Means Testing Social Security & Medicare: A Conceptual Framework for Deciding
Promoted by Brendan
Many "progressives" oppose implementing (now or at any point) a policy of means testing of Social Security and Medicare. They often base their position solely on principle, with some arguing that we should not change the nature of Social Security or Medicare to one of "welfare" (either because they object to that in principle or because they think doing so would make those programs more politically susceptible to deeper cuts), some arguing that reducing the level of benefits constitutes "theft" (although I see this as only applicable to promises already made based on taxes already paid, rather than applying to taxation and related benefit promises going forward), and some simply arguing that we just shouldn't reduce the amount of money any seniors would receive.
But before anyone can sensibly say he opposes means testing of entitlements, he must acknowledge scarcity of resources and the fact that this scarcity requires trade-offs. In particular, the reality is that we are on an unsustainable fiscal course. Our projected long-term fiscal imbalance under current spending policies and current level of taxation simply grows too large to be sustainable. For a sense of scale, see http://www.heritage.org/research/features/budgetchartbook/fed-rev-spend-... (chart uses data from CBO Long-Term Budget Outlook, December 2007. I assume that our fiscal situation under that scenario would actually deteriorate even faster than shown, since CBO data do not factor in the impact on GDP of deficits -- and related debt-to-GDP, level of borrowing and impact on interest rates -- growing that large. This factor would have a huge adverse impact, but my understanding is that the CBO scenario projection does not factor it in at all.)
A second piece of reality is that it is neither politically nor economically feasible to solve this fiscal imbalance problem sufficiently solely by raising taxes, or even, as some “progressives” (although not most “progressive” policy experts) assert, by raising taxes, cutting Defense spending, cutting “pork” and “waste, and painless changes to our healthcare system. While I make this assertion based on the totality of all that I’ve read and heard from a broad variety of experts, I strongly recommend everyone read http://www.brookings.edu/~/media/Files/rc/papers/2008/04_fiscal_future/0... , a paper jointly authored by experts from right, left, libertarian and non-partisan think tanks. Of the 16 policy experts who produced the paper, 11 are from "progressive" think tanks (7 from Brookings, 3 from The Urban Institute, and 1 from The Progressive Policy Institute).
Because I’m neither an economist nor an expert in any of the budget areas involved, I base my views on the arguments made and conclusions drawn by those who are economists and other relevant types of experts. And because I bear in mind that the credibility is a function not only of expertise, but also on objectivity (as opposed to bias) and sincerity (as opposed to deliberate distortions or lies in pursuit of some agenda), I am particularly interested in – and often give more weight to (ceteris paribus) – a conclusion drawn by an expert that CONFLICTS with a/the conclusion that would better fit with and support his ideology, general policy agenda or even position on a particular issue and policy he’s advocating. For example, in reaching my conclusion that the Bush tax cuts have NOT had a positive net impact on revenues, one of my first areas of exploration was what CONSERVATIVE, PRO-TAX CUT economists were saying regarding that question. When I found that even among THOSE economists (even Bush’s own top economists) there was a strong consensus that the net impact of the tax cuts was substantially NEGATIVE, that was very persuasive to me.* So when I see policy experts who are “progressives” (e.g., Brookings) apparently agreeing on a few basic assumptions that run contrary to their general ideology and policy agenda, including REJECTING the idea that we can solve our long-term fiscal imbalance problem without sacrifices in entitlements, that is persuasive to me.
Therefore, the question for “progressives” should be: If you oppose means-testing, and we’ve already done as much as is desirable or politically feasible (whichever is greater) to improve our fiscal balance via tax increases, Defense cuts, elimination of pork and waste, and healthcare reform, and we are still left with too wide a fiscal gap, what more would you prefer to sacrifice so that Bill Gates can get a Social Security check? Medicare benefits? Education? Infrastructure? Bear in mind, a LOT would have to be cut (and deep cuts in some areas – e.g., education and infrastructure – would adversely impact GDP over the long term). Or would you prefer that EVERYONE’S Social Security check be a lower dollar amount so that Bill Gates can get that check?
It seems to me that if someone opposes means testing for entitlements, they must choose among the following positions:
1) I am wrong in my assumption regarding the desirability, economic feasibility and desirability of solving our long-term fiscal imbalance without any sacrifices in entitlements relative to current policy.
2) It would be better to cause ALL recipients of entitlements to sacrifice than to cause wealthy retirees to sacrifice via means testing.
If anyone would like to argue #1 or #2, or if anyone believes I have missed a third (or fourth, etc.) option, I hope to hear such arguments and to explore them.
As a note, some who oppose means testing seem to have no problem with seniors who have higher income paying a higher tax rate on their Social Security check, which seems to me to be the practical equivalent, at least to a limited extent, of income-based means testing, since the recipient is left with a smaller dollar amount from the government net of taxes.
* If interested, see my compilation of quotes of conservative economists regarding the revenue feedback effect of the Bush tax cuts (and tax cuts generally) here http://swordscrossed.org/node/1671 . As a note, another part of my consideration of this question involved consideration of the arguments of those contending that the Bush tax cuts HAD had a net positive impact on revenues, and found them to be quite weak, amounting to little more than cherry-picked data points and invalid correlation analysis, and I use the term “analysis” quite loosely in referring to those arguments. I also considered the algebra involved and the degree of growth in the tax base needed for break-even after a tax cut, combined with the corresponding incremental incentives related to economic growth and tax avoidance – see http://swordscrossed.org/node/1672
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Comments :
I'd rather that Bill Gates get his soc. security check...
...but pay an estate tax upon his death. Fact is, there just aren't enough super rich people to cut benefits from to make such means testing worthwhile. There's a larger group of seniors who are well enough off so that they probably don't really need it, but you know they'll still miss that check because hey, it's money, everybody likes money, and by golly, they put money into the system for 30-40 years or more, and they should get something back. You have laid out the arguments for it being this way quite well. It is, asy you cogently point out, an argument of principle, but it is the only way that the program is politically workable over the long term-- it is precisely because everyone from Bill Gates on down the economic scale to the shoe clerks and grade school janitors set Social Security when they retire.
