Feb 26, 2015

If These Are Your Best Arguments, You're In Trouble

     Andrew Biggs, who was Deputy Commissioner of Social Security during part of the George W. Bush Administration, has written an article for the National Review giving reasons why the cap on wages covered by the F.I.C.A. tax that supports Social Security shouldn't be raised. Here are the arguments and my take on them:
  • There's always been a cap on wages covered by F.I.C.A. So what? Full retirement age used to be 65. It's now 66 and heading to 67. Biggs would undoubtedly prefer it be raised to 70, if not 80. He's being selective about what changes he opposes. We have to change something.
  • The cap is necessary so that Social Security won't be considered a "welfare" program. That's rich coming from Biggs who wants to means test Social Security. Why would increasing the wage cap make Social Security into a "welfare" program anyway? And what's wrong with programs devoted to improving the welfare of the American people?
  • Raising the cap wouldn't solve the entire long term Social Security funding problem. No one proposal will. Biggs has no one solution for Social Security's long term funding problems. He favors a series of massive benefits cuts. Why does one proposal have to solve the entire problem?
  • We ought to solve the problem of rising health care costs before we do anything about Social Security. What does that have to do with the F.I.C.A. cap? Anyway, Biggs undoubtedly opposes the Affordable Care Act which is actually doing something about health care costs.
  • Most other countries have wage caps on the their Social Security taxes. Why is that important? I thought the right was big on American exceptionalism.
  • It's a big tax increase. It will make U.S. tax rates higher than those is Scandinavia. It's a tax increase only for the wealthiest Americans, a group that has fared extremely well in recent years while the rest of the country has fared poorly. The wealthy can afford it. On Scandinavian tax rates, Biggs is citing income tax rates that don't include Social Security charges. Here's what I'm finding as the maximum tax rates in Scandinavia: Denmark 61%, Finland 61.96%, Norway 47.2%, Sweden 57%. I think we'd be well below those rates even if we remove the wage cap. Besides, Scandinavians have a high standard of living and much better social security than the U.S.. Why should we fear that?
  • When we fix Medicare and Medicaid tax rates are going to go up. Glad to hear that Biggs supports higher taxes to support Medicare and Medicaid but how is that relevant to this discussion?
  • An economic study shows that a rise in the wage cap won't generate as much revenue as predicted. That's not exactly what the study cited by Biggs says. In fact, the study makes no bold prediction about the effect of an increase in the wage cap. It suggests more study which is always the way with these studies. If anything, the study suggests the opposite of what Biggs is representing it to say. Anyway, here's what the report actually said so you can judge for yourself, if you can stay awake as you read it: "We have eight main findings. First, the workers who would experience an increase in marginal tax rates from an increase in the taxable maximum are mostly married males – a group thought to have relatively small elasticities. There are, however, a significant number of self-employed workers among this population which could suggest somewhat higher responsiveness. Second, the recent empirical evidence showing large behavioral responses to taxation is largely irrelevant to this question as it mostly focuses on broader concepts of income for which elasticities are likely to be higher and on demographic groups such as wives of high earners that are not particularly common in the subset of the population whose incentives would be altered by an increase in the taxable maximum. In the few studies that have also focused on narrower concepts, elasticities fall dramatically when the tax base is something closer to earnings. Third, the earnings distribution of workers around the current taxable maximum is inconsistent with a model in which people are highly responsive to the payroll tax rate. Fourth, this is true even for the self-employed, a group that is often thought to have significant control over its reported earnings. Fifth, in panel data on high-earnings married men, we see a tremendous increase in earnings over the 1980s and 1990s, but no break in the trend around the TRA86 or OBRA93 tax acts. Sixth, the rise in earnings for the high earners is so much greater than for other income groups that it seems completely implausible that the other income groups could serve as reasonable control groups for the high earners. Seventh, the overall weight of our evidence does not support the Eissa (1995) finding of a large behavioral response to taxation by wives of high earners. Eighth, we think there remains considerable uncertainty about the relevant elasticities for high earners – uncertainty that will be very difficult to eliminate without much larger samples of such taxpayers than are available outside the U.S. Treasury. Our policy simulations suggest that with an earnings elasticity of 0.5, lost income tax revenue and increased deadweight loss would swamp any benefits from the increase in payroll tax revenue. In contrast, with an elasticity of 0.2, the ratio of the gain in OASDI revenue to lost income tax revenue and deadweight loss would be much greater. Thus, knowing whether the elasticity is closer to 0.2 (or below) versus 0.5 is critical to deciding on whether this would be a wise policy."

