The Trump Social Security Reform Plan, and What We Should Do About Saving It

Among the many things Trump promised was to save Social Security from approaching doom.   Personally, I have long hoped it would die from natural causes.  But, conservatives (and near facsimiles) keep bowing to leftists to save this darned albatross, thereby preventing it from happening.  Saving it from bankruptcy is something conservatives have been advocating, now, for over a decade.  Libertarians, on the other hand, have been arguing to end Social Security since its inception.   Socialists also want it saved, but have entirely different ideas how to go about it, and generally oppose every proposal put forward by conservatives simply because it emanates from a conservative (or libertarian) source.

Trump supporters argue emphatically for the Trump plan, but can be maddeningly vague as to details (see https://www.thestreet.com/story/13465541/1/donald-trump-s-social-security-plan-makes-a-lot-of-sense.html ), as is Trump himself.   From Trump, we know more about what he won’t than what he will do.   He won’t cut benefits, won’t raise taxes/contributions, and won’t increase the retirement age because all three represent (in his mind) a deal breaker.   It’s also pretty obvious he has little interest in ‘privatizing’ Social Security as Bush tried to do.   He apparently expects the anticipated insolvency problem to resolve itself once he gets the economy roaring again.   He also argues “deficits, waste, fraud and abuse” are a big part of the problem.  Neither of these appears to be overly realistic, because his first pick is only good until the next downturn or Democrats regain power, and the second is overrated as to solvency impact.   He may pull the fat out of the fire a few years, but that just kicks the problem down the road for the next generation of Americans to deal with.

Social Security operates as a modified version of the old ‘company pension plan’ (i.e., defined-benefit or DB) which has fallen into disfavor in most venues.   Defined-contribution (or DC, e.g., IRAs, 401K, &c) plans have largely replaced those in both the private and public (i.e., civil servant) sectors; which makes Social Security something of a dinosaur.   Financial advisors now tend to favor DB over DC, but it was the other way around before the Obama recession because of the high rate of DBs going bankrupt (the same pickle we’re in with Social Security.   DC performance is much more variable and volatile than DBs (as complained of), but long-term performance is better, are generally better managed, have greater investor visibility, investor input, lacks DB’s funding shortfalls, and corrects for inflation.  If market volatility worries you, DCs have options for minimizing that (i.e., load your account with bonds and DB-like funds).  For those of us with personal saving/investment accounts, Social Security represents only a portion of our retirement picture (albeit a substantial part); which leaves us some minimal independence.  Even so, independence is compromised by having government controlling even a portion of your retirement funds.  For those unable to save or who neglected to do so, it is a total dependency trap.   Only those with enough saved they can safely ignore Social Security have real independence, and our would-be rulers know and resent that.

Ideas thus far put forth for saving Social Security boil down to:

  1. Increase payroll taxes on everyone
  2. Substantially raise or eliminate the payroll tax cap (aka, ‘scrap the cap’)
  3. Increase the full-retirement age
  4. Reduce retirement benefits
  5. Eliminate fraud, abuse and waste
  6. Privatize it (sort of)
  7. Some combination of the above

In 2004, Bush tried to semi-privatize social security, but that was shot down by socialists bent on preventing any changes to the way it operates. They rationalize this opposition as altruism, giving as their excuse it is better to receive a (not always) adequate fixed-benefit than to hazard reduced benefits from individuals investing their contributions in the supposedly ‘false hopes’ of living better in retirement or having more of a hedge.  The real reason for their opposition is the current system creates significant dependence on government, which any privatization effort can only undermine.  This is a critically important point from the elite Left’s perspective.   For much the same reason, the Left expanded rather than restrict benefits (though not equally or proportionally to all).  The more we rely on Social Security (or other government-controlled props) for our retirement, the less likely we are to rock the socialist boat.  It is entirely a question of numbers for them.   The more of us they can make dependent on their various safety-nets, the less they need fear rivals or reversals.   For every rich person, there are 9,999 ranked poor to middle-class.   It only takes a little over half that number to make their misrule permanent.   Thus they get the best bang-for-buck by favoring the poor and ignorant over the rich and intelligent in their calculus (easiest/cheapest to gratify and keep in line).   The Left continually pushes to expand that number enough as just keeps them in power, but not more because they also need us at each others throats.   One thing this election showed is there are just (barely) enough people of independent means or mind to avoid this trap.   Yet, it also shows there are not enough as truly understand the trap and want it ended.

