The monkey is out of the closet, and politicians of all stripes are struggling to shove it back in. Too bad no one has the guts to actually deal with the problem.
Federal Reserve Chairman Alan Greenspan (search) has touched off a political firestorm with his call for benefit cuts in Social Security and Medicare for future retirees.Meanwhile, in fantasyland:Greenspan told Congress that soaring budget deficits from out-of-control entitlement programs could lead to a "very debilitating" rise in interest rates and threaten the economy in coming years.
Democratic front-runner John Kerry (search) said the way to address the deficit is to roll back tax cuts for the wealthy and "the wrong way to cut the deficit is to cut Social Security benefits. If I'm president, we're simply not going to do it."If we ignore it, maybe it'll go away! Or at least we won't be in office when the monkey starts hurling poo all over the livingroom.Democratic presidential contender John Edwards (search) called it "an outrage' for Greenspan to call for cuts in Social Security while at the same time endorsing making Bush's tax cuts permanent.
Bush said Social Security benefits "should not be changed for people at or near retirement."
Greenspan noted that projections show the country will go from having just over three workers supporting each retiree on Social Security to 2.25 workers for every retiree by 2025."This dramatic demographic change is certain to place enormous demands on our nation's resources — demands we will almost surely be unable to meet unless action is taken," Greenspan said. "For a variety of reasons, that action is better taken as soon as possible."
He said taking action now would mean that people still working would have time to adjust their retirement savings plans to deal with smaller Social Security benefits.
Greenspan said at some point the country needed to face the fact that the government has promised more in entitlement benefits than it can afford to pay. He said the problem was even worse for Medicare because it was impossible to estimate what types of costly medical advances will be available in coming years.
It has been my theory that Bush has deliberately raised spending on such things as the prescription drug benefit to force Congress to do something about a problem that is not going away.
Naturally, this is just a theory but it has some benefits, not the least of which is to take the issue away from Democrats. There are also some provisions that tend to start a process of reform within medicare. Coincidence?
A good place to start with social security might be means testing. Forget the cutting benefits and raising the retirement age. Means test the retirees and only pay SS to those that need it.
Given the Democrats propensity to bash the rich it would look like that would support such a policy. But, alas, the last I heard they are adamantly opposed to means testing. Imagine that.
You can't do means-testing, because in theory SS is a system we all pay into and can all reap the benefits of (like unemployment insurance). If there were means testing it would be explicit wealth redistribution.
Well, I dunno about that. Here's another view:
In 2000, amid loud self-congratulation, Congress repealed the retirement earnings test for beneficiaries at or above the retirement age (currently 65, but slowly ramping up to 67 by 2027), but kept it in force for beneficiaries below the retirement age. Supposedly an old, old and long-resented inequity in Social Security was being packed off at last.
Ah, but the de facto means test of benefit taxation remains, and its take is steadily rising. In calendar 1984, the first year it operated, it took back $3 billion in benefits; in 2001, $12.7 billion. Under the intermediate assumptions of the Social Security Board of Trustees Annual Report for 2002, its take will hit $28.7 billion in 2011. The report added that "Because the income thresholds used for benefit taxation are, by law, constant in the future, their values in relation to future income and benefit levels will decline. Thus, ratios of income from taxation of benefits to the amount of benefits are projected to rise." Translation:
Longman was right. Benefit taxation will claw back an ever-rising share of benefit income over time. A progressive means test is already on the books.
In disguise, of course, Congress being what it is.
Some serious Social Security scholars, such as Longman, Pete Peterson, and myself, endorse explicit means testing and benefit taxation as an honest, bite-the-bullet way to avert the program’s coming financial crisis. But partisans of Social Security as we know it won’t hear of it. Why, they bluster, it will turn Social Security from insurance into welfare! It will violate the earned-right concept! What they either don’t know or won’t admit is that Social Security is already means tested – and, what’s more, it always has been. Draw your own conclusions about your "insurance" and your so-called "earned right."
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It would be interesting to find out where the current taxes paid on social security income end up. If they are not being returned to the SS system, then they should be.
Randall: Oh yes, it's certainly means-related welfare right now, just not technically.
It must not being doing much good as it is right now, which shoots my idea down. Oh well, maybe Greenspan can provide some wisdom on the matter. It looks to me like people would take to the streets and protest any remedy that raises their retirement age or decreases benefits. If anything, given a good retirement system, the age should be coming down. We'll just have to wait and see what brilliant idea is promoted. Hopefully it will do some good and not hurt those who rely on SS to live.
It can't come down unless the economy grows faster than the life span lengthens, which is basically impossible given the numbers involved. For now, anyway.
And yes, people may take to the streets, but that won't affect the hard reality that what they've been promised is simply impossible to deliver.