Sometime in June 2011, as the first great debt ceiling crisis approached, the House Speaker at the time, John Boehner (R-Ohio, and very much “the cigarette smoking man” from “The X-Files”) suggested that we stop paying wealthier social security beneficiaries, that is, start means-testing, because “we don’t have the money”.
Tea Party conservatives like Michelle Bachman tried to play down the meaning of the debt-ceiling, when in fact failing to extend it means that the federal government really might default on payments for money it already owes for money already authorized by Congress. Discussions of prioritizing payments ensued. There were historic, abortive meetings between Obama and Boehner, talk of grand bargains, and the like.
Throughout most of 2013, which start with what CNN’s Wolf Blitzer is always called “The Fiscal Cliff”, played out the debt ceiling problem in at least two sequences. On Blogger, on my “Major Issues Blog”, (debt ceiling category link), I wrote many postings on the nitty gritty of the debate, but wondered if more privileged retirees like me would have to “man up”.
The Social Security debate, like so many other issues, has many compartments, and some of them inspire some emotion.
The most striking problem seems to come from a 1960 Supreme Court Opinion, Flemming v. Nestor, which, in a bizarre sequence related to an immigrant with Communist activities, the Court wound up ruling that the U.S. government is not contractually obliged to pay Social Security benefits to (less needy) recipients even though it has collected FICA taxes (often matched by employers) from them over the years. Social Security gives its own link here. The Wall Street Journal published a stinging article by David Rivkin and Lee Casey that mentions the Flemming v. Nestor case (opinion ) and also ratifies some Tea Party ideas on the debt ceiling.
So, theoretically, Congress could cut start means testing recipients today to balance the budget. Donald Trump, for all his bombast, has actually said we should support Social Security and hasn’t gotten into this area yet (he might strengthen his position in the campaign if he did reassure the public again). The disincentive for Congress to do this is political, not constitutional.
But there is a totally separate issue that got conflated. In a debt ceiling scenario, the Treasury would have to prioritize payments, and the Social Security Trust Fund is one of the largest claimants. Maybe bond holders would come first. But in any legal battle over prioritization, the Trust Fund would probably prevail. I won’t get into the arcane accounting of the Trust Fund and the OMB. There are a lot of conflicting accounts online of how it actually works by well-meaning professionals. But the “upshot” (a favorite “New York Times” word) is that even in a debt ceiling crisis, Social Security recipients would probably continue getting their benefits. Means testing is a totally separate thing.
The best evidence of this assertion comes from answers to my own comment on a New York Times piece Jan. 13, 2013 (one of a series of five interrelated papers by law professors), especially the second answer. The article was about “prioritizing debt obligations”, by Lawrence Tribe.
The actual comment is not addressable by URL, but it is the 17th for the article.
The actual condition of Social Security and the “meaning” of the program are somewhat separate issues. Social Security can pay benefits as promised until 2034 as of now (own statement), but that deadline year might slip down continually with demographics (fewer children, longer lives). Reputable conservative writing suggests that the Trust Fund can be kept solvent much longer by changing wage indexing to price indexing (a variation of the COLA increase debate), meaning slightly lower benefits over time. For example, look at the paper by Stephen Entin at Tax Foundation. This would even obviate the need for major FICA tax increases on workers and wage base escalation. All of this would accompany gradual raising of full retirement age and even allowable early retirement.
But none of this answers the cultural debate over Social Security. When it started in 1937, the first beneficiaries had not paid into the system. But over time, most working beneficiaries have benefits (including spousal, which can now include gay partners) correlated to their lifetime FICA contributions, more or less like an annuity. Benefits have been “promised”. There are various requirements, like ten covered quarters, and an earnings limit during early retirement, which makes little real sense.
Let’s pause on the early retirement issue. When I was “working” in my long track I.T. career, the “culture” was that you retired early (even at 55). My pension had a “social security bridge” until I reached 62. Many private pensions have social security offsets that kick in at 62. This does not make demographic sense today. In 2000, my own pension was frozen, and replaced with a more generous 401(k) match.
My own benefit is less than if I had waited to “full retirement” (66-1/2) or even 70-1/2. But in my circumstances back in 2005, I needed to start it. My actuarial break-even age is about 77-1/2 (in 2012) and I am nearing 73 now.
I definitely counted on Social Security “keeping its promise” as part of my strategy. I have viewed it as a quasi-annuity. Of course that brings up privatization, the biggest advantage of which is that politicians like Boehner couldn’t take it away. Obviously a private program would need to be tightly regulated. As a whole, open-ended non-liquid investments are not a very wise way to save for retirement. Another issue is that lower-income people, or those who have kids early, could not afford to set aside “savings” unless more or less compelled to (which FICA does).
Many critics still say that Social Security is really still “welfare” ( Noam Chomsky says that, in a recent film . Legally, this seems to be the case. Liberal critics note that social security disadvantages poor people for not living as long, and for not accumulating as many benefits. Libertarian Harry Browne has even said that better-off current beneficiaries might have to accept a short-term stiff to go to a privatized system. My own reaction is that, to the extent that it is expected to provide only a bare social safety net, then it should be covered by progressive taxation, but that sounds like something Bernie Sanders would say. (What’s wrong with that?)
Nevertheless, the “welfare” mentality often motivates rather careless commentary from some quarters. For example, in 2013, a few people wrote that social security recipients should brace to ask for handouts from “family and friends”, a rather gratuitous and offensive interpretation.
There is no question that my own formal retirement (at 58, from my last major IT job, during the post 9/11 shock at the end of 2001) was too early. Indeed, people have tried to “bargain” with me, saying that I ought to be able to sell and pimp things like everyone else, to help support OPC (other people’s children). That’s a moral topic I’ll come back to again.
This may a good place to mention that some conservative groups consider the interest in Congress in offering a “Chapter 9” pseudo-bankruptcy to Puerto Rico could set a dangerous precedents tempting other states to default, on the backs of bondholders who after often seniors with employer-set-up 401(k)’s. The Center for Individual Freedom (CFIF) has such a warning here. It uses the adjective, “crushed”.
(Published: Monday, May 23, 2016, at 1 :15 PM EDT)
Update: June 30, 2016
Here’s a useful perspective by Allan Sloan of the Washington Post: “2030: Social Security’s troubles here and now“.