We conservatives know about and recognize dependency in others, yet often fail to see it in ourselves.   We talk about the economic and political dependency of welfare, about how that hurts and holds recipients back.   Yet, how is Social Security really any different?  Social Security operates just as surely as welfare programs do to create dependence on government.   Does it really matter we are entitled to it (by reason of obediently paying contributions) so long as government determines for us how much and when we receive our pittances?   Can you really imaging 70, 80 and 90 year-old retirees rebelling openly and forcefully against them?   Do you seriously believe us capable of marching on Washington in such manner as makes Congress quake once the usurpation is complete and they have no further need of us?   And, let’s not forget government now has near total control over our healthcare while in retirement (i.e., Medicare)!   This dependence is mostly in our retired years, yet it also operates on us throughout the long years of preparation for retirement.   The idea at least part of our retirement money is guaranteed is an intensely powerful inducement to not rock the boat as hazards that.

We tend to dwell on economic dependency to the virtual exclusion of political dependency.   Of the two, we regard the latter more dangerous; yet they are also strongly linked.   The Founders understood our system of limited self-governance would last only as long as we maintained our independence of government, and that we’d succumb to the wiles of crafty usurpers as soon as they’d converted enough of us into pensioners of one kind or another.   Make no mistake; we are nearly as compromised as those we disparage as accepting welfare handouts.   It does not matter that half of us are determined to hold out against further socialism, because once the nanny-staters established their beachhead, it became more a case of when, not if, the rest of us will succumb.   Ever try to convince a Democrat (aka, socialist) we should reverse this trend, that we should carefully retrace our steps back to self-reliance.   You will be ganged up and shouted down for such ideas.   Self-reliance scares the pants off leftist.   So convinced are they of the impossibility and undesirability of restoring things to the way they were, there is zero-tolerance for the mere mention.   It has gotten so bad that earlier, freer times are regarded the ‘Bad Old Days’ in their lexicon, and are lumped with actual bad stuff having nothing to do with the issue at hand (e.g., ‘You must want us dragged back to the days of Jim Crow, fascism, chauvinism, and burnings & lynchings!’).

Republicans, conservatives, libertarians and independents are little better in this regard; making it small wonder that, even when we have the necessary power, we are powerless to use it.   Social Security is a perfect case of this as few have any real desire to rid ourselves of this system however much we express dislike and mistrust for it.   Trump refused discussing any reduction in benefits precisely because he understands conservatives talk big, but walk mincingly when it comes to Social Security.   We are no more desirous of doing anything decisive about it than our opponents on the Left.  We talk about phasing it out, knowing full well that will never happen as long as too few of us have the courage to make the leap.  We are too easily daunted by the prospect of a 30 to 40 years resolve we think it takes to accomplish this.  That only means we are less bold in our proposals than it requires to effect.  Far too often we hear that ending Social Security can only be done conditionally upon it not affecting current recipients (and soon to be recipients) for fear of a seniors-backlash.  I am 65, yet am not overly disturbed by the prospect of a sudden loss of my benefits if that is what it takes.   Partly that is because I am in no hurry to retire, but, mostly I prefer it to collapse now on me and on my generation that created this mess than on my kid and grandkids later.  I may be unusual in this respect, but I also think there are enough of my age (and older) who are like-minded or can be persuaded into it.  How long that remains true is hard to say, because the trend has been away from any mention of ending Social Security now or later.

