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Slate's latest article about US Social Security benefits was full of errors, myths and lies
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- Title
- Column: An exhaustive debunking of the dumbest myths about Social Security
- Published
- Nov 24 2023
- Word count
- 1882 words
This.... seems fine to me? Is there a good reason retirees making more than $70k need the extra help? I make about that much, and I'm able to live comfortably while still saving for retirement.
This is why I wish that was not the point they started the article with. There were other more serious problems with the arguments in the slate article.
The real reason for not imposing income cutoffs to social security benefits is to keep influential, educated, politically connected people in the camp of people who directly benefit from social security. It's much easier to cut or eliminate welfare for ' those people' than it is to take away a benefit from the majority of the population.
I live in California. The cost of housing here is going to use up a 70k income very quickly.
Means testing also means more beuracracy. Part of the reason UBI works as a concept is because it destigmitizes payments and eliminates discrimination points.
Banning 401k matching, increasing payroll tax by that 3% matching most employers do, then removing the $160k cap in social security taxes will do exponentially more for stability.
The whole point of Social Security was that it was UBI for retirees. Not Yet Another Welfare Program.
I don't agree that UBI works as a concept. I predict that UBI will never be widely adopted in a stable nation with a strong democracy and high levels of education—at least not in a way that makes a real difference (beyond some nominal "Here, everyone gets a few hundred bucks!")—because it is simply too expensive, both financially and politically. It would have to be accompanied by either a big hike in taxes or a big cut in other services—or, more likely, both simultaneously.
Economists broadly disagree with UBI for good reason. A more realistic alternative is negative income tax because it targets the people who really need that money the most, making it both more affordable (no huge tax hikes or massively scrapping services that UBI would require) and more effective at distributing wealth to those who need it.
The cost of means testing for negative income tax would not very high because the great bulk of the legwork is already done at tax time. With UBI, taxes would still have to be paid, so there isn't actually much savings to be had there.
The one thing UBI has in its favor is that people who hate helping the poor are more likely to support it. However, for ethical reasons, I don't think we should let this contingent of voters dictate platforms for the rest of us; they will veer us into unethical and economically dangerous territory. I also don't think they actually matter that much as a voting bloc; lots of programs aimed at alleviating poverty already exist, which indicates to me that there is broad political will to help the poor (so long as it does not personally affect voters too much).
If UBI ever becomes part of a mainstream national platform, I predict that detractors will come out of the woodwork, and that there will be enormous pushback against it as voters are made to understand its costs and risks. I think voters are much more likely to accept a more affordable program, like negative income tax, that will have mild to no effect on their taxes or on the government services they use or care about.
That poll is a very loaded question, and would even put me in the disagree column. Specifically "financed by eliminating all other benefits programs". It's little different than "When did you stop beating your wife?"
There are many benefits programs that could be eliminated, but half the ones listed would not be good choices. The real answer for funding a UBI is with higher taxes (which need to happen anyhow but that's a bigger discussion).
A lot has changed since 2016. We even did have a defacto UBI during COVID. The problem was we didn't properly raise taxes to fund it....a fair bit of the inflation might have been mitigated if taxes were hiked in kind to let it phase out smoothly to the cutoff point and recoup costs. Oh and if we didn't fuel a money-printing binge of cheap debt, but again, bigger conversation.
Why ban 401k matching?
Ah yes, a fine question. Because 401k was implemented as a way to let rich people evade taxes, specifically deffering taxes from bonuses and stock options.
I'm pro-keeping 401k, but only for individual contributions...and any employer matching needs to be re-framed as regular compensation that the individual can contribute (and thus is paying payroll taxes on).
But that doesn’t explain why matching should be banned. It doesn’t provide any data to suggest matching causes inequality, or other issues. Most Americans have their retirement savings in a 401(k), and I suspect many view the match as a bit of a bone for getting rid of defined-benefit pensions.
And, here me out, if we bolster social security to the point that we don't have to be afraid of it being insolvent, we don't need pensions.
So yea, eliminate the ability of employers to match 401k. Allow employees to continue to contribute to it (maybe even increase their max), but subject it to payroll tax. To the employee, it's functionally equivalent if they just get a 3% raise. But Social Security gets a massive influx of payroll income.
Most americans have 401k's because companies gutted pensions in favor of them. This was a bad thing that we should try to fix. Doubling down on 401k's is throwing more money in the pit.
Traditional 401k's are already subject to income taxes upon withdrawal, they're tax-deferred not tax-exempt.
I also imagine overall contributions would drop dramatically without 401k matching directly incentivizing people to hit a minimum contribution for their free money. The lack of match income in retirement accounts would also increase the burden placed on social security as people will have less in their 401k. Asking people to voluntarily raise their contributions to replace the match will simply not work, many people couldn't afford it and many more simply wouldn't do it. Raising the max also doesn't accomplish much for the incredible vast majority of American's not maxing their retirement contributions, if anything I only see that widening the gap by allowing high earners to compound even more savings every year. The limit is 23,000 per year right now and along with IRA's and HSA's you have to be making a lot of money or living an incredibly frugal life to max those out.
