So What's the Alternative on Social Security?

[Jeff in Cincinnati]

As the Washington Post points out today, it's not enough for Democrats to simply oppose the out-right looting of the national treasury that is the hallmark of the Bush Plan for Social Security. If the voters were susceptible at all to revulsion by the Bush Administration's breath-taking hypocrisy, we would be preparing for John Kerry's inauguration right now.

As Rahm Emmanuel points out in the article, the crisis is in retirement, not simply in the Social Security system. What resonates for voters isn't the actuarial table or the Social Security Trust Fund projections, but the core question of whether they'll have enough money to live on in retirement. As I continue to get older (Dammit! I'm forty-three years old!), it's a question that I find nagging at me more and more often.

The Democrats need to offer an alternative the solves the problem. The real problem. Not the fake one that the Bush Administration is peddling this week.

Happily, the skeleton of a public/private system is out there. The federal government already allows tax deductions for contributions to 401(k) Plans and Individual Retirement Accounts. And for workers with incomes less than $50,000 (married filing jointly), the feds already offer a Savers Credit that can provide a tax break of up to half of the amount you put into savings.

One possibility: Expand the income range for this program and make it a mandatory contribution -- perhaps as little as 5% of your income. An individual making $35,000 per year would put $1,750 into a retirement account, but would receive a tax break of better than $250, in addition to a Saver's Credit of about $500.

The drawback? It doesn't replace your Social Security. People would have an additional 5% taken out of their paycheck, and that could be a significant problem for some workers. One solution would be to raise the income cap for Social Security contributions (currently you only pay on the first $87,000 of income) so that the actual tax rate could be lower for everybody.

The other drawback? It's mandatory. Nobody likes being told what to do, even when it's going to be in their best interest in the long run.

Just my modest proposal on the subject. It preserves Social Security for those who need it and it provides an additional private sector nest egg for those who are worried about their future.

Discuss

[BurgherHoldtheLies]

1. As someone who saved for retirement independently...

I didn't really count on SS being around for me (born in the 60's) so I took it upon myself to save early in my career. I also realize that I have had great opportunites afforded to me in life and am aware that many people do not have the same benefits that I have had. As someone who is grateful for my own situation in life but empathetic to those less fortunate, I would like to see them eliminate SS for those above a certain lifetime averaged income level in order to save it for those that really need it.

I'm sure it will never be discussed seriously because the greedy will whine "but that's my money and I shouldn't be punished because I'm successful...yadda, yadda, yadda"

[IrateCitizen]

8. I agree with your statement 100%, ModRepubinPA

Personally, I don't plan on NEEDING social security. I already save and invest a good bit of money, and I'm only 31. That being said, if I don't NEED SS in order to survive after retirement, I don't think I should be receiving it. I'd rather that the money instead go toward helping those who REALLY need it.

Of course, such an attitude is NOT the popular one these days. My brother-in-law's grandfather gets a SS check every month -- and gives it over to my brother-in-law, who certainly DOESN'T need it. My grandfather has more money than he knows what to do with -- mainly because he's a typical product of the depression, not because he's filthy rich -- yet, he receives that SS check every month. Yet you're completely right when you say that denying SS to those who DON'T need it will never be discussed, because of the sense of entitlement that comes with the program -- an attitude that is completely contrary to the true purpose of the program, which was to prevent extreme poverty among the elderly.

[Justitia]

12. you are referring to "means testing" - a bureaucratic nightmare

which is why I am opposed to it.

Imagine the paper chase and $$$ spent evaluating each and every recipient's actual "need".

And who determines need? And what of changing circumstances? Loss of wealth / investment? Serious illness? Will we constantly be evaluating every single person's "need"? Who will do all that paperwork and investigating?

Means testing is a really bad idea as it would set up a HUGE nightmare of administration.

Simplest solution: raise the cap

[BurgherHoldtheLies]

15. If they can calculate the broker/investment fees for this proposal...

Then I imagine they could also calculate a means test. It's all in where the money goes for admin. fees...big wall street firms sucking fees/profits or govt bureaucrats calculating a means standard????

[Justitia]

21. Not the same thing, apples to oranges

To calculate investment fees for a wealth transfer, simple math.
What amt of $$ will be transferred from Soc Sec to investment accts?
That is a finite number that you can multiply.

Means testing = determining what EVERY SINGLE INDIVIDUAL in the US has as assets to live on, comparing that to what they NEED (as determined by somebody?), and constantly readjusting that figure, for EVERY SINGLE RECIPIENT, individually.