Suppose instead of pseudo-privatizing it the way Bush proposed (accounts still semi-government-run), we demand our money back to do with it as we choose?   Sure a few of us will do stupid things with that money, and some will lose a bit of it in the transition, but most will choose (or can be guided toward) safe investments, and in a few years most will be better off than under Social Security (and certainly no worse).  Or, perhaps, we require the money goes initially into IRAs and qualified private accounts and stays there a couple of years.   People tend to leave well enough alone, so most will leave it parked there indefinitely.  It will be argued there isn’t enough money in the ‘Trust Fund’ (actually there isn’t any) with which to make such payouts.  It is still less than will be paid out over the next 30 years in benefits and the unfunded liability goes away before things implode.   Still not convinced?  Then, consider a schedule of payments to be paid out over the next decade, with current retirees getting theirs immediately and everyone else proportionally according to contributions and time served.   Some will still complain the poor get nothing because they put in nothing.   But, that just means they go back into the welfare pool, and we stop pretending those particular payments aren’t handouts.   It may also be argued the total cash-out each of us receives will be less than if we keep Social Security going.  That is actually true, but, the trade-off is money for restored freedom for both current and future dependents.

Trump supporters loudly demanded we “drain the swamp”.   We’ll, isn’t Social Security just a Ponzi scheme, a dependency trap, and a Democrat invention.   Doesn’t that make it part of the swamp too?   If so, Trump-ites shouldn’t be too surprised to discover they have had some role in it, and need be consistent in their demand that all such corruption needs to end now.

Do Democrats worry themselves silly over the pain their changes inflict?  They don’t; and, as a result, they have been far more effective at building dystopias than we’ve been at dismantling them.   Reversing a popular, yet ultimately bad idea takes convictional courage; and it risks unpopularity for some period of time until people see the good that comes of it.   Dragging it out only makes us odious for the much longer time it takes to walk things back slowly.  Obviously, we don’t want to cause economic upheaval more than necessary to the object, but some pain is unavoidable and it should be pushed hard and fast enough it actually happens; else we are lost and the socialists win.   Holding-actions are simply no longer an option for us if our republic and freedoms are to be saved.

The only other way out of this dependence trap is to continue living, working and thinking as if there were no government-run retirement system to coddle us late in life.   We can still do that individually, if not collectively.   But, it involves sacrificing at least some of those years we imagined comfortably unemployed.  We’ve been sold on this idea of retirement from the time we were in grade school, that if we just work to some age arbitrarily set by others, we’ll thereafter retire to a life of idleness and unaccountability.   And, we were taught to think that is reasonable, even necessary to our survival after years of laboring.  I’ve listened to friends excitedly discussing how they’ll retire just as soon as they have saved enough they can safely ride out their remaining years in comfort and style.   How did we morph from a nation of rugged work-till-I-drop individualists into work-just-so-long-and-no-longer slackers?  Personally, I think retirement overrated, that it is work as gives form and meaning to life, and that retiring too soon cheats us of our most productive and creative years.   It also denies government its dependency hook.

Lately, socialists have been floating ideas to nudge more of us out of private accounts, thereby eradicating remaining pools of independence for all but political elites.   As part of their campaign, pundits like this one disparaged 401Ks as a bad idea, at least as regards us ordinary folk.    That was right at the tail end of the recession when baby-boomers were still somewhat shaken by the plunge in their savings and willing to listen to such rubbish.   Proposals were then put forward to convert private accounts into government managed ‘fixed-benefit’ accounts piggybacked onto Social Security.   Last year, Obama announced a number of changes he wanted implemented restricting conversions, regulating brokers, and discouraging savings above favored limits.   There was even some talk of outright confiscation (with no conversion), and with Social Security to be made the only remaining option.  The Left now treats this backstory as panic-mongering, but they were totally serious at the time and only dropped the idea because of the negative reaction it got.   Now, the Left’s approach is more incremental, making it the camel’s nose poking under the tent flap with the rest to follow.

Whether it is Obama or Trump, Democrat or Republican, we are being dragged incrementally toward a bankrupt future.   I have focused on Social Security for this essay, but the same applies to Medicare & Medicaid, government-backed mortgages, veteran programs, student-loan programs, farm subsidies, energy rebates, bailouts & endowments, &c.   An argument can be made every one of these represents a ‘legitimate entitlement’, made so by dint of service, contribution or benefit to society as a whole.   Yet, none of them pass muster as ‘legitimate objects of government’, all create unhealthy dependencies on government, and all can be achieved by means other than government.   We can be free or slaves, the choice is still ours to make; but, only if we speak loudly and persistently against such debasements of our political character.   We need to remind Trump why we voted for him and not Hillary, and we need to do that as often as it takes to get and keep his attention focused on what matters to us.

