Rand Paul Has a Blunt Instrument for Fixing Social Security

Rand Paul is an eye surgeon, but when it comes to fixing Social Security he seems to prefer a blunt instrument to the scalpel.

Kentucky's Republican Senate candidate likes to conflate Social Security's long-term solvency problems with the broader deficit issue, and says the solution is boosting the retirement age to 70. Never mind that Social Security continues to run enormous surpluses, with the combined old age and disability trust funds projected to grow from $2.5 trillion in 2009 to $3.8 trillion in 2020, according to the Economic Policy Institute.

Paul's position on Social Security is part of a much broader well-orchestrated, fact-free attack on Social Security from Wall Streeter Pete Peterson, the Tea Party and others on the right.

Social Security is the most important source of retirement income for most Americans -- and it's a critical source of security in our recession-ravaged economy. The National Academy of Social Insurance (NASI) estimates that if seniors had to rely on only their income other than Social Security, nearly one in two would be poor.

So, let's revisit the facts.

Social Security made headlines earlier this year when it became known that the program will -- for the first time -- take in less cash this year than it pays out on a current-year basis. It's basically a pay-as-you go program with current benefits funded by today's workers. Unfortunately, recession-induced unemployment has cut into collections of the payroll tax that funds the program (the FICA tax) and the number of older unemployed workers filing for benefits has soared.

But Social Security also has that big surplus, which has been accumulating since the last "fix" to the program was implemented during the Reagan years. That fix included a gradual boost of the retirement age from 65 to 67, and a substantial boost in payroll taxes that fund Social Security. Those changes were intended to raise a substantial cushion for the future retirement of all those boomers. It worked, and the money sits in something called the Social Security Trust Fund.

True, as boomers start to retire in greater numbers, there won't be enough current workers coming along behind them to keep the program solvent on a pay-go basis. That means the surplus funds will be drained -- eventually. As in ... 2037. But even then, income coming into the fund would cover about 75 percent of benefit payouts.

So, what we need is a set of sensible solutions to the long-term solvency issue -- a surgical approach, rather than simply taking a whack at the retirement age.

NASI has laid out a menu of more than 20 carefully-researched ways to restore Social Security's long-term solvency. NASI's solutions--which provided the basis for reform now recommended by the U.S. Senate Special Committee on Aging--include options for boosting benefits adequacy, increasing the Social Security Trust Fund's solvency and benefit reductions.

So, what about Rand Paul's suggestion to push the retirement age to 70?

The NASI report outlines one possible approach to making 70 the new Normal Retirement Age that it says could cut the long-term Trust Fund shortfall by one-third:

Accelerate the increase to 67; then increase the full-benefit age by 1 month every 2 years to age 70. This option would continue to increase the full-benefit age to 70. If policymakers speed up the increase in the full-benefit retirement age to reach age 67 for those born in 1953, and then extend it one month every two years until it reaches age 70 for people born in 2025, these changes would reduce the long-term deficit by 0.62 percent of taxable payroll, thereby eliminating just under one third of the long-range shortfall.

However, NASI notes that this change would effectively reduce lifetime benefits from age 65 by 30 percent -- and 43 percent from age 62.

There's no doubt that many of us will be working longer in the years ahead as part of the broad, ongoing reinvention of traditional retirement that has nothing to do with Social Security or politics. That makes sense; longevity is rising, and many people will be diving into second careers, launching businesses or working part-time as consultants. Indeed, a recent Rand Corp. labor force forecast concluded that an "unprecedented upturn in the number of older Americans who delay retirement is likely to continue and even accelerate over the next two decades, a trend that should help ease the financial challenges facing both Social Security and Medicare. . . "

Here's the problem: working longer won't work for everyone.

Rand -- along with everyone else pushing this solution -- bases its argument on the ability of highly skilled knowledge workers to stay in the labor force well past age 65. Writes Rand:

A principal reason why retirement rates have dropped is because of an evolution in the skill composition of the nation's workforce ... As American workers have gained more education, they have achieved jobs that are more fulfilling, they face fewer physical demands in the workplace and they are paid more for their efforts.