If the kitty runs short of cash because of the demographic makeup of the country, the retirement age will have to be inched up, or the benefit will have to be inched down, or the tax will have to be ratcheted up, or perhaps a combination of these things will need to happen. I personally like taking the retirement age up another notch.
Shoot, since I'm telling people they have to work a couple more years to get to government retirement benefits, howzabout let's hire successful people in their 50s and 60s looking to get out of the rat race to be teachers in the public schools as a second career, and how about we give them freedom to make their own lesson plans and to run their own classrom as they see fit within reason, and fire all the pencil pushing administrators while we're at it? I can't think of anything that would benefit kids more than being around older, experienced people who have had successful lives and careers out in the public sector and not necessarily just in the classroom.
Exactly, good point. The progressive income tax sneaks in a little bit of means testing on the back end.
skymutt: accept no substitutes!
Thanks for your comment. Re:
Thanks for your comment.
Re: "If the kitty runs short of cash because of the demographic makeup of the country, the retirement age will have to be inched up, or the benefit will have to be inched down, or the tax will have to be ratcheted up, or perhaps a combination of these things will need to happen. I personally like taking the retirement age up another notch."
So it seems that you would prefer that all seniors (and taxpayers, including, say, the working poor) be made to sacrifice in order to prevent any means testing (i.e., to prevent Bill Gates from getting that Social Security check). Correct?
You are correct, by the way, that removing the benefits of the super-rich would not save a great deal of money (there aren't that many super-rich), but since I'm addressing an absolute position that some have (opposition to ANY means testing) that many base solely on principle, I'm using an extreme case to test that principle.
My short take
In theory, Social Security should be for everyone, but if we're not going to increase the wage base to something more reasonable or cut overall benefits, then we'd need to means test. I'd "fix" the problem in the following order:
1) Increase the wage base
2) Phase out benefits for high income beneficiaries
3) Cut benefits
These are by no means mutually exclusive. Personally, I'd be for all three. Like with many other government programs, my default position is raise taxes and cut benefits since the debt is dangerously high.
I never broke the law; I am the law! --
George W. BushJudge DreddI'm listening to...
Means testing is a load of crap.
On the subject of means testing for obtaining Social Security and Medicare benefits any such proposal would be total BS, especially for anyone already paying into the system and DOUBLE especially for anyone close to retirement (by which I mean within 5 or 10 years).
You make someone pay into the system with the promise of getting benefits at the end for 30 or 40 years and then just before they draw any benefits you say, sorry, just kidding? BS.
(1) If you want to means test then it should ONLY apply to new people entering the workforce and the rules should be CLEARLY laid out for them so that they can plan accordingly.
(2) If you want to apply means testing to people already in the system then you should have to repay ALL of the funds they [anyone not getting benefits] have contributed to the system PLUS the interest they would have earned just like it was sitting in their 401K.
Here's a proposal for you: double the social security and medicare taxes of registered Democrats. This fiasco is associated with a Democrat mainstay program is it not? They created this mess so let them pay to fix it.
And why are "progressives" suddenly agreeing that there is even a problem? Back when Bush was arguing that we needed to act on this the Democrats and "progressives" were arguing that he was fear mongering and that the system was fine. Fear mongering is now in vogue with the "progressives"? That's rich.
I'm the Bugs Bunny of Swords Crossed!
-4 Strongly Disagree - 0 Meh - Strongly Agree +4Progressives
don't trust Bush.
I don't see any reason why they should want him to get anywhere near attempting to reform social security.
I'm only half stupid
Some good, some bad
That's a fair position. I could probably sign on to that. The only phaseout I'm talking about is for people obviously set for life ... like the upper .1% ... those who would never need it. I believe a lot of the ultra-rich are voluntarily opting out. For instance, I believe Warren Buffet and Bill Gates have already done so. I honestly don't have any problems telling someone that has tens of millions of dollars saved for retirement that they aren't going to get the social security check that they weren't counting on. The percentage of their net worth that went to SS taxes are so negligible that they didn't even notice it on their payroll deduction anyway.
It may be a question of semantics, but I don't think any serious person was arguing that the system had no problem. By definition, a pay-as-you go system will have problems when there are comparatively less payers than receivers. The problem was just not something that required our immediate attention.
The thing with Bush was that he declared the system was in crisis and then proceeded to "reform" the program in ways that wouldn't do anything in terms of solvency. He was trying to use the fact that the program will have long term solvency problems in order to push a specific ideological agenda. That's a whole different ball of wax. If he and others want to argue that the add-on accounts are a better deal, I don't have a problem, but when those people offer that change as a panacea to solvency, I lose respect.
And as I always do when we talk about Social Security, I must mention that SS isn't a retirement program. It's old age insurance. It's a minor point, no doubt and it probably cuts against my own arguments, but there it is.
I never broke the law; I am the law! --
George W. BushJudge DreddI'm listening to...
Good points. But what do you
Good points.
But what do you say to those who say that taking away Bill Gates' SS check that he was promised as he paid taxes into the system constitutes a form of "theft"? Surely Bill Gates could also afford it if you stole $100,000 from him -- let's say, to give to the poor, a la the Robin Hood legend. Would that make it right or justifiable?
Re: "I must mention that SS isn't a retirement program. It's old age insurance."
That's actually debatable. I have a mixed view, but I tend to view it as essentially NOT insurance and more like a retirement program. Generally, insurance protects us against downside risk, paying out if such risks become reality (becoming ill and needing medical treatment; damaging your car and needing repair; etc.), whereas a guaranteed annuity payout like SS is more like a pension plan. I guess it can be said that SS "insures" us against living beyond our savings, but IMHO that doesn't qualify it for the label "insurance".
Yes, I think it has become a retirement program
regardless of whether it was its original intent. It has effectively changed behavior and working people...especially of lower income simply look ahead to it and do little else since they figure that that check will support them in old age.
