Sunday, October 21, 2012

Four Bad Ideas for Social Security - and Three Good Ones

People say Social Security is in a "crises" - it isn't.   They use this argument to try to pass reforms that would essentially destroy the program.

The GOP has hated Social Security since its inception during the Great Depression.  They decry it as socialism, or communism, or some other -ism, and will do anything to make it go away.   Why is this?  Well, when people are destitute you can easily enslave them.   A powerful and wealthy middle-class or worse yet, working class is an anathema to the very rich, who would prefer that the rest of us all work for them.

The following are some ideas that have been floated around that I think are horrific for Social Security.  Not only are they unnecessary, but they will essentially destroy it.   Following that are what I think are some good ideas for Social Security, to insure it will survive for another 70 years (it's taking a long time to die, ain't it?).

Four Bad Ideas:

1. Privatization:  Initially, this seems like a swell idea.  You contribute money to Social Security, and you get to invest it - sort of like a forced 401(k).   The idea is, with the average rate of return of the stock market being greater than the return on Social Security, you will come out ahead.  And since the government doesn't have its hands on the money, the "trust fund" will be filled with real money, instead of government IOU's.

The problem with this is multifold.  First, the stock market averages a higher rate of return - on average - such as for the Dow Jones Industrial Average.  Some stocks tank, and sometimes the entire market tanks.  If you are retiring the year where there is a major recession (like 2009) you may find your retirement money cut in half.

And then there is investment choice.  How do we keep the plebes from all buying Facebook stock, or whatever the shouting guy is selling on the TeeVee?    And you know they will, too.  And it will go horribly wrong.

Third, this will dump a LOT OF MONEY in the stock market, which is the real reason Republicans want to do it.  With all these amateurs investing, well, you can fleece them like sheep.   It will make huge commissions for brokers and drive up stock prices.

Fourth, what happens to the people who invest poorly or are victims of circumstance?  Do we have a safety net for the safety net?

Social Security was designed to be that safety net.   Turning it into an IRA is not a good ida.

2. Means Testing: - turning Social Security into Welfare:  Some in the GOP say we should put a "means test" or "needs test" on Social Security.  This is a horrific idea and very UN-Republican as well.

If Social Security benefits are determined by "need", then the system devolves into Welfare for the elderly - an entitlement program.  And the only thing Republicans hate more than Social Security are entitlement programs.   So why are they proposing creating the largest entitlement program in our nation's history?  It makes no sense at all.

Worse yet is how this will incentivize people (or dis-incentivize them).   If you save money for retirement, you will be deemed to not "need" Social Security and thus be punished for saving.   If you are in the middle-class or lower-middle-class, you might very well think, "Gee, I'd better spend all my money now, because if I have any at retirement, I won't qualify for Social Security!"

And if you think this is far-fetched, look at how Medicaid plays out today.  People today are already "spending it all" in their golden years (or giving it away to their kids) so they can qualify for Medicaid.   It is a horrific thing and one reason Medicaid expenses are skyrocketing.   And you think doing this to Social Security is a swell idea?  You need your head examined.

3.  Age Cutoffs:  Saying that people over a certain age (55 in recent proposals) will get the "old" Social Security, and people below that arbitrary age will get something different is just not playing fair.   Social Security is an implied promise - actual promise - made by the Federal Government to its citizens.  We all have received those little pamphlets every year saying how much we will make in retirement from our Social Security.

And when we go online to a retirement planning website, or talk with our financial advisors, the amount of Social Security is always factored in.   Generations of people have planned their lives around this.   To take it away, because some in the government don't have the political will to do what is right, is just blatantly unfair - and will result in a lot more people spending their retirement in abject poverty.

4.  Cutting the Payroll Tax:   This is one thing I wish President Obama didn't do.  He cut the payroll tax, which is the tax that funds our Social Security and Medicare systems.   It gave people short-term tax relief, particularly those in the middle class and below (those making less than the cutoff amount, or about $108,000), but it has added to the problem of funding Social Security.   We will have to "make up" this loss, over time, to get back on track.   But I guess in a recession, you have to do things like this to get people going again.   And Lord knows, we can't let those Bush-era tax cuts expire, right?

Three Good Ideas:

1.  Establishing a "Needs Test" for SOME FORMS of Social Security:   Giving the child of a Millionaire a monthly payment, just because his parents are retired or passed away makes no sense.  And yet, I have many friends, who were children of Millionaires, who received this money and spent it on pot and new stereos.   Survivor benefits, in situations like this, should be subjected to a "needs" test, for the simple reason that these children did not pay into the system and thus have no expectation of being paid out at this stage in the game.   In situations that are non-retirement payouts to individuals who have not "paid in" to the system, yes, a "needs test" makes sense.

2.  Policing Disability Fraud:  A lot of people are on Social Security Disability in this country.   It is a necessary program, as you will discover, if you are ever in a car wreck and have your limbs lopped off, or go blind, or can't walk anymore - or whatever.    But others, well, they are not so disabled.   Some are claiming "carpal tunnel syndrome" and other hard-to-diagnose ailments as making them 100% disabled (even though they are in a bowling league).  We need to cut out the number of people who are on disability for things like this, as well as fibromalgyia, back pains, and other hard-to-verify ailments.   Make an example of a few of the worst fakers, and the rest will fall into line.

3. Raise the Retirement Age:  You can retire right now at age 62, and as I have analyzed, it is best to take the money at an early age, than to "wait" until age 70.   The current retirement ages were determined by the life expectancies of people back in the 1930's - and they need to be adjusted.   And I say this knowing that it goes against my own self-interest.   Raising "early" Social Security to age 65, for example, and "full" Social Security to age 70, might not be a bad idea, if people are living longer and can work until age 65 easily (and not end up on welfare).  The cost savings would more than make up for any projected deficit in 2037 or whatever.

* * *

Can Social Security be "saved"?   Of course it can.   It really isn't in that much trouble to begin with.  The pundits and the politicos like to make hay on this issue, predicting gloom-and-doom.   But the reality is, the program is sound, and it can be easily saved by adjusting benefits and income, over time.   There is no need to "gut" a program that has been running for 70 years without a hitch.

Social Security just needs to be tweaked a bit.  Don't throw out the baby with the bathwater - particularly when it is your baby.