Monday, March 07, 2011
Samuelson argues that social security is "welfare": here's why it (still) isn't
He mentions a disturbing Supreme Court opinion from 1960 in Flemming v. Nestor (SSA link) which apparently rejects the idea that people have a “contractural right” to social security benefits, even if they have paid FICA taxes (a much less relevant point in practice back in 1960).
It is true that, if social security benefits are viewed as a quasi-annuity, there are some (legal) differences between this and a formal annuity contract with a life insurance company. Congress indeed does have the power to change the benefit schedule and amounts. However, there is a reasonable reliable relationship (even statistically speaking) between the total amount and duration of FICA tax contributions over a lifetime’s work history and the benefits that will be collected, just as there normally is with an annuity contract (but it isn’t quite as absolute).
Samuelson is right in that there are troubling aspects to the way the accounting for the trust fund is reported. It holds treasury bonds, which will force the federal government to borrow more money to redeem them. So it gets legitimate to talk about the nature of “shared sacrifice” given uncontrollable debt.
But if social security were really a welfare program, there should have been no FICA tax capped at max levels. Instead, it should have been rolled into a much more progressive income tax system and be strictly means tested always, which would mean some seniors would never need benefits at all. If that sounds like socialism, it is; the alternative is an “ownership” vehicle where it really is structured as an annuity contract, probably managed by private companies but carefully regulated to protect principal. That is what the “libertarian” world wants (and what the Bush administration wanted).
Samuelson writes, the elderly are often not poor, and that should share in the sacrifices common to all, to protect the future. I find it interesting to ponder what that would have meant in my situation.
I did start social security at age 62 (which means less benefit if I live past 77, and I am 67 now). One of the reasons was, besides a domestic and curious employment situation, that my last “major” employer pegged its social security bridge to the idea that retirees should start taking it at 62. This is a legacy from the past, to be sure. And it gets into the nettlesome “social security offset” issue with defined benefit pension plans that commentators usually forget to look at. (By the way, the employer's pension documentation characterized the pension and severance policies as "welfare" programs.)
I worked for twelve years (1990-2001) in I.T. in the life insurance business, and a fair question is, why can’t I be expected to make a living by “selling” what I did in interpersonal relations? (Isn’t that what people do when they “retire”?) In fact, in 2005 I was approached by two different life companies, without solicitation, to become agents. I am forced to wonder, why would families want to listen to my peddling, or “trust” me to “take care” of them personally. I just don’t engage the social world that way. I find a life based on compiling “leads” (you were supposed to get 200 in the first week) and pandering yourself on social media (in a world where you now have only one “identity” again) rather appalling. I couldn’t continue toward my “second career” as a filmmaker and writer. In the mean time, that social security check (which is substantial) comes in handy and gives me the right to say “No” to motives that I don’t embrace.
You can extend some of this analysis to Medicare. Yes, we paid a Medicare Tax too (smaller than FICA) when working and expect some coverage for it.