It's a false sense of security that's become part of the psyche of the working poor and lower middle class.
Considering working people,
especially of lower income, are putting a substantial percentage of their earnings into social security, it makes sense that they would figure that check will support them in old age.
I mean, you figure there's only so much that can be put towards retirement when most of any given paycheck is spoken for in terms of rent, food, etc, and if the government is taking most of that money that could go towards retirement then of course you're gonna feel like the government owes you it back when you retire.
Seems to me that if you want people to save more on their own initiative then you'd probably have to start by taxing them less. On a related note, if it is desired that social security be a safety-net welfare program then I think it should be funded from general revenue (via progressive taxation) rather than payroll.
Come, my friends. 'Tis not too late to seek a newer world -- Tennyson
well,
I'd rather see those people put that money into their own retirement. It will pay off much bigger and better dividends over the long haul. That, statistically, goes almost with saying.
I believe I read once that only group of people ever who would have not fared better (basically would have been a wash) were those whose working lives were strattled by the the Panic of 1873 and the crash of 1929...or something like that.
The problem is that we are not starting fresh and there are retirees who need their checks and the transition costs are daunting. That's a hard sell but I think it's worth it over the long haul.
Beyond that, I can see some value in strictly premature disability insurance funded by a small tax on incomes well above the national average which could be means tested and would require far less taxation and be very stringent in its requirements.
Absolutely. I see nothing more pointless than taxing people into neediness.
Re: "the transition costs
Re: "the transition costs are daunting."
Absotively posilutely! Huge!
Re: "I'd rather see those people put that money into their own retirement. It will pay off much bigger and better dividends over the long haul. That, statistically, goes almost with saying."
Let's not overlook risk. Generally speaking, higher expected reward requires higher risk. It may be that the higher return justifies the higher risk (in aggregate), and I don't have an informed opinion on that matter or on privitization generally, but we can't overlook the higher risk level.
Also, there really could be two possibilities: (1) the government investing SS tax revenues in financial markets with some degree of aggressiveness, or (2) individuals choosing investments for themselves. In the latter case, there is yet another element of higher risk vs. the current system. Some people will do poorly on their investments.
That assumption about better dividends
is based on the conservative estimates of growth that basically use the growth the entire stock market over time....not a subjective grouping of certain stocks or funds.
Yes, I know what you mean.
Yes, I know what you mean.
Yes, but
under possibility (1) there is always the chance, however low, that the country could hit a bad economic spell, and more importantly there are the bizarre and probably bad effects of the government trying to pick winners and losers in the investment market, while under (2) there is an absolute guarantee that a bunch of people are going to lose money, even if overall there is an average gain, and then the question becomes what do you do about those people.
Maybe a hybrid scheme would work where some fraction could be invested however the individual wanted, some fraction would be in spiders, and some would be held by the government.
Under scenario (1), what happens when the government bets against the dollar? Does that paradoxically increase confidence in the dollar, since the government stands to make money off its imminent fall? I feel like Vizinni trying to guess the poison in Princess Bride.
Come, my friends. 'Tis not too late to seek a newer world -- Tennyson
I'm not asking the government to put money in the stock market
I'm saying that private savings accounts, in place of SS, would be put into conservatives spiders or funds of funds, which, over time, are far superior to the pay out from SS over your life.
Even a conservative
Even a conservative portfolio would incur more risk, even over a long period of time, than if SS put tax revenues into Treasuries, and obviously would incur more risk than a guaranteed annuity of a specific amount (per the current SS policy, that is, leaving aside the political risk SS benefits face). Again, the additional risk might be worth it, but it should be acknowledged.
To be clear, when I said
To be clear, when I said "the government investing SS tax revenues in financial markets with some degree of aggressiveness", I did not mean what would be considered an "aggressive" investment portfolio, just more aggressive than holding Treasuries. Even a well-diversified, conservative portfolio would have greater risk (market risk).
Two answers
I'd have two answers. My first would be "yeah, and..." and my second would be a bit more nuanced. Usually (and in just about all cases) it is wrong to steal from someone. It becomes less wrong to steal from someone depending on how much the theft would affect them. But, of course, I've said time and time again that government need not be moral.
The fact that SS taxes are a separate line-item on our paychecks is the only reason why we're debating this. If tomorrow Congress cut SCHIP from the budget, no reasonable person could say that Congress stole from those people who use that program. This is because no one is entitled in that sense to reap the benefits of any government program. Similarly with SS, which is pay-as-you-go, you are not in the same sense entitled to any benefits under the system. Congress would be a bunch of blumpkins if they cut SS -- especially so for the poor who were really counting on it and much less so for the ultra rich -- but the nature of SS requires that someone at some time pay into the system without getting anything back unless the scheme goes on into eternity.
It wouldn't be right, but it'd be justifiable. Saying it another way, It'd be wrong, but it'd be good. :-)
I never broke the law; I am the law! --
George W. BushJudge DreddI'm listening to...
Fair points. I would say,
Fair points. I would say, though, that reneging on promised SS benefits would be different from cutting something like SCHIP -- and closer to "theft" -- in the sense that an explicit promise was made in exchange for a (forced) contribution (SS FICA taxes) of a specific amount, whereas with another program there is a much looser, more vague and implicitly less reliable connection between the amound of taxes one must pay and how the government will use that money under current (or planned) policies. Do you agree?
Yes
To a lesser extent because there is an implied promise in SS and because it's a separate tax with a separate fund. Now if we could just get congress to quit writing IOUs to the trust fund and using the money for general expenditures ...
I never broke the law; I am the law! --
George W. BushJudge DreddI'm listening to...
Sure, but of course the
Sure, but of course the direct effect of doing that would be to increase the (unified) deficit by the amount of the SS surplus, meaning that we'd either have a higher deficit or we'd have to reduce spending or raise (non-SS) taxes.
