Should Social Security Be Progressive?

By James Kwak

My earlier rant on the Social Security wage base made me think of a more important question (actually, I was already thinking of it, hence the need to Google the earnings cap): Should Social Security be more progressive than it already is? The most common ways liberals want to make it more progressive are (a) eliminating the cap on taxable earnings altogether and (b) reducing benefits for high earners. For part of my brain the automatic answer is “yes,” but I think there is a reasonable argument for leaving things roughly the way they are.

First, there’s a straight-up political argument. Social Security is popular because people feel like they earn their benefits. If people thought it was a covert redistribution program, then the high earners would definitely be against it, and most of the middle class probably would be too because of the American allergy to welfare. In fact, there are certainly people who think it is “pure welfare”, like the author of the post I criticized last time around. But it isn’t:

That is from a 2006 CBO analysis of Social Security taxes and benefits, by income level. As you can see, the retirement program on its own is only modestly progressive. The really progressive parts of the program are disability insurance and survivors’ benefits. The fact is that there isn’t that much redistribution based solely on income level; most of the “redistribution” is based on disability or having your spouse die young, which feels more like insurance than welfare. It turns out that most Americans’ instincts are right: Social Security isn’t a welfare program. If you make that bottom line steeper, then at some point opinions will change.

Now some people will look at that chart and say that Social Security should be more progressive. But I’m not so sure. Conceptually speaking, I think of Social Security as contributory pension system run by the federal government along with an insurance component to protect people against various risks—disability, early death of your working spouse, bad luck that prevents you from saving enough for retirement, living too long, etc. (Disability benefits are a standard feature of private defined benefit pensions, too.) I think of this governmental function as different from the welfare function—the one that ensures that everyone person has the basic means of subsistence. (Wait, we don’t have that in this country? Well, we should.) And that’s precisely what the founders of Social Security thought; they saw it as an alternative to noncontributory old-age assistance programs, which is what the conservatives preferred. (See Jacob Hacker, The Divided Welfare State, pp. 98–99.)

So to me, it makes the most sense to have (a) a contributory pension/insurance scheme that compensates participants for losses (e.g., disability) but is not mainly about redistribution; (b) a real welfare system for the poor; and (c) a progressive tax system to fund the rest of the government. And I worry that if you make (a) too much like (b) or (c) it will become unpopular and die a slow death. But I’m open to being convinced otherwise.

58 responses to “Should Social Security Be Progressive?

  1. Ka was aki kid

    All will be good once the Bush tax cuts are allowed to expire, where it doesn’t pay to die.

  2. The footnote on the graph highlights the reason that Social Security MUST become slightly more progressive. According to the Social Security trustees the program is currently in the red and is likely to remain so for the foreseeable future. The main reason for that is that not as high a proportion of national income is subject to the tax as was the case 30 years ago (due to the wage stagnation for lower quintiles and wage gains by highest quintile) while the payments continue to go out on schedule.

    The life of the plan can be extended by a combination of minor adjustments including returning the proportion of income subject to FICA to what it was in 1983 (raising FICA max) which will extend the plan just five years and adjusting the benefits formula slightly, i.e. making it slightly more progressive, as FICA max is raised.

  3. I forgot to mention as one of the minor adjustments the need to raise minimum, normal, and full SSRA slightly faster than has been scheduled. The three things in combination will serve to extend the retirement component of the system to the 75 year actuarial limit that the plan uses. Disability is a different question.

  4. Slightly off topic, but why not let people borrow against future SS benefits to pay down mortgages to allow them to refi? Borrowers to repay the funds either by simply withholding benefits until there is zero balance, or at any time prior. Interest to be charged at some Treasury debt rate at suitable maturity plus TBD basis points to cover actuarial risks that the borrower won’t be there to earn enough benefits to forego. I think such a plan might pull a lot of the emotions out of this topic: nobody gets something for nothing. Plus having to look at an actual deal – like you are going to get a $237/month reduced payment for 15 years now and in exchange you’ll forego the first 4 years and 2 months of SS 22 years from now – also works to get people to think about what is best. That many might look at this and decide that just walking on the mortgage is a better plan, is totally okay. If default is best for them, the sooner they come to that conclusion the better for their future. Funds are available to the US federal government at very low rates, so let’s offer to use some of them to address a recognized problem in a creative way.