I'm also just really struggling to follow your suggestion here, 401k matching is the concession they used to get rid of pensions Removing that is just completely allowing companies to not worry about retirement benefits at all, which is exactly what they want and leaves us worse off then before.
And, why does that need to be a thing at all? Because, in theory, your income levels will be lower later so you end up paying less tax on it....tax avoidance. It's being done in service of pension-replacement, but that doesn't make it any less of a tax-avoidance scheme.
If we want pensions back, we need to strengthen labor bargaining power. Otherwise, we need to accept that private industry will always do a shit job of doing right by its employees and get them out of healthcare and retirement coverage, replacing them with proper public services.
The sunk cost fallacy with 401k's is real. I'm talking about methods to phase them out, and bolster social security in their place. Because the 401k has proven to be a poor replacement for pensions and social security.
That's not "tax avoidance," that's the US government consciously opting to subsidize people saving for retirement.
Again, that's not what the foundation of it was. The foundation was for tax avoidance of bonuses and stock options. Back when it was invented, most people had pensions. If it really was about subsizing retirement, why not just let it be fully tax exempt?
It evolved into what it did because companies saw it as a way out of pensions. Which, as someone else noted, having a 401k is better than nothing. But having seen what good pensions actually look like, we all got the raw end of the deal in the name of cutting costs and increasing profits.
Compared to a pension a 401k is an insult.
A lower rate applied to a much larger sum that has been compounding pre-tax, the government still gets it's share and even those deferred taxes are still paid out in marginal tax brackets that take more from people who don't need it. Any money the government might actually be missing out on from tax advantaged accounts it is directly saving on welfare spending because people are able to support themselves in retirement.
I'm also still not sure what the argument is behind the original suggestion to raise the 401k max if we believe tax advantaged accounts are a flawed "tax-avoidance scheme". All those arguments also apply towards people's IRA's and HSA's as well.
I guess we can call it "tax-avoidance" if we really want to, but it's same sort of equitable tax avoidance we offer by lowering taxes on lower brackets. Contribution limits stop the extremely wealthy from getting much proportional value from them, and being able to compound pre-tax money allows people with a thinner margin of disposable income to let their money grow in ways usually only able to used by people with a large amount of disposable income.
If we want pensions back and we're already discussing sweeping legislation like this, let's just focus that legislation on requiring pensions for certain businesses, or just bolstering social security by itself. I'm not opposed to a better or more equitable alternative to our current retirement options, but people have built literally their entire financial life around them at this point. I think it's dangerous to bring things like "ban 401k matching" into the conversation as even an option to consider when we don't already have a system in place to replace it. Allowing that into the overton window opens up the political possibility of it being removed with nothing else put in it's place. It reminds me of typical "burn down the current system so we're finally forced to replace it" sort of revolutionary thinking that isn't effective and would cause great harm if it was.
It's also politically risky to tie an independent change you want to taking away an existing benefit. People will rally to defend what they already have and reject your linked policy improvement where they otherwise might not care.
401ks might not make a lot of sense, but they exist and people value them and rely on them.
It's not so much a strength of labor issue anymore. That ship has sailed. Pensions are gone because neither employer nor employee is loyal to the other anymore. It's no longer the expectation to be a company man for life and be taken care of in your golden years. Instead, ditch your old boss for a raise and return six years and three jobs later for twice the pay you would've earned through normal promotions. That's not an environment where pensions thrive.
Or, bet on a career in government that has lower salary and a gold plated pension and health benefits.
They paid into the system their whole lives. They don't deserve to get a fraction of the money they put in? 70k a year is not that much anymore, not even a decent wage in many cities, especially if you have people to continue supporting. Not every retiree is a snowbird living in the Florida suburbs.
$70k is right around the US median income. They're seriously out of touch if they think half the country should shell out to support folks better off than themselves. I know it's the LA Times, but it doesn't matter how far that $70k goes in California -- we're talking about federal programs. If $70k is too pithy in California, that's a problem for Californians to solve, not me.
I'm surely biased though as I've lived in "unfavorable" regions with far lower cost of living, have never made close to $70k even with a graduate degree in STEM, and am disabled yet don't qualify for any aid bc it isn't visible enough (but is visible enough I'm mocked most the time I go in public).
It's an insurance program though. The point is that if you pay in, you receive benefits.
From the article,
You've described the contributory aspect, insurance doesn't guarantee benefits, only if you have a valid claim. I fail to see how this contributory system isn't simply welfare though, I find their argument unconvincing, but this probably ties back to my biases. Due to my disability, I should not (and do not) expect to live anywhere near an age that will allow me to be a beneficiary of the social security I pay. Perhaps I'd benefit from additional reading, I'd be interested if you have suggestions.
The contributory system is a form of forced saving which works with what we are now learning about how and why most people make irrational decisions. It prevents or reduces predictable end of life poverty and destitution.
Policy choices made for a nation are always going to be better for some people than others. Hopefully they are better for more people. Edge cases and exceptions always exist.