18 comments:

Anonymous said...

wHY MUST i ALWAYS FEEL GUILTY FOR HAVING WORKED HARD AND OBTAINED SOME WEALTH? WHY SHOULD I CONTINUE TO SUPPORT THOSE THAT SIT ON THEIR BUTTS ALL THEIR LIVES AND DO NOTHING? WHAT GIVES ANYONE THE RIGHT TO TAKE WHAT IS MY RIGHTFULLY HARD EARNED ASSETS? YOU ONLY WANT THEM TO TAKE FROM ME SO THAT YOU CAN GRAB A PIECE OF IT ON THE WAY TO THE HAVE ME NOTS. ADMIT IT, YOU ARE EITHER A COMMUNIST OR AN OPPORTUNIST.

Anonymous said...

@4:59, I think that you missed the other possibility that they are a communist *and* an opportunist.

It's not clear why being a communist would necessarily preclude being an opportunist.

In fact, being a communist opportunist might be a more effective way of being both a communist and an opportunist.

There could definitely be some synergy here that you are overlooking.

Anonymous said...

I'm guessing the first comment, especially with its all-caps, is supposed to sarcastically represent a typical reader of the National Review (at least I hope so!). This article is a predictable supplement to the Republican's stance of no trust fund reallocation. If they won't raise taxes (FICA cap) and don't want the political heat of cutting benefits, we'll be left with another last-minute cliff hanger sometime next year similar to the one we're seeing now regarding the DHS funding. I am not looking forward to the drama.

Anonymous said...

Increasing, actually not limiting, the wage cap at all, would greatly help solve the funding dilemma with the SSA trust fund. It is such an easy answer, it defies explanation why the politicians have not already done this. The burden would be minimally felt by the highest wage earners, and they have pretty much been the only ones who have benefited from the economic recovery.

Anonymous said...

Do Biggs' proposals on these issues all seem to slant towards making the rich richer and the poor poorer? Is he the academic yes man and sound byte provider for people with that agenda? If I recall correctly he was also a proponent for increasing the retirement age.

Anonymous said...

"that I earned"

in a system that is so unfair for those who aren't male, white, and Christian it's absurd.

If you're young and doing well, you think the world is fair. After you grow up and see the world through other peoples' eyes, you realize it isn't. Some (almost exclusively white) people, due to a lack of meaningful interactions with people from other backgrounds, unfortunately never see those other perspectives and go their whole lives thinking everyone lives within the white privilege bubble they do since literally everyone and everything they interact with live within the bubble.

Anonymous said...

Let us look at the Heritage Foundation plan:

Congress should adopt SSDI reforms to correct flaws in the current system. Possible reforms include:
Adopting a Needs-Based Period of Disability. Congress should consider replacing permanent benefits and continuing disability reviews with a needs-based period of disability of one to two years for individuals for whom medical improvement is expected, and of two to five years for individuals for whom medical improvement is possible. Beneficiaries for whom medical improvement is not expected would continue to be subject to CDRs, as is the case in the current system. Reapplication would be based on the current expedited reinstatement (EXR) process that was adopted as part of the Ticket to Work and Work Incentives Improvement Act of 1999. The proposed Protecting Social Security Disability Act of 2014 introduced by then-Senator Tom Coburn (R–OK) grants time-limited benefits when recovery is expected, among other reforms.[62]

Anonymous said...

Encouraging Greater Use of Qualified Private Disability Insurance (QPDI). Congress should considerencouraging employers to adopt qualified private disability insurance. QPDI could replace the first two years of disability benefits for covered employees, relying on the more efficient private sector for initial disability determinations and focusing supports on work accommodations and recovery. The Protecting Social Security Disability Act requires the SSA to study incentives for employers to offer private disability insurance.
A separate proposal suggests that employers provide mandatory short-term private disability insurance to their employees.[63] However, a paper presented at the Disability Research Consortium meeting in 2014, which simulated a similar policy, argued that “such policies will place a substantial burden on the labor costs of many relatively small firms whose claims experience is relatively high.… [O]ne consequence of such policies is likely to be lower demand for low-skill workers [who] might be induced to apply for DI sooner, contrary to policy objectives.”[64] Congress should avoid unfunded employer mandates that could hurt the employment prospects of the most vulnerable in society.

Anonymous said...

Reducing Incentives for Early Retirement. Currently, SSDI beneficiaries with a sufficient work history who qualify for benefits before their full retirement age can receive the full benefit in retirement. Whereas individuals who claim early retirement benefits between age 62 and age 67 see their retirement benefits reduced by up to 30 percent. In order to discourage individuals from using the DI program as an early retirement program, Congress could either convert disabled-worker beneficiaries to retired-worker status at the early retirement age, including the subsequent benefit reduction, or phase down DI benefits for people age 53 and older to arrive at the same benefit reductions gradually.[65]
Moreover, Congress would be wise to reform the Social Security retirement and disability programs together as there are important interactions between the programs, and because they share certain features, including how benefits are earned and determined. Reforms to both programs include:

Anonymous said...