  5. James: You forgot to address the conservative viewpoint that ALL government-run programs are wasteful and ALL privately-provided services are going to be better operated and provide more value.

    @Eric: Singapore has such a system in place. Because the entire country is essentially one small island, real-estate is at a premium and completely unaffordable for most of the population. So people are allowed to borrow from their state-funded pensions to buy condos. I have lost touch with my Singapore associates, so I’m not sure how bad the real-estate crash was there, and how it affected individual and state finances. But they survived the 1997 crash with this system in place. Still, allowing people to borrow from Social Security for real-estate (or other variable-price asset) could expose them (or the trust fund) to significant risk.

  6. edward ericson jr.

    Per David Schuler–yup. And the only way out of that, other than tilting the thing a bit to the left, is to promulgate macroeconomic policies that would tend to increase wages for the bottom two-thirds of the working population.

    Such policies would (or could) also reduce the number of people applying for disability benefits–both SSDI, which comes out of the main SS budget, and SSI, which doesn’t, but which is administered by the same rules. Disability payments are through the roof as younger and more hopeless people seek them as a last financial lifeline. The payments are poverty level–$600 to about twice that each month–but that’s a good deal when the alternative is starvation.

    Millions are getting on disability and then hustling for scraps in the informal economy, basically transforming themselves from workers into small-time criminals. As the shadow economy grows it encroaches further on both income tax receipts and the already depressed low-wage sector. It’ll be this way well past the time someone notices, and it’s already very dire.

  7. A thoughtful analysis. Your readers may enjoy exploring this interactive website which provides many policy options for restoring Social Security’s long term solvency.

    http://www.actuary.org/socialsecurity/game.html

  8. I agree with you completely. I don’t want to make the system anymore progressive The problem I see in trying to maintain the current system is that as more and more income is concentrated at the top it leaves less and less income to fund the system. So we either need to tax rich people more making the system more progressive or find some way to make income distrubiton even.

  9. Your commenters have it about right, as do you. We have a distortion caused by The Great Divergence, and a political problem in keeping everyone on board. We cannot solve the issue by jiggering the SS bargain, so we need other means of reducing income inequality.

  10. this analysis is misleading at best – on a go-forward basis (as opposed to starting in 1960 as CBO did), there is no chance high-earner benefits will come anywhere close to being “repaid”, and that is even on a gross basis. You have completely ignored the fact that this “savings plan” is managed by an asset manager that keeps half (dep on your State) of what it deigns to return to you. If you’re going to make this absurd equitability argument at least be honest and note the taxation of benefits on their way back out.

  11. Bernie Sanders says simply elimninate the cap on contributions and solve the problem of funding Social Security for the next 75 years: http://www.readersupportednews.org/opinion2/279-82/7546-why-do-republicans-hate-social-security

    And what Bernie says is good enough for me.

    @engineer27 re: conservatives regarding ALL government programs as wasteful — many educated, thoughtful, and well-intentioned, although not necessarily rich people want to live in a civilized country. It’s a shame that a few very wealthy individuals who don’t give a damn about civilization have had the power and influence to demagogue this and every other issue affecting the common good for their own self-aggrandizement. It seems to be up to the rest of us to stop them.

  12. But isn’t the payroll tax actually a regressive tax? That is, low income earners pay a higher percentage of their income than high income earners?

    Conservatives SAY they want a flat tax. Well, let’s start here. Let’s make the payroll tax a flat tax where everyone pays a fixed percentage of their income, no matter how much it is, and no matter where it comes from, into this tax.

    We really have two programs here. We have an old age payment program and we have a tax. There really is no relationship between the tax and the payment program.

    We need the old age payment program so we do not have old people living on the streets and eating dogfood.

  13. Anonymous – you obviously are missing something. EVERYONE pays the exact same 7.65% FICA tax (well, 5.65% this year due to the temporary 2% drop) on all earned income they earn up to $103,600. Income after that is not taxed.. so, no, low income earners do not pay a higher percentage of their income than high income earners – unless that high income earner is making more than $103,600.. at which point, yes, they begin to pay a “higher” percentage (actually, the higher earner’s total FICA % goes down while the low-income earner remains at the same 7.65%).