 

Additional Readings & comments:

http://www.nationalreview.com/article/426546/conservative-social-security-reform

https://www.lp.org/issues/social-security/ – Libertarians want SS to go away

https://fee.org/articles/restoring-hope-in-america-the-social-security-solution-and-lets-get-rid-of-social-security-how-americans-can-take-charge-of-their-own-future/

https://fee.org/articles/social-security-reform-lessons-from-the-private-sector/?utm_medium=popular_widget

http://www.forbes.com/sites/wadepfau/2015/10/27/brief-history-of-social-security/#1e5db4856d42

http://thefederalist.com/2016/02/19/bernie-sanders-is-selling-millennials-out-for-social-security/ – says SS also “… make[s] it harder for [millennials] to find jobs, reduce[s] their earnings when employed, and erode[s] their retirement security”   because “… unfunded liabilities are a massive drag on the economy, … tight job market and slow wage growth …”

https://www.washingtonpost.com/politics/debate-over-medicare-social-security-other-federal-benefits-divides-gop/2015/11/04/166619a8-824e-11e5-a7ca-6ab6ec20f839_story.html?utm_term=.42af1d99bbc7 – 2015 campaign redux

http://www.forbes.com/sites/richardfinger/2013/01/14/fraud-and-disability-equal-a-multibillion-dollar-balck-hole-for-taxpayers/#67f54d10122b – how big is the SS fraud problem, >$69.8 billion in 2011 (= 5.9-million/10.9-million x $128.9bn)

http://www.americanthinker.com/articles/2011/03/the_social_security_trap.html

http://thehill.com/blogs/congress-blog/economy-budget/195559-social-secuity-disability-fraud-is-rare – by an SSDI defender argues fraud is minuscule, but her counterargument is far less detailed and less than convincing.   Many of us know people who abuse the welfare system to get benefits undeservedly, and we’ve seen this behavior increase over time.  If some of the Forbes data is correct, then hers doesn’t add up.   For example, her claim SSDI recipients are “three times more likely to die than others their age, and nearly one in five men and one in women die within five years of receiving benefits” is not possible if only 36% left the program by dying and, of the remainder, fewer than “6% returned to work and 3.6% exited the program due to medical improvement”.  That leaves 54% unaccounted as to why they remain in the program indefinitely and the program roles jumped nearly 20% under Obama.   This looks to me like she has misread 36% leaving SSDI feet first (out of a mere 6% total departures) to mean three times higher than average mortality.  The Hill writer further claims fewer than 40% of those trying to get in succeed as if that represents some kind of high bar to entry.   Given SSDI’s attractiveness to potential cheaters, I would expect an effective screening to result in a much lower successful entry rate than this implies.   2% of beneficiaries dying before transitioning to regular retirement (age 62/66) is probably what we should expect.   A look at SSA’s own actuarial table (see https://www.ssa.gov/oact/STATS/table4c6.html ) 2% is actually a pretty low mortality rate for those under age 62, so here too Ms. Neas fails of her object. Neither Forbes nor anyone else is challenging that 2% SSDI mortality statistic, nor are they suggesting fraud is occurring within that number.  What they point to is fraud occurring among the other 98%, and breaks that down for us.

http://www.usgovernmentspending.com/social_security_spending_by_year $916-trillion in 2015

