Social Security and other problems

Since the 2004 elections, Social Security has been a recurring pop-up in politics. It's considered the "third rail", as politicians who touch it are always electrocuted. In fact, the beginning of Bush's plunge and the resuscitation of the Congressional Democrats was Bush's foray into "fixing" Social Security and the Democratic resistance to the plan. The Washington Post recently ran an editorial praising Obama and, to some degree, Edwards for having the courage to suggest fixes to Social Security while criticizing Hillary Clinton's "dodge" on answering the question about it. And, of course, Fred Thompson has recently had the courage to also suggest a fix to Social Security. I should note that none of their fixes completely fix the problem.

What is most interesting about the debate on this issue is that, relatively speaking, the problem with Social Security is minor and easily fixed, compared with the two other looming disasters facing this country: Medicare/Medicaid (perhaps also including health care as a whole) and global warming. The Medicare/Medicaid/general health care issue is vast in its complexity and virtually impossible to get a political handle on. It touches more than just money -- it touches life and death. It asks for a value on our health and, presumably, on our lives. Social Security is a mere shadow of the third rail that Medicare/Medicaid are. Medicare/Medicaid WILL bankrupt the government, whereas the money flow problem with SS will eventually cause SS payouts to be 70% of what they should be. Ironically, 70% of what the SS payments should be will actually be higher, in inflation-adjusted dollars, than what SS payments are today. In other words, this is not nearly the same fiscal problem.

Global warming, like the health care problems in this country, is vast in its complexity and is tremendously unpredictable in its effects. Moreover, the "fix" for global warming is nearly impossible unless we're willing to back off on our economic growth and ask developing countries to essentially become stagnant. It also requires the cooperation of everyone on the planet, which at least SS and Medicare/Medicaid do not require. Of course, the suggested "fix" by those not serious about the problem (e.g. George Bush) is alternative technologies. Yeah, sounds great, but when is that going to happen? Because we're looking at increasingly disastrous effects of global warming over the next 10 years -- the next 100 will be too late.

Which brings me back to SS. When you consider these other issues, you realize that SS is quite trivial by comparison. There are three ways to "fix" the problem, all of which should be used. First, the Obama and Edwards idea: Raise the cap on SS taxes. Well, duh. SS taxes (and Medicare/Medicaid taxes as well -- i.e. payroll taxes) are regressive. They are responsible, in part, for the fact that Warren Buffett pays less in taxes, as a % of his income, than his secretaries do. However, I would favor decreasing the payroll tax % while increasing the cap to help reduce the regressiveness of the tax.

Second, the age limit needs to be raised for when someone can start taking SS payments. The age limit was set at a time when people didn't live long after retirement. Now, for some reason, people think that the government, via current workers, should be financing you for the last third of your life. Sorry, but mathematically that just doesn't work out and is absurd anyway. No one should be guaranteed an early retirement. The age limit should be set based on the average American lifespan -- i.e. figure out how many more years someone will live rather than how many years they have already lived.

Third, cut the rate of increase in SS payments. This one is a little trickier. The increase in SS payments is based on wage growth -- not inflation, which is lower. Therefore, as mentioned earlier, when incoming money will not cover outgoing SS money, people will be receiving 70% of what they should be getting, which will still be higher than people are getting today, in inflation-adjusted dollars. Nonetheless, those who suggest tying the increase to inflation are wrong for a simple reason that I was reading about the other day. The elderly, because their money is spent on different things, face a different -- and higher -- rate of inflation than the rest of us. Instead, a tiered system will need to be put in place, whereby those in the lower income brackets get SS payments that increase based on wage growth and those in the higher brackets get increases based on inflation. Of course, this would be on a scale as you move from lower to higher, but it would help prevent the lower incomes from falling into poverty in their later years.

These three suggestions will never be adopted because they hit all three potential fixes, thereby arousing hatred on all sides of the issue. The only way this could ever pass Congress is if a bipartison commission came up with it and Congress had to vote in an up-or-down manner (like the BRAC proposals) on the proposed "fix" to SS. To bring this article full circle, the Post called Clinton's answer to the question about SS a "dodge" because she proposed a bipartisan commission to deal with the issue. Hmph. Sounds politically more realistic than coming up with a proposal that tackles only one aspect of the problem (like Obama, Edwards, and Thompson) while ignoring the others.