  14. Bruce E. Woych

    A “RANT” of a different color (and class…)

  15. Bruce E. Woych

    Published on Monday, September 26, 2011 by CommonDreams.org
    Wall Street vs. Everybody
    by Linh Dinh

    “Wall Street got drunk […] It got drunk and now it’s got a hangover.”
    —George W. Bush

    “As usual, Bush got it wrong. Wall Street soberly and cynically got the rest of us drunk on dreams of homeownership, a robust stock portfolio and a cozy retirement…”

    http://www.commondreams.org/view/2011/09/26-0#comment-1939483

  16. Bruce E. Woych

    Published on Friday, September 23, 2011 by Inter Press Service
    Bill Gates to Support “Robin Hood” Tax
    by Jim Lobe

    “WASHINGTON – Microsoft co-founder and billionaire philanthropist Bill Gates appears poised to endorse the adoption of a controversial financial transactions tax (FTT) to be used as a new source of development aid for poor countries…”

    http://www.commondreams.org/headline/2011/09/23-1

  17. Bruce E. Woych

    “Behind the ‘class war’ rhetoric…”

    Published on Tuesday, September 27, 2011 by In These Times
    Rep. Paul Ryan’s Class War
    by Roger Bybee

    “In his severely distorted view of the “class war” currently splitting America apart, House Budget Committee Chair Paul Ryan (R-Wis.), who represents southeastern Wisconsin’s crumbling factory towns, reflects a juvenile embrace of the view of his heroine Ayn Rand (required reading for his entire staff).”

    http://www.commondreams.org/headline/2011/09/27-8

  18. It’s interesting that the retired worker line on the graph is as flat as it is since the bend points for benefit calculations take replacement of taxed income from 90% to 15% – and the 15% applies to nearly half the contribution for higher earners. Is the longevity differential between income categories as high as that, combined with the higher propensity of low earners to take early retirement?

  19. The Medicare portion of OASDI is not subject to the wage base limitation, this rate is 1.45% for the employee, and 1.45% for the employer, for a combined rate of 2.9%. This tax is therefore imposed on wages with no upper limitation. A million-dollar $$$ wage earner would be subject to this tax on the entire sum.

    The 12.4% rate is subject to FICA wage base limitation, and is split between employee and employer, (without regard to the temporary rate reduction)……a reduction which only serves to diminish the fiscal position of the trust fund.

    As a wage earner, I say unto thee: Forget the rate reduction, it’s bad policy-in-the-making.

  20. Woop, as a free-lance, I’ve been paying the whole 12.4% plus the whole 2.9% FOREVER, and I’m not complaining about it.

    But I DO complain about the utter stinginess and selfishness of rich people and their wannabes. And I wish I had much more company in the complaint department on that score.

  21. Where’s the bend point going to be distributed considering that the largest USA generation – ever – was born between 1982 and 2003. 95 million Millenials :-)

    And they are capable of getting all 95 million oars in the water moving in the same direction – a spontaneous evolution of the human species that is periodically necessary for survival.

  22. Here’s a shorter, somewhat sarcastic take on the annuity issue:
    http://mindonmoney.wordpress.com/2010/02/22/thank-you-for-smokin/

  23. Desi Girl - Doing Gods Work

    @ Woop, you do realize that the Alessio Rastani you quoted as “fact” is a con job (in the real word)? time for your googling skills.

    My my, you poor souls, Matt Tiabbi, William Black and Simon Johnson take you all for such a ride.

    In the meanwhile, all the banksters and traders around me are hard at work keeping this country going.

  24. Bruce E. Woych

    @Desi G-spot: I don’t know about you doing gods, but these guys will certainly set you free:

    http://en.wikipedia.org/wiki/The_Yes_Men

    http://search.aol.com/aol/search?s_it=topsearchbox.search&v_t=webmail-hawaii1-standardaol&q=The+Yes+men+youtube

    http://theyesmen.org/

    Nearly five years after we snuck onto the BBC as Dow Chemical and took full responsibility for the Bhopal catastrophe (sending Dow’s stock plunging), we’re interviewed by a very nice man from the BBC.

    Part I:

    Part II:

  25. James Kwak

    not sure where the “benefit to tax ratio” numbers come from. my own fairly careful calculation shows that expected benefits represent a “return on investment” that ranges from about 10% real return for low income to about 2% real return for high income. This is a result of the insurance function and not a welfare tax transfer.

