Means testing Social Security is nonsense

[eridani]

There simply are not enough rich old people to make a difference. If we want to limit payours to the more affluent, just put a cap on the yearly payout--say $30K.

http://www.cepr.net/index.php/blogs/beat

Most importantly, if Samuelson did know anything about income distribution among the elderly he would know that means-testing of Social Security and Medicare is not likely to save much money unless the intention is to take benefits away from middle-income people. The problem is that the portion of the benefits going to the wealthy (as opposed to the portion of income) is not very large.

Means-testing cannot be a cliff where everyone earning over some amount (e.g. $100k or $200k) gets zero. It has to involve a phase out. Unless these phase outs start at incomes around $40k (Samuelson's definition of wealthy?) and are very steep, they will not save much more than they would cost to administer.

[dkf]

1. Funny that we dont want to introduce means testing but as willing to discuss a max social sec

Payment. Why wouldnt that then be the means of controlling social security costs?

Slippery slope you know.

[eridani]

2. Do a spreadsheet

There are not enough rich old people to make a difference.

[cali]

3. so what? It would help.

[66 dmhlt]

10. Three reasons NOT to Means Test, & one Alternate Solution

I’m against means-testing for three reasons:

(1) It penalizes people who took responsibility for their retirement years, who were thrifty and invested their own moneys for their own future. Now that they’re using their own money in retirement, they should not be penalized for being responsible and prudent which is what means-testing would do.
(2) “A new analysis by the Center for Economic and Policy Research (CEPR) confirms that means-testing would yield very little in savings … unless we took benefits away not only from rich retirees, but also from many who are solidly middle-class.”
http://www.offthechartsblog.org/means-testing-no-answer-for-social-security/
(3) If means-testing were in place, there would be no real incentive to save for your future. What would be the point since it would only lower your return from Social Security? Might as well forgo saving, spend what you got and then be compensated with a larger payout in retirement years.

While I happen to fall within the parameters of the above rubric, during my working years I was also fortunate to fall in the parameter of annually paying the maximum contribution to Social Security. I was then, and still am now, strongly in favor of eliminating the maximum contribution cap. The well-to-do (like me) should pay substantially more than what is now being withheld.

Eliminating the maximum cap would make SS a much less regressive tax.

[Warren Stupidity]

12. The cap should be lifted AND the rate lowered.

But I suspect that instead age limits will be raised, benefits reduced, and rates will be regressively raised.

[cascadiance]

13. Remove the cap and lower the rate so that those making $250k pay the same raw amount...

That makes it simple with not "donut hole" to shift over time (which also is unfair in and of itself to those just under the donut window compared to those at the top of it).

It alo keeps Obama's commitment to not raise taxes on those making less than $250k.

It also gives in effect a tax cut to those making less than $250k in a time that this group of people badly needs it.

It makes those making less than the cap less likely a target in big layoffs, since all employees, not just these will have the same payroll tax liability. It might be a disincentive for giving more pork in terms of high salaries to CEOs, etc. Won't stop them from giving them more stock options, etc., but that should be regulated separately.

[exboyfil]

25. I don't see why those making between $106,800

to $250,000 get to avoid supporting the Social Security system. Already those making between about $50K to $107K are carrying the system.

[eridani]

16. Cutting 0.5% of payouts would help? How? n/t

[dkf]

4. Yeah but think about how efficiently you could control SS costs by creating a max.

It's a cutters dream come true.

[Sherman A1]

5. Agreed

I don't have an issue with someone who paid in more getting a larger benefit. I am sure that some formulas can be developed to develop some work arounds, but the first thing that I believe necessary is to take the cap off of all income.

[Warren Stupidity]

7. clue: payouts already capped.

[dkf]

15. Aren't they capped because of the income cap more than anything?

Makes sense that there is a max you could have contributed. The max payout would seem a natural outcome of that. Capped in, formula payout, capped out.

[Warren Stupidity]

18. whatever. this thread is just full of misinformation

If somebody was making the point that eliminating the cap on tax payments should not eliminate the cap on benefits, somebody would have a reasonable point we could discuss. Meanwhile the arguments here are about reforming a fictitious system, one without caps on benefits, without cola'd benefits, one without a 'means based' tax on benefits.

SS will resume 50-year solvency when the economy recovers. If there is a BIG FEAR that will not happen, a modest one-time increase in the cap beyond its normal COLA'd increase would do the same thing. The HUGH CRISIS is the duopolistic plutocrats whining about having to make good on those t-notes as the 35-year cash cow of boomer surplus pay-ins comes to an end. Fuck them. Raise the goddamn taxes on mother-fucking billionaires to cover the loss of surplus ss payins. Cut back on the obscenity of 1T a year in military bullshit. Stop subsidizing fucking oil companies. Leave the miserable old age pension system alone.

[Warren Stupidity]

6. payouts are already capped.

The intention of these scam-proposals is always to sock it to the middle class and as a bonus, to turn upper middle against lower middle and lower middle against poor.

Not only are payouts capped, but they are taxed if you have a miserably small amount of income in addition to your social security income. Again a policy that punishes the middle class. The actual rich aren't affected in any meaningful sense by either the cap on benefits or the tax status of social security.

Means testing is just the best way to kill social security for once and all.

[customerserviceguy]

8. The only way a max would work

is if it were indexed to inflation, like the tax charts are. For people who have 20-30 years left to retirement, $30K is going to be what it takes to live on for a month, if we have any serious periods of inflation.

[Warren Stupidity]

9. wtf? Payouts are capped and COLA'd.

That is the current situation. This thread is obviously from the alternate universe where social security payouts aren't capped and aren't inflation adjusted.

[exboyfil]

11. For someone retiring at 66 today

the max monthly payout is $2,366 ($28,392/yr). This amount does increase every year with inflation, but unless we cap inflation and get some serious hyperinflation, the cap is not going to help.

We already means test on income by taxing Social Security when you have above a certain income from other sources. That is why 401(k)s and IRAs are not that good of an idea, and a Roth is a better solution if you plan to be tapping your retriement money along with S.S.

The most logical solution is to remove the cap on Social Security withholdings and reduce the percentage of that withholding to reflect the participation rate of 15% (number used to calculate benefits on incomes between around $50K to $105K). The current system expects those earners to carry the weight of Social Security, and that is not fair.

[RebelOne]

23. Maximum payout of Social Security is $2,366?

I am collecting and have been for the past 5 years and I am getting $1,400 a month. I do not know of any other SS recipient that is collecting $2,366.

[exboyfil]

24. Did you have the max income withheld each of the

35 years used for calculating your benefits? The $2,366/mo. is from the Social Security website. I have not run the calculations myself. Rough estimates show it looks about right for someone retiring today who has had the max income withheld each year.

[bemildred]

14. Welfare for the wealthy is nonsense too.

Likewise welfare for corporations.
A great deal of our tax code is nonsense, as far as that goes.

But the real money is in the unearned income, apply FICA and medicare tax to unearned income, and you will be talking about real money.

[hfojvt]

17. good points and informative thread

although I would say that $40,000 IS wealthy for somebody who gets that much money for doing nothing. I've usually gotten less than HALF that amount for working 2,000 hours a year.

By the time a person retires, I am not sure the old "but they live in a high-cost metro area" argument holds water any more.

First, because they have likely lived there a fairly long time (that is going to be less true for renters, but renters also have an easy solution - flee the high cost area). The house bought in 1980 is not the same expense as the current house prices.

Second, a retired person is no longer tied to a place by their employment. If the cost of living in expensive metro area is too much, they can sell their home, make a large and tax free capital gain and move to a lower cost area.

Granted, people might not want to move away from places where they have lived their whole lives. I didn't want to leave my hometown either. But you cannot make choices that increase your expenses and then complain that you don't have enough money. You have plenty of money, other things being equal, just not enough for the lifestyle you have chosen to live.

[GeorgeGist]

19. If means testing is instituted ...

then SS and Medicare would become welfare programs.

[nobodyspecial]

21. Yep, and therefore easier to gut.

They are both INSURANCE programs. You pay your premiums, share the risk and get a payout when time. Anyone advocating means testing for home insurance?

[Swede]

20. They means test in Germany.

Not sure how that works out,just an observation.

[Warren Stupidity]

22. If we had a comprehensive social welfare system

I would be fine with means testing. Plus we already means test here - as in ss benefits are taxed if your income is above a rather low level. But we don't have a comprehensive social welfare system and all of these discussions are about CUTTING benefits, which drives me nuts on a purported democratic discussion board.