Means testing is a very, very bad idea.

Simplest solution: raise the cap. This brings us back to simple math.

[BurgherHoldtheLies]

23. OK. I understand your point. Will this be discussed as an option? nt

[Justitia]

26. Highly doubtful. It has been suggested in the past

and quickly discarded by both parties as not feasible for all the reasons I listed.

[Jeff in Cincinnati]

29. Most of the restrictions have been rejected...

Means-testing and raising the retirement age come to mind. Rather than restricting the out-flow of benefits, it's easier to make sure that the income stream is sufficient. The fact is, there's nothing wrong with a Welfare State as long as we're all willing to pay the bills. The problem occurs when we want the benefits, but nobody's will to pick up the check.

[Justitia]

31. which is why it is far easier to adjust the inflow, vs the outflow

as you posted in your first sentence.

Raising the cap is the simplest and most progressive solution.

[unblock]

28. the irs already does "means testing"

the fact that social security income is 85% taxable means that higher income people have to return more of it in taxes; lower income people get to keep all, or nearly all, of it.

this amounts to a graduated, limited form of means testing.

further rules and requirements could be folded into the income tax structure to extend and expand this means testing.

[Jeff in Cincinnati]

30. I've never understood that....

You get a check from the government and then have to give back some of it. Why doesn't the government just write a smaller check?

Same with taxable unemployment benefits. Seems like a lot of wasted effort there.

[Justitia]

34. this is true to an extent, and it is progressive and elastic

MUCH easier to administer than "means testing" of benefits.

It is elastic in that it automatically changes as your ordinary income changes, up OR down, making it progressive.

But we are veering off topic here, getting into tax / revenue policy vs. social policy, and I want to be careful to not confuse the two.

[fob]

55. How about offering an option to voluntarily reject acceptance by those

who don't need it. Do that and see how much that generates, THEN see what is needed after that.

Remember "Ask NOT what your Country can do for you, but what YOU can do for your Country!"

No bureaucratic nightmare necessary!

EDIT: Instead of "rejecting acceptance of SS" (my unfortunate phrase), those that opt out would actually be "reinvesting" their SS in America. It could be an option right on form to get SS benefits;

Check box < > to choose to reinvest your SS in America rather than recieve monthly distribution

[Lydia Leftcoast]

32. The trouble with means testing is that it

changes SS from an entitlement to "welfare," and we all know what your average middle-class and upper-class person thinks of "welfare," don't we? "I worked hard and became a millionaire and paid into the system all my life, and now my money is all going to these lazy people who weren't smart enough to start a Fortune 500 company."

I can just hear it. Means testing would cause SS to lose whatever support it still enjoys among rich Republicans.

I wonder what percentage of SS payments actually go to the affluent. My guess is that it would be cheaper to pay your brother-in-law's grandfather and others like him than to drop them from the beneficiary rolls. The next step would be affluent people demanding to be exempt from FICA assessments.

People who really don't need their SS payments are free to donate them to charities helping the indigent elderly.

[Justitia]

35. another excellent point, this is why the precursor to SS failed

"Old Age Assistance" was the precursor to SS and it was unsuccessful as the elderly did NOT want to be seen as accepting welfare. Many lived in poverty as a result.

[Jeff in Cincinnati]

40. That makes sense to me

Pay it out to everybody regarless of their means, and there is no stigma for those who really need it. Those who don't need the benefit can return the "unused portion" in the form of income tax.

[shawcomm]

2. We need a living wage...

One that not only covers living in the here and now, but one that will afford us a future. If corporations weren't so greedy and actually paid people what they are worth, people wouldn't have to worry about whether social security will be enough for their retirement. Corporations are supposed to serve the people, not make a few people rich while enslaving the rest.

[Justitia]

3. raise the cap

It's the easiest, quickest, simplest, most effective way to ensure SS goes on indefinitely. It is also a progressive tax solution.
And I say this as someone who would be significantly affected by raising the cap.

As an aside, I do think we need to do something about the pay in for the self-employed too, I don't know what, but I think the burden on them is too heavy. And no, I am not self-employed.

Anyway, my two cents.

