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Pasco County News | Breaking News

A means to shatter the Social Security contract

Posted May 29, 2011 by Tom Jackson

Updated May 30, 2011 at 12:09 AM

In his sit-down with Christiane Amanpour on ABC’s This Week Sunday, Indiana Gov. Mitch Daniels—not a candidate for President, by the way—demonstrated why his potential run generated a fair amount of enthusiasm. What Daniels, a modern-day Calvin Coolidge, lacks in rock star persona he makes up for with arguments that are sober, sound and unthreatening. Just what the country needs.

Among other things, Daniels refused to shrink from the House Republican budget (even in the face of last week’s largely—if gleefully—misinterpreted Democratic win in the special election in New York’s 26th congressional district), calling it “the best way” to take on Medicare reform.

Shrink? Heck, Daniels declared Republicans serious about winning elections and governing effectively in their aftermath should make it the centerpiece of their campaigns.

Over at National Review Online’s The Corner, Andrew Stiles (”Daniels Defends Medicare Reform”) quotes Daniels thusly:

“I think it is the central dilemma,” he told Christiane Amanpour on ABC’s This Week. “I think it ought, therefore, to be the centerpiece of the next election. We ought to test the proposition—I have faith that the answer will be yes—that Americans are absolutely up to the job of making changes necessary, once they understand the facts.”

Stiles praises Daniels for effectively parrying Amanpour’s thoroughly loaded question about whether Medicare reform could happen without excessively “burdening” seniors.

“There’s a way to do that that protects the most vulnerable seniors more,” he said. “I mean, another important and positive point to be made is that our current system (is) brutally unfair, it is tilted toward higher income people in many, many ways. There’s no reason on Earth that we should be sending Warren Buffett a pension check, or paying for Bill Gates’ healthcare or mine for that matter. And in the 2.0 system of Medicare and Social Security — for the next generation, not this one — we ought to heavily devote the resources to those who need them most.”

Stiles continues:

Of course, Paul Ryan’s Medicare plan does exactly that, providing far greater “premium support” for lower-income seniors than it does for wealthier individuals, and Ryan often argues this very point. Perhaps he should be emphasizing it more. At the risk of stooping to the Democrats’ level and engaging in class warfare, Republicans could simply drive home this point as a way to appeal to the (popular) notion of “shared sacrifice” to reduce the deficit — stressing the need for a revamped entitlement system that offers less to those who can afford to pay their own way and more for those who can’t. It certainly has a nicer ring to it that the Democratic notion of “shared sacrifice” — economy-crippling tax hikes.

This is fine, as far as it goes. But Daniels’ points, and Stiles’ enthusiasm, gloss over some fundamental problems. The governor brandishes Buffett and Gates as examples of the über-rich whose 24k golden years should disqualify them from federal aid. Who wouldn’t agree with that? But getting at the root of the entitlement crisis requires digging rather deeper.

That’s where governing gets ticklish. How far down the rich guys (and gals) list must we go to avert our entitlement crisis? Do we nick America’s 100 most wealthy and 100 top earners? The top 500? The top 10,000? And when do we decide whether they made the list? Bernie Madoff’s investor/dupes might have made those lists, right up until the feds closed in. Do we reimburse the formerly rich who went bust? Do we ding working stiffs toiling 100-hour weeks to develop their genius startups the moment their IPO goes berserk?

In an economy as unpredictable as ours, this could get complicated.

Moving on:

Let’s leave Medicare out of the balance of this discussion—not just because it is a popular program and proposals for its reform are easily demagogued. Americans have recognized Medicare since its inception for what it is: welfare for seniors. And welfare in every form should be means-tested. No one ever said your taxes were going into some Medicare trust fund with your name on it. The Centers for Medicare & Medicaid Services do not issue an annual report describing the size of your health care benefit. Means-test it; adopt a sliding scale for government support based on some combination of income, wealth, and physical condition, as the Ryan plan does, and let’s move on already.

The same formula cannot, must not, be applied to Social Security. Theoretically, workers’ taxes feed an account bearing their name; each year, they get a report describing the size of their post-retirement reward. The idea is, you’re buying income insurance. And because the size of your benefit is limited, so is the amount of your income that’s subject to payroll taxes. This is only proper.

For those of a certain age, then, Social Security payments are not welfare. They represent, officially, a return on your investment (meager though it may be). That was the deal when Franklin Roosevelt coaxed it through Congress, and that’s the deal today. In that light, means-testing, while attractive in a smarmy, class-baiting fashion and a convenient path toward long-term solvency, is shameful and an abomination.

Alas, once we choose to means-test Social Security, the contract at its foundation is voided. It becomes just another welfare program, a fraud on taxpayers that, like most entitlements, discourages individual responsibility, particular for those at the margins. Means-testing has to begin phasing in somewhere, and wherever (and however) that somewhere falls, it reduces the value of the next dollar set aside for retirement, whether socked into that 401(k) or IRA, or squeezed from a company pension through working extra hours or extra years.

This is plainly counterproductive. We ought to be encouraging policies that reward self-sufficiency and individual wealth creation, not putting up ever more government-approved obstacles that thwart responsible Americans.

In short, this whole business of altering the recipient’s relationship with his personal Social Security account—which Daniels suggests isn’t just appropriate, but should be encouraged—stands as the supreme argument on behalf of a hybrid (Is he really going to say the word?! Omigod, he is!) privatization alternative. Or personalization, if you prefer.

Perhaps Washington has a legitimate interest in seeing to it America’s seniors can exist on their own (although current policies—Please, sir, may I have my COLA?—have a funny way of demonstrating it). Better than means-testing and tax hikes (mere camouflage for continuing to buy the votes of retirees with their children’s and grandchildren’s earnings), Congress should phase in Social Security accounts that more closely resemble self-directed IRAs—self-directed IRAs that grow ever more conservative as the owner approaches retirement age (to reduce the affect of stock market hiccups), but self-directed IRAs nonetheless.

Changes to behavior, all for the better—financial alertness, investment acuity, a sense of independence—would be evident almost from the get-go. Inside two generations, Americans of all ages would be richer (genuinely personal Social Security accounts wouldn’t only grow larger, they would be heritable) , freer, more secure in their day-to-day lives and more confident in what the future held.

Means-testing Social Security is a terrible idea on so many levels, not least of all because it gets Washington off the hook for a crisis Washington created, and does so by scapegoating wealth-creating employers and other dream-chasing entrepreneurs—not just Warren Buffett, either, but your family doctor; the guy who risked everything to start a plumbing company; the event planner who made your daughter’s wedding a success; the couple who risked their life savings in a bounce house/laser-tag/video arcade that cures every dilemma from where to have your 12-year-old’s birthday party to where to drop him on rainy summer vacation days; even the alert heavy-equipment operator who picks up extra jobs on the weekend. Is that really our best plan?

A better way not to let this crisis go to waste—to borrow a catchphrase—is to turn it into an empowerment opportunity. Not by feeding the worst fears of nervous Nellies— You’re on your own, suckers!—but by describing in compelling detail how America can and will spin challenge into opportunity and opportunity into a ship-raising sea of abundance that lifts all boats.