Tuesday, December 28, 2010

More talk on making Social Security more progressive -- and quickly

Michael Gerson has another “challenging” column Tueday Dec. 28 in the Washington Post, p A13, called “Face Social Security” in print, and “Social Security reform is the answer to Obama’s – and the nation’s” online, link here.

The essay doesn’t quite support the ambitious (if not bombastic) title. He does say that entitlement reform is more realistic than broad-based tax reform, but admits first that Medicare has the biggest problems, but then writes “While Social Security is a relatively small contributor to future deficits, reforming it would be a large symbol and a logical place to begin.”

True, Social Security doesn’t face immediate default because of an accounting trick – it can use other government IOU’s to coverup shortfalls.

The recommendations are the same – raising retirement age, and reducing benefits according to Means, with a taste of Marx, the way soldiers used to make fun of “pinko” in the barracks.

To the extent that social security and Medicare are supported by “taxes”, they ought to be progressive and part of the general tax system. But this is where the libertarian-side of the GOP had it right: there ought to be more that you own, and that can’t be expropriated.

It is sounding more as though the means testing will be proposed to come (as James Baker used to say, in a different context) “sooner rather than later”.

Gerson’s comments follow Samuelson’s by a day (yesterday’s post). Yes, there’s no way to make Life fair.

Monday, December 27, 2010

On Social Security and Medicare, life will be unfair to -- somebody; Part B premiums rise for "wealthier" benes in 2011 anyway

Robert J. Samuelson has a column on p A15 of the Washington Post, “On fairness dilemma” in print, “On Medicare and Social Security, be unfair to the boomers” today Dec. 27, link here.

He writes “not making cuts would also be unfair to younger generations and the nation’s future. We have a fairness dilemma: Having avoiding these problems for decades, we must now be unfair to someone.”

The gradual raising of Social Security benefit eligibility ages has already been proposed, but he says that quickly (within a few years, as the economy recovers) benefits for wealthier retirees should eventually be cut now. Indeed, admit that FICA is a redistributive tax, not a retirement annuity. He talks about benes paying some of their own Medicare premiums, but we already do that with Part B  ($96.40).

It's actually a bit more complicated than that. In 2011, the standard Part B premium rises to $115.40 (20%). But, Social Security writes "However, there is no Social Security cost-of-living adjustment (COLA) in 2011. So, most people with Medicare already enrolled in Part B in 2010, with income below $85,000 for an individual or $170,000 for married couples, will pay the same premiums in 2011 they are paying in 2010." The presence of accumulated or inherited wealth doesn't seem to matter, just IRS-reported income. (How else could they do it, anyway?) The link is here.

On Dec 19, Samuelson had run a column “Retiree benefits are cheating our children”, about the lack of prefunding for public employee retirement programs.

Friday, December 24, 2010

Local governments push up property taxes steeply to pay for public employee pensions

Jeannette Neumann has a detailed article on the front page of the Christmas Eve Wall Street Journal, “Pensions push property taxes higher; cities tap homeonwers for revenue as workers’ retirement, health costs rise”, link here  (may require paid subscription to see entire article).

There’s no question that politicians have been unwilling to fund municipal and state employee (fire, police, teachers) pensions honestly, so property taxes are rising, in some cases (in PA and IL) by up to 13% in one year, just to pay the promises. And many states are looking more at “defined contribution” strategies for new workers. It’s easy to imagine how this can be twisted into a “family values” argument; our society expects workers to provide their own retirement through earning pensions or now 401(k)’s, can’t depend on “family.”

Another possibility is that local governments will make more of the idea of "commercial use" and could try to charge more for homeowners who operate home based businesses (even blogging), or who telecommute.

Similarly, on Dec. 21, the Washington Post ran an editorial “For Maryland taxpayers and state workers, pension tension”, here. Recently, the DC area media have covered plans in Virginia to switch new workers much more to a defined contribution system.