    Otherwise you have identified the critical point. Social Security is NOT welfare. It is insurance, and it needs to remain that way. The so-called shortfall in SS’ own funding (it has nothing to do with the federal budget “government” deficit) can be fixed with a raise in the payroll tax of one half of one tenth of one percent per year. the workers who will get the INCREASED benefit… from living longer and from increased standard of living… will be for their own benefit.

    once the people understand this, there should be no more room for the hysteria.

  26. The way social security is structured seems to hit a sweet spot between “earning their benefits” and an insurance program that provides people a floor for sustainment. It does the insurance part for a wider group than people in their middle sixties and older. Not many people realize this.

    The insurance component of the program is not really understood by most people and I think that the concept of insurance should be emphasized. It is not a handout.

    Even though I would be in this group, I also am comfortable with removing the wage cap and not increasing benefits as a prudent fiscal measure. The insurance aspect helps soften this for people who complain that the are not getting the full amount back that they put in–they are getting insurance.

    Like roads and public education, social security provides a social good and is a prudent and cost efficient means for providing this capability.

  27. William

    I wish I could talk you into feeling even better. First, there is no need to increase the cap. The workers who will get the benefit can pay for it. Because they will live longer, they will need to raise their premium (tax) about one half of one tenth of one percent each year… or about forty cents per week per year.

    Raising the cap a small amount might be reasonable for the insurance reasons you mention. But raising it too much would make the insurance more expensive than it is “worth” to high earners. As it happens there is good reason to suspect that keeping most old people out of poverty, and most young people from having to worry about old age poverty, is probably good for the economy… and the incomes of high earners, but that is a little abstract, and it is hard to convince many high earners that they can do better by leaving that nickle on the table.

  28. Kwak

    i skimmed the CBO report. their analysis is needlessly complicated… hides a number of worms in their apple.

    but in particular i note that their ratio of benefits to taxes adjusts each to a “present value” that assumes a real rate of return of 3%. this is the wrong way to look at it. in the first place no low income worker is going to get that 3% real rate of return over a lifetime. in the second, because the benefits come later than the taxes, they will always look smaller when reduced to “present value.” this is misleading.

    if i put my money into social security and get it back with an effective real rate of return of 3% or 80% of that, I will have earned a REAL rate of return of 2.4%, or something like a nominal rate of return of 5 to 6 percent. This would be hard for an ordinary worker to do.

    So it is more honest to tell that worker that SS besides providing “insurance” also provides him with a very safe way to save for his retirement at a rate he simply cannot get “in the market.”

    note that SS is insurance not only for death and disability, but also against inflation and market losses.

    it is also insurance against failure to thrive and failure to be prudent. as to the last, you might think of SS as a way for society to insure itself against individual’s failure to be prudent. at least with SS people pay most of their own benefits that would otherwise have to be paid for by welfare taxes on the rich, or just the cost of stepping over bodies in the street…. a social condition that does not lend itself to prosperity even for the rich.

    But absolutely, the whole point of Social Security is NOT “progressive” redistribution of income. It is insurance. once you look at it, carefully, as insurance the total nonsense of the current “debate” becomes hard to miss.

    Meanwhile the workers can continue to pay for their own SS, as they always have, with a rate increase of one half of one tenth of one percent per year… about forty cents per week.

  29. Engineer 27 says ‘ALL Conservatives’. That’s a pretty broad sweep. I could say ‘ALL Democrats/Liberals’ are left-wing nut jobs bent on collectivizing our society and economy. I doubt that’s true. To make such broad categorical statements is a bit dim witted.

  30. Dave E

    actually “Engineer 27″ says, “conservatives say All government is..” He does not say “All Conservatives say..”

    Failing to note, or appreciate the difference is kind of typical of why discourse is so useless.

  31. @ Desi, yes, I realize this, as I did several hours in advance of your posting it here on Baseline. A ton of other economic blogs picked up the story last night.

    I’m still not buying *their* schtick, however. There is financing obviously behind the putative *Mr. Bichlbaum*, and it would be interesting (ONLY from an intellectual level) to have a look at what’s going into the income stream there…

    Anyhow, I’m left wondering if YOU can be sure whether *Mr. B.* is not under contract to your own firm? The distributing of misinfo and disinfo would be helpful, let’s say, to short a stock, would it not be?

    And isn’t it also true the banking industry frequently uses deception in furtherance of its’ objectives?

    Incidentally, I stopped reading Rolling Stone before the summer I graduated from college, (but I sure miss Hunter S. Thompson a lot) and I never heard of William Black, but I do like Simon because he’s rational and basically on the correct side of the issue(s).