[cmutt]

54. Index the cap

Can I tweak your suggestion? Instead of raising the cap, how about indexing it against inflation? It may not "fix" the problem (IMO, you can't fix something if it isn't truly broken), but you'd push the insolvency out past 2042, which would hopefully quell this gutting of our social security program. It'd be much easier to sell to the Republican majority. I'd think Senate & House members are going to be reluctant to sign onto any significant changes that would potentially alienate voters. It's why things move so painfully slow in Washington. If things stay the status quo, then you have nothing to judge them on -- and they've brought the risk of turning off "issue voters" to zero.

The Dems should probably propose a cap increase and then negotiate downward, as needed, to the compromise of a indexed cap. Just my 2 cents.

[StephanieMarie]

4. Raise the minimum wage

and you get more than enough to cover the eventual shortfall 75 years from now! Plus, the GAO is using estimated future growth of like 1.3% or so, when we know that over long periods, like 70 years, the economy grows at an average rate of more like 3%. Voila! No shortfall at all! This is a classic Bush scare-em-into-any-lie-I-want tactic. He just wants to give his banking buddies the perk of all those managements fees on all those private accounts.

[Name removed]

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[IrateCitizen]

5. Jeff, have you read the Daily Howler's coverage of the SS debate?

If not, I'd suggest that you do, because Bob Somerby is absolutely without peer when it comes to showing how clueless (or compromised, depending on your POV) the mainstream press corps has been in covering this issue. You can read through it at http://www.dailyhowler.com.

The only thing I see in your plan that bothers me is that it appears to be a defined CONTRIBUTION plan, as opposed to a defined BENEFIT plan. If the true goal is to make certain that there is no retirement crisis, then there must be a certain amount of redistribution taking place in this program. The person making $35K per year may be adversely affected by not just the 5% deduction each year, but also due to the fact that his investments in such a plan will not lead to much of a retirement. Of course, to those of us making $80K per year, such a plan would be perfectly feasible, because not only would we have the sufficient disposable income AFTER such a tax each year, but our 5% would be more (and earn more) than someone making less than half as much money.

IMHO, lying at the heart of this debate are some of the "market orientations" that have skewed our values heavily in favor of commercialism over civic duty. I don't think any of these questions will really be solved until we back away from our national interest in market fundamentalism and replace it with a system that better blends social justice with markets.

[Jeff in Cincinnati]

16. Don't get me wrong here...

Social Security stays as is for at least (and I mean at least) a full 40-50 years. For starters, people tend to forget that Social Security also provides disability and survivors' benefits, something that isn't addressed at all by any privatization scheme.

At some point in the far distant future, it may be possible to reduce the Defined Benefit features of Social Security payments, but that's something far more tricky than I'm currently envisioning. What I'm suggesting here is a supplemental source of retirement income.

[Jeff in Cincinnati]

27. It's a damned shame

Nobody in the mainstream media will call out Bush the way Daily Howler does. They're absolutely correst, of course. Nobody who knows the numbers is talking about a Social Security system that is "flat bust" at any time in the future.

Paul Krugman has been publishing some good work on this subject, as well. One good like deserves another:

http://www.pkarchive.org/ (Go to the "Economists Voice" link under 12.29.04 for a good in-depth article).

[Ganja Ninja]

6. Lots of ways we could "save" Social Security.

Raising the minimum wage would be a good start. Legalizing all the illegal immigrant workers would help. Putting taxes from the general fund toward SS would be helpful. Why should the payroll tax be the only source of revenue for Social Security? How about finding other sources of revenue to supplement the fund.

[Name removed]

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[dkofos]

7. Eliminate the cap

That is the only thing we need to do.
Why should people making more than 85000 get a break.

[Jeff in Cincinnati]

17. Don't forget investment income...

Steve Forbes, living off Daddy's Trust Fund, play less in Social Security taxes than I do. Raising the Cap and including investment income would provide more than enough revenue to keep the system solvent for the forseeable future.

[dkofos]

48. If they include investment income

we could get a tax cut.

[Jeff in Cincinnati]

52. WTF? Tax Relief for the Middle Class

Blasphemer!

[greenohio]

9. Unfortunately, our options aren't as exciting as snake oil

They will be described as raising taxes or cutting benefits...which in all reality they are. I think Gores strategy of offering accounts outside the system is probably the most palatable to the public. Investing the trust fund in municipal bonds would probably be another good move.

[kentuck]

10. I have heard credible economists say....

that 70% of the problem could be resolved simply by raising the income cap to $200,000.

[Justitia]

14. Trust me, if you raised the cap to $200k, SS would be solvent

until Armageddon. You would be more than doubling the cash inflows.

