Monday, January 17, 2005

On Social Security Reform Part 2

So we've established (I hope) that there isn't a crisis which is specific to social security. We've also admitted, however, that there is a deficit crisis: the government is spending more than it is taking in, and this will cost us in the long run (in some ways I understand and in many ways I don't). Social security is related to the real crisis, the budget crisis, only insofar as it is a major government expense. So the question becomes not how to "save" social security, but whether reforming social security in some way -- as opposed to other options like cutting other programs, quitting starting preempting wars, raising taxes, etc. -- can help save us from our budget crisis. Again, I apologize if I am out of my league in terms of policy, but I want to try.... At least I'm thinking.

I think that we can and should reform social security as a part of an overall plan to get the federal budget under control. My controversial -- but far from innovative or novel -- proposal would (1) save the government money on social security, reducing the deficit in the interests of all and (2) MOST IMPORTANTLY from my Social Gospel Christian perspective, do so consistent with the interests of "the least of these." President Bush's plan to "privatize" social security would do neither of these things. It fails both tests.

First, let's look at what is wrong with Bush's "private accounts" approach.

Social security costs money because it is an obligation that the government owes to its senior citizens. Every month the government must (and should) pay Granny Smith $500 a month (or whatever sum the current benefits are, I have no idea). The government pays these obligations from current payroll taxes -- from social security taxes that you and me pay today. The program is redistributive. It redistributes money from the young to the old, who, often unable to work, find it difficult to support themselves and deserve our social support.

So the problem with Bush's plan is that it takes money out of the pool of money available to pay Granny Smith. Social Security will still have to pay out the same amount to seniors, but some of the payroll taxes it uses to do this will now be locked up in private accounts. The revenues for paying social security to today's seniors decline, while the obligations remain constant. This fails the first prong of the test outlined above: instead of saving the government money and reducing the deficit, it does just the opposite.

It also fails the "Christian test," by failing to serve the least of these in two ways. First, insofar as private accounts make social security more rather than less insolvent, it makes the program vulnerable. With the de facto reduction in payroll taxes that private accounts represent, the social security program may become so expensive that it has to be killed altogether. This would obviously be disastrous for seniors in poverty. Second, and more fundamentally, private accounts don't help the poor with their retirement. It's all well and good that I pay $100 a month into a private account that will be available for me at retirement. But what happens to the minimum wage worker? How large could her "private account" be? The very purpose of social security is to help those who never made enough to save for their own retirement. If we base social security payouts on how much you earned during your lifetime, then the entire "least of these," redistributive purpose of the program is destroyed.

My alternative will serve the least of these and save the government money. The idea, which has been around for a long time but never seriously entertained because it is politically dangerous, is means testing. Since social security is redistributive (from today's workers to seniors) and meant to help seniors tho can't help themselves, then perhaps we should limit benefits to those seniors who really can't help themselves.

Although I consider myself as having a middle class background -- my mom is a kindergarten teacher and my dad a nurse -- my grandparents are wealthy. They're what you might call "almost millionaires," that is, they have somewhere around a million dollars saved and invested. Yet, despite their wealth, they still receive that social security check every month. I consider it nonsensical that we redistribute money from today's workers -- payroll taxes paid by the lower and working class no less -- to people like my grandparents.

Social security benefits should be phased out for retirees who don't need the help. Benefits should be retained or even expanded for those poorer seniors who truly need the help. This would save the government an immense sum of money. That is, billions upon billions of dollars per year. Moreover, it would be consistent with serving the least of these. By definition, their benefits would not be affected.

There are two major objections to means testing, the first is the "I-paid-into-the-program-so-I'm-entitled-to-get-benefits" objection. This is the one my wealthy grandparents would most likely make. The second is that means testing social security would induce seniors not to save for their retirement. I'll address both of these objections in my next post, since this one is becoming unwieldy.

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