    I’m sure people in the CUBES nearby you are VERY diligent in the performance of their tasks…but, on behalf of the rest of US…..psssttt……tell them to please try a LITTLE LESS HARD.

    Always good reading you, Desi, if for no other reason……*Woop* really does like to laugh. Take care.
    :)

  32. Dave Schuler

    your comment is based on a number of misconceptions. no fault. lots of highly paid non partisan experts are out there trying to feed you misconceptions.

    First, the program is not in the red. SS has been saving money exactly for times when cash flow would fall short of benefit needs… as during a recession, the retirement of the baby boomers, or just the normal mismatch between the time taxes come in and benefit checks go out. The “cash flow shortfall” is just the Trust Fund doing what it was designed to do.

    Moreover the “main reason” is because with a lot of people out of work, tax collections are lower. Has nothing to do with the unequal distribution of income. Even the long term “actuarial shortfall” doesn’t have much to do with unequal distribution of income. It has more to do with the expectation that the next generation will live longer than the last. If that generation wants to keep today’s replacement rate…. actually an increase in real income keeping pace with the increase in real wages.. and today’s retirement age… they will want to, despite what your are being told about the joys of spending your golden years working for the boss.. they will need to raise their own payroll tax one half of one tenth of one percent per year… about forty cents per week in today’s terms.

    This tiny tax increase would extend “the life of the plan” forever. Actually, with no changes at all, the plan can go on forever.. even paying a benefit that is “enough” by today’s standards. No need to raise the retirement age. No need to tax the rich.

  33. Hey, does anyone need me to clean this place up? No one is too young to go on a magic carpet sweep, I mean ride.

  34. Jim

    the “social security game” you link to is rigged. the only “raise the tax” solution they offer is about half the needed tax increase. since the needed tax increase is one half of one tenth of one percent per year… or forty cents per week each year, it’s hardly going to be a hardship on workers who are projected to increase their real wage by over one full percent each year.

  35. Desi Girl - Doing Gods Work

    @Whhop whoop, Haha, the age old argument of 10 year olds: you did it so it is ok for me to do it!

    since you are unaware, the use of disinformation to short a stock is illegal and for wannabe operators. not for real operators. the wannabes rarely last for more than a few days.

    btw…if Simon were rational, a whole lot more people would be listening to him. sorry to burst your bubble buddy.

  36. Bruce E. Woych

    Dizzy Girl:
    “the use of disinformation to short a stock is illegal and for wannabe operators. not for real operators.”

    Oh yeah? This is a daily event and that makes you either a total fraud impersonator or right at the center of the corrupt core. The “troll” interceptor plays fast and loose with the facts…such as doing “gods” work”

  37. Bruce E. Woych

    http://rwer.wordpress.com/2011/09/25/is-social-security-a-ponzi-scheme-is-the-washington-post-a-criminal-enterprise/#more-6031

    Is Social Security a Ponzi Scheme? Is the Washington Post a Criminal Enterprise?
    September 25, 2011
    from Dean Baker

    “…Those of us who consider this to be ill-informed nonsense that has the effect of misleading the public about the state of Social Security’s finances were told to lighten up. After all, what is wrong with debating the topic?

    In this spirit of free and open debate, perhaps our attention should be devoted to the question of whether the Washington Post is a criminal enterprise. While it is ostensibly a newspaper that purports to give the public an objective take on key events in the country and the world, it has been involved in several actions that raise serious questions about this status.”

    …The Truth will set you free…

  38. Hi again, Desi, yet, YOUR FIRM, has lasted quite a few more days than a few days, laying waste to your assertion.

    Desi, you’re way out of your league, here.

    I’m a rock, you’re a soap bubble, have a nice day.

  39. Bruce E. Woych

    Sunday, May 29, 2011
    Morgenson Runs Peterson Institute Propaganda Against “Entitlements” Meaning Medicare and Social Security

    “I’m generally a Gretchen Morgenson fan, since she’s one of the few writers with a decent bully pulpit who regularly ferrets out misconduct in the corporate and finance arenas. But when she wanders off her regular terrain, the results are mixed, and her current piece is a prime example. She also sometimes pens articles based on a single source, which creates the risk of serving as a mouthpiece for a particular point of view. And the one she chose to represent tonight is one that is in no need of amplification, that of the Peterson Foundation’s well-funded campaign to gut Social Security and Medicare.”

    read in full:

    http://www.nakedcapitalism.com/2011/05/morgenson-runs-peterson-institute-propaganda-against-entitlements-meaning-medicare-and-social-security.html

  40. Of course, SS should be progressive! It was never *my* money, was it? Just a little something
    being held by the do-nothing bureaucrats, of whom we need many many more to further regulate
    our lives.