Wednesday, December 22, 2010

Life insurers push inheritance taxes so they can sell more sheltering products

Timothy P. Carney has written a number of columns on the inheritance tax, including one today on P 19 of the Washington Examiner (“conservative”), “Insurers push death tax to profit from its effects”, link here.

He talks about the AALU, the Association of Advance Life Underwriting, as a player in the lobbying effort, encouraging higher estate taxes so that the life insurance industry can design and build products to help rich people get around them. There’s a slogan, “Leave No Heiress Behind”, an a notion of a “Paris Hilton Effect”. The AALU is at this link  and on its home page it says “Membership in AALU is like an insurance policy. It provides protection against a host of threats to our products. We have a positive story to tell legislators, many of whom misunderstand what you do and the products you sell.”

It's well known that a number of life insurance companies, even as they are acquired by conglomerates, are branded as focusing on "fratenal" markets, including high net-worth individuals and families.

I’m impressed that once you sell things for a living, you lose your right for you own personal voice on public policy matters altogether.

Tuesday, December 21, 2010

PACE program keeps more elderly at home, uses day care

Susan Jaffe has a “Health & Science” story in the Dec. 21 Washington Post, “Caregivers aim to trim costs by helping seniors stay at home; PACE tries to keep frail people out of hospitals and nursing homes”, link here. The acronym PACE refers to “All-Inclusive Care for Elderly”. The article describes how one qualifies (minimum age 55) and how Medicare and Medicaid work in the program. In the example situation given, a driver picks up an elderly person living alone, helps her down the stairs, and takes her to a day care setting and brings her back. The person has to be capable of being left alone at night in some cases.

Elder day care typically has waiting lists and has certain minimal health requirements (like TB tests).

Sunday, December 19, 2010

VA may switch newer employees to partial defined contribution pension program (GOP proposal); Fed used to be like this

Virginia Republican Governor Bob McDonnell is proposing that most state employees hired since July 1, 2010 contribute 5% of their salaries to the pension system, reversing a 27 year period (since 1983) when employees paid nothing. So the plan is going back to partially a defined contribution as well as defined benefit program. Rosalind S. Helderman has the Washington Post blog entry here.

Until sometime in the 1980s (with Reagan’s reforms), federal employees used to have a payroll deduction to contribute to their own retirement, but did not (always) participate in Social Security. My own records show that when I had a GS-4 job at the National Bureau of Standards in 1963-1964, I did make social security contributions, but not when I had a civilian job with the Navy from 1971-1972. I was able to retrieve the retirement contributions when I left and buy a Ford Pinto. I still remember!

Friday, December 17, 2010

Md Congressman Hoyer says Social Security is paid for through 2037

Robert Weiner, formerly of the House Aging Committee, quizzes Maryland Democratic congressman Steny Hoyer in the Washington Post, p. A31 today, Friday, Dec. 17, link here.

Hoyer says that Social Security is paid for through 2037, and 25% short at most after that. It’s not the cause of the deficit. Medicare is much more problematic.

Still, a search on Hoyer shows that he does favor a more “progressive” system, with less for wealthier retirees, and looks on it as a tax rather than an “annuity.”

Tuesday, December 14, 2010

Can "we" afford to pamper "inherited wealth" in drafting the tax bill? The GOP still thinks so

The “tax bill” compromise has several provisions that some people think are not good for long term fiscal stability. Part of the provision would knock off 2% from the payroll FICA tax that employees pay into social security. Apparently this would not apply to employers or to self-employed people. (Hint: not so good for small business, a GOP pressure point).

According to “conservative” Fox News, House Dems were still balking at extending the estate tax “exemption” into 2011, according to a major story Dec. 13, link here. The bill would set the (incremental) estate tax at 35% for estates of $5 million or more, rather than 45% at a $3.5 million cutoff. Estates between $1 million and $3.5 million apparently stay as they are now (after successive reductions during the Bush years). And it seems that the GOP will block other legislation (even repealing "don't ask don't tell") until it gets its way with this.