Fair enough. But how about low-income workers who do physically-demanding jobs? Will we tell them to keep doing those jobs until age 70? This is a part of the labor force that isn't experiencing rising longevity, and it is more reliant on Social Security than the population as a whole.

The Urban Institute reports boosting the Normal Retirement Age to 70 and Early Retirement Age to 65 would push an additional 1.5 million older Americans into poverty by 2050. That increase in poverty could be mitigated. For example, an increase in retirement age could be coupled to a guaranteed minimum benefit -- an idea that NASI included in its menu of recommendations.

So, let's repair Social Security with some fine cuts -- no slashing required.

 

 

 

Follow Mark Miller on Twitter: www.twitter.com/RetireRevised

Comments

[Mark Miller]

09:05 AM on 05/27/2010

Allen,

I'm afraid it's not accurate to say that the special issue securities are worthless. Quoting from Page 24 of the 2009 trustees' report:

"All securities held by the trust funds are backed by the full faith and credit of
the United States Government­, as required by law. Those currently held by
the OASI Trust Fund are special issues (i.e., securities sold only to the trust
funds). These are of two types: short-term certificat­es of indebtedne­ss and
long-term bonds. The certificat­es of indebtedne­ss are issued on a daily basis
for the investment of receipts not required to meet current expenditur­es, and they mature on the next June 30 following the date of issue. Special-is­sue
bonds, on the other hand, are normally acquired only when special issues of
either type mature on June 30. The amount of bonds acquired on June 30 is
equal to the amount of special issues maturing, plus accrued interest, less
amounts required to meet expenditur­es on that day.

Even setting aside this language, the government has a clear moral obligation to live up to the promises made when the payroll tax was increased to build the reserves back in the 1980s.

[allenwsmith]

07:04 PM on 05/27/2010

Mark,

I'm afraid you're wrong in economic terms. The special issues are not bonds, and they have no value to the government­. In other words, how could the government use them to raise cash to pay Social Security benefits? They couldn't. Money can be saved and invested or it can be spent. But you cannot do both. Since every dollar of the $2.5 trillion in surplus Social Security revenue generated by the 1983 payroll tax hike was spent on other government programs, none was saved, and none was invested in anything. The special issues are nothing more than IOUs. They are akin to a note that a bank robber might leave behind in the empty bank vault stating how much money he has stolen. The Comptrolle­r General of the GAO has said the trust fund hold not bonds. He has also said the the trust fund holds nothing of value to draw down. Anyone who says otherwise is engaging in wishfull thinking. We have to face the hard fact that all of the money that is supposed to be in the trust fund has been spent on other things. The trust fund contains no real assets of any kind. It is empty!

[allenwsmith]

07:31 PM on 05/27/2010

Mark,

You are correct that the IOUs in the trust fund do have the words "Backed by the full faith and credit of the United States Government­," printed on their face, But these IOUs are very different from from the public-iss­ue,maketab­le Treasury bonds on which the government can never default. Unlike the public-iss­ue marketable Treasury bonds, the government is not legally bound to repay its debt to Social Security. One of the least known facts about Social Security is that, although the government does have a moral obligation to pay Social Security benefits to those who have earned them, the government does not have a legal obligation to do so. In a 1960 ruling by the United States Supreme Court, the court ruled that nobody has a “contractu­al earned right“ to Social Security benefits. In the case of Fleming v. Nestor, the Supreme Court upheld the denial of benefits to Nestor, even though he had contribute­d to the program for 19 years and was already receiving benefits In its ruling, the Supreme Court establishe­d the principle that entitlemen­t to Social Security benefits “is not a contractua­l right.” As a result of the 1960 Supreme Court ruling, the future of Social Security is totally in the hands of Congress and the President. They have the legal authority to amend any and all parts of the Social Security Act, as well as the authority to either increase or decrease Social Security benefits.

[Mark Miller]

09:38 AM on 05/29/2010

Allen, I understand the distinctio­n you're making regarding the legal obligation and Supreme Court ruling. I'm simply arguing that the government has a moral and political obligation to make good on its debts to the Trust Fund. I'm also quoting the Trustees' Report to indicate that the special issue bonds are not worthless-­-that's the argument made by Peterson and other deficit hawks as a way to wiggle their way out of this obligation­. I won't accept that argument.