    Just think: with a couple more thousand pages of tax law and regs how many more IRS folk we could
    hire!

    And the EPA: out chasing more beaver dams….

    Whatever’s left over can be given to the banksters, via The Fed.

    We be serfs. They be lords.

    (And, I thought they were the dumb ones… sigh.) ….Lady in Red

  41. Lady in Red: you are SO RIGHT. It was never your money.

    Did you create that money? Do you know who did create it? Why on earth would you ever have thought it was “yours”?

    What IS money?

    Well, money is a creation of LAW. Once upon a time, the King was the Law.

    Now, the international private banking system is the LAW.

    Who SHOULD BE the LAW?

    Ah, now we get to the crux of the question, Lady in Red. In a democracy, precisely who determines what is the LAW, and therefore determines, what is MONEY?

    Who would be your choice, Lady in Red?

  42. @dizzy girl Doing god’s work? LOL! The hubris and arrogance of those who work in the financial industry knows no bounds. You sociopaths got us into this mess in the first place and now you’re elevating your profession, which is basically an elaborate ponzi scheme, to that of doing god’s work? Seriously, take some meds for that narcissitic personality disorder of yours and then come back and maybe leave a sane comment.

  43. I disagree with the whole article, because it is based on the usual malevolent extreme right wing propaganda that depicts OASDI as a kind of tax/welfare progressive redistribution scheme.

    OASDI is by design a mutual assurance+insurance scheme administered but not funded (ordinarily) by a state agency, and where membership is entirely VOLUNTARY; like FDI.

    It is not a savings or investment or welfare scheme so “progressivity” is a concept that can be applied to it only in bad faith.

    A car theft insurance scheme could in equal bad faith be called “progressive” and welfare because the lazy, stupid, unproductive people who have their car stolen take out of the scheme much more than they paid in premiums, and people who thanks to their thrift, sagacity and productivity don’t get their car stolen get their premiums confiscated by them.

    Except that insurance is not a redistributive progressive scheme to reward losers at the expense of winners.

    As far as assurance+insurance schemes go, OASDI is particularly hated by malevolent propagandists who describe it as a progressive welfare scheme instead because it is administered in a very efficient, reliable way by a government agency, with very low overheads and high and safe payout rates, and thus contributes nothing to the bonus pools of the financial industry.

  44. Blissex

    I think you missed Kwak’s point. He seems (to me) to agree with you that SS should NOT be a “progressive welfare scheme.”

    Since I think he’s right, and the it is THE critical point about SS that it is NOT welfare… a point deliberately ignored by the Peterson lie machine, and which the “liberal defenders” of Social Security are failing to understand: even as they say “don’t cut the benefits working people have paid for” they say “let the rich pay for them.”

    but there is no need for the rich to pay for the workers benefits. the workers can continue to pay for their own benefts forever. either with NO changes at all if they are willing to accept a lower monthly benefit while getting more monthly benefits over their longer life expectancy, or by raising their own premium (payroll tax) by one half of one tenth of one percent per year… about forty cents per week.

  45. Has anyone considered the fact that more poor many people than richer people die early and never collect social security or Medicare?

  46. Walter

    yes, it has been considered. i don’t know if it has ever been “studied.” but you need to remember that Social Security and Medicare are insurance. If you die young you don’t get to collect, but that is the least of your worries.

    On the other hand, if you live a long time, Social Security is insurance against running out of money.

    You really need to stop worrying about ‘oo gots the biggest piece of burfday cake, but i will tell you: the poor get something they can’t live without. the rich could live without SS or Medicare. That is, if they stay rich. Many people don’t. That’s why it’s insurance.

    Or do you envy your neighbor when his fire insurance pays him a hundred thousand after his house burns down. Enough to burn your own house down?

  47. «but there is no need for the rich to pay for the workers benefits.»

