Time to stop rearranging the deck chairs on the SS Social Security

I read with some interest today’s Washington Post commentary A Social Security Fix for 2008 by former Social Security commissioner Robert M. Ball. He claims that there’s a way to solve the Social Security problem without cutting benefits and without raising taxes.

He’s flat out wrong.

Mr. Ball spends about 2/3rds of his commentary decrying the current state of Social Security. And there’s no denying that he makes his point – Social Security is in bad shape. Rising Medicare costs are being deducted from Social Security payments and the age of eligibility is gradually increasing, effectively cutting benefits in the process. But Mr. Ball fails to point out the single largest problem that Social Security faces, namely the great demographic earthquate that’s starting as the Boomers are hitting retirement age.

His three point solution to “saving Social Security” doesn’t do a damn thing. He wants us to increase the maximum amount of earnings covered by Social Security because it’s been sagging in recent years. He wants Congress to allow the Social Security Administraiton to invest up to 20% of its holdings in securities, but offers no means by which to defray the potentially massive losses should the markets (stock and bond) crash and burn. And he wants to pay for keeping Social Security up and running by re-allocating some of the money brought in by the estate tax (aka the Paris Hilton tax) to Social Security instead of putting it into the general fund.

OK. But that doesn’t actually solve the Social Security problem. The problem with Social Security was calculated to be about $3.7 trillion over the next 75 years (not the $11 trillion shortfall that Bush claimed in 2005). Over the same period, the Center for American Progress estimates that the revenues from the estate tax will offset only 40% of that 75 year cost, or about $1.5 trillion. And this is assuming that Mr. Bell’s first suggestion doesn’t happen.

As a country, the United States faces a major problem – we cannot afford all the programs we have now, today, and will be even less able to afford them in the future. Allocating money from the estate tax directly to Social Security means that the general funds are no longer available for Medicare, or Medicaid, or decarbonizing our carbon economy. Borrowing from Peter to pay Paul is hardly sound financial advice, and that’s what Mr. Bell is advocating.

What we need are leaders, and commentators, who are willing to advocate for the hard choices that we’ll need to make as a country. Mr. Bell has illustrated quite pointedly that, prior experience notwithstanding, he is not qualified to be that advocate.

2 replies »

  1. Brian:

    I agree that one of the fixes he proposes will do little, and that is to allocate proceeds from the estate tax to SS. Like you, that simply seems like reallocating scarce tax dollars to SS that could be allocated elsewhere.

    The other two approaches, though, have merit, I believe. Increasing the SS wage base will definitely bring in more money. It’s a tax increase, of course, but only the upper-milddle-class and wealthy would pay it. Investing in equities also has merit, though there are some drawbacks he doesn’t mention.

    Currently, I beleive SS funds are invested in government paper, such as T-bills and T-bonds. The return is anemic. Investing in equities, as a long-term investment, is very likely to increase the size of SS funds with very little long-term risk. In fact, if the long-term stock market crashes, we are in for many more problems than SS shortfalls. The trick is simply to ensure there is enough liquidity to meet short term obligations.

    Investing in equities does have a substantial downside, though. The SS pool is so enormous that investing in equities can distort the market, driving up prices and creating at least a small bubble. Attempting to invest in individual stocks could easily create huge bubbles in some areas. In addition, pulling out 20% of SS from the T-bill and bond market will increase the US’s cost of borrowing overall, and increase the tax dollars that go simply to service the debt.

    At any rate, any investment in equities should probably include foreign companies in order to avoid an artificial surge in US stock prices stemming from the SS Administration’s need to buy equities.

    In the long run, the only viable solution is probably to reduce SS benefits as retirement income increases, so that the wealthy end up with small or no SS checks. That will badly undermine SS’s popularity and political support, but there’s probably no help for it.

  2. Sure cutting benefits to others is grand. The ‘elites’ seem to thinkthat screwing us little folk who are already on SS out of even more when people like me who never made more than 35g are now living on less than 10g. I m disabled and cannot met all the required bills and I don’t live anything like extravagant.

    Taxing the upper echelons of the income brackets would seem a good idea. The Liebertarians(sic) want people like me to live under bridges or something I guess or just die. I was homeless 3x for 2 yrs once and 1yr ea the other times. I managed to pull myself out of a life tailspin, after on job injuries and illness, not like I got hurt water sking the illness was brought on by having to lay still for several months while back healed. I had savings , but insurance dropped me and then I was responsible for almost 30 g worth of hosp bills and fired for getting hit by a falling piece off duck work not related to my particular job. It is amazing how fast your life can be wrecked and you didn’t see it coming.

    Putting any amount in the wall street casino is a guaranteed pay off to the banksters while folks like me eat catfood..if we can afford it.