Changes to the social security system will be on the congressional debt super committee’s agenda. President Obama hopes to ignite to job market in part by extending cuts to payroll taxes that otherwise would go into the trust fund. Diane and guests looked at the history of the system, changes legislators have made to it, and how it compares to retirement plans.
Can Social Security Legitimately be Called a Ponzi Scheme?
Mark Miller said that Gov. Perry’s comment was reckless and irresponsible. “The essence of Social Security is that people pay taxes and they accumulate credits, and in return, they get a pension. And that’s a program that’s been working for 75 years. And the essence of a Ponzi scheme, if you checked that in a dictionary, is criminal fraud,” Miller said.
How Social Security Compares to Insurance and Pension Plans
“Social Security is an extremely good deal…some people talked about the need to modernize Social Security, but the concept is really thoroughly modern. The idea is that as long as workers are dependent and their families are dependent on wage income, they need insurance against the loss of those wages. They need unemployment insurance if they lose their jobs, disability insurance if they become disabled, life insurance, old-age insurance. Social Security provides the last three,” said Nancy Altman.
Who Bears the Risk?
Altman:”A fundamental difference is, with individual accounts, the risk is all borne by the individual. If the stock market is down or your investments are down, you’re in trouble if you have to retire. With Social Security and, generally, with defined-benefit plans, the risk is shared by everyone. With Social Security, it’s shared by the entire nation. That’s what makes it work so well. “
Lifting the Income Cap
Blahous:”The more you pay into the system, the more you get out. It’s not designed to be a welfare program. Basically, no matter how rich you are, no matter how poor you are, you get something back for your contributions. So if you lift the cap, then unless you sever that link between contributions and benefits, then you’re gonna obligate a very large amount of additional benefit outlays to people who need them least. You’re basically bringing in more revenue from rich people to pay more benefits to rich people.”
Our Guests Suggest Fixes to the System
Miller:”I would do it by lifting and eliminating the cap on income subject to tax.”
Blahous:”I would make progressive changes to restrain the growth of benefits, still above inflation, but restrain the growth to people on the higher income end. And I would, unlike my colleagues, raise the retirement age at least to get it back to where we were when the program first began.”
Altman:”Some have talked about dedicating a tax on stocks speculation, a kind of tax that Great Britain has. Dedicate that to Social Security, you actually could raise the benefits. That’s how much money is brought in. There are other kinds. Some have talked about dedicating the estate tax.”