Alan Simpson's Secret Plan to Save Social Security
Have you heard Alan Simpson making fun of the Social Security beneficiaries who drive up to their gated community in a Lexis? How many times? How many have heard his quip comparing the Grey Panthers to the Pink Panther? That one dates from the mid-90s, but the reporters who cover these issues still love it. He probably hopes that if he repeats these lines enough it will drive many of us to suicide before we start collecting our Social Security benefits.
It is scary that Senator Simpson has been placed in a potentially responsible position as a co-chair of President Obama's deficit position. It would be difficult to find a person who spreads more misinformation and shows more hatred towards the non-rich elderly than Mr. Simpson. Putting Simpson in this position is like putting a klansman in charge of a commission on civil rights.
The really remarkable part of the story is that national media is treating this klansman's inaccurate and misleading nonsense with great respect. The basic facts are not in serious dispute outside of Mr. Simpson's head.
The vast majority of senior citizens do not drive a Lexus. Their Social Security checks, which average just over $1000 a month, comprise more than half of the income for almost two thirds of the elderly. Eighty percent of the elderly households have incomes of less than $56,000 a year. It would be interesting to see Senator Simpson get by on $56,000 a year. Or maybe less than $34,000 a year, like most seniors.
And, of course seniors also worked for their Social Security. This means something outside of Mr. Simpson's rich former politicians' club. The number of rich seniors, like Mr. Simpson and his Lexus driving friends, are few and far between. Even these people have a right to their Social Security since they paid for it, just like they have a right to the interest they get on the government bonds they own. They probably don't need the interest on the bonds either, but that doesn't mean it would make sense to means test it. Of course, if Mr. Simpson's wealthy friends feel guilty, they can send their checks back to the government. The impact on the budget would be trivial, but maybe it would mean that we wouldn't have to listen to these quips from Mr. Simpson anymore.
As we know, Simpson is scared to confront the real powerful interests that are behind the projections of long-term budget deficits. What has he said about the pharmaceutical industry that charges us twice as much for prescription drugs as people in other wealthy countries? What has he said about the health insurance industry: how about a public option Mr. Simpson? How about letting retirees save us and themselves money by giving them Medicare vouchers to buy into the lower cost health care systems elsewhere? No, that could hurt Mr. Simpson's powerful friends. (You know, the seniors who drive their Lexus into gated communities.)
Many of us will always remember Alan Simpson as the guy who desperately wanted to cut Social Security because incomes were growing way more rapidly than the official data showed, which meant that our children and grandchildren would be far richer than anyone could imagine. It made no sense, but Mr. Simpson obviously hates seniors who actually do rely on Social Security and Medicare and can't afford to drive a Lexus into a gated community.
Does Alan Simpson receive Social Security Retirement Income Benefits? If so, how much per month? Deos Alan Simpson allow Medicare to pay for his medical visits, procedures, operations, medications? If so, how much does that amount to per year? Does Alan Simpson receive pension payments from the U.S. government or any other public agency for his years of public service? If so, how much per month and from whom?
Or, has Alan Simpson indignantly refused all of these government benefits and sent the checks back to the issuers?
How much annual income does Alan Simpson have from other sources, and will he name all the specific sources of his non-government income? Are you going to lay all your cards out on the table, Alan Simpson?
April 27, 2010 8:10 AM | Reply | Permalink
I completely agree with you, the florida mortgage rates have been getting so high lately that it seems i might need to look into getting a mortgage refinance
February 18, 2011 6:55 AM | Reply | Permalink
This would have more relevance if you included net worth and liquid asset figures. A taxable income of $56,000 is not too bad when supplemented with tax free income and seven figures in the bank.
Your entire point seems to be that as long as there those of modest means drawing a social security check, then it is unfair to point out that the working poor are being taxed to send checks to the very wealthy. Odd that.
