For Restoration…

Restoration of Values

Ideas and Proposals of Presidential Candidates

The future of Social Security, particularly how to tackle its impending insolvency, is a prominent subject in statements and interviews of candidates for the presidency in 2016.

The proposals of the Republican candidates can be summarized as follows:[1]
(1) Raise the age of eligibility to 69 (Christie), 68 or 70 (Bush), or to an unstated age (Cruz, Graham, Paul, Rubio, Santorum).
The problem with this proposal comes from the unintended consequences of the law that abolished mandatory retirement in 1986, credited to the late Claude Pepper, congressman from Florida. To avoid noncompliance, companies are often terminating employees some years before the now non-mandatory retirement age.[2] For this reason, many people begin drawing a reduced Social Security pension at 62. It is a paradoxical situation, because the companies have generally adopted a system by which salaries grow automatically with the length of employment and the paid vacations also get longer. There are not many cases in which the output of a highly paid experienced worker, also enjoying five weeks of paid vacations, cannot be matched by a younger employee who costs the company less. Theoretically, accepting a salary reduction in the last years of a career might be a solution to this quandary, but it might not be socially acceptable. Until a solution for workers not finding jobs in the years prior to the onset of benefits is found, increasing the Social Security eligibility age is unfair. As an aside, the class fully benefitting from the Pepper amendment are the tenured university professors who can continue in their departments until they cannot walk or until they get bored of sitting in an office.
(2) Reduce the benefits, for people with higher incomes. Mr. Christie proposes a gradual reduction for seniors with incomes above $80,000, and elimination at $200,000. Others (Graham, Rubio, Santorum), give no specifics; the typical justification is that “not everybody needs Social Security” (Santorum). This proposal exacerbates the structural unfairness of Social Security. A fact overlooked in most discussions, this program is, by design, first an instrument of wealth redistribution and only secondly a pension scheme. In the latter capacity, it is inferior to other existing alternatives.[3]
To understand the redistribution feature, let’s consider two individuals, A and B, with average monthly wages throughout their careers (indexed to 2015 dollars) of $1000 and $9000, respectively. Both had contributed the same percentage of their salaries to FICA. The former’s pension represents 80% of his salary; the latter’s, 30%.[4] In an equitable distribution of funds available for their pensions, each would receive 34.7% of his average salary. The way things are now, $452 is taken each month from B and given to A. This confiscation is in addition to all taxes that B pays, but it is not even recognized as such. Now, the candidates want to take even more from the pension of B, again without admitting it as a confiscation, to pay for the hole in the Social Security finances, which anyone honest and educated in mathematics could have predicted as inevitable from the get-go.
There is a tendency today to consider the forcible transfer of wealth from B to A as justified in the name of fairness. “Income inequality” is considered a social plague. Someone’s high income is postulated to come at the expense of those “less fortunate.” It is remarkable that the champions of income equalization are usually materialists, philosophically, but tend to explain success by luck. This is nonsense. For beginning workers, salary differentials are due first to differences in qualification, coming mostly from education. If nothing else, the worker has the moral right to a compensation for the time and expenditure that his education has required. The qualification is a predictor of ability, another factor that determines worker’s worth, that is, his salary. As the worker acquires experience, the ability, and hence pay, is determined by output. Of course, there are always cases of nepotism and even eccentric behavior. I knew a Parisian philosopher and writer, who also ran a printing business. As an experiment, for two years he hired new employees based on the horoscope! Retention was then determined by performance over the first year. At a societal level, however, such outliers are irrelevant. The success and pay over a career remain a function of qualification, ability, and performance. These qualities, however, may not be generally assessable by the uneducated. When these qualities are easy to understand, the pay distribution is not challenged. For instance, the ratio of salaries of the top NBA stars[5] and of the players at the lowest rung of the developmental league[6] is around 2,000, but there is little indignation on that account. Yet the ratio is the same as that of a $30 million per year CEO to a $7.50 per hour minimum wage worker. (The NBA stars also make millions in endorsements, in addition to their salaries.)
The income disparity between workers A and B is fair, because it is based on the level of their jobs and the value of their contribution there. Therefore, a fair computation of Social Security benefits should pay them the same percentage of their indexed average salaries. If society considers that A deserves help, it should give him the difference between the fair amount and the current percentage of 80% in the form of undisguised public assistance. The result would be the same, but it would be based on honest accounting.
The propaganda claim that low achievement stems from either bad luck or some kind of societal persecution is most damaging, because it fosters a feeling of helplessness instead of stimulating effort in those that need to exert themselves to advance in all areas, including income.
(3) Change the formula which correlates benefits increases with CPI (Cruz, Graham). Currently, the benefits grow faster than inflation. This would be a more equitable distribution of the reduction in benefits. The proposal to reduce initial benefits (Santorum) would have the same effects.
(4) Collect the payroll tax entirely from the employer, rather than 50:50 as it is now (Paul). This proposal makes little sense. The practical result will be that employers will offer salaries lower by the additional sum they are asked to pay.
None of these approaches, however, would save Social Security, but only postpone its demise by a few years. A structural reform is the only solution. Some timid proposals of introducing personal accounts for social Security have been proposed (Bush, Cruz, Paul, Rubio), but they are insufficient. A partial change was already proposed in 1998 by the senators Daniel P. Moynihan and Bob Kerrey, but a more drastic change is needed. A broader discussion of their proposal and of retirement funding in the US in general has recently been published.[3]

