Thursday, May 16, 2013

Means test Social Security right now, based on accumulated wealth as well as income, says a major investment company


Jay Roumell, founder of his own investment management fund, has a shocking proposal on p. A17 of the Washington Post, Thursday, May 16, 2013. The rich should give up their Social Security benefits NOW.  And the criteria should be accumulated wealth more than income. 
   
The title of the printed article is “A balance-sheet fix: Sacrifice by the wealthiest can save Social Security”.  Online, the title is even more blunt: “The rich can save Social Security, by giving up their checks”.  The link is here. The site for Roumell’s company is here.

Of course, we can come back with the usual Ayn Rand questions.  Who decides who is rich?  Where are the cutoffs?  Etc.  Roumell even admits that can be a problem.
  
The idea of using accumulated – especially inherited – wealth for means testing may not be that new or unachievable.  There are many measures of accumulated wealth – starting with estate or trust tax returns.  The far left, four decades ago, used to rail against inherited wealth and wanted to eliminate it.
  
Roumell dismisses arguments that current recipients paid into the system.  First, he says, they should be grateful they can make a gift.  The he makes existential points that are irrelevant to the questions about the nature of FICA “taxes”.
  
Two points come to mind. The Supreme Court, as noted on Jan 2, had ruled in Flemming v. Nestor that there is no “property right” to the value of FGICS contributions. On the other hand, the Social Security Trust fund is effectively a bond holder on the Treasury (this point became clear in a New York Times debate column on the debt ceiling in January 2013), and like China, might have a legally enforceable claim preference in case of debt ceiling issues.  That point became controversial a few days ago when Congress (the GOP) did propose legislation ratifying the bond holders claims on the Treasury, an idea that caused an outcry.

I have a big problem if someone shows up at the door and demands a claim that can expropriate from my life.  So I have a problem with the unconditional “gift” idea in his arguments. 
  
But I think Congress should pass legislation addressing Flemming – conferring ownership rights to the actuarial value of FICA contributions (including legal spouse’s)  based on life insurance industry standard calculations (for annuities).  And I think bond holders do come first on the Treasury.
  
Furthermore, I don’t see why we shouldn’t continue to consider gradual increase in retirement age, increase in the FICA ceiling, and COLA (chained CPI) formulas to reduce the burden. 
   
When all these things are done, it may be appropriate to look at means testing, and that could look at accumulated and inherited wealth as well as income – for benefits above the actuarial value justification.  But really, this discussion belongs more in the area of Medicare – where Medicare taxes on wages pay for only a fraction of benefits used today.  That fits into yesterday’s discussion of how we use medical procedures.
What’s important to me is the integrity of the system.  Most people understood FICA taxes as supporting their own income later in life, as their money, even if the Supreme Court questions it.  Congress should fix that (most of all, the GOP).  Fix the accounting at an individual beneficiary level before you get into "a pervert's guide to ideology" (to quote a controversial film).   If the system if live in has no integrity, than I have no purpose myself at this point in my life. 


Sam Seder discusses means testing for Medicare above, by increasing premiums.  

Wikipedia link for Saverna Park MD picture (there Sunday).  

5 comments:

JoeTheEconomist said...

Bill,

Mr Roumell is unaware that the system is already means-tested, and has been since 1984 with a test that now reaches up to 1/3rd of retirees.

In the post piece, the author shows no academic research that suggests means-testing is even a small part of the solution.

Bill Boushka said...

My understanding that the benefits formula is indeed modestly progressive for people with lower earnings lifetime records. But the idea that it is supported by one's own FICA contributions still seems important to most recipients.

JoeTheEconomist said...

Bill, Social Security's benefit formula is highly progressive. If you want to see research look-up the moneys-worth studies on the SSA website.

Means-testing is a completely different issue. What most people think is a tax on SS benefits is actually a means-tested clawback.

FDR viewed the contribution as a critical element in the system. He wanted a 'legal, moral, and political' right to benefits. Congress changed the system from self-funded to paygo in the 1940s and 1950s.

Bill Boushka said...

My own benefit seems about right actuarially speaking for what I earned while working, (I started at age 62 because my last major employer applies a Social Security offset to my pension at that age.)

I think every beneficiary should know what his/her (including spousal, if applicable) benefits would be worth by life industry calculations. Congress should support a legal right to that benefit, which the Supreme Court said is not necessarily "owned". This should not be a political football. Would even the GOP agree with that?

JoeTheEconomist said...

You can get a rough gauge of the value of benfeits if you look at the moneys-worth studies. That is the present value of expected benefits versus the present value of past contributions.

There is no way to provide a legal right to benefits because the system is financed rather than funded. Congress abandoned the principle of self-funding in the 1940s. To put guarantees on the system with the way it is financed is to vote taxes on future generations which at root is taxation without representation. Until there is actual funding in the system, the politicians both Dems and GOPs will tell you that all is well.