In the late 60s and early 70s, as I came of age as an adult, there was a lot of indignation from the far Left about “inherited wealth”, which many thought should be outlawed (sounds Maoist now, doesn’t it). For many seniors today, too old to have been able to buy long term care insurance, inherited wealth pays for long term care, and many seniors haven’t gotten around to spending on themselves before they needed care.

Update: Dec. 19

Ali Velshi hosted a discussion on CNN today. Conservatives said that the inheritance tax interferes with passing on businesses down in families (a measure that Phillip Longman and the population demographics crowd considers critical), since businesses may not have the cash to pay the tax. Liberals called it a "silver spoon tax" (remember Texas governor Anne Richards and the first George Bush?), and said that family businesses can survive the tax with careful family planning.

Comments welcome.  

Sunday, December 12, 2010

Social Security "payback" and "restart", which amonted to a free loan for "unneedy", terminated summarily

According to a story on p B5 of the Saturday, Dec. 11 New York Times, the Social Security Administration has just published rules limiting what amount to “interest free loans”. This was the practice of retirees paying back Social Security the entire amount they had received and restarting at a later age with higher benefits, especially if they go back to work (or expect to live longer).

There had been objection to the idea that social security recipients could have invested the money nd kept the profit, but paid no interest to the government.

Starting now Social Security will allow the practice only once, during the first twelve months of benefits.

Here is the link to the “new rules” from the Federal Register.

The New York Times blog entry by Jennifer Saranon Schultz is dated Dec. 9 online and the link is here.
The comments online are interesting, especially the long missive about the way taking social security benefits early penalizes unmarried women.

In print, there was a comment that people who took advantage of the “scam” (the interest-only “loan”) don’t even need Social Security and that the system should be saved (e.g., means tested) for those who “need” it.

Larry Swedroe has a similar article on Moneywatch, "The End of Social Security's Interest-Free Loan", link here. The Center for Retirement Rearch at Boston College ("Strange but True: Free Loan from Social Security" by Alicia H. Munnell, Alex Golub-Sass, and Nadia Karamcheva had noted that the "loan" had cost Social Security between $5.5 and $8.7 billion (PDF link).

Remember, the IRS never forgives interest (just penalties).  So maybe Social Security shouldn't either.

Saturday, December 11, 2010

CDC: life expectancy in the US has actually fallen slightly!

According to the Centers for Disease Control, life expectancy  dropped to 77.8 in 2008, from 77.9 in 2007 (assuming birth in 2008), with obesity and type-2 diabetes probably a major factor. For many diseases, including heart disease, cancer and stroke, mortality rates fell however, probably because aggressive medical intervention can prolong life so markedly.   Life expectancy in the United States is starting to lag behind many other countries, too. The AOL story by Catherine Donaldson-Evans appeared on AOL Saturday morning and has link here. 

Friday, December 10, 2010

Although Medicare reimbursement cuts are delayed, geriatric physicians don't have a good future

Jerald Winakur, a geriatric physician and professor at the Center for Medical Humanities and Ethics at the University of Texas Health Science Center in San Antonio, has a major article on p A25 of the Washington Post on Friday, December 10, “The Unkindest Cut: Seniors will be the real victims of payment reductions to Medicare doctors”. The link is here.

Although Congress has temporarily staved off a 23% reduction in payments, the long term future for geriatric office practice, he writes, is poor, partly because it tends to be labor intensive. That runs counter to the aim of keeping more seriously ill seniors at home rather than in institutions where, admittedly, delivery of services is probably more efficient and ultimately less expensive.

Wednesday, December 08, 2010

GOP proposals bill require state and local govt's offering tax-free bonds to do conservative pension accounting; could this affect muni bond prices, too?