BTW, household income of %56,000 does not too shabby compared to those paying the bill:
http://www.justice.gov/ust/eo/bapcpa/20090315/bci_data/median_income_table.htm
April 27, 2010 9:32 AM | Reply | Permalink
I think his point is more than since everyone pays into Social Security, everyone should receive their promised benefits. He's really making two arguments that I agee with: 1) Don't be worried about rich seniors collecting Social Security because there aren't many of them anyway. 2) Don't worry about them because they deserve their money just like anyone else who pays into the system. Social Security is a universal program, not a poor program.
April 27, 2010 11:23 AM | Reply | Permalink
FDR's very point!
And too, the rich pay income taxes on all monies received from social security -- at the top rate.
April 27, 2010 11:26 AM | Reply | Permalink
Why is means testing worse than the proposed alternative of raising the cap on which payroll tax is paid?
That position implies that the extra revenue from high income taxpayers is used to support the others. If it were just paid back to the high earners it wouldn't affect the fiscal position at all.
April 27, 2010 12:22 PM | Reply | Permalink
Inasmuch as by statute and by design low income social security recipients enjoy a higher rate of return on their lifetime contributions than do high income recipients, the implication is a fact.
April 27, 2010 12:54 PM | Reply | Permalink
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April 4, 2011 7:04 PM | Reply | Permalink
Gee, I drive a Lexus into my gated community and draw social security. I also own my home outright and have substantial net worth in addition.
Sure I worked for my social security but the amount I expect to recieve over the rest of my life far exceeds the amount "contributed" during my working years. That excess constitutes a form of welfare. Not that I'm against recieving it, but really, is it smart government policy?
April 27, 2010 10:31 AM | Reply | Permalink
In calculating the "excess" you expect to receive over the contributions you made did you capitalize your contributions at the rates the USG was paying the SSTF on its special issue bonds? Or at the least apply a COLA adjustment?
If not, how can you know you're receiving an "excess."
April 27, 2010 11:24 AM | Reply | Permalink
There have been studies comparing SS return to that of private funds and these variables are accounted for. However, SS isn't a "trust fund" based system. At least in reality.
Since it is a pay as you go system, the early retired participants obviously recieved benefits far exceeding the value of their "invested" monies. In my case I contributed less than half the maximum but get a considerably larger percentage back than someone that paid the max into the system. At some point the portion of retirement pay that could be called "welfare" will vanish and people paying into the system can expect to get less back than if they invested in comparable private funds. There is no free lunch, at least collectively.
April 27, 2010 1:16 PM | Reply | Permalink
As a lower-middle class worker you are receiving a higher return on your contributions than a high income participant. That's how the statute is written.
But you still haven't shown that you're receiving anything which could be described as "excess."
Time to pull out your pencil and your paper and figure it out.
April 27, 2010 3:22 PM | Reply | Permalink
Ellen,
If Social Security had no "welfare" component the trust fund would have had to grow far more than the meager 4 years of benefit outflows it has now. Especially when the boomers haven't moved into retirement but are still at the peak of their earning years.
April 27, 2010 10:36 PM | Reply | Permalink
Actually, I maxed out my SS payments when employed. The reason my contributions were midrange is that I quit working 10 years before drawing SS.
April 27, 2010 10:42 PM | Reply | Permalink
And your current income from social security is based on your history of contributions.
You've yet to show your computation of "excess" -- or for that matter what you mean by "welfare" in the context of social security.
April 27, 2010 11:32 PM | Reply | Permalink
Ellen,
Well here's the napkin version:
My cumulative payment to ss, 49k is matched by my employer. Assuming all ss payments went into the trust fund (HA!), it would have increased to about 200k. Since SS payments are inflation adjusted, the present value of my ss income stream is simply the annual payment times my mean remaining lifetime. That comes to about 400k. From that 200k difference one has to subtract a portion for the possibility I would have died prior to collecting anything but having paid a some in. Feels like around 30k. So about 170k is excess over what I would expect. I call that welfare. If you don't like the word then just call it monies from other taxpayers given to me.