Phasing in a Maximum Flat Benefit. To better protect Social Security beneficiaries from destitution, Congress should change the programs’ needlessly complex benefit formula by adopting a flat benefit above the federal poverty level for beneficiaries eligible for full disability and retirement benefits. A flat benefit would maintain the programs’ goal of protecting disabled and elderly workers from destitution while encouraging workers with higher incomes to seek out additional private disability insurance and retirement savings. The flat benefit should be about equivalent to the average benefit today.
Targeting Benefits to Individuals with the Greatest Need. In addition to considering earned income when assessing a covered worker’s eligibility for SSDI benefits, Congress should include veterans’ benefits, state and local government benefits, and investment income to determine a disabled worker’s income needs. In this way, a flat benefit would provide a level of insurance against destitution for all Americans while targeting benefits at those who need the benefits the most. Similarly, Social Security’s retirement program was designed as a program to protect the elderly from poverty, yet it pays benefits to many millionaires while leaving many low-income recipients in need of additional welfare benefits. Lawmakers should phase out benefits for beneficiaries with high levels of non–Social Security income and provide a true system of social insurance that focuses on individuals who need benefits the most.
Computing COLA with the More Accurate Chained CPI. SSA currently uses the outdated CPI-W to compute annual COLA increases. The CPI-W, used unaltered since 1975, only takes into account price changes experienced by one-third of Americans. In addition, the CPI-W fails to consider shifts in consumer spending habits as prices change, causing it to overstate the impact of inflation on beneficiaries and leading to excess payments. The SSA should replace the CPI-W with the chained CPI, which takes into account the prices paid by all urban workers—a demographic that covers 87 percent of Americans—and is considered to be a more accurate estimate of changes in the cost of living.[66]

Anonymous said...

@9:53 AM:

Your proposal is just another way of screwing those who worked physical labor jobs all their lives and who are actually disabled at age 62. So, to add insult to injury, you now want to reduce their retirement benefits. Perhaps the guys at the country club think this is a wonderful idea. This would be a disaster for those who worked all their lives and EARNED the right to obtain disability benefits.

Anonymous said...

So what's the answer? Anyone who works a "white collar" job gets reduced and those who do "blue collar" work get full benefits? That's really the crux of the issue when it comes to these "class" issues isn't it? There is a distinct difference between what's FAIR and what's EQUAL. They are not the same thing. Making things equal isn't complicated, making things fair is impossible.

Anonymous said...

Count on the Heritage Foundation to propose another plan that will tighten the financial choke hold on the middle class. Unless the means test for disability that they propose had a very high limit, it would force middle class people with disabilities to become impoverished before they could get help. In the aggregate, it would be a huge SSD benefit cut for people with disabilities.

Also, forcing the seriously disabled to jump through more hoops just to keep their benefits is an awful idea. The Heritage plan, as you describe it, would make a lot of people have to keep repeatedly filing claims or they would presumably get cut off. More red tape. Plenty folks, especially those with mental illness, would have difficulty complying and it would result in a huge mess.

Anonymous said...

I do not create or support the Heritage Foundation plan. I simply show that groups are creating plans. I have seen no plan from the other side of the table that offers more than just lifting the earnings limit.

Change is coming. It will faster than most are thinking. Without balance the change will impact those who need the benefits in the name of getting abusers of the system off the roles.

None of these plans address this microminority of abusers. I see no way to stop those bent on fraud. I do see changes that will impact the average number holder in ways that the administration does not intend. I am afraid. Very, very afraid.

Anonymous said...

But there are plans to address abuse: the proposals to submit all evidence and the coordination with work comp immediately come to mind. Also, thee are specific plans to lift the cap at earnings over $250K.

Anonymous said...

Those two things do not remotely make up the gap. Not even close. Try something that is actual and real that will provide the shortfall and make the system viable for 25 more years. The earnings limit lift does not come close to that.

Anonymous said...

how's about we make Congress pay back even a small portion of the $2.7 trillion or so that should be in a trust fund for situations just like this?

we should not even be discussing cutting benefits or anything SSA spending related at all--the FICA tax has resulted in nearly $3 trillion of surplus over the years. make those elected officials pay some of it back and leave the current system intact.

Republicans make a lot of hay about how not capping FICA tax (or increasing benefits on the high end if you do raise the cap), means testing, etc. etc. make SSA look like general welfare and not the insurance system it is supposed to be. Where the heck are they when it comes to discussing the trust fund that's been stolen and completed sucked dry? If this is an insurance plan, why are you not hoppin' mad at your (and democrats--they can get some too since everyone on the Hill has been part of this robbery) elected republican congresspeople for raiding that insurance plan's fund and making the program have to rely solely on current contributions and money from the general fund to stay afloat?

Anonymous said...

That is not going to happen.