Raising the cap is the simplest solution, using the system we already have in place. Just raising the cap to $100k would bring in enormous waves of cash. ($100k may be easier to swallow than $200k for some).

[greenohio]

36. You simply cannot promise things like that.

It all comes down to birth rates and immigration rates. In the end, if our birth rate drops to where Europe is now, raising the cap to 200k will once again, only be a temporary fix. In fact, the baby boomer problem will look like peanuts.

[Justitia]

38. I'm not promising anything. Yes, simple actuarial science

and I know all about it.

If you read the trustees report, continued solvency projections are there in black and white - based on mathematical fact.

Now, about Armageddon - true, I have no idea when it will actually happen - lol.

[Jeff in Cincinnati]

39. While nothing is a for certain...

the estimates from the Social Security Trust Fund Administrators factor in a number of variables and assumptions. If there were an unexpected and cataclysmic falling-off in birthrates, problems could arise. But there's no reason to expect something like that to happen -- and it certainly won't happen overnight.

[greenohio]

53. "cataclysmic falling-off in birthrates"

Not sure what you are referring to. The birth rate is below replacement (2.1) on a decline since the 50s. Europe is way below that. The trend line is clear. Trustees only project out, what, 75 years? My point was that raising the cap will not fix SS for all time...not by a long shot. Will raising that cap fix SS until all of us here are gone...probably. Will there ever be a problem with SS again, probably.

[sam sarrha]

11. IT IS NOT BROKEN.. that is Rove propaganda bull shit.. good for 50 yrs

the real problem is the deficit and the illegal war started on LIES.

England did the same thing decades ago and they are regretting it because it is a TOTAL FAILURE. the ONLY people that will gain from it is the Brokers.. you think it will be managed FREE ???!!!! is ti Guaranteed.. and by whom??? the poor and middle class, the last tax cut to the richest 1% would have raised payments to SSI and made the system solvent way past the next century. and they are getting another one.. all i got was 3 jobs outsourced to china so they could get richer..

the taxes lost to outsourcing jobs to China could have saved the system..

NAFTA has lost 1.5 million taxpaying jobs.. and the profits to the richest 2% who own 82% of of the wealth.. are essentially TAX FREE.

china has taken more and the money isnt comming back or the jobs

[Jeff in Cincinnati]

18. Heard Bush yesterday...

talking about "envisioning a Social Security System that is bankrupt."

Total hogwash. The "nightmare scenario" is that forty years from now, Social Security will only be able to pay 80% of its benefits. A financial hardship for many, to be sure, but it's hardly bankruptcy.

But then again, Saddam has weapons of mass destruction, right?

Don't assume that people won't fall for the Big Lie twice in one administration.

[RaleighNCDUer]

13. On my income, i could not tolerate an additional 5% deduction.

At the end of the month I'm recycling aluminum and selling books from my library for gas money as it is.

Better -- make the minimum wage a livable wage. Not only would you have fewer people drawing on the welfare system and food banks, draining those resources, but it would vastly increase the flow of funds into the SS system. Raising the minimum would create upward pressure on the entire wage system, helping in a small way to balance the outrageous disparaties that have developed over the past 25 years -- in 1980 CEO salaries averaged 40x their workers' median wage; today, it is 500x.

If you need to balance the budget, tax investment income at a rate at leat 1.5x wage income. After all, investment income is built on the labor of the wage earners, and those who invest are putting no sweat equity into it. Investment income is, in effect, something for nothing. That is the original entitlement program.

IMHO

[Jeff in Cincinnati]

20. An excellent idea...

A good use of the "Edit" button here on DU. Certainly raising the minimum wage to a living wage would make the 5% contribution more bearable. I should have included that in my original post.

And as has been posted elsewhere, raising the cap and taxing investment income would increase the tax pool enough that for low-wage workers, Social Security taxes could be decreased, thus taking some of the sting out of the 5% contribution.

[welshTerrier2]

19. the alternative to Social Security you ask ... here you go ...

[Jeff in Cincinnati]

22. That's the Bush Plan...

After the Election, my Republican Mother e-mailed with a sweet, but snotty message to the effect of, "See, Mother knows best."

I replied that I hoped she likes the taste of Alpo, because that's what she'll be eating pretty soon!

[KansDem]

50. The Republican alternative...

[Ganja Ninja]

33. How about taxing the multi million severance packages of CEO's.

If corporations were required to pay a tax based on the bonuses for their executives they would have to think about how much they are paying them. There should also be a tax on the stock options they are paying themselves as well.

