I am the LORD your God.

Prov. 31:8ff. [Commandment to kings.] Open your mouth for the dumb, for the rights of all the unfortunate. Open your mouth, judge righteously, and defend the rights of the afflicted and needy.

Luke 12:33. "Sell your possessions and give to charity; make yourselves purses which do not wear out, an unfailing treasure in heaven, where no thief comes near, nor moth destroys."

Luke 3:11. And [John the Baptist] would answer and say to them, "Let the man with two tunics share with him who has none, and let him who has food do likewise."

Prov. 22:9 He who is generous will be blessed, for he gives some of his food to the poor.

Deut. 15:10. You shall give generously to [your poor brother], and your heart shall not be grieved when you give to him, because for this thing the LORD your God will bless you in all your work and in all your undertakings.

Prov. 19:17. He who is gracious to a poor man lends to the LORD, and He will repay him for his good deed.

Luke 14:12-14. "When you give a luncheon or a dinner, do not invite your friends or your brothers or your relatives or rich neighbors, lest they also invite you in return, and repayment come to you. But when you give a reception, invite the poor, the crippled, the lame, the blind, and you will be blessed, since they do not have the means to repay you; for you will be repaid at the resurrection of the righteous."

Mt. 19:20ff. The young man said to Him, "All these commands I have kept; what am I still lacking?" Jesus said to him, "If you wish to be complete, go and sell your possessions and give to the poor, and you shall have treasure in heaven; and come, follow Me."

Is. 10:1-3. "Woe to those who enact evil statutes, and to those who continually record unjust decisions, so as to deprive the needy of justice, and rob the poor of My people of their rights... Now what will you do in the day of punishment, and in the devastation which will come from afar?"

Jer. 5:28f. "[The wicked] do not plead the cause, the cause of the orphan, that they may prosper; and they do not defend the rights of the poor. Shall I not punish these people?" declares the LORD. "On such a nation as this, shall I not avenge myself?"

James 5:1-6. Come now, you rich, weep and howl for your miseries which are coming upon you. Your riches have rotted and your garments have become moth-eaten. ...Behold, the pay of the laborers who mowed your fields, and with you have withheld, cries out against you; and the outcry of the harvesters has reached the ears of the Lord of Sabaoth. You have lived luxuriously on the earth and led a life of wanton pleasure; you have fattened your hearts in a day of slaughter.

Luke 6:24. "But woe to you who are rich, for you are receiving your comfort in full."

I agree that sales taxes are generally regressive in an indirect way, and that is one reason (among others) I opposed W's thought about replacing the income tax with a national sales tax (would hurt the economy too).

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What a drag it is getting old. -- Stones

I guess I don't see that you have proven anything. I have no problem with any of the passages. Christ demands charity. That doesn't mean every tax has to be progressive. People who earn more, should pay more. The problem is when that philosophy gets carried away.

I'm not saying every tax has to be progressive. I'm saying they should not be directly regressive. Sometimes that is an unavoidable consequence of a tax with other rational purposes - like a sales tax. But there is no reason to intentionally punish poorer people.

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What a drag it is getting old. -- Stones