But yes, it would be nice if the Trust Fund balance consisted of actual assets in a meaningful sense rather than just an obligation on the part of future taxpayers. I think that's how it was supposed to work, to save up for the boomers. Yet somehow it didn't work out that way, even with our highly responsible politicians looking out for us. I'm shocked, SHOCKED.
oops, let me correct my
oops, let me correct my language. It would not increase the unified deficit. It would just prevent the SS surplus from covering part of the on-budget deficit.
My point, though, and the rest of my comment still holds.
Thanks for your perspective
Thanks for your perspective and colorful, scatological descriptor for means testing in your subject line :-)
(I mean "colorful" in a figurative sense, although I suppose that would depend on one's diet).
Re: "And why are "progressives" suddenly agreeing that there is even a problem?"
Some "progressives are NOT acknowledging the problem, in the sense that they contend that all we need to do to solve our overall long-term fiscal imbalance problem is to raise taxes, cut Defense and "reform" healthcare. I consider that unrealistic, based on all I've read and heard, including that paper to which I linked (co-authored in large part by experts from "progressive" think tanks, in conjunction with others of different orientations/perspectives).
Some "progressives" also make the nonsensical argument that if, per their suggestions, Social Security will be fully (or almost fully) "solvent" for several decades or forever under current SS FICA tax policy, then Social Security spending is not contributing to our overall fiscal imbalance and there is no reason to even consider cuts in projected Social Security spending as we seek to mitigate our overall fiscal imbalance. I addressed that nonsense here http://swordscrossed.org/node/1720
Re: "You make someone pay into the system with the promise of getting benefits at the end for 30 or 40 years and then just before they draw any benefits you say, sorry, just kidding? BS."
I certainly understand and respect that sentiment. And I agree that such a violation of a promise made in exchange for payments would be a sucky thing to do to someone and it would not be unreasonable to even call it a form of "theft" as some do (and I lean toward agreeing).
But that pertains to promises ALREADY made based on taxes ALREADY paid, not to promised benefit levels and eligibility GOING FORWARD based on taxes paid GOING FORWARD. Right? If breaking a promise is your objection, why should any means testing "ONLY apply to new people entering the workforce"? Why not just to new (i.e., future) INCOME, with the change in policy communicated to the public?
That bipartisan study is good, it lays out all the options
without pushing a particular agenda. It seems like the choices are, to put it simplistically: (a) cut benefits to everyone, (b) cut benefits to the economically secure, (c) increase revenue from everyone, or (d) increase revenue from the economically secure.
My inclination off-hand is to avoid means testing for ideological reasons -- I think it undercuts the political support for the safety-net programs if they are perceived as welfare rather than forced savings. (I'm not saying they are forced savings, just that they are perceived that way by a significant fraction of people, who believe strongly that they should "get out what they put in.") So I fall into one of the categories you discuss in your opening.
Looking at the options, it seems like we can't save proportionally more money by restricting SSI or Medicare payments/benefits to the wealthy, since they don't consume significantly more (social security is restricted by the cap, Medicare costs depend on health which we will assume is more or less independent of income for seniors.) So IMHO to make a significant dent any means testing would have to reach down to middle/low incomes (where there are more people) to generate a useful decrease in spending (this is ok with me in principle).
The other choice is to increase income. Maybe it's a shell game but if we have a shortfall and feel like we have to honor current spending levels, I'd prefer we just set aside a one-time lump sum from general revenue (financed by the usual progressive income tax structure) rather than raising the cap for social security payroll taxes or making the Medicare rate itself progressive, for the ideological reasons expressed above. Of course that's ridiculously "unfair" in that it not only soaks the rich, it soaks the rich in a specific year (or, more realistically, a span of a few years) to pay for everyone -- so let's consider that a last resort and examine options for long-term fiscal stability.
Looking at the Heritage link it seems the increase in spending is driven primarily by Medicare and interest. So let's focus on those two. Interest depends on paying down the debt, which is going to require both decreased spending and increased taxes IMHO. Some of the spending decrease can come out of Medicare, so they go together.
I agree with GoRight that tinkering with the formula for paying out benefits to people who have already paid in taxes is not "fair" and perhaps more importantly is not politically feasible. So my suggestion would be to implement the suggestion from your second link for explicit budgeting by tying payouts to income with a 35 year gap (or whatever is the average gap between paying in and collecting). For example, the income collected in 2010 would be designated for payout in 2045, indexed for inflation. Presumably the money wouldn't really just be set aside but having a known fixed amount set for spending would enable sensible budget planning. Then benefits would have to be adjusted to match what that group of people (more or less) paid in themselves.
That way the perception of saving for retirement (or pre-paying on old-age medical care) is actually built into the law, and that way the income/expenses is balanced for any given year. I don't think it's unreasonable to limit the size of the pie available for them to split to what they previously contributed.
If health care increases in cost the difference would have to be paid for out of pocket by seniors (excepting those on Medicaid, which we'll leave alone for now). If lifespans increase the system faces the same stresses now; you'd have people collecting without putting in a compensatory amount. One way to account for this would be to raise the retirement age to stay consistent with the expected lifespan.
The obvious drawback is that this doesn't do anything to address the problem of Congress spending lots of money on unrelated stuff (say, elective wars) and then turning around and saying we can't pay for safety-net programs without raising taxes. In this formulation raising taxes at that point would just increase the committed expenses in 35 years, but in the short term Congress could still play the intergenerational wealth transfer game. But honestly the only way to prevent that is to radically change the nature of how we fund safety net programs (e.g., to privatize social security) and I think that should be a separate discussion.
Come, my friends. 'Tis not too late to seek a newer world -- Tennyson
Thanks Brendan. All
Thanks Brendan. All interesting points.
I'll reply to most of your points in this comment, and the last couple in another comment.
Re: “That bipartisan study is good, it lays out all the options without pushing a particular agenda. It seems like the choices are, to put it simplistically: (a) cut benefits to everyone, (b) cut benefits to the economically secure, (c) increase revenue from everyone, or (d) increase revenue from the economically secure.”