https://mathbabe.org/2016/08/03/expand-social-security-get-rid-of-401ks/ – woefully inadequate analysis (just her personal opinion, actually) by a math teacher convinced she’s qualified to opine on the mess made by others because she’s a wiz at math (plus, a number of equally conceited lib-trolls pile it on).   Unsurprisingly, she fails to apply the same rigor to policy she does to mathematics.   One of her pages even lectures on the importance of proofs and knowing when to admit being wrong.   I would advise it is equally important getting your facts straight before inserting foot in mouth.   Not the first time I’ve seen this from academic-wannabes.   Her argument turns on an ‘analysis’ made by a group of policy wonks from the radical-leftist ‘New School’ arguing for mandatory employer-sponsored retirement-plans and/or beefed up (i.e., union) bargaining power (vague as to which).   Neither she nor any of her blog-buddies bothers to challenge any of the obvious assumptions, holes or findings in this study, nor do they recognize it for what it is (i.e., propaganda masquerading as analysis).  Nor do any of them offer anything in the way of counterpoint (their own or links to others) as might shed greater light on the subject.  Many of the points made by this study appear to be badly supported or intentionally misleading.  To give but one example right at the start, it claims “Between 1999 and 2011, the availability of employer-sponsored retirement plans in the United States declined by eight percentage points, from 61 percent to 53 percent”.   So what?  A reduction in number of employer-sponsored retirement-plans (ESRPs) does not prevent anyone from saving for retirement the way it implies.   The study next presents a graph suggesting total ESRP savings declined in the same period also.   But, that only proves one (albeit the largest) component of worker savings has declined, not all worker savings.   We know from other sources that total worker savings actually grew in this period, suggesting it was only the per capita ESRP share of worker savings that shrank, further undermining the study’s main premise.    It may simply be the supply-demand equilibrium for ESRPs shifted from an earlier equilibrium for reasons of which the study provides no clues.   It may be that a small change in government policy (i.e., Clinton/Bush/Obama) resulted in a noticeable disincentive to save.  It is possible some of those ESRPs were merged or workers chose to opt out of a sponsored plan to maximize investment options or to minimize tax consequences.  We know those who were not in an ESRP (but making good wages) invested heavily in IRAs during the study’s period.  401Ks are the same as IRAs, except they are bundled as a job inducement (see Forbes brief history of SS article above).   Roth IRAs were introduced around this time (1997), and were hugely popular for the first few years.   That is likely to have induced at least some to save outside ESRPs (especially those without matching) simply because it gave them one more option.   This, in turn, would have affected choice of job offers as it gave workers greater flexibility, thereby explaining at least some of the drop in ESRP employees.   Is there a bias in favor of ESRPs over IRAs?   Yes, but again so what?   That is mainly because some (not all) ESRPs include employer matching.   Unseen is that compensation tends to be a little higher from those employers without matching, and higher still from those without plans.   Thus, there is a trade-off.   The difference in cash-compensation is either saved or spent as the employee believes is in his/her best interest.  It should also be noted the period leading up to the study period, a seismic shift occurred in the American workforce consisting of millions of women joining.  What this shows is that while overall workforce participation declined steadily both before and after 1999, workforce composition and size expanded to include women.   The same can be said of minority workforce integration a little earlier.    What this tells me is the period preceding the study was a period of massively increasing participation by a large number of people previously unrecognized as belonging to the workforce.  Along with greater workforce participation you get greater ESRP participation.   1999 marks the end of this expansion period as can be seen by the flattening of the female participation rate.   Considering all the above, is it unremarkable the number of ESRP employees declined somewhat after 1999.   The mystery is it remained as high as it did for as long as it did.  All other things being equal and given no policy changes, I’d expect some fluctuation; and that is no cause for alarm or concern.  ESRP numbers may have dipped in the aggregate but 401Ks (a type of ESRP) are growing, and show no sign of letting up.  401K plans are popular (and increasing in number) precisely because they perform well, well above initial expectations of them.   Minimum-wage hikes have also resulted in fewer jobs.  More importantly for this discussion, many formerly full-time workers were forced or induced (by Obamacare and other anti-business practices) to work part-time, a fact neither Math-babe nor any of her respondents bring up as a possible explanation.   Some part of those dropped out of sponsored-plans as a result; and represents a significant part of the 8% her study falsely attributes to corporations undermining unions.   Thus, there is a strong probability the authors of the analysis misread effects for causes; and at least some of that was intentional.  Finally, none of this is applicable to low-wage, unskilled and semi-skilled workers who tend to save nothing beyond what they are forced to save into SS.  By arguing for combining (confiscating, actually) 401K money into an expanded Social Security scheme, Math-Babe tries to include everyone regardless of contribution in her calculus as though they had, and were somehow harmed by the decline in ESRP participation.   Well, do the math, Babe!

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