April 28, 2010 1:11 AM | Reply | Permalink
Outdented
April 28, 2010 2:20 AM | Reply | Permalink
I agree with you, I have actually needed to start out automated forex trading so that i could start making more money otherwise i would have been forced to get a cash out refinance which would make me lose a lot of my money invested.
February 18, 2011 6:56 AM | Reply | Permalink
Hmm.
1) I'm going to assume your $200 thousand figure was the amount you estimated as the value of your account at the time you quit work (10 years before taking social security) -- that is, the $98 thousand paid in over a period of 30(?) years plus the interest earned thereon.
2) On the date you took social security (that is, 10 years later) that $200 thousand at 5% interest should have grown to about $328 thousand.
3) Though regularly reduced by the amount of your monthly benefit a diminishing portion of that $328 thousand will continue to earn interest until it is exhausted or you die. The amount is more than adequate to pay you your monthly benefit.
I don't see any "excess."
April 28, 2010 2:19 AM | Reply | Permalink
I quit working in late 2002. I used 200k as the present value of my contributions because they were heavily skewed towards the latter years of my earnings when the cap on earnings rose rapidly (I was always capped out). I then accounted for the subsequent growth to come up with a 200k number. I just started early withdrawal (at 62 y/o).
April 28, 2010 11:38 AM | Reply | Permalink
I was always capped out.
Just counting the years 1982-2001 you and your employer should have contributed $135,110.40. That figure's well above the $98 thousand you admit to for your entire career.
Seems like you're doing some substantial undercounting in the absence of which your "welfare" theory would go kaput.
April 28, 2010 3:52 PM | Reply | Permalink
Ellen,
Looks like your numbers include the portion of employment taxes that are for disability and health. We were talking about the retirement part so your numbers are too high.
In any case, my point is that up to now retirees have reaped more than they sowed and the excess portion is, well, welfare. In the past this was egregiously true and in the future the opposite could happen. Retirees 20 years from now will likely not benefit at all and may lose out.
The gaping dichotomy between what people paid in and what they recieved a generation ago is well described here:
http://www.roiw.org/1981/401.pdf
A surprising finding is that upper income classes have received
absolute transfers equal to those received by lower income classes. These findings
provide a rationale for the near universal support of OASI by past generations,
as well as for the controversy which now surrounds the program.
Note: "absolute transfers" is their term for payments in excess of "actuarially fair." I'm comfortable just calling it welfare. In that case it was welfare for the well off.
April 28, 2010 11:47 PM | Reply | Permalink
Looks like your numbers include the portion of employment taxes that are for disability and health.
My numbers were the arithmetic result of multiplying the contribution base (you claimed you were "capped out") by 12.4%. HI rates are an additional 2.9%
Someone who knows so little about how Social Security works, so little he can't even figure out his and his employers' FICA contributions, really shouldn't be involving himself in discussions pertaining to social security.
As Mark Twain said, "It is better to keep your mouth closed and let people think you are a fool than to open it and remove all doubt."
April 29, 2010 5:57 AM | Reply | Permalink
Ellen,
Once again you overstate since the 12.4% includes disability and the basis of my claim is old age insurance which not only exludes disability but is only a portion of (OASI) which is around 10.6% . Further, the SI portion of OASI was not included in my numbers and it is quite a significant amount.
However, that said, I did in fact have a number of years that I wasn't "capped out" in the last half of the 80's. While my income was well over 100k/y I had taken a 75% pay cut and was actually unemployed one year. My income during those years was almost entirely from cap gains and interest and those were not taxed by SS. My error.
So, do you dispute that OASI has a large welfare component per the link provided?
April 29, 2010 11:33 AM | Reply | Permalink
dougnsd:
Your statement:
"However, SS isn't a "trust fund" based system. At least in reality."
is false to fact.