As a block, the Democratic Party Candidates do not think there is any problem with the basic setup of Social Security.[7] Some advisors of Mrs. Clinton have stated that income inequality is the cause of Social Security problems(!). She seems to lean toward endorsing the proposal of other declared or potential candidates (Sanders, O’Malley, Warren) to increase Social Security benefits, offered previously by the leftmost fringe of their party, on the argument that half of the people have less than $10,000 in savings (Sanders). Mr. Sanders does not realize that people don’t save if they expect to be taken care by somebody else. He proposes a personal tax on incomes higher than $250,000, to cover the cost and make the system solvent until 2065, that is, people now in high school should not expect benefits. Also, very rich people will be induced to vote with their feet. The number of Americans renouncing citizenship has increased steeply during the Obama presidency, from 118 per quarter in 2007 to 1335 per quarter in 2015.[8] As the current immigration system favors people that take more from the government than they contribute in taxes, the bankruptcy can be expected to come sooner.

References
[1] As the candidates’ positions are a matter of public record, no references are necessary.
[2] Emily Yoffe, Please Take the Gold Watch. Please! The abolition of mandatory retirement, and how it changed America in unexpected ways, April 14, 2011 http://www.slate.com/articles/life/silver_lining/2011/04/please_take_the_gold_watch_please.2.html
[3] A Comparison of Retirement Schemes Existing in the U.S., Feb. 24, 2015 ; http://www.ForRestoration.com
[4] http://www.ssa.gov/oact/cola/piaformula.html
[5] http://en.wikipedia.org/wiki/Highest-paid_NBA_players_by_season#2014.E2.80.932015
[6] Keith Schlosser, Has the Maximum NBA D-League Player Salary Increased? Jan 9 2014 ;
http://www.ridiculousupside.com/2014/1/9/5291852/has-the-maximum-nba-d-league-player-salary-increased
[7] (a) Dylan Scott, Hillary Clinton’s Baby Steps on Social Security, National Journal, Aug 13, 2015; http://www.nationaljournal.com/2016-elections/hillary-clinton-s-baby-steps-on-social-security-20150813 ;
(b) Laura Meckler, Democrats Rethink Social Security Strategy, WSJ, 5 Apr 2015; http://www.wsj.com/articles/democrats-rethink-social-security-strategy-1428270057
[8] Robert W. Wood, New Un-American Record: Renouncing U.S. Citizenship, Forbes, May 8, 2015; http://www.forbes.com/sites/robertwood/2015/05/08/new-un-american-record-renouncing-u-s-citizenship/

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