Social Security Rant, part deux

A couple of posts down, I went off on the daily paper's conservative hack after he made a mess of an argument on Social Security. I wanted to provide three quick updates.

One, here is the LTE I wrote after condensing that post into something closer to 200 words:

To the editors,

There is so much deception in Patrick McIlheran's column today about Social Security, it's hard to decide which to write about. But I'll limit myself to three:

First, he writes, "As an investment, it's a dog." Social Security is not now nor has it ever been an "investment," and to judge it against other investments is disingenuous.

Second, he says that future retirees are "only guaranteed lower benefits, higher taxes and a later retirement." The column only criticizes Democrats and "the left," so he does not note that only Republicans are recommending lower benefits or later retirement (see Bush's press conference last week). As for higher taxes, he forgets that the middle class and working poor have been overtaxed through the payroll tax for twenty years, and Reagan's original 1983 design was to shift tax burden to those better able to bear high taxes once the surpluses end.

Finally, in perhaps the biggest deception of all, he lionizes private accounts as an alternative without noting that the $2 trillion transition to risky private accounts actually does nothing to address the solvency issue. In other words, he is advocating a solution that will cost us trillions in additional taxes or borrowing not once, but twice.

For someone so upset about high taxes and lower benefits, McIlheran strangely does not seem to mind the risk of low benefits and massive cost a change to private accounts would leave us.

Two, I wanted to send you to read Billmon, who writes everything I said in 1500 words in just two-and-a-half paragraphs:

Maybe the White House figures deep benefit cuts will give the plan an aura of “fiscal responsibility,” making it easier to sell to the Senate moderates. The Rovians may assume the Senate is the real bottleneck, while the party automatons in the House ultimately will vote as they are told to vote.

That may be true, but it’s still hard to believe that anyone – again, leaving aside the pompous windbags in the corporate press – believes Bush’s “Robin Hood” pose will go over big with the volk back home. If means-testing benefit cuts is such a big political winner, why did the administration and Congress exempt Medicare (the universal entitlement program) from budget reductions this year, while swinging the axe at Medicaid (the welfare program for the poor)? Why does the GOP House keep trying to scale back the earned income tax credit, while spending megabillions on estate tax relief?

It should be obvious by now that Bush and the Rovians don’t give a rat’s ass about the poor – except when they can be used as decoys to funnel federal money into their religious patronage machine or provide the appropriate background for a few quick photo ops. As Matt Yglesias and others have already pointed out, their Social Security plan only “aids” low-income retirees if you ignore the trillions in general revenues that still would have to be poured into the trust fund to subsidize Shrub’s precious private accounts. Yet redirecting those same revenues into the existing system (without the private accounts) would leave all retirees better off than what Bush is proposing. If Robin Hood had tried pulling a bait and switch scam like that, I think Friar Tuck would have excommunicated him.

Three, in the comments to that post, one of my four regular readers, Dean, asks questions. I thought I would answer some here, rather than there.

Q. Protecting the [financially] untutored and undisciplined would have to be part of any privatization. Or perhaps we could take care of the whole ownership problem by making benefits inheritable?
A. See, more hidden costs. All the plans I've seen, though, are very limited in terms of investment options. That seems really crazy, that you get your own private account, but then they tell you what you have to do with it. That may cut down on people losing their shirts in the market, but you can't eliminate risk entirely. Further costs would have to include some kind of insurance for those who invest badly, unless we want them really to eat cat food.

Q. I can agree with gradually raising the retirement age. Would that save enough?
A. What I would want to see numbers on is a scheme whereby the retirement age was slowly raised, something like one month every other year over the next 48 years, so that by 2054, the retirement would be 69.5. By 2018, when the surplus supposedly dries up, the retirement age will be 68, and iin 2042 when the trust fund supposedly runs out, the retirement age will be 69. I don't know how much the changes would prolong either of those key dates, but it would have to make a little difference.

Q. I presume that, perhaps, you also saw the letters on the opposite page. The middle letter mentioned removing the income cap. I would be in favor of that. How much would that gain? Also I've thought about cutting benefits for the rich. Is there a maximum benefit?
A. The good thing about raising the cap is that, short-term, we would get a huge influx of cash that could be used to end the budget deficit and pay down debt to leave us in better shape for the 2018 and 2042 dates. In fact, I would do two things: Raise the cap from $90,000 to $500,000, and include in that all income, not just wage income. I would tax investment income less--say 3.1% instead of 6.2%--and I would also exempt employers from their half over $90,000 in wages. I might also consider shifting the employers' share from $0-90,000 to $12,000-102,000, to encourage job creation.

The downside to all of this is that the rich, who will have paid a whole lot more into the system by the time they retire, and much of the extra pay-in will be eliminated by the larger pay-outs. Unless we adjust the pay-out scale. Here's how the scale currently works:

There are currently two "bend points": the first at about $7,500 and the second at about $45,000. When you retire, you get 90% of your average income up to the first bend point, 32% up to the second bend point, and 15% of the rest of your income (up to a maximum of $90,000).

A worker with an average income of $7,500, for example, would get an initial Social Security benefit of $6,750. A worker with an average income of $45,000 would get an initial Social Security benefit of $6,750 + $12,000, or $18,750, which is 42% of their total income.

You can extrapolate from there for someone at $90,000, who would get back $25,500. If we lifted the cap to $500,000, without adding additional bend points, a $500,000 earner would get back $87,000. That may be fair, based on what he or she paid in, but it is certainly more than necessary to live on. Adding a bend point to 10% at $125,000 and to 5% at $200,000 gives that $500,000 earner just $52,750, which is mighty comfy and saves money for the solvency of the trust fund. (Looking at it now, I wonder if the bend points shouldn't be closer to 7% and 3%.) Yes, it ends up being barely 10% of the wealthy person's income, but someone who earns $500,000 probably has IRAs, 401(k)s, and other investments to help maintain that lifestyle.

P.S. Right now, I'm watching the public TV auction, and right now I could bid on dinner for four with Walker: Tosa Ranger. It's very, very tempting.