Friday, April 08, 2011

We can't rule out partial Social Security means testing even for current beneficiaries, if we're in "that much" trouble over the debt and deficit

It would be President Obama’s Blackberry that would ring with the news of “Deal or No Deal”, not mine (which Verizon tells me is the same model as his).

Some aspects of the budget standoff are obvious. Yes, our current course of deficit spending is unsustainable. Yes, there will be sacrifice. Yes, we could tax the rich more. Yes, oil companies could pay more royalties, although they might pass these onto consumers.   

The biggest question for me, or for any private citizen, is what sacrifice could be demanded of me, given my circumstances relative to that of others.  In times of peril, communities have to do this with their members.  To an extent, the proposals for demands from others (or extraneous matters like Planned Parenthood) have no bearing. We must remember that the biggest chunk of the federal budget still comes from defense and “entitlements” including Social Security and Medicare (and Medicaid), not the smaller programs at the margins.

The biggest question on my own mind is my social security benefit.  Is it an annuity that I earned, or is it a social entitlement?  I have written about this debate on this blog before. In general, because of the accounting trick of double-accounting practiced by the Social Security Trust Fund, and because of the way the program began in the 1930s when original beneficiaries did not contribute, and because Congress has the specific constitutional authority to reduce benefits even now, I have to assume that is partially, perhaps up to 1/3, an entitlement, despite the structure that bases benefits largely on FICA “contributions” (with a minimum of 40 qualified quarters for “vesting”) and a policy that caps FICA payroll taxes relative to income in a manner similar to annuities. Further, remember that private employers often take “social security offsets” out of pensions and presume retirees will start social security as soon as possible.

In general, I think that Social Security ought to be converted to a sound, carefully managed “private ownership” basis, but this could not be done without some sacrifice now.  In the world of private corporate pensions insured by the PBGC, generally some portion of pension benefit is lost (up to 40%) when the PBGC takes over a pension of a bankrupt company. The same possibility could exist for social security if it really “goes broke” as the GOP insists, with some credibility, is a real risk.

Even Rep. Ryan (R-WI), as radical as his privatization proposals sound (especially for Medicare) sound, has said that they would not affect current retirees or those over 55.  Generally, politicians in Congress recognize that senior citizens vote and have a lot of political clout.

Nevertheless, it’s inevitable that one could propose means testing a portion of social security benefits (perhaps up to about 35%), even now, for current retirees, as Rep. Boehner had hinted during political campaigns in 2010. Means examination could include both income (from the 1040) and assets, from local tax records and other financial statements.  However, any such proposal would obviously become very “politicized” and divisive.  Libertarians and other progressives would be especially critical. What could be more practical is a period of “jawboning”: the President or Congressional leaders asking for a give-back, or perhaps for more community service, especially the type involving interpersonal interactions, from wealthier beneficiaries.

The “moral” dilemma may resemble that which can occur with unemployment benefits. In that environment, recipients are expected to look for work, and issues arise as to the kind of work they should be open to considering.  Conceivably, the same questions will occur with some social security beneficiaries, even in a difficult economy.  For example, if someone like me had worked in the life insurance industry as an introverted “technie” for a number of years, should he be open to the idea of a second career “selling” what he had worked on to others – should he become more “people-oriented”?

On Medicare, it’s apparent that we face a runaway problem, inasmuch as we cannot afford unlimited expenditures prolonging the lives of people who have already “had their turn”.  This is unpleasant, and I know the connotations that come up.  After one has led a productive life into the eighties or low nineties, I think it’s prudent to question some treatments and expenditures, either at public expense or even as to what is expected of families (in “socially conservative” parlance) or from adult children out of filial responsibility. I am 67, and without children, I will have to face the moral aspect of questions like this myself.

1 comment:

Adam said...

From my perspective, if one pays into social security, then it's an earned annuity. However, if means testing is put into place to determine eligibility to receive it, then it becomes a social entitlement, and just another tax imposed to support people who lack other financial means.