Saturday, June 25, 2011

Expand Social Security?

The Social Security system provides an important, arguably essential, economic benefit for many elderly in the U.S. As is well known, Social Security appears set to run out of money in 2037. I’ve written about this topic several times (e.g., Ethical Musings: Privatizing Social Security and Ethical Musings: Musings about freedom and rules). Two recent items deserve attention.

First, the Wall Street Journal recently published an interactive website that allows the user to explore the implications of potential fixes for Social Security’s financial problems (click on the “Interactive Graphics” tab at Saving Social Security). Surprisingly, the calculator suggests that one fix for that problem is subjecting all earnings to the social security tax, not just the first $106,800, as is currently the case, while capping benefits to those higher earners at current levels. The cap on earnings subject to the tax has never made sense to me; now it makes even less sense. Only 6% of workers earn more than $106,800 per year.

Second, Thomas Geoghegan, a labor lawyer, makes what I think is a persuasive case for raising rather than cutting Social Security benefits in a New York Times Op-Ed column (“Get Radical: Raise Social Security,” June 19, 2011). Among Geoghegan’s significant points:

·         Social Security now pays 39% of the current retiree’s pre-retirement earnings

·         A significant number of elderly people live on less than $10,000 per year

·         34% of Americans have nothing saved for retirement.

Geoghegan argues for raising social security payments to 50% of a worker’s pre-retirement income, a level that he contends is affordable, would not cost the nation jobs (he operates his own small business as a lawyer), and would move the U.S. from the cellar to the middle of the pack in terms of how industrialized nations care for the elderly.

Morally, care for the elderly is a basic tenet in most religions (some will speak in terms of respect, but verbally honoring the elderly while watching them subsist on incomes that force choices between food, shelter, and healthcare is not respect). Selfishly, we all hope to join the ranks of the elderly someday – the alternative is an early death, which most of us find rather unattractive.

Taking care of the elderly is an example of reciprocal altruism: my taxes today provide for today’s elderly in the expectation that future generations will provide for me in my dotage.

Some other adjustments to Social Security certainly lack any Christian moral objection, e.g., increasing the full retirement age at which a person can collect full Social Security benefits. As people live longer, healthier lives, increasing the full retirement age can make sense. Idleness too often promotes unconstructive or even destructive behavior. The author of I Timothy warns against youthful widows attempting to “game” the church’s welfare system.

However, Christians should also remember a second basic moral premise: God's preferential concern for the disadvantaged among us. Admittedly, people should exercise some initiative and responsibility in planning for retirement. However, penalizing those who have failed to do so by forcing them to choose between food, shelter, and essential healthcare because they live on less than $10,000 per year is wrong.

Furthermore, not everybody is capable of holding a high paying job nor do sufficient high paying jobs exist for everyone who wants one to have one. Farmworkers, for example, average $10-12 per hour, or $20,000-$24,000 per year, presuming the person works 40 hours per week, 50 weeks per year. Farmworkers provide an essential service (I, for one, like to eat) and have little realistic expectation of ever earning more than that much money. After paying taxes, buying food, providing clothing and shelter, and paying other essential expenses, expecting a farmworker to save a substantial sum for retirement is ridiculous.

In Geoghegan’s words, “Who are we for?” I, for one, am for God's people – all of them. The Social Security system and its associated taxes are a relatively painless way of providing a minimal standard of living for our elderly.


Chuck Till said...

"34% of Americans have nothing saved for retirement." That points toward the real problem, which is that relatively few Americans have saved enough to be financially independent during retirement without Social Security. Of that number, there are two groups. One is those who simply couldn't save; their incomes were not high enough to save. I feel for them, and society should care for them. But the other group is those whose incomes were high enough to have permitted savings, but they chose to live a consumptive lifestyle instead. I have far less empathy for that group. However Congress ultimately addresses this question -- supposing that they will, eventually -- I hope that a clear message is sent to those whose incomes are high enough to accrue savings for retirement: don't expect the government to bail you out because you didn't save. Absent such a message, we're headed for an awful problem.

George Clifford said...

Living on Social Security will not provide anyone a high standard of living. Thus, if someone with a relatively high income chooses not to save for retirement but pays her or his fair share of taxes, I have no problems with that. Such individuals have simply chosen to enjoy pre-retirement more than their retirement years. Incredibly, the fix for Social Security is relatively painless: subject all earned income to the FICA tax while cap benefits for those on the high end of the scale.

Chuck Till said...

Yes, it's an easy fix. Opposition arises from the fact that Social Security income became partly taxable in 1984; the taxable portion was substantially increased for the wealthy in 1993. One can rationally object to paying tax on both monies going into the system and monies coming back out.

JoeTheEconomist said...

You have to be careful about 'fixes'. Most of them are based on static models in which taxes do not induce evasion or avoidance. If you increase taxes the way you suggest, more jobs will leave the country : How Does That Fix Anything?

Separately you need to ought to check : for some questions about Thomas Geoghegan article.

George Clifford said...

The well-paying jobs about which we’re talking (jobs that pay in excess of $106,000 per year) are difficult to export. Few of the people holding jobs that pay more than $106,000 per year want to leave the U.S. and, if they did leave, even fewer could reasonably expect to earn that level of income. Compared to other developed nations, tax rates in the U.S. are low. Raising taxes does not inevitably lead to fewer jobs.

JoeTheEconomist said...

"The well-paying jobs about which we’re talking (jobs that pay in excess of $106,000 per year) are difficult to export." Why? The ones that I have seen exported weren't difficult at all. The idea that someone would have to leave the US implies that you don't think high skilled labor lives overseas. "Compared to other developed nations, tax rates in the U.S. are low. " is an opinion, but not terribly relevant because jobs aren't been export to countries with higher tax structure. "Raising taxes does not inevitably lead to fewer jobs." Taxes don't create jobs.

George Clifford said...

Taxes can create jobs - this is one of the basic principles of Keynesian economics. High skilled labor does live overseas, but most often in developed countries because most of these employees/business owners are highly educated. That U.S. tax rates are low compared to other developed nations is fact, not opinion.