Another important message I see in that paper – and one with which I agree – is that our long-term fiscal imbalance cannot be sufficiently mitigated solely via tax increases (your “c” or “d”) and that Social Security and Medicare benefits and/or eligibility will have to be cut in some way vs. current policy. Even leaving aside whether or not solving the problem solely via tax increases would be desirable if it could be enacted and if it could work, there is both a political and a practical limit on the extent to which tax increases could mitigate the problem, the latter because as tax rates continue upward, there are diminishing marginal returns in terms of revenue, and the adverse impact on GDP becomes greater. There are also limits on the desirability, political feasibility, and just math, on the extent to which cuts in non-entitlement spending can solve the fiscal imbalance problem. Which leaves entitlements. And even if we factor in favorably the (uncertain) savings in Medicare and Medicaid from changes to our healthcare system, we still will not have solved the fiscal imbalance problem sufficiently. So, per the paper’s assumptions and mine, some cuts in entitlement benefits and/or eligibility will be necessary. Medicaid is already means tested, and those opposed to means testing from a “progressive” perspective hardly want to take away healthcare from the poor (nor do I), so we can put that aside. Which leaves cuts in benefits and/or eligibility in Social Security and/or Medicare. And then the question becomes: Do we means test such that those who can most afford to go without these benefits are made to do so, or do we make all seniors sacrifice, or do we establish some basis other than wealth or income for determining who is made to sacrifice?
As a note, it may be that there is more flexibility on raising taxes on lower income earners than on the top marginal rates on higher income earners and on capital gains, in terms of avoiding the aforementioned diminishing marginal returns. That sounds cold, but it’s an analytical point (whether correct or not), not an argument related to values or advocacy of raising taxes on lower income earners. The point is that, if this assumption is correct, than one more alternative to means testing exists even if we have reached the maximum point in practical terms for top marginal tax rates and capital gains tax rates, and that alternative is raising taxes further on lower income earners. So for “progressives” who oppose any means testing, in addition to asking if you’d prefer that all seniors be made to sacrifice, I also ask if you’d prefer raising taxes on the working poor and “working class” folks so that Bill Gates can get that check.
Re: “…IMHO to make a significant dent any means testing would have to reach down to middle/low incomes (where there are more people) to generate a useful decrease in spending (this is ok with me in principle).”
As I’ve mentioned in a comment upthread (posted after your comment), I realize that there are not too many super-rich, but since I’m challenging an absolute position (opposition to ANY) means testing, I’m using an extreme example (Bill Gates’ Social Security check) in my challenge to absolute opposition to means testing.
Re: “set aside a one-time lump sum from general revenue (financed by the usual progressive income tax structure)”
Again, I’m assuming (based on that paper and on the totality of all that I’ve read and heard on the subject) that we cannot raise taxes enough, even in combination with non-entitlement savings and savings from healthcare “reform” to solve our long-term fiscal imbalance. So, while I advocate increasing taxes, and doing so under our progressive system, there is a practical limit and that practical limit falls short of solving the problem.
Re: “Looking at the Heritage link it seems the increase in spending is driven primarily by Medicare and interest. So let's focus on those two. Interest depends on paying down the debt, which is going to require both decreased spending and increased taxes IMHO. Some of the spending decrease can come out of Medicare, so they go together.”
I agree, and some contend (and I can’t assess the validity of the claim) that healthcare “reform” could produce some painless savings in Medicare, but as the paper says, that won’t be enough. So if we’re talking about some of the spending cuts (vs. projections) coming out of Medicare, we’re talking cuts in benefits and/or eligibility, which brings us back to the choice between means testing vs. universal sacrifice among seniors (or some other basis for determining who is made to sacrifice).
Determining the savings from
modernizing and restructuring health care would be very helpful to knowing what to do with Medicare. My impression is that most experts agree that there is money that can be saved there, but consistent with your study certainly wouldn't claim such improvements solve the underlying demographic issues or fully address the spiraling costs.
Anyway, it seems like social security can lurch along with minor tweaks (raise the retirement age a couple years, increase the cap slightly, magically grow the economy). By the way, how come I never hear of a proposal to increase social security revenue by putting back in the payroll tax for income above say $2 million? If we're going to force some group to pay more than they are eligible to take out, why should it be the $120,000/year guys getting shafted on a few grand of income instead of soaking the millionaires like we usually do? Of course that creates a weird incentive to avoid making more than $2 million in income but then so do the steps in progressive tax rates.
Jumping to another random point, I'm going to remind myself not to use Medicaid to cheat on addressing the costs, because it's rather tempting for me to do so. For example, I would like to say (and I basically did) that seniors can split up whatever they put into Medicare and pay for additional care out of pocket, and Medicaid will provide the actual safety net. But if there is simply not enough Medicare funding to pay for treatment that is perceived by society to be necessary and if seniors as a whole don't have a lot of extra cash and quickly use up what they do have on health care, then in practice some of these expenses would probably be shifted to Medicaid and it's not accurate to treat Medicaid expenses as relatively fixed.
Come, my friends. 'Tis not too late to seek a newer world -- Tennyson
The problem with Medicare is the same problem
with health care insurance and costs in general....only magnified 1000%.
We have a system that encourages consumption with little to no attention paid to cost.
Whenever and I mean WHENEVER you have a situation like this in ANYTHING, costs rise fast.
After time, this reality that pushes up costs becomes the very problem that puts insurance costs in crisis and causes strife.
It's a similar problem to the one we see in skyrocketing tuition costs
As they say, if you think
As they say, if you think healthcare is expensive NOW, wait until it's free!
Indeed.
Tuition costs
I'll pass on addressing health care but college tuition is a different story.
About 50-75 years ago, one could live the stereotypical American Dream™ without having to step foot in an institution of higher education. Now about the only thing you can get without at least an associate's degree is unskilled, menial labor.
As they say, college is the new high school and grad school is the new undergrad. The tuition costs are outrageous because everyone needs a college education to have a middle class life style. Markets are at play here; the more people who have degrees, the less they are comparatively worth. The same goes for professional certifications. The MSCE was originally designed to be an elite certification, but now even entry-level techs are expected to have them, and consequently, they are a dime a dozen. I mean, I've got a BS in Math and I can't find a job that pays more than $7.00/hr right now. Granted this has a bit to do with my living arrangement (Sandusky is sorely lacking in many science/technical jobs), but this is ridiculous.
