Eina Kleina Social Security Analysis

Ezra Klein is very smart. Unfortunately, sometimes he allows his factual research to limit his worldview to the status quo; he becomes a conservative in the worst sense of that term. Consider his recent article on Social Security.

Klein argues, “Over the next 75 years, Social Security’s shortfall is equal to about 0.7 percent of GDP. … Social Security’s 75-year shortfall is manageable. In fact, it’d be almost completely erased by applying the payroll tax to income over $106,000.”

But “the numbers” — not actually facts but projections — obscure all the important details about the issue.

A mere fraction of a percent of GDP may not sound like much until we realize that the economy has been weighed down by many such burdens. A trillion here, a trillion there, as the saying goes. Social Security is one of several welfare entitlement programs — see also Medicare and Medicaid — threatening to drag down the American economy.

Moreover, the Congressional Budget Office’s projections that Klein cites presumes the government can predict GDP nearly a century out — which of course is quite ridiculous. Because most projections show steady GDP gains, the relative size of the Social Security burden appears much lower than its actual cost.

Further saddling “the rich” with higher taxes, of course, only discourages productive effort and thereby impedes the rate of economic growth. So does expanding a welfare program that encourages people to work and save less.

In addition, the “facts” that Klein cites contain the outright fraudulent presumption that “the current balance in the OASDI trust funds” (see page ix of the report) somehow mitigates the program’s liabilities. They do not, for reasons Paul Hsieh explains.

So the fact that Social Security threatens to erode a “mere” 0.7 percent of additional projected GDP (or CBO says 0.6 percent) is indeed quite troubling.

An even worse example of Klein’s static thinking may be found in his comment, “Without Social Security, 45 percent of seniors would be under the poverty line. With Social Security, 10 percent of seniors are under the poverty line.” But other things would definitely NOT be equal.

Here’s the big fact that Klein utterly ignores: Social Security financially devastates workers, and especially lower-income workers, by stripping off a huge portion of their paychecks to subsidize a welfare program for the elderly. This constitutes the most serious financial impediment to younger workers climbing out of debt, getting ahead financially, and starting a real investment program for themselves.

In other words, one huge reason some elderly people drop into poverty is that Social Security prevented (and discouraged) them from saving for their own retirements.

I am, however, partly sympathetic with one of Klein’s conclusions: “Raising the retirement age is the worst of all possible options for reforming Social Security. It’s not only regressive, but it also falls most heavily on those with the worst jobs. Means-testing would be much better.”

I say I’m only partly sympathetic because the tax itself is horribly regressive, so easing the tax by raising the payout age (which notably is NOT the same thing as the “retirement age”) would, on net, greatly ease the burdens of lower-income workers.

One big reason I have advocated the complete phasing out of Social Security by slowly raising the payout age is its simplicity. It’s very easy to understand and implement.

But, if Klein insists on further easing the burdens of those at lower incomes, I am more than happy to reach a compromise by means-testing our way out of the horrid program. We could phase the entire thing out simply by lowering the qualifying income line over time. But this is messy: do we count recent annual income or total assets? Wouldn’t means-testing encourage the elderly to make themselves artificially poor in order to qualify?

Honest leftists would decry the regressive nature of the Social Security tax and call to replace the entire bloated system with a simpler welfare program for the elderly. As it stands, Social Security often punishes the working poor to reward the elderly rich. That’s insanity by any coherent ideology. (The fact that the left nevertheless advocates Social Security demonstrates only that the left is more interested in using the issue to gain power than in actually helping the poor.) Update: I retract this criticism; if the left’s ideological goal is to make people dependent on the state, Social Security succeeds spectacularly.

The much broader issue is that people have a right to dispose of their own income as they see fit, whether to spend it, save it, or voluntarily donate it to charity. Thus, while I’m happy to go slow on reform, I do advocate the complete phasing out of Social Security (and indeed the entire welfare state).

To modify my compromise proposal, we could immediately means-test Social Security payments on a sliding scale, so as to mitigate wasteful gaming. Reduce the Social Security tax across the board accordingly. Then set the payout age to increase slowly over time, until the program is completely phased out.

Now that’s real reform — and one consistent with the full body of relevant facts.