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Tuesday, June 21, 2005

Reader mail: Social security

Posted by: Hammer / 2:37 PM

Some days I am flooded with things to blog. Other days, I get to address moldy reader mail. Here's one on Social Security: Very good. Lots of meat there. Social Security is not a welfare program -- it's a publicly managed old age/disability insurance program. Let's leave aside the disability and survivor benefits for now, though. In general, we pay Social Security taxes now to pay current benefits. We pay a little extra now, which goes into a trust fund, to help pay benefits when the baby boomers start to retire. The benefits received are based on taxes paid, which distinguishes Social Security from a welfare program, where the benefits received have no relationship to taxes paid. That is, at heart, the unpopularity of welfare programs. Someone's getting something for nothing.

Next topic -- what will you get out of Social Security? Not much, unless you get your hinder out of the jungle and start working for a living again. The median benefits for my emailer and his wife would amount to about $34,000 jointly. Probably more, because the key number is the replacement rate: how much of your pre-retirement income will be replaced by Social Security? Social Security currently promises to replace about 36% of your pre-retirement income.

Last topic -- using Social Security to balance accounts. You can leave Social Security out of the argument entirely. Running massive structural deficits to fund tax cuts for the rich is bad economics. Bush has created a huge revenue problem, which he has exacerbated with reckless spending. He uses Social Security to mask the enormity of the hole he is digging for our children. While politicians ought not engage in such deception, I don't view it as a Social Security problem.

You also asked about a solution. My solution is far from simple, but it doesn't involve Social Security. Step one is fixing health care, including Medicare and Medicaid, which are far greater fiscal threats than Social Security. We have to get health care spending under control or face real disaster. The economic benefits to addressing health care spending could potentially fill in the projected Social Security funding shortfall by boosting overall economic output.


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