The community college is trying doggedly to fill in the gap between high school and college, and they are doing an adequate job, but government needs to start thinking about funding two-year schools (and in general, the first two years of post-secondary education) the same way they do primary and secondary education.
I never broke the law; I am the law! --
George W. BushJudge DreddI'm listening to...
Fair points, stinerman
But what you are saying is actually part of a different argument....one of skill premiums and skill competition and the need to be more educated to get further up the income ladder.
Yes, it's perfectly logical that more people wanting to go to college acts as both a dampener on the relative value of a degree as well as a very real stark increase in demand which can affect the cost.
What I'm talking about though is the simple principle of tone deafness in terms of cost and its effects on that cost over the long haul. In effect, subsidized costs make people less price conscious and, in turn, also make the supplier of the service, in this case universities and colleges, less careful about rising costs. The end result is a dog chasing its own tail, of sorts.
One could ask oneself the simple question:
What would happen if the government stopped chasing the increasing costs of a college degree with increasing subsidies?
would tuition increases slow down or stop or perhaps even go backwards?
would fewer people go to college...especially those who don't really need to for whatever reason-or-shouldn't because they don't have the foggiest idea what to study? (Know any Psych majors in sales or waiting tables?)
Would alternative/creative forms of education financing start to spring up?
would more lower cost alternative educational routes spring up for specific careers?
Would criteria from perspective employers start to evolve a bit?
Would new colleges form?
I say the answers to ALL of these is yes.
And there's simply no reason to believe that the end result wouldn't at least the same if not most likely better than it is now.
Re: "My impression is that
Re: "My impression is that most experts agree that there is money that can be saved there, but consistent with your study certainly wouldn't claim such improvements solve the underlying demographic issues or fully address the spiraling costs."
There is debate over the relative proportions of the growth in Medicare cost (and in the cost of entitlements overall) that is due to demographics (aging) vs. medical inflation above the GDP growth rate ("excess cost growth of healthcare") that is unrelated to demographics. CBO Director Orszag and some partisan "progressive" pundits, including some "progressive" economists (Paul Krugman, Dean Baker, Mark Thoma), contend that exces cost growth accounts for most of the growth in entitlement costs, but the non-partisan Concord Coalition (which promotes fiscal responsibility) faults their analysis (and accuses them of bias or insincerity in pursuit of a particular policy agenda), and finds that demographics are a very large part of the drivers of entitlement cost growth.
Additionally, those who point to excess cost growth as the be-all-end-all tend to couple that assertion with the assertion (or implication) that we can bring down that rate of excess cost growth dramatically through painless healthcare reform (e.g., eliminating the profits of insurance companies; efficiciencies they contend would come from universal healthcare; etc.) rather than from any real sacrifice such as some form of rationing (fewer types of treatments covered in general or under X circumstances; less availability of care; etc.)
I forgot to include the link
I forgot to include the link to the Concord Coalition analysis http://www.concordcoalition.org/facing-facts/2007/ff-1220-demographics.pdf
and to the CBO Long-Term Budget Outlook:
2007 http://www.cbo.gov/ftpdocs/88xx/doc8877/12-13-LTBO.pdf
and 2005, which contains section discussing excess cost growth http://www.cbo.gov/ftpdocs/69xx/doc6982/12-15-LongTermOutlook.pdf
Hmm, I just figured
it had to be both.
Thanks for the links.
Come, my friends. 'Tis not too late to seek a newer world -- Tennyson
As you'll see in the Concord
As you'll see in the Concord piece, Concord sees some insincerity and/or bias among those who play down demographics as a factor. Concord believes they are presenting faulty analysis/conclusions to support their pursuit of universal health insurance.
Philosphically
I have no problem with means testing. As far as I'm concerned the entire point of Social Security is welfare.
Of course, as always, the details can make a philosophically valid idea utter crap :)
I came. I saw. I posted.
Veni, Vidi, Bitchy.
I'd like to eliminate the $89,000 income cap on SS taxes.
So with that in mind and in order to be fair about a program that I support and recognize as a social obligation, I'd let rich receive the benefits of the payments and the health insurance.
It's only fair that way.
Isn't that almost a wash then?
Doesn't sound like it solves anything.
Not really. Usually they have private insurance as well
as Medicare. That will take some of the bite out. And the benefits paid under the monthly SS check won't be all that much.
Granted, this will be less a difference for someone making just over the cap, but compared to taking the taxes off of somelike Warren Buffet or Bill Gates and the Social Security system comes out ahead.
So let's look at the page 1 summary:
If they are to be believed as dispassionate facts, then, bullet point by bullet point:
-we must close the deficit. I would assume that logic here is that raising taxes alone is not the answer.
-nondiscretionary entitlement spending must be changed in terms of allocation because it's current levels are rising too fast. Therefore we need cuts.
-Spending must come down or all other spending must go up?? I assume they mean the former.
-Spending schedules must be periodically reviewed to determine if the current course is acceptable...IOW, if cuts are needed.
-Projected revenue changes must be accompanied by automatic adjustments....up and down? or just down?
I see a theme emerging here. :)
But anyway,
That last one is kinda funny. It sets up a new political football....if revenues are projected to fall, then increasing taxes will always be on the table (more than now) to protect the projected benefits from falling.
This will lead to conflicting projections. I see Democrats always taking the worst case projection and then calling for tax increases and the GOP taking the best case scenario and calling for nothing or cut. The murkiness of the process leads to believe that taxes will creep ever upward at every projected shortfall. We'll be at 40-50% rates in no time. :(
Then we get into a downward spiral of chasing falling revenues and rising costs even faster than now.