    But this is completely false, the rich pay for their own OASDI insurance, there are no benefits whatsoever for the workers (or the rich), and the assurance+insurance payouts go to both rich and poor according to the same agreed-in-advance schedule. Indeed if some of the rich become poor at some point (e.g. by investing their trust at Madoff’s) and are no longer able to pay the full premiums they will still collect OASDI payouts, with the higher weighting that is proper for the insurance part.

    If those who are rich at any one point in time don’t want to insure themselves against becoming poor (or sick or living too long), they can very well choose to work in a job to which OASDI does not apply; membership in OASDI is entirely VOLUNTARY, and those who don’t want to buy that product can TAKE PERSONAL RESPONSIBILITY and choose to try to get a non-OASDI job as the result of a free bargain between willing free agents.

  48. I suppose if the anti-tax people would accept a SS tax on all earned income fine.
    My thought to some degree is toward poor people, who because of tax credit, pay
    no income tax. But they pay 16% on SS and many die before collecting.
    Here is some data from my Current Events Internet Library.
    http://www.businessbookmall.com/Current%20Events%20Internet%20Library.htm

    March 2011
    For some, Investing In Social Security is a bad Idea.
    Red, Bold people don’t make it to collecting full SS at 67

    Economist 7/2/11
    Based on 50 year old, 5’8″, single. non smoking, non drinking, poor eating, non-seatbelts person living a sedimentary life working close to home in a stress
    free service industry job earning $25,000 per year.
    Race

    Life Exp of Lowest Quartile

    Life Exp for Median
    150 lbs 200lbs 150 lbs 200lbs
    White 64.42 62.04 70.53 69.16
    Nonwhite 61.31 59.36 67.90 65.55
    Add One Pack Smoking and 4+ Drinks Per Day
    White 61.17 59.54 67.441 65.23
    Nonwhite 58.65 57.38 64.86 62.52
    1Add more than 10% calorie intake from fat and this drops to 66.9.
    http://diskworld.wharton.upenn.edu/mortality/perl/CalcForm.html

  49. Well, at least two of the comments here are from people who seem to be completely out of touch with reality. Instead of only half out of touch with it like most of the rest of us.

  50. «you missed Kwak’s point. He seems (to me) to agree with you that SS should NOT be a “progressive welfare scheme.”»

    Oh no no no no. My point is that the words “progressive” and “welfare” should never be used to refer in any discussion about OASDI, never mind in a malicious way such as a title like “Should Social Security Be Progressive”, which immediately suggests to the average Usians that strapping young bucks and welfare queens either already do or want to STEAL THEIR PROPERTY. Picture hard exploited workers struggling every month to make ends meet on $250,000/year foaming about yet another scheme to screw them.

    A discussion based on the argument that something which is not in fact already a progressive welfare scheme should not be a progressive welfare scheme seems to me either really stupid, or harmful.

    What the author is doing is framing the issue in terms of progressivity, tax and welfare, and that is what matters, much more so than whichever conclusion he reaches. Malevolent propagandists know very well the importance of framing, and it is 90% of the argument in these discussions.

    You may have noticed that I also in other discussions I make sure to remind people that framing things like OASDI contributions as mandatory is also malevolently false propaganda (or really stupid self harm). “coberly” I guess we are arguing from the same point of view, but I try to be more careful about the all-important rhetoric aspect.

    And thanks to WalterA for reminding everybody of the very different actuarial profiles for people who in their life have been mostly poor or mostly rich, and that mostly poor people die before 65 (or 67) in much greater numbers than mostly rich people, or sooner anyhow. I have seen some studies about actuarial profiles by lifetime income and by gender, and usually those who collect the insured payout longers are females (most females outlive males) and middle class and rich people.

    Indeed in many countries there have been serious discussions about raising the pensionable age as it is a fairly significantly regressive measure (people with lower lifetime income lose proportionately much more than people with higher lifetime earnings, and in particular lower lifetime income males). This is of course entirely intentional. Many more states and constituencies depend on the swing vote of middle/upper class middle/older aged females, who are the segment best vested in OASDI, and whose life expectancy is longer and has been growing fastest in most countries.

  51. «people with lower lifetime income lose proportionately much more than people with higher lifetime earnings, and in particular lower lifetime income males»

    To some extent based purely on actuarial criteria female OASDI members should pay a much (much!) higher premium than male OASDI members, but there is the Rawlsian argument that OASDI is also insurance against the risk of being born female and thus suffering from a much longer life expectancy.