[allenwsmith]

08:41 PM on 05/26/2010

In the Summary of the 2009 Social Security Trustees Report, a single sentence spills the truth about the so-called “trust fund bonds.” That sentence reads,
“Neither the redemption of trust fund bonds, nor interest paid on those bonds, provides any new net income to the Treasury, which must finance redemption­s and interest payments through some combinatio­n of increased taxation, reductions in other government spending, or additional borrowing from the public.”
The above quotation appears in the official Social Security Trustees Report that was signed by Tim Geihtner, and all the other Social Security Trustees. The trustees are the ultimate authority on the status of the Social Security trust fund, and they make it perfectly clear that the so-called "trust fund bonds" do not provide any new net income to the Treasury. This is just another way of saying they are worthless.

[allenwsmith]

08:38 PM on 05/26/2010

.

"...the money sits in something called the Social Security Trust Fund". This statement is not true!
All of the $2.5 trillion in surplus revenue generated by the 1983 payroll tax hike has been embezzled by the government and used to fund tax cuts, wars, and other government programs. This is not a theory or an opinion. It is an indisputab­le fact that high-profi­le individual­s have been pointing out for the past two decades. Consider the following quotations­:

"...the most reprehensi­ble fraud in this great jambalaya of frauds is the systematic and total ransacking of the Social Security trust fund..in the next centurylll­the American people will wake up to the reality that those IOUs in the trust fund vault are a 21st century version of Confederat­e bank notes."--S­enator Ernest Hollings of SC, Speech on Senate Floor, October 13,1989

"There are no stocks or bonds or real estate in the trust fund. It has nothing of real value to draw down."--Da­vid Walker, Comptrolle­r General of the U.S. Government Accountabi­lity Office (GAO), Speech in Washington DC, January 21, 2005

"There is no trust fund, just IOUs that I saw firsthand that future generation­s will pay--will pay for either in higher taxes, or reduced benefits, or cuts to other critical government programs."­--Presiden­t George W. Bush, Speech at West Virginia University at Parkersbur­g, April 5, 2005

Allen W. Smith, Ph.D., Professor of Economics Emeritus, Eastern Illinois University

[Appleblossom]

12:45 AM on 05/26/2010

Whatever we do, we cannot make it means tested. Because once we do that it is only a matter of time before the justificat­ion is to demand those lazy, irresponsi­ble seniors provide their own retirement with no money from anyone else. Including their employers.

[tom90069]

03:01 PM on 05/25/2010

let's just move it to 90 or eliminate the whole program. if we let the market go free, retired people will be taken care of with company provided benefits as companies can be more competitiv­e by offering retirement programs to their employees because we know that companies always do what's best for all their employees.

[Appleblossom]

12:46 AM on 05/26/2010

Oh yes! They are the benevolent overlords of our peonish lives.

[blizb]

10:29 AM on 05/25/2010

They seem to have the "Marie Antoinette­" view of Americans with a "let them eat cake" attitude and there is nothing we can do about it.

I think Social Security is a good thing and it saves many elderly from dying in the streets without any means of income if they worked all their lives but are the "working poor" who don't have high level jobs or big pensions.

They seem to ignore the enormous number of people who have lost all their pensions with the Wall Street/Ban­k collapse and the Enron/Mado­ff style schemes who have left thousands with nothing.

The "tea partiers" and right wing go on making up stuff like "death panels", but without Social Security they would actually see people dying without income.

[VietVet67]

10:22 AM on 05/25/2010

I think senators and congressme­n should retire at 70.

[justafarmer]

03:35 AM on 05/25/2010

Rand Paul never had to worry for a thing in his life.
He is the epitome of the Leona Helmsley rule..."on­ly little people pay taxes."
The corollary is "little people aren't worth noticing or bothering with".
I read all these nasty comments on the various threads here about the unemployed and underemplo­yed and how they should be grateful for part-time minimum wage jobs, or how the illegal immigrants are taking all the "good paying jobs".
They should try living on less than $15-30,000 a year and then come back and tell us about it.

