Nov 30, 2010

The Third Way Looks A Lot Like The Second Way

From Bloomburg:

A Democratic-led policy group is defying party history by proposing changes to Social Security to pave the way for recommendations this week by President Barack Obama’s deficit-cutting commission.

Washington-based Third Way said its plan would raise the retirement age, trim or eliminate Social Security benefits for high-income retirees, limit cost-of-living increases and provide money to help young workers create private retirement accounts.

The proposal, to be released after the presidential panel is due to issue its report tomorrow, is timed to help create a buffer for congressional Democrats to support politically unpopular deficit-trimming measures, said Third Way spokesman Sean Gibbons. ...

The chairman of the group’s board of trustees is John L. Vogelstein, former president of private-equity firm Warburg Pincus LLC, and the vice-chairman is David Heller, global co- leader of Goldman Sachs Group Inc.’s securities division. ...

Social Security benefits would be reduced on a scale starting at individuals with $150,000 in outside income and couples with $250,000, and eliminated for individuals earning $200,000 and couples with $400,000 in income. ...

Even the AARP senior citizens’ group that’s long fought benefit cuts appears to be open to at least some cutbacks. John Rother, executive vice president for policy at the senior citizens’ group AARP, praised the Bipartisan Policy Center plan.

“It’s more politically realistic” than the Obama panel’s draft and “in general I would characterize this as a more centrist approach,” said Rother.

The basic premise of Social Security is that it is an insurance program. Republicans have never accepted that Social Security is an insurance program. They have always seen it as "welfare" program which must be phased out. Accepting any form of means testing in Title II of the Social Security Act would be to accept the Republican view of Social Security and would start a process that would destroy Social Security in the long run. This is a litmus test issue. If you believe that means testing of Social Security is appropriate, you believe that the fundamental premise of Social Security is a myth, which means that you just might be a Republican. Unless the Democratic Party has completely lost its mooring, this is going nowhere.

9 comments:

Anonymous said...

A democrat has to do what a democrat has to do amongst republican control.

Considering the bush tax cuts,this proposal amounts to"the poor getting poorer and the rich getting richer"

Anonymous said...

Revised:


A democrat has to do what a democrat has to do amongst republican control.

Considering the bush tax cuts,this proposal amounts to"upper middle class getting poorer and the rich getting richer

Don Levit said...

Social Security is not an insurance/retirement program.
Or, to be more exact, it does not operate like a retirement/insurance program.
It certainly doesn't operate as Roosevelt intended: a self-supporting program, in which general revenues are not used.
From a paper entitled "Accounting for Social Insurance, Revised" Oct. 23, 2006(FASAB develops accounting standards for the federal government):
Page 85 "Social insurance is not an employee benefit. The accounting methods for employee retirement benefits reflect the fact that employees voluntarily exchange lower wages during their working years to receive certain future benefits. Such an exchange does not occur with social insurance benefits."
Page 87 "A nonexchange transaction arises when one party receives value without directly giving or promising value in return. In regards to social insurance benefits the federal government gives value to beneficiaries WITHOUT RECEIVING VALUE IN RETURN. The fact that benefits paid are not based on the amount of taxes paid confirms the nonexchange nature of social insurance."
www.fasab.gov
Click on Exposure Drafts and Documents for Comment
Don Levit

Anonymous said...

The "security" was the knowledge of an expected result based on known inputs. To tamper with that expectation --even a little-- is the slippery slope that would lead to the "socialistic" labeling of the entire program.

The program has already drifted from its original core value of an insurance program.

1. Make it a lockbox system.
2. FICA all wages.
3. Allow all future applicants to invest 1/2 in private fund. If on their retirement, it exceeds that of the SSA... then deny them the SSA.

Nancy Ortiz said...

Note: My comments become a snark in the last paragraph.

It doesn't matter what you call Social Security. I prefer Social Insurance program because benefits are contingent on certain eligibility requirements being met. Main thing is that FICA revenue can be spent only on running the program (about 2% of revenues) and benefit payments. FICA revenue can't be spent on anything else under current law.

Of course, you could change the law and convert SS into welfare. I administered both SS and SSI (a welfare program.) SS was easier and faster to run. As a welfare program, it would cost about 7 times as much to administer the program. And, from one year to the next, Congress would have to decide how much to spend on the people receiving payments.

Obviously, some Congresses wouldn't mind paying what the people need. Others wouldn't want to pay anything. And, the amount of money circulating in the domestic economy would vary from year to year depending on what else Congress wanted to spend money on. Wars can consume up to 15% of GDP. Wouldn't leave much for Medicare and SS.

Clearly, the point of abolishing the SS program as it exists today is to get rid of the need to pay off the TF bonds in the form of benefits to retired people. It's only 2.6 Trillion dollars but that money could be used for all kinds of things. Or, income taxes could be reduced for high income people because the TF bonds wouldn't have to be cashed.

And, of course, the FICA money would still be collected but not called FICA. And the first thing you know you'd have a reliable "revenue stream" for the bond or stock market and no one would have any retirement security at all. But, you know,think of the lower taxes for everyone except lower or middle-income people. Who could complain? Nancy Ortiz

coberly said...

Levitt

as you know, there are any number of papers, some written by "officials" that say any damn thing they please.

Social Security was designed as an insurance program, it's called "insurance," and it operates as insurance.

your benefits are figured bases on your contributions.
usually you get more than you paid in, just the way, you usually get back more from a bank account than you paid in. in the case of SS the effective interest comes from the per capita growth in the economy.

coberly said...

Levitt

and general revenues are not used for Social Security.

the income taxes that go to pay back the Trust Fund are not "used for Social Security", they are used to pay Social Security BACK the money that was borrowed to pay for federal programs not social security.

and, just to help you out, when you pay your taxes that pay back the trust fund, you are NOT paying twice for your social security, you are paying once for whatever was bought with the money borrowed from social security.

this is not hard to understand if you are honest.

Don Levit said...

Anonymous ( the last one), I like your suggestions. In particular, the lockbox system, in which the trust fund is not loaned to the Treasury.
Coberly, you are correct that one excerpt from the FASAB does not establish any facts.
I have many other excerpts from many other governmental agencies, including Social Security to back up any syatements I make that seem controversial.
All you provide are your feelings, which, in my opinion, are less credible than the opinions of the FASAB, GAO, CBO, Treasury, etc.
Don Levit

Anonymous said...

As someone that deals with the headache of SSI and that Part D Medicare subsidy debacle, I pray that Social Security does not become "means tested" which will cause more office overcrowding, appeals, overpayments and other unfunded mandates. It all sounds good, but who is going to administer the new rules? Already the staff is saturated in work, that is barely subpar, given the limited time we are allotted to actually work claims. So looking forward to retirement in less than two years, the FO is run like a labor camp!