I would support you receiving disability now, or being able to demonstrate your likely shorter life span and receive a waiver to opt out and enjoy your money now.
Getting policy enacted is a very messy imperfect process. Getting policy changed is an opportunity for interested powerful actors to hijack the process and make things worse not better.
I appreciate your sympathy and patience, thank you. I know I haven't done the best in understanding the topic, expressing myself, or being objective. As much as I've shared of my specific personal issue, my point was more so supposed to be "is this the most equitable way?" No policy is perfect. Assessing disability claims isn't easy, there will always be equity issues with such a process, and your waiver idea would ideally make it more equitable for many others that also wouldn't expect to reach the payout age.
Ultimately, I'll admit I was wrong. Any sort of cut off income is more prone for bad actors to make things worse for the many. Budget concerns should be addressed by adjusting taxes as the article suggests. And I do want to support policy that anyone can retire and won't go destitute.
This community is a great place to express thoughts and ideas and get feedback. I'm glad you are here.
So you don’t have kids or familial obligations I take it.
I'm fully behind funding social security, but this projection from the CBO is hard to take seriously.
The CBO is the Congressional Budget Office, a US federal agency whose job is to advise Congress people on economic matters.
(Just a PSA, for everyone who's playing "guess the acronym")
GDP went from 6.8 trillion to 25.4 trillion from 1993 to 2022, which is more than triple. Is it really that farfetched for the growth pattern to remain somewhat similar?
Most of the rest of the developed world has stagnated, and America's current relatively high growth rate is in large part a product of high immigration. There are also a bunch of adjustments to GDP that make me skeptical of it as a reliable measure for taxable economic activity (ex. if your phone has twice the processing power as it did 5 years ago, it counts twice as much toward GDP). Even if it were feasible (which I doubt), it's a serious problem to not leave any room for American society to decide if it would prefer slower, more environmentally and culturally sustainable economic growth (as many European countries have).
Yes, people argue about inflation adjustments. Maybe inflation is higher than measured?
If that were true then social security benefits would decrease over time (in real terms) because cost of living adjustments are based on official numbers.
But I don't think that's the hard part about predicting GDP growth. The hard part is predicting things like wars, recessions, pandemics, new technologies, government policies, and so on. Official projections just kind of assume that whatever happens, it will probably be a wash in the end.
If GDP growth isn't predictable, that means we don't know how much of a problem there will be with social security. It might make sense to have multiple projections for different scenarios.
In this article they didn't really do that, they just took an official estimate. It could be better argued.
CBO is a bunch of economists that still haven't reconciled with the fact that infinite growth is impossible.
Even if you think there will be a peak, predicting when something will peak (like a pandemic wave or peak oil) is not easy. I think it's beyond what forecasters can do. Instead you just say you can't predict that far.
The CBO's normal projections (used by Congress) only go 10 years out.
Yea, my point isn't that we should try to predict peak. Just we need to figure out how decouple stability of society from expectations of perpetual growth (retirement, housing value, etc). Doing so before it is required will save a number of lives.
In other words, how do we provide for people with what we have, not with the expectations of what we will have in 5/10/20 years. This isn't just theoretical....the increasing un-insurability discussions certainly point to the existence of "peak insurability", which also has large implications for debt...the real cornerstone of our economy.
We also need to ask ourselves whether infinite growth is desirable, above and beyond environmental concerns. Humans need some level of scarcity and struggle in order to derive meaning. There's also great utility in scarcity (ie an economy where prices are not arbitrarily low relative to income) as a means for individuals to continuously vote in a decentralized way on what society should look like. Maybe it would be better if we went the way of Japan, and placed greater value on craftsmanship and process over mere consumption.
I think "we should cut social security because we don't know what will happen" is not a winning political argument. It's not going to be cut until it's rather obvious that it really is a problem.
I don't think they were implying that social security should be cut. There are a myriad of ways of funding social security that don't hinge on infinite growth.
You didn't say what you think is unreasonable, but a rough look at the numbers makes it seem reasonable to me:
If you take 4% growth and compound it over 30 years then it more than triples. The miracle of compound interest. That's a pretty standard calculation. And if we look at history, it has been exponential, and growth often exceeds 4%. (This is just a rough look at the numbers, not inflation-adjusted, so much of that is inflation. Some of it will be population growth, too.)
But if course we don't actually know what the future will bring. Exponential growth isn't a given and exponential curves will eventually turn into S curves when limits are reached.
Having a standard forecast makes things seem more predictable than they are. There should probably be multiple scenarios, like us done for climate change.
I think part of the big thing about turning everyone away from relying on perpetual growth as a 'thing' is because so much of society is built upon it as if the s-curve will never happen. We'll keep projecting GDP to climb into the quintillions then get caught offgaurd when inside of a decade growth effectively stops.
There's no precise way of figuring out when that will happen, exactly. But if we do not figure out how to decouple societal stability from growth before the exponential growth stops, things will go badly, very quickly.
My money is on exponential growth grinding to a halt after a few climate-change-induced famines.