RECOMMENDED READING...and
RECOMMENDED READING...and viewing:
I just found out about this GREAT column, and about the upcoming movie and book discussed therein
http://www.baltimoresun.com/business/bal-bz.hancock30apr30,0,4722061.column
Oh man, oh man! A movie about our long-term fiscal imbalance in the style of An Inconvenient Truth -- can't tell you how much I hope it's as successful.
And the column itself is great. Love his idea for an AAFG to counteract the AARP.
My only complaint about the column is that the focus on "twenty-somethings" and "thirty-somethings" makes this forty-something feel like he should take a Geritol. And if you don't get that joke, you're much younger than me so screw you (and your fiscal future) !
Another tradeoff
This is logically wrong, since a premise that there is no scarcity would lead to a conclusion that no change is required. However, I conceed that there are limited resources. I just choose a different tradeoff.
Adjusting the growth of initial benefits from AWI to CPI is enough to balance the SS budget. In fact, it is more than enough, so it does not need to happen right away and a midpoint is also acceptable. Since the projections are loaded with uncertainties, trying to make the change that would balance the budget for 75 years would guarantee that it would go up and down frequently. Better to make a series of smaller changes all in the same direction.
I would not increase the payroll tax because I do not think that is a good tradeoff with respect to Medicare, but I would not reduce it because it provides an efficient method of insuring a safety net (especially for those who end up living beyond their life expectancy.)
Arne, First of all, welcome
Arne,
First of all, welcome to SwordsCrossed and thanks for commenting here.
As for "scarcity", it is not not "logicially wrong", but I can see why one would misunderstand my use of the (vague) term. There are two meanings of "scarcity", one broad, one narrow. I meant both: scarcity in the sense that resources are not infinite, so we are forced to make trade-offs. I don't consider that controversial, let alone "logically wrong". I also meant, more narrowly, that we face scarcity in the sense that -- according to strong expert consensus across the political spectrum -- we face an unsustainably large long-term fiscal imbalance under current policies, and we will need to make substantial sacrifices via fiscal policy. I do not consider that premise to be controversial, at least is isn't per expert consensus.
Now on to policy.
I don't know enough about the numbers to discuss or debate your premise, but basically what you are saying is that we could make ALL recipients at some point receive less than they would under current policy, and you prefer doing that to making wealthy retirees receive less. Why is that your preference?
Also, as I've explained to you elsewhere in the blogosphere, the real problem we are tying to solve is not a lack of SS "solvency", but our unsustainably large OVERALL long-term fiscal imbalance. The policy decision on whether or not to reduce projected SS spending is not one we should simply base on SS "solvency", but rather on whether or not we should do so as part of our set of sacrifices to reduce this overall long-term fiscal imbalance. In other words, even if SS would be fully "solvent" forever under current policies, that would NOT mean that reducing projected SS spending should be off the table, a priori, on the basis of SS "solvency" alone. I know you've seen my elaborations/explanations of this point on other blogs, but for more (or a reminder) see http://swordscrossed.org/node/1720
as well as here http://angrybear.blogspot.com/2008/05/bruce-webbs-take-on-social-securit... 
(If you wish to debate this point, please do so on that other SwordsCrossed thread, the "Solvency" one, rather than this one)
Certainly, frequency of adjustments in any policy can reach a point at which the frequency has some drawbacks, and perhaps you can elaborate on what changes and timing you are referring to and why one approach would be preferable over the other, but in general, with so much at stake I think we should use the best long-term projections possible (however imperfect) and make adjustments to promised benefit levels regularly rather than risk a much larger change later after having waited a long time to be sure of direction/magnitude, because the former gives future retirees (and taxpayers) more time to plan.
Logic
Ok, You missed the point that I was nitpicking your sentence structure, so I won't bother to do that again.
Solvency
My post last night on on your solvency thread got lost, so I reposted.
Excessive adjustments
For this point to make sense you first have to accept that balancing the budget is the goal.
If we had used last year's best estimate and balance the long-term budget, we would have needed to increase taxes by 1.9 percent of payroll or make equivalent cuts. By this year's best estimate we would now need to reduce taxes by 0.2 percent or make equivalent benefit increases.
Right now there is a small but realistic probability that we will have a balanced SS budget without increasing taxes or reducing benefits. If that does not come about, ther will still be time to make adjustments that are still "fair". (See the next post, I saved the most difficult subject for last.)
For this point to make sense
First of all, either you are being excessively imprecise or your statement is simply false, and an (inadvertent) straw man.
No, there is no reason that "For this point to make sense you first have to accept that balancing the budget is the goal", only that reducing projected deficits and levels of debt-to-GDP to sustainable levels is the goal (and if you don't think it is, I suggest you read up on the subject and take a look at projections from CBO, etc.)
Are you not listening to me? My point is that a "balanced SS budget" is beside the point. What matters (to our decision on whether or not to reduce projected SS spending) is our OVERALL fiscal balance/imbalance, not SS "solvency" in isolation. Do you understand that? If not, please re-read my prior comment.
Who is not listening
The first sentence of the 'excessisve adjustments' posts tells you that I know that we do not agree. That's part of what made an easy post.
Either you are
Either you are misunderstanding me or vice versa. Let's try to sort this out.
You wrote "For this point to make sense you first have to accept that balancing the budget is the goal."
What "point" were you referring to, and why is accepting that goal necessary for it to make sense?
Well, I thought it was easy
Trying again.
Excessive adjustments come from trying to keep the budget balanced as new information changes the 'best' projection. Since you don't accept that solvency is relevent, you don't accept that balancing the budget is important, you can just reject making adjustments.
I knew before I posted it that you would reject the argument, but it is possible that not everyone will agree with you and that you may want to know what I think even when you disagree with me.
My preference
Unlike some defenders of SS, I do not think increasing payroll taxes is a nearly painless solution if the SS budget does run short. Medicare is going to try to swallow any margin that exists in that direction.
SS is an efficient insurance system. Each beneficiary can pay in enough to meet minimal expenses over life expectancy and be ensured of benefits to cover expenses however long he actually lives. It does contain compromises. In particular, the more you put in, the more you get back. This last creates confusion for many people.
As currently scheduled the current generation gets slightly more than they put in. This can go on forever as long as the rate of population growth stays high enough. By one projection it does go on forever, by another it does not. If we need to transition to a benefit schedule based on lower population growth it should be done such that the value of future benefits is (at least) equal to the value of current benefits since the people paying for current benefits are the people who get future benefits. The lower bound that I described above (reducing from AWI to CPI) provides at least equal value and balances the long-term SS budget.
I grant you that means testing would be consistant with the fact that SS is retirement insurance. If someone has the means then they do not need the benefit. (Same as someone who never crashes their car does not need a payout from collision insurance.) However, means testing would add administrative complexity to the program. It would be easily gamed. It would be another compromise. It might even be better than the compromise we have now, but I doubt it.
I prefer the compromise I know works well enough to the vague untested one you are suggesting.
I wrote: "you are saying is
I wrote:
"you are saying is that we could make ALL recipients at some point receive less than they would under current policy, and you prefer doing that to making wealthy retirees receive less."
And you replied:
And I assume your concern over the "untested" approach of means testing relates to your earlier comment that:
I assume that the additional administrative complexity would be well worth the savings, depending of course on how widely means testing were applied. I grant you the possibility of people gaming the system, but I cannot speak to the likelihood of this being widespread. After all, everyone today can cheat on their taxes to a great extent, but the risk of getting caught -- and to a lesser extent integrity :-) -- place a constraint on such cheating. In any case, those objections may be a bit of a cop-out (not saying it's intentional), so let me ask you just as a hypothetical:
If the admin costs would be negligible relative to the savings, and if gaming the system would be kept low enough to preserve most of the intended savings, would you still prefer lowering ALL recipients benefits over reducing the benefits of the wealthy (weather measured by annual income or by net worth, or some combination)
As a note, we already DO have, in effect, some degree of means testing of SS. High income earners pay a higher tax on their benefits, reducing their after tax benefits.
Not just untested, also vague
I already said that means testing could be consistant with the insurance aspect of SS. Under certain circumstances I can imagine something in those lines. The current situation is adequate, so you have to have details before I can approve or dissaprove of you plan.
As an example, how will you treat income from a ROth IRA?
I'm not asking you to
I'm not asking you to approve of some specific plan or to say that you'd favor means testing regardless of the particulars, and I have no particulars to offer you, nor are they necessary unless there is some reason to believe that there is no way means testing could have its intended effect in practice, and I see no reason to believe that.
My point here is just that those who oppose means testing must address (1) the economic fact that avoiding means testing means sacrifices elsewhere, and (2) the moral consideration of whether or not making those sacrifices elsewhere is morally preferable to ANY degree of means testing (e.g., avoiding any reduction in Bill Gate's SS check).
#1 is an obviously valid premise.
#2 is a question that can stand on its own FIRST as a simplified hypothetical (removing extraneous matters such as potential practical problems, just for the sake of argument) and THEN can be considered (from a moral perspective) after taking into account how practical factors affect the trade-offs in question.
It sounds like you're saying that you do not have an absolute objection to means testing (i.e, you don't think that Bill Gates getting his full SS check per current policy is sacrosanct, a higher priority than anything else), but that there may be practical drawbacks that would at least give you pause, and perhaps lead you to oppose such a policy. Have I stated your view correctly?
close enough
Although you seem to have left out the possibility of moral reasons (in addition to practical reasons) to let Bill Gates have the full SS check he has been promised.
I haven't left out that
I haven't left out that consideration. Coberly over on Angry Bear has called such an act "theft". I think that if we are referring to promises of benefits that have been made ALREADY based on SS FICA taxes ALREADY paid (by Mr. Gates) than "theft" is at least arguably a appropriate descriptor, since it is renegging on a promise. I'd have to check the wording of my annual Social Security statement to see how explicit the "promise" is and with what caveats, qualifications, etc., to know if I'd use the term "theft" myself. (And to be clear, I'm NOT talking about defaulting on Trust Fund bonds.)
But, as I've pointed out to Coberly, the term "theft" would NOT apply if we changed the promised benefits GOING FORWARD based on FUTURE SS FICA taxes. Which would mean Mr. Gates getting all the benefits he would get based on past SS FICA taxes he's paid, but no more based on his future SS FICA taxes. I assume it wouldn't matter in his case, since I assume he's maxed out his future SS benefits anyway. But others would be a different case, and future generations of to-be-affluent workers would be a different case.
In any case, renegging on promised benefits, in part or whole, is indeed a moral consideration of which I'm aware. I just consider it justified and, on balance, the moral choice.
But my post is NOT about MY preference. It's about a rational approach to the choice. I've encountered several people on "progressive" econ blogs who object to ANY means testing absolutely as a matter of principle, and I'm encouraging such people to take a rational approach instead.
Whoa
You asked "Have I stated your view correctly?" I indicated you left out something in stating my view. I am sure you, me, and coberly all make decisions based on the combination of judgements and facts known to each of us.
Speaking of facts, Bill Gates cannot have maxed out his benefits since he has not worked 35 years at the cap. If he has stopped taking a salary, he may actually end up with a smaller benefit than I will get.
"Whoa"? Perhaps you took my
"Whoa"? Perhaps you took my reply as hostile. It wasn't. Just discussing the point you raised. Although I did erroneously think that you were saying that I had not thought of that point, whereas I understand now that you were saying that I left it out of my description of YOUR view, and while I wouldn't say I really left it out, I didn't state it explicitly. In any case, apologies for that misunderstanding.
I wasn't sure about that assumption of mine re: Gates maxing out, and I was wondering if perhaps the cap is annual rather than cumulative. Looks like it's the former. Thanks for that info.
Outstanding column by Robert
Outstanding column by Robert Samuelson http://www.washingtonpost.com/wp-dyn/content/article/2008/10/21/AR2008102102252.html
The whole column is worth reading, but here's an excerpt:
As I wrote in my
As I wrote in my diary:
Glad to see that in today's column, one of my favorite columnists, David Brooks, makes the same point, albeit more generally: