Tuesday, November 27, 2012

AARP "Earned a Say" column discusses Social Security future, including means testing, which could come fairly quickly if politically expedient


As Congress stumbles toward a temporary budget resolution to avoid the worst of the “Fiscal Cliff” on January 1, 2013, some observers are paying attention to the idea that Congress could look for very stiff retrenchment on entitlements given GOP prerequisites for revenue enhancement.  Putting aside the debate on whether  Social Security accounting is deceptive (regarding the IOU issue), it’s possible that Congress could be tempted to reduce benefits to some people, possibly even current beneficiaries, if it’s politically easier than “obvious” revenue enhancements, like closing deductions and raising rates on highest earners.

The AARP has a web page called “Earned a Say”, and one sublink  “The Future of Social Security: 12 Proposals You Should know About” with pros and cons or “opposing viewpoints”. 

Two of the most important are reducing benefits for high earners, and means testing of social security benefits.  They’re not the same idea.  The first would reduce benefits for those whose history yields the largest earnings over time and therefore largest benefits.  In a sense, benefits would be more “progressive” with respect to need.  The second would look at current income outside social security (and possibly total wealth, maybe even that held in associated trusts) and eliminate benefits entirely fir the “best off” and reduce it for others.  It’s at least conceivable that politicians could be tempted to stiff even current beneficiaries. One question is why the conservative "Heritage Foundation" supports cheating seniors who "don't need it" in reasoning that sounds worthy of Karl Marx. (Note: accumulated wealth could be inferred from investment income.) 
  
It’s pretty obvious that these proposals would go in the direction of making social security a welfare rather than savings program, and would be a tremendous breach of faith for those who have already contributed and been told they would receive certain benefits for life.  (It would create novel issues fort those who started benefits early at 62, possibly at the urging of employers buying them out.)   It's possible to make the extravagant argument, however, that the FICA tax paid for years was a mandatory insurance premium against retirement poverty, but not a ticket to easy income. That would sound like a curious echo of the criticisms of the mandatory aspects of Obamacare -- but this would break a promise made in the past. 

It’s possible to imagine other ideas that would express better faith.  For example, Social Security benefits, for those with ample other income or assets, could be taxed as ordinary income (rather than up to 85% as now).  Or everyone’s benefit could be recalculated to match their actuarial worth, which could hurt older recipients or those with significant self-employment (assuming employer match was counted).  It’s possible, as AARP suggests, to reduce benefits with longevity increases – if we could suddenly live to 150 (as on a recent ABC special) we would have an actuarial issue indeed.  But conventional private life annuities, while being adjusted for survivors,  don’t get reduced for longevity.
  
I still favor migrating toward an idea of a mandatory account, conservative managed so as not to lose principal, that the retiree owns and that is shielded from politicians, based on actuarial math.

The National Seniors Council has a warning about means testing, and a comment about its immorality, link here.

The Ludwig van Mises Institute also has a meandering, speculative discussion without any straightforward predictons, here.

Senator Bob Corker (R-TN) mentioned "introducing" means testing without specifics in a Washington Post op-ed  “A Plan to Dodge the Fiscal Cliff”, Monday November 26 here, with a proposal supposedly in a bill already before Congress, the Post article here.    There is a smaller version of the story in the Memphis Commercial Appeal here. I have not been able to find this “bill” online or find any specifics on mean testing as it might apply in the near term of 2013 or 2014.


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