Trustees report for 2009 shows deterioration in SS and Medicare (5/13/09)
In a recently-released report, the Social Security and Medicare Trustees note that the economic recession is exacerbating the financial difficulties for Social Security and Medicare. Social Security reserves will be exhausted in 2037 - four years earlier than previously forecasted. Medicare cash will be exhausted by 2017, which is two years earlier than previously expected. To bring Medicare into balance over the next 75 years would require an immediate cut in outlays of 53 percent, or a tax increase of 134 percent (increasing the rate from 2.9 to 6.78 percent of payroll). Social Security could be restored to balance over the next 75 years with an immediate benefits cut of 13 percent or by increasing the payroll tax rate from 12.4 to 14.4 percent. Read the Trustees summary report>>. Read story in the New York Times>>.
SS Disability claims soar due to recession (4/19/09)
Job layoffs are leading to increased applications for disability benefits, and the Social Security system is straining under the paperwork. Read on MercuryNews.com.
Plurality of Americans want private option for Social Security (3/12/09)
By 46 to 38 percent, Americans believe workers should be allowed to opt out of Social Security to provide for their own retirement planning, according to a recent Rasmussen Reports national telephone survey.
A majority of voters also agree with President Obama's proposal for workers to pay Social Security taxes on more of the income they earn each year. Sixty percent (60%) say people should pay Social Security taxes on all or most of their annual income. Twenty-nine percent (29%) disagree, and 11% are undecided. Sixty-two percent (62%) of voters also say people who pay more in Social Security taxes should receive more in retirement benefits when they retire. Twenty-two percent (22%) are against that idea, with 16% undecided.
Currently, a worker pays Social Security withholding tax equal to 6.2% of his or her gross wages, up to but not exceeding $102,000 per year. The same 6.2% tax is imposed on employers. As part of his plan for shoring up Social Security, Obama has proposed levying the 6.2% tax on wages of $250,000 and above but not on earnings between $102,000 and $250,000. [Note: Under current law, the benefit payment rate on wages over $54,000 per year is only a small fraction of the benefit rate for lower wages. In other words, there is already a large transfer of wealth from higher-earning workers to lower-earning workers.]
The survey results are from a national telephone survey of 1,000 Likely Voters conducted by Rasmussen Reports on December 21, 2008. The margin of sampling error for the survey is +/- 3 percentage points with a 95% level of confidence.
Democrats resist President Obama on Social Security (2/22/09)
The New York Times reports that Democrats are resisting President Obama's call for a bipartisan panel to study Social Security reform. Some liberal Democrats say they will resist plans to cut benefits, and that Obama's "political capital" would be better spent on health care and other issues.
If a worker with a state pension also has an SS-covered job, will his benefits be cut?
Recently, someone we will call "Mr. Smith" emailed to express concerns about his Social Security benefits. He was concerned that he would "lose almost all SS benefits" by working as a teacher. Since we get quite a few comments like his, we are posting his email and the response of Director, Joe Fried:
I am 50 years old, have worked under social security since I was 16 years old. I would like to change careers and teach for the last 10-12 years, but I live in Texas. I'll lose almost all SS benefits that I have earned and my Texas teacher retirement will not be near my SS benefits. any ideas?
Dear Mr. Smith,
Things aren't as bad as you think. Many teachers have been given false
information by their union leaders, and this has caused them to worry about
their benefits.
Typically, state and local workers get retirement benefits that are vastly
better than those provided by Social Security. If you have the chance to
get those governmental pension benefits you should try to get them.
It is true that your SS benefits could be adjusted downward; however, even
after the downward adjustment, you will still get SS benefits at a rate higher
than that provided to 96% of the American population. It is kind of
technical, but I will try to explain.
In 1983, Congress passed the most recent version of the Windfall Eliminations
Provision (WEP). This provision was designed to reduce, but not eliminate, a
potential windfall that certain teachers and other government workers
received. To understand this you must realize that SS benefits are
"progressive," while most government pension benefits are not. In other
words, for normal SS workers, the more they earn the lower their benefits; for
government workers the benefit percentage is not much different for high
earners and low earners.
Here is the 2009 benefit structure for SS workers: For the first $8,900 of
average earnings workers get a benefit of 90%, for the next $45,000 or so they
get 32%. For everything over about $53,800 they get just 15%.
Prior to WEP, a teacher making $54,000 might earn an extra $5,000 on a summer
job (or from his own business or from private teaching) that was subject to
SS. Without the WEP, he would appear to be poor, and would get a benefit of
90% on that $5,000 (because his government teaching income would be invisible
to SS). A regular (non-governmental) worker would only get 15% on that same
incremental amount of earnings. The WEP was passed with the intention of
eliminating the "windfall" that would go to the state/local worker - such as
yourself. It lowers the state and local worker's benefit to as little as 40%
but, as you can see, you still get a bargain because 40% is better than 15%.
It is a shame that union leaders have spread false information to their
membership. It has caused many government workers to feel cheated, when they
are not.
On the whole, state and local workers should have no complaint. Many of them
are exempt from a very wasteful SS system. (25% of every FICA dollar
effectively goes to pay for welfare.) They also receive superior treatment –
even after application of the WEP (and the Government Pension Offset, which
affects spousal benefits).
I hope this information is helpful.
Regards,
Joe Fried, Director
Fake janitors skim $2.2 billion from trust fund?! Investigations by Joe Fried and the PPTO lead to Inspector General finding of $2.2 billion in unauthorized benefits!
In 2002 and 2003, the Government Accountability Office (GAO) reported that thousands of retiring teachers in Texas were using a legal loophole (the so-called GPO "exemption") in order to bypass the GPO double dipping prohibition. Use of this exemption allowed the retiring teachers to collect their own governmental pensions (which tend to be relatively opulent