The Washington Post ran an important editorial Dec. 8 about state pension plans, “Federal policies should help, not hurt, states’ fiscal health”, link here.  In print (p A18) it is called "Pension Reality Check: Congress can help or harm states' efforts to get a fiscal group".  

Three House Republicans (Reps. Devin Nunes (R-Calif.), Paul Ryan (R-Wis.) and Rep. Darrell Issa (R-Calif.) have submitted a bill that would require states and local governments that issue federally tax exempt bonds to file accurate reports on pension liabilities, using conservative accounting methods. The detailed story is on a website called “The Hill” (with a blog called "On the Money") by Peter Schroeder, with link here. It would be called the “Public Employee Pension Transparency Act”, and it should have an HR number in early 2011 with the 112th Congress. It’s possible that concern over the bill might have caused a recent dip in prices for tax-free municipal bond funds, as well as uncertainty over the tax cut extension situation (previous post, Dec. 6).

The Post editorial also criticizes a proposed Public Safety Employer-Employee Cooperation Act of 2009,. S 1611 (here at Open Congress), which could trip up state governments more by giving police and fire unions more power.

Monday, December 06, 2010

Extended tax cuts for wealthy not necessarily good for seniors' bond portfolios

I heard from a financial planner today that the GOP’s insistence in keeping the tax cuts for the “rich” (and the apparent "deal" today between President Obama and the GOP in Congress) is not necessarily the best thing even for relatively well-off retirees, at least those with a lot of tax-free bond funds (especially municipal bond funds), which many retirees have because they are considered “conservative.” The problem is that the demand for the bonds comes down if there is less of a need for a tax break among enough upper-income taxpayers. That’s not necessarily good for a lot of retirees, who might be better off with more valuable assets even if the tax rates could be higher – because the retirees’ actual reported income is generally less.

So the “Democrats” may not have been able to “protect” seniors from the “wrath” of the GOP since its November gains.

Removing uncertainty about the tax cut extensions, however, could help asset prices in the long run.

On the other hand, the government seems to be getting even deeper into debt, and that isn't good.

Friday, December 03, 2010

MSN/Kiplinger: 5 best and 5 worst states to retire; CNBC: raise retirement age to 68?

MSN has a link giving the 5 best and 5 worst states to retire, from Kiplinger. Best: Alaska, Wyoming, Michigan, Pennsylvania, Colorado Worst: California, Rhode Island, New Jersey, Vermont, Iowa. Pay attention not only to state income tax but also to exclusions of social security, sales taxes, medical exemption, and out –of-state investments.

There is an embedded CNBC video “Raise the retirement age to 68?” The commentators did say many retirees were flipping hamburgers, but that we still have a 1930s-style social security system. I thought the deficit commission proposal was age 69 by 2075. I won't be around then!

Wednesday, December 01, 2010

Simpson-Bowles would raise retirement age by 2075, raise wage base, and means test

There was more about Simpson-Bowles tonight on the major networks, with the president’s Debt Commission issuing its final report, which 5 out of 18 commission members can nix. The ABC story by Matthew Jaffe and Arlette Saenz is here.

The plan would increase the Social Security full retirement age to 69 by 2075, probably eliminate most early retirement, increase the wage base covered by the tax, and decrease benefits for wealthier beneficiaries, frankly admitting that Social Security is about wealth redistribution and not savings. Medicare cuts would also occur, hinting that in time families will bear much more responsibility for their elderly, as a legally mandated matter, than they perhaps do now.

Alan Simpson warned that people of future generations may be "sleeping in the streets".

Privately, I've heard predictions that means testing could start in about ten years.

Jagadeesh Gokhale, a Senior Fellow at the Cato Institute, wrote a letter to the Post published today, “Distorting Social Security Privatization Proposals”, link here. The writer notes that there are risks in depending on equity markets (depending on how the investments are regulated), but makes the point that the political risk to retirees in depending on government may be even greater.