[bluedevil2k]

Fixing Social Security - it's always up for discussion and nothing ever gets done about it. The frustrating part is that the solution is somewhat simple, but politically it's untouchable. Here's my quick & simple solution for the problem:

1) Phase out Social Security benefits if your income level hits $50k that year. - This aspect of Social Security is perhaps most baffling - why does someone who is making $250k a year on their pension and 401k distributions getting the same amount of Social Security as someone who's destitute and barely getting by? "But I paid into it, I should get something out of it!" goes the argument by rich people. Really? I pay into my car insurance every 6 months, never been in an accident, and I don't get a refund check when I'm done driving! Social Security is insurance, it's not a deferred savings plan. Social Security is really called FICA, and the "I" stands for insurance. It's insurance in case you don't have enough money to survive in old age, and the benefit payouts should reflect that. Someone making over 100k a year doesn't need another 25k a year in Social Security benefits to survive.

2) Take away the cap on contributions. Last year any dollar you made above $106k wasn't taxed at the 6.2% FICA rate. Why?

3) Make the Social Security Administration an independent entity free from Congress's whims, and more importantly, free from Congress's hands dipping into its pockets every time they need cash. Social Security should have a huge surplus right now in cash, as over the years they've always had more pay-in than pay-outs. Too bad Congress took all that money and spent it. Social Security is full of government bonds right now, essentially IOU's from Congress that "we promise to pay you back".

Combine #1 and #2 and you have a simple solution to both decrease payouts and increase pay-ins. Add #3 and you're assured that this institution (which isn't some evil socialist creation but really should be thought of as "poverty insurance") can be a self-sustaining, solvent part of our country forever.

[nickpinkston]

1.) FYI - Your car insurance analogy falls apart in aggregate because some people do use it, but the element of luck is what you can't account for, so we use risk tables. There's no refund for you because other people got unlucky - you're paying for them to absorb your risk. Social Security isn't insurance - it's a progressive tax for the purpose of generating a small pention for everyone.

[yummyfajitas]

Quite right - if SS were insurance, you would pay into it directly in proportion to your probability of receiving it. Good drivers pay less for car insurance, and people who can provide for their own retirement would pay less for retirement insurance.

For example, consider a very rich person, with P(income < $50k/year) = 0.01. If SS were really insurance, he should only pay $50k x 0.01 = $500 + administrative costs. If bluedevil truly believes SS is insurance, and if we implemented his 1), then 2) would be utterly unnecessary.

[Joeri]

Insurance is still insurance even if everyone pays equally into the system. The underlying principle of insurance is spreading risk to lower average cost. You can bill everyone the same amount and still have such a model. What you must mean is that social insurance isn't priced like commercial insurance, and that is true, but it makes sense to do it that way.

Commercial insurance tries to give least protection to those most at risk, to produce a higher profit margin. Social insurance tries to give maximum protection to those most at risk, to achieve some sort of ethical goal. Or in other words, commercial insurance is a form of business, social insurance is a form of charity. That's why social insurance costs least for those with the highest risk, and why commercial insurance is priced the other way around. They're still both insurance, just priced based on a different theory.

This difference is also why a commercial model of insurance can never be used efficiently for a social system (such as pensions or healthcare). Competition forces insurers to lower their prices, but the only way to do that and maintain profit is to lower pay-outs. How do you lower pay-outs? (1) provide less service to those that need it more, or (2) raise prices on those that need it more (risk-based billing, as you propose). The logical conclusion of that is that many of those that need protection are unable to afford it. That's not a "social" system. Social insurance is a charity, not a business.

[yummyfajitas]

Insurance is about pooling risk to allow people to reduce the variance/value at risk/etc of their costs, while holding the expected value of their costs constant.

You are describing a forced redistribution scheme, which perhaps devotes a slim minority of it's revenues to insurance. It's deceptive to describe such a scheme as insurance - you might as well describe the mafia as a pizza business, since a small amount of their revenues are laundered through a pizza shop.

You are also utterly mistaken about what charity is. Charity is the practice of benevolent giving. You are describing taking money from people by force and giving it to other people.

[bluedevil2k]

Social Security is insurance. The fundamental underlying problem with the entire thing is that people view it like you state, as an entitlement, rather than what it truly is, insurance. Read my arguments over again, but instead use the term "poverty insurance" instead of social security to reinforce what it really is.

[amalcon]

Except that it's actually a regressive tax (being capped at $106k/yr).

[nickpinkston]

Good point in that it is capped, and hence regressive, on the income side, but it's still net redistributive to the lower brackets on the pay-out side. My mistake.

[benmccann]

There are a lot of other options you left out as well:

  * Raise the retirement age
  * Privatize a portion of the program
  * Reduce benefits to a more sustainable level
  * Decrease the rate at which benefits increase each year

I don't particularly like the options you laid out as it asks an already strained middle class to pay for benefits to the poor without the recipients making any concessions. But that's why the solution is not so simple.

[natnat]

You're conflating upper class with middle class. People who are making $50k a year after retirement, or making more than $106k a year before retirement, are not middle class. They are upper-middle to upper class, and they have substantially more savings than the people who receive less Social Security benefits.

You can make anything sound politically bad by calling something an attack on the middle class. The thing is, you can define middle class however you want. Are people who make more than $106k a year middle class? They're in the top quintile of incomes. How about people who make more than $250k? They're in the top 2%.

Raising the retirement age will disproportionately hurt anyone who works physical jobs, who are already strained by the decline in construction and manufacturing. Privatizing the program will be a giant subsidy to Wall Street. Decreasing everyone's benefits will hurt the middle class and the lower class, and might take away a little disposable income from the upper class.

[yummyfajitas]

Raising the retirement age will disproportionately hurt anyone who works physical jobs, who are already strained by the decline in construction and manufacturing.

Keep the low retirement age only for the declining number of people who work physical jobs. Problem solved.

[100k]

The reason why wealthy retirees get Social Security and why the tax is capped at $106K/year is the same: it's to prevent Social Security from being a welfare program for poor people

Since everyone gets Social Security, this makes it much harder to get rid of. This was an intentional feature, and it has worked -- look at the fate of welfare programs devoted to poor people. The poor have very little political power and are easy to "other", making programs for them easy targets.

The tax cap is in place because Social Security payments are based on the amount you paid in. By capping the tax, this limits the payments necessary to wealthy retires which would make Social Security very expensive.

Anyway, nothing you're suggesting is totally unreasonable, but I think it's important to recognize that there is significant amount of political and policy savvy that went into to designing Social Security. It is both a very popular AND successful program.

[jpcx01]

I absolutely hate #2, however I would go along with it happily if #1 and #3 were implemented.

These are 3 really solid suggestions, that would in fact save social security. However, I think #2 is the only one thats going to happen, and its the worst one.

[natnat]

Why is that? The payroll tax is regressive, and it makes the total tax rate of someone who makes $200k a year lower than someone who makes $100k if you factor in employer contributions.