Don't Cut Social Security -- Double It

[xchrom]

http://www.alternet.org/economy/dont-cut-social-security-double-it



As the nation tiptoes closer to the fiscal cliff, a frightening number of leaders on both sides of the political aisle seem ready to push poor, beleaguered Social Security over the edge. Not only would that be a huge mistake for the nation's future, but these leaders show a dreadful misunderstanding of the new challenges faced by the U.S. retirement system. Particularly in the aftermath of the largest economic collapse since the Great Depression, none of the proposals on the table are grappling with some stark economic realities. How we settle this New Deal legacy will decide fundamental questions about what kind of society America will be for generations to come.

Here's the dilemma that the United States faces. Since World War II, individual retirement has been based on a "three-legged stool," with the three legs being Social Security, pensions, and personal savings (the latter primarily centered around home ownership). But two out of three of these legs have been chopped back to blunted pegs, leaving the retirement stool as an unstable, one-legged oddity.

Pensions have always been the least broadly distributed asset, with only a third of elderly Americans (those 65 and over) earning pension income, a percentage which has been declining dramatically in recent years. A bit over a majority of these older Americans have income from personal savings, most of that residing in the value of their homes. But 86 percent receive Social Security payments (see Figure 1).



Even before the Great Recession, 40 percent of middle-income and 53 percent of lower-income Americans already were at risk of having insufficient retirement funds. But the economic collapse has taken its toll on two out of three of Americans' primary retirement resources: pensions and savings/investment in a home.

[sabrina 1]

1. That's exactly what ought to be done. Increase benefits since the money

belongs to those who paid into it. It would also serve as a stimulus for the economy as those are the people most likely to spend their money. And when they spend money, jobs are created. It really would be the best way to use that money, and would keep it in the hands of those who own it and out of the hands of our Government who can't seem to stop spending money, OUR money, on their illegal wars and tax cuts for the wealthy.

[exboyfil]

2. Not double it

but maybe increase the minimum benefit (and the calculated tables) about 25% on the low end. Anymore and you are eventually talking about increasing withholding rates (even with dropping the cap). I don't like the idea of increasing withholding rates beyond 6.2%/6.2%.

[Sherman A1]

4. I would lower the age for full benefits

to 60 with 55 for early retirement with Medicare included. Doing so would most likely encourage some folks to retire freeing up jobs for the next generation. Some would retire, some cut back, others look at second careers.

[In_The_Wind]

3. Hear. Hear. We paid into Social Security all of our life.

Why should we (the older generation ... your mothers and fathers) need to choose between buying medication, food or heat?

Don't downsize the money we need to stay alive.
Don't make us sell our homes because we can't afford to continue living there after we reach 65.

[MrYikes]

5. There are many who are trying to live on $616 ss benefit per month. Could you?

[customerserviceguy]

6. And just where would the money come from to do that?

Is Social Security like Santa's bag? In not too many years (many fewer than the rose-colored glasses predictions of the Social Security Trustees) we will run out of money to pay even what we do today. Proposals to raise the caps to infinity will just raise the maximum benefit, paid out to those who need it the least.

It's going broke, and everybody in Washington D.C. knows that, it's just a matter of what the fixes are.

[Demo_Chris]

8. How about....

Eliminate the cap and impose the same SS taxes on capital gains (cap gains should be treated as regular income anyway).

[customerserviceguy]

9. And when you eliminate the cap on wages taxed

You raise the maximum benefit to infinity (theoretically) as well. Do you have any figures on how much (or how little) removing the cap would raise?

Social Security handed out $725.1 billion in benefits during 2011:

http://www.ssa.gov/oact/trsum/index.html

I left out Medicare, for simplicity. The same chart shows that $564.3 billion came in through FICA taxes, again, leaving out Medicare taxes. What proportion of those taxes came from wages that were above the wage base, that would have been higher had there been no cap? Half of it? Certainly not.

Not anywhere near enough to raise enough to double payouts to one and a half trillion dollars, which is what the OP wanted. Santa math.

Put FICA taxes on capital gains? Why them, and not interest, dividends, rents, royalties, pensions, unemployment compensation, and all other forms of ordinarily taxed income? And would you let a foreign national come in, who couldn't get a green card to work here, invest enough money to get capital gains (and pay the FICA taxes on them) for ten years, and thus gain forty quarters of coverage, enough to get Social Security disability, for example?

How would one's maximum benefit be altered by paying taxes on capital gains? Could a Mitt Romney convert one of his tax dodges into capital gains, pay a few extra thousands in FICA taxes, and get tens of thousands every year in Social Security benefits? Or would you just have people pay into a system that they are barred from receiving benefits from, at least to the extent that they pay extra taxes?

You have to think of the unintended consequences of taxes.

[buzzroller]

7. Exactly

But read the entire article. The proposal includes a way to pay for it without increasing the payroll tax. Instead, the cap is lifted, business deductions for retirement plans are eliminated, and other deductions that benefit top earners are also cut. The first two changes pay for three fourths of the proposal.

Besides helping the economy, it also takes away the employee and employer's need to save and manage investments. Many people do not do a good job and many others simply suffer from bad market events at the wrong time (like near retirement). A real trust fund could be included for part of these funds to boost the ability to pay benefits (not part of the proposal).

This would, of course, reduce the need for 401Ks, IRAs, and be resisted by Wall Street because it would cost them. But I like it.

[customerserviceguy]

10. Take away deductibility of retirement plan contributions

and you will totally dry up all pensions, and 401K matching contributions. Hell, while you're at it, just confiscate everyone's savings, and put us all at the mercy of the Social Security trustees, since we all do such a bad job of managing our own finances.

You'll find out quickly why so many Americans are gun owners.

[buzzroller]

13. But

Do not do this if you trust corporations more than the government.

Your response was a little hyperbolic. The proposal, which I actually read, would replace the majority of pensions as well as the need for them. Savings would continue to exist, but would not be tax advantaged like most matching programs.
Note, however, that many private pensions have been raided with only a fraction of benefits paid. I know people whose pension benefits were halved or worse and there was no remedy. Laws were passed years ago allowing corporations to do this even without going bankrupt.
Social Security, although under threat, has not been destroyed. However, if you believe that these corporate pensions are more secure than social security in spite of history, you should be against this proposal.

Savings not affected would be regular savings, including stock investments with preferred dividend and capital gain treatment, and Roth IRA's for which taxes were already collected. Other tax advantaged accounts would likely be reduced. I would be one of those people who save outside an enhanced social security program.

Even people who do a good job managing money are subject to timing risk, as many retirees have discovered.

Lastly, who exactly are your gun comments directed at? Even though I believe a proposal like this has merit, its chances of happening in this country are not good, so I guess you will not have to shoot anyone.

[hughee99]

11. Exactly, people with 401k's and IRA's would rather trust the government SS system

to take care of them in retirement... because that money is guaranteed. The people in government would never fuck with it.

[buzzroller]

14. You should know

that private pensions, IRAs, 401Ks, depending on the investments in them and the amounts, are not completely insured. The FDIC amount was raised to $250,000 until the end of 2013, but stocks for example are not covered. The amount was raised after it was apparent that large financial institutions could go bankrupt. The FDIC is a government program as well.

There are many ways a person can be separated from their money, but to assume
the private sector is safer than the government is not backed up by history, in my opinion.

[hughee99]

16. I do know. I have an IRA, a 401K and pay into SS.

I'm currently under 40 years old and I'm far more confidant that my own investments will be there for me in retirement than SS.

[Octafish]

12. It'd be good for the economy, too.

But, most importantly, it would be good for the People who built this country.

[Mc Mike]

15. +1, nt.