    And one of the original aims of OASDI was to insure against “survivorship”, or in practice becoming a poor widow (or less frequently a poor orphan or even less frequently a poor widower).

    I have just done a simple web search for “oasdi survivorship” and in top links there are several SSA papers on premiums and payout by income and age. By skimming some I noticed that the damnable SA themselves use “taxes” and “benefits” to describe OASDI premiums and payouts, damn framing.

    Never mind moronic papers like http://www.taxpolicycenter.org/UploadedPDF/1000596_redistribution_under_OASDI.pdf who talk about OASDI as a redistributive mechanism from people who don’t suffer the insured event to people who do as if risk pooling was redistribution.

  52. I think you are over managing.

    SS is a little progressive and somewhat biased for a blue collar worker with a spouse and children.
    As for many, like myself, it’s not perfect, but it’s not terrible. Being a single white collar male worker paying in from the ages of 16 to 57 and again from 63 to 67, I did not receive the family related benefits and the likely for disability was lower than average.

    But the tax code is very complex and I got all the 9 middle class entitlements listed below.

    http://www.businessbookmall.com/Economics_6_Government%27s_Economic_Functions.htm

    Plus there was a 10 year period when I had a $5,500 annual car allowance plus a $10,000 annual expense account, all with no questions asked and little taxable income. In NH real estate taxes pay for schools and my not having children made it a bad deal. But NH also had no income tax or sale tax. It all kind of evens out.

    From what I understand, SS has run about 6% of GDP for quite a while, will go up to 7% plus percent of GDP because of baby boomers, and then back to 6 percent. All by itself. No action needed. As of today, 1% of GDP is 150 billion dollars. I had no problem with the 6% and will not have one with the 7%. But, if people want to change the SS system to get the added $150 billion or so, so be it. But to me, it is just not a big deal.

    Medicare, now that is a different problem.

  53. @ Carla et al…check this site out:

    http://allianceforajustsociety.org/

  54. «I had no problem with the 6% and will not have one with the 7%.»

    But for some people it is a MORAL ISSUE, where the craven, parasitical poor exploit the virtuous, producing rich by using OASDI as progressive redistributive welfare. And for these people social justice, stopping the exploitation of struggling workers by lazy rentiers, is a matter of principle, and OASDI is just property theft.

    Also for other more practical people the availability of a “safety net” based on insurance makes the worthless cattle and despicable vermin beneath them less malleable and less worried about the future, and thus less docile when slapped around by their superiors, and thus they strongly want to frame those insurance programs as malignant oppression and property theft.

    And they have managed to do so very successfully with so many, by using every nice technique of marketing and framing. Helping them by using words which are red flags seems quite crazy to me.

  55. Thanks for the link, Bruce. After perusing that site, I sent the following message to the Alliance for a Just Society. It will be interesting to see if I get a response from them:

    “In the area of economic justice, I suggest the Alliance for a Just Society take a took at monetary policy, precisely:

    Who creates our money supply? (Private banks create almost all of it by issuing debt)

    Who benefits from a debt-based money supply (Holders of the debt; primarily banks)

    In a monetarily sovereign nation, why does our government borrow money from banks and others in terms of bonds, and then pay it back with interest?

    Why should the private banking system usurp the Constitutional responsibility of the Congress to create our money?

    How does a nation that is monetarily sovereign (the US or the UK) differ from one that is not (Greece or Ireland).

    What would a more democratic money system look like?

    I hope the Alliance for a Just Society will consider examining and disseminating the ideas of Ellen Brown (Public Banking), Bill Still (No More National Debt), and Stephen Zarlenga (The American Monetary Institute), as well as Dennis Kucinich’s bill, HR2990.

    Those who hold the money power think nothing of forcing most of the population into serfdom. Indeed, they have been doing so for most of recorded history.”

  56. Bruce E. Woych

    Just for the record on the Yes MEN:

    Published on Thursday, September 29, 2011 by The Guardian/UK
    Sorry, But This Trader’s Banking Confession Was No Prank
    The Yes Men have been blamed for Alessio Rastani’s comments on the financial crisis. But sometimes truth outdoes satire
    by The Yes Men

    http://www.commondreams.org/view/2011/09/29-9

    a credible defense of truth!

  57. Hi Walter, cool site with free books and courses, thanks a lot, I bookmarked the link.