Thursday, November 17, 2011

What can we do about Social Security?

This will be, for now, my last piece on cutting the federal budget.  I may come back to it if things change, or if there is new news.

The last, large piece of the federal pie, that can reasonably be cut, is Social Security.  It was first enacted by president Roosevelt in 1935 as part of his “new deal”, a series of social programs designed to relieve, reform, and recover the US economy after the great depression.  As part of the Social Security Act, Title II provides for Federal Insurance Contributions Act tax (this is that FICA guy on your pay check).  This Wiki article has a good background on how the program was started and implemented.

The biggest single problem with SSI is that as the country continues to age, the ratio of people depositing money into the program to the number receiving benefits continues to go down.  In the 1940s the ration was 160:1 with more than 35,000 covered workers (putting money in) and only 222 beneficiaries (taking money out).  This has continued to go down until in 2010 the ratio was 2.9:1 (156,000 in – 53,000 out) and it is expected to continue in this direction.

My personal complaint is that the benefit age continues to increase and at this point I won’t be eligible until 3 years after I have died.  Realistically, one of the options for maximizing the fund availability is to continue to increase the minimum benefit age.  The republicans are talking about increasing the age to 70 in the near future, which doesn’t bother them, being the wealthiest party.

There are only two reasonable ways to increase the ratio: increasing payments into the system, although it’s not popular to increase taxes of ANY kind; or continue to increase the eligibility age, not popular either.

Another of the problems I see is the maximum taxable earnings, which is currently capped at $106,800.  Although it is expected to increase to $110,100 in the near future, this still seems like a low number.  It seems reasonable to make this a higher number since there is a large portion of the population that makes substantially more than this amount.  To me, this is another example of people not paying their fair share.  One can argue that these people in the highest earning bracket(s) might not have to rely on SSI to augment their retirement income.  I disagree that this is a fact because even if those people don’t make use of the benefits (but let’s be real, they will expect that too), their descendents may need to make use of them.  The understanding is that current workers are paying for their parents’ generations benefits, which should be true for the upper income brackets as well.  For those in the lower income brackets there will be no change, since you are taxed as a percentage of what you earn.

Now, I have been contributing into a variety of retirement plans for all of my working life, including several IRAs and 401k plans at all of my jobs.  I am in favor of allowing people to take over this last portion of the retirement scheme, but of course, I can’t do that since I’m paying for my mom’s retirement income (wait, my dad has passed on, so can I get credit for him?).  But, over the long term this seems to be a reasonable choice – let people make their own arrangements. 

Another of the significant problems with the SSI system, much like that of the insurance business is fraud – sometime co-located with horrible crimes.
  Here is an example of someone defrauding the SSI system by taking advantage of several disabled people.

Other fraud crimes are about a person’s eligibility – surprisingly, you can’t receive benefits if you are in prison.  Here a man received over $60,000 in benefits while serving time for sexual child abuse.

The fraud does not always involve serious crime, like in the two examples above, but it is still a crime to collect benefits for dead people, as seen in this article.

Of course, in some cases it’s the bureaucracy that makes the mistakes, like in this article about a woman that SSI claims is dead.  She would beg to differ, as I’m sure most of us would.

How can we fix the problems?  There are a lot of suggestions on this but I think the best plans will have individuals making more investments for themselves.  Sock as much as possible into IRAs, since this is a pretax deduction it also helps on your taxes. Wait, I am for everyone paying their fair share (I should just make this an acronym TFS) and this reduces the amount of tax you pay, so that can’t work.  OK, put as much as you can into 401k plans.

As with most government programs, the problem lies more with managing and administering the programs, and less with the stated aims and goals of the program itself.  Much like with the healthcare problems that I wrote about earlier, if we could reduce the waste, remove the fraud, and streamline the processes we could save an enormous amount of the budgeted dollars.

I think that everyone should be as informed as possible about all of the government programs that our dollars are funding.  Here I disagree with Mr. Cain; everyone should read as much as possible.

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