[FALCON72]

09:21 PM on 05/24/2010

All of this talk about having people work until they are age 70 instead of 65 before retiring is moot. There are no longer enough jobs for the much younger work force and no one can predict when that will change. Those who turned 62 this year took early retirement­; not because they wanted to but because they were either forced out of their job or that position was wiped out. The problems lying ahead for funding SS will be the shrunken workforce plus the lower wages those workers earn.

[justafarmer]

03:38 AM on 05/25/2010

lots of people will die before age 70. That's the Republican­/Tea Party/Libe­rtarian plan.

[Heath2740]

08:16 AM on 05/25/2010

So, your plan would be to continue the ponzi scheme? In the 1930's the life expectancy for a man was 58, do you see just how messed up this system is? When you have more collecting and putting in, the system has not other means but to fail. This exact same system that Bernie Madoff used cause around a 65 billion dollar loss, not just think of that on a country wide scale.

[Puller58]

09:05 PM on 05/24/2010

Name any government program and Paul would oppose it unless he was near a camera and a microphone­. Which means his campaign will be content free and honesty lite.

[texastrixie]

08:39 PM on 05/24/2010

People who sit behind a desk don't understand the physical punishment that other types of workers endure over a lifetime of work. Just standing on your feet all day wears a body out, let alone all the jobs that require heavy lifting. Raising the retirement age to 70 will effectivel­y, once again, relegate most working class men to a lifetime of work with little or no "retiremen­t." Their bodies will simply give out before age 70. People who think everyone should retire at 70 work behind desks, or have jobs that done require physical strength or endurance. Working people will pay the price.

[Heath2740]

08:19 AM on 05/25/2010

So would it not make sense to plan for your retirement without social security? Would be a better idea to not take that money for you and place some personal responsibi­lity with the person for retirement­?

[Lindarella]

03:46 PM on 05/26/2010

Oh, yes. Like put all your retirement savings in the stock market. Ooops!

[Clif25]

08:21 PM on 05/24/2010

The Social Security program as well as the Medicare program is an unfunded program. It will always face problems. The only way to actually fix it is make it work is to raise the retirement age or make it a funded program a la Chile.

The United States cannot have a legacy debt for each generation­.

I am happy there are candidates at least taking a lead on this big issue.

[jjtx]

07:52 PM on 05/24/2010

Yeh, he might have a blunt instrument - but I don't think it will help Social Security.

[ButchManowski]

07:46 PM on 05/24/2010

"It's basically a pay-as-you go program with current benefits funded by today's workers." True now, but it forgets history. Reagan's fix ("Boost") was to collect money from the people who would need it in the 80's so it could be here now in 2010. Being self-emplo­yed my Social Security Tax was 17%. That's a lot. No standard deduction, no mortgage deduction, 17% of every dollar I made.

Over 20 years that money would have doubled almost three times. That would be a lot of money.

My Social Security "benefit" will never repay that. I'm OK. I saved on my own.

Social Security Recipients are not riding on the backs of the young.
Let's take a look at the Defense Budget.

[noaxe397]

07:37 PM on 05/24/2010

Let's stop the nonsense. Raising the full retirement age to 70 is a violation of the 8th amendment against cruel and unusual punishment­.

The lifespan of thr average american is 78. If you start working at 20 and now retire at 70, you work 50 years and get to enjoy, what? 8 years? No way.

If someone who has a profession­al or academic job wants to work longer, fine. Can you imagine being a bus driver, or retail clerk (neither of which are particular­ly demanding) working until 70?

And what happens, as we see today, if you get laid off at 58 or 63 or 67? No one will hire you.

The Republican plan is to make the full retirement age so old, everyone will retire with 43% less benefits at 62, and THAT is how entitlemen­t reform (Luntz speak for gutting SS,) will work.

If 65 is too young to reire, then 62 is certainly too young.

Full benefits at 65 for all. Raise the payroll tax to 90% of the wage base (the Greenspan solution from 1983) as it is only at 80% today due to salray increases.

THAT'S how you fix an insurance shortfall; raise premiums. Don't cut back on claims promised.