Thursday, December 13, 2012

Another look at Supreme Court's 1960 opinion suggests that Social Security is more like "welfare" than an "annuity", a dangerous idea now

I looked some more at the 1960 Supreme Court opinion “Flemming v. Nestor” at the Court’s reason *see Dec. 3 posting). 

The Court noted that Congress set up Social Security through normal democratic political processes with the intention of its continuing “indefinitely”, and that to keep it sustainable, Congress needs to be able to adjust it.  It also says that voters generally have understood it as a kind of disability and retirement insurance, not a contractual annuity.
It also notes that benefit amounts are more closely tied to earnings (at least they were in 1960) than to FICA contributions themselves (a notion more relevant during Social Security’s early days), an idea that would be consistent with a hybrid product.  The concept seems to have been to continue some semblance of a standard of living that the recipient had earned while working (including that lifestyle for spouses).  It also notes that Social Security normally limits benefits until full retirement age based on means with an Annual Earnings Test, which in 1960 could be as late as 72 (I wasn’t aware of that). 

All of this would tend to point to a legal justification to withholding benefits even from current beneficiaries under a fiscal emergency, based on means.  It is possible to imagine this happening after a default due to a debt-ceiling excess, or possibly even as a fallback if there is no Fiscal Cliff solution.

Some members of the GOP and the Heritage Foundation have sounded cavalier in their public statements, that people like them didn’t “need” benefits and should give them up.  That’s scary, because that can lead to a dangerous assessment of “need” along any ground imaginable, a problem well known in libertarian thinking. 
It’s not clear how much money is saved by gradually raising retirement ages for Medicare and Social Security, by further means testing Medicare premiums (maybe driving more seniors to private plans), or  by being less generous with COLA’s.  These measures wouldn’t help with short term deficits or immediate debts.  It would be possible to provide calculations on means testing of current beneficiaries in different levels, as well as to perform actuarial calculations based on actual FICA records and scale payments back accordingly.  These sorts of numbers should be made known to the public.
Means testing could be based on income (and an obvious, innocuous place to start is to tax the benefits as ordinary income). A more sinister idea, well known to people with exposure to the ideology of the far Left a few decades ago, would be to look at estates or accumulated wealth.  Wealth could be inferred from investment income (that is, non-wage, in contradiction to the Annual Earnings Test which does not consider investments), or by more intrusive methods, to look at estates that have been probated or passed in trusts in the last so-many years.  This gets the government into areas that most people (me, at least) would not want it to be.  But that’s another reason why I’m astonished at statements by Lindsay Graham and others that better-off people should just do without their benefits in order to help the deficit.  That’s a very slippery slope, that could suddenly become a legal trap for everyone.  I think some members of the GOP don’t see what they’re inviting.  

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