We should put the whole package on the table with the aim of lowering the payroll tax and funding Social Security in full without cutting benefits. Make the GOP sorry they ever brought it up.

[Justitia]

37. both of those are already done

they are FICA taxed as ordinary income

simplest solution: raise the cap

[Ganja Ninja]

42. I think we still should find a way to lower the payroll tax.

I agree raising the cap would be an easy fix but funding the system on the backs of the rich would be a fitting punishment for trying to make this molehill into a mountain. The Democrats if they had an brains or balls would/could put the GOP on the hot seat over this.

[Justitia]

45. IMHO, I think payroll taxes for the self-employed need the most scrutiny

Payroll taxes for them bear the heaviest realized burden.

Using taxation as "punishment" per se, for being rich, and then transferring that to the elderly only insures that the elderly will lose out in short order.

Besides there are plenty of rich Dems who want to fairly take care of our senior citizens.

Hell, FDR was probably the richest Dem in history and he signed Soc Sec into law! So, careful there :D

[abbiehoff]

41. Exactly

I assume that any resistance to raising, or as I would prefer, removing the cap comes from corporations that pay their executives WAY too much. Eliminating the cap would make the whole system less regressive, and might have the side effect of bringing corporate salaries into line. As it is now, everyone who is working is paying the same percentage now matter how little they earn. And that's just on the first $87,000. Why in the world should it stop there?

[Jeff in Cincinnati]

43. Another option in that regard...

Is to limit the tax deductibility of employee compensation. I mean, if a company wants to pay its CEO 700 times the wage of its lowest-paid full time employee, that's their business. But they have no right to expect the taxpayers to subsidize their generosity be allowing them to write off a King's Ransom as a business expense.

[Justitia]

44. I suspect the resistance would be from corporations

for the reason you stated - higher wage expense.

However, I prefer raising the cap versus eliminating the cap and here's why:

In the current system we not only cap inflows, we cap outflows. There is a maximum benefit payout.

If you remove the cap entirely on inflows, you must remove the cap on outflows to maintain a fair tax system. To do that progressively, the amts paid out as a benefit to higher earners would SOAR (and eventually overwhelm the actuarial tables).

This was first noticed by the SSA in the 70s, I believe, when doing their actuarial projections and corrections were made with the SSA law adjustments in the 1980 provisions, I believe.

So, while instinctively it seems like a good idea to completely eliminate them, mathematically it remains solvent to simply raise them as a range on both inflow and outflow.

[Ganja Ninja]

46. I don't follow that logic.

Just because you eliminate the cap doesn't mean you have to remove the outflow cap. There are plenty of people getting payments from the system that have never payed into it such as the disabled and underage dependents of the deceased. If this is a true crisis then we need to think outside the box and not limit our options. The GOP brought this up and if a few of the mega-rich get hurt in the process thats too bad.

[Justitia]

47. First, there IS NO CRISIS

which I suspect you already know, and are just trying to make a point. I understand your sentiment, but taxing Americans without a limit and no tangible return in form of governance is what caused the American Revolution (see the Stamp Act). That will never fly.

The points you bring up about disability are NOT part of the retirement Soc Sec that we are talking about here, they are SSDI, and I don't want to confuse them with what we are talking about.

Only workers (and their surviving spouse and underage dependents) that have "paid in" to the system for at least 10 yrs receive benefits.

It can all be very confusing, but the SS website actually does a pretty good job of going thru it all:

www.ssa.gov

edit: I should have mentioned that, still, in order to receive SSDI, you MUST have paid into the system. However, there is a 3rd program called SSI which is need-based and NOT paid with SS taxes.

[Justitia]

49. GREAT discussion thread. Our only crisis is IGNORANCE

which we can solve with education.

The administration LIES LIES LIES on Soc Sec and we must call them on it, and educate the public at large.

Encourage folks to read for themselves at the SS website (esp the Trustees Report): www.ssa.gov

Repubs have been trying to destroy the best run federal program ever, created by Dems, for the entire 70 yrs since FDR signed it into law.

IT IS OUR DUTY AS AMERICANS TO STOP THEM :toast:

[Jeff in Cincinnati]

51. We've been looking for a "tipping point" for the past four years

Could this be it? It's sad to think that 1,300 dead American GI's doesn't resonate as strongly as a threat to America's retirement income. But if this is what it takes to politically castrate this administration, so be it.