In 1983, the US Legislators recognized that the baby boomers were aging and established rates of Social Security taxes above a "pay as you go" system. They actually established a "Trust Fund". There is an "accumulation" of approximately $4 Trillion in the Social Security Fund in treasury bonds in West Virginia. You know, those T-Bills that president GW Bush said were worthless pieces of paper.
The problem is that during the intervening years, Congress has transferred this money into the general fund and spent it to avoid raising taxes.
Any and every attack on the Social Security program is the result of Congress trying to escape its obligation to repay the money it "borrowed" from the Social Security System.
.
April 29, 2010 9:54 AM | Reply | Permalink
The excess isn't welfare it's a return on the capital that you invested into the Social Security system throughout your working life.
April 27, 2010 11:25 AM | Reply | Permalink
It's a pay as you go system. By definition any surplus is small.
April 27, 2010 1:00 PM | Reply | Permalink
Except the money is invested in Treasuries which have a real rate of return.
April 27, 2010 1:39 PM | Reply | Permalink
The surplus may be small but it adds up -- $2.419 trillion at the end of 2008 -- and more today.
April 27, 2010 3:15 PM | Reply | Permalink
Dougnsd believed GWB when he stated that the T-Bills held by the Social Security Administration in West Virginia are "worthless pieces of paper".
Otherwise he/she would realize that the Social Security program is actually a trust fund and not a "pay-as-you-go" system and that the 4 year figure being used is when the Social Security "Fund" would stop bringing in more than it is paying out and would have to begin drawing on that $2-4 Trillion "Trust Fund".
.
April 29, 2010 10:05 AM | Reply | Permalink
Social security is largely a pay as you go system though the trust fund is now a much bigger portion than in the past. A few decades ago the trust fund was so depleted that it could only have paid a few months worth of retirement checks. Now it is closer to 5 years worth. That will decline as the boomers hit retirement.
April 29, 2010 6:29 PM | Reply | Permalink
The trust fund recieves interest based on longer term treasuries. The excess over that is "welfare" in the sense it isn't funded by the persons tax contributions and accrued interest.
April 27, 2010 10:40 PM | Reply | Permalink
When Social Security became law, the average life span was 63 years (male), which is why SS kicks in at 65. Whatever the average life span is now, the kick in should be 2 years of age beyond it.
April 27, 2010 3:33 PM | Reply | Permalink
Yes, and I'm totally confident that generations x, y and following will be happy to have mom move in with them for 20 years or so. And I'm equally confident that Big Global Corporation will be thrilled to employee Dad with full pay and benefits till he's 80 or more.
April 27, 2010 6:23 PM | Reply | Permalink
A heart of gold, there!
April 27, 2010 7:08 PM | Reply | Permalink
When the FDR admin set up SS they shaped and promoted it as "not welfare" this was done to insulate it from attacks by conservatives. As though, if you are on welfare that automatically makes you undeserving of it. Changing the name does not change the nature of the program. Any non-nomothetic analysis yields the conclusion that the program and its foundations are very "welfare like".
Its amazing how so many pitchfork lefties here are somehow unable to defend this indispensible retirement saftey-net for what it is.
There is only one valid reason for not means testing Social Security, and it is the same today as it was years ago at the program's inception. It would leave the program open to attacks from the right that it is nothing more than shameful welfare funded by unfair taxation. Why, how dare the government help people who need it and deserve it, but who nevertheless have been left behind by our cultural and economic system!
Some of you pitchfork guys writing above should be ashamed of how you buy into the myths that make it impossible for us to see a non-free market transfer of wealth program as quite legitimate.
April 30, 2010 1:34 AM | Reply | Permalink
And, I never liked Simpson, either.
April 30, 2010 1:38 AM | Reply | Permalink
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It means that the extra revenue from high income taxpayers is used to support the others. If it were just paid back to the high earners it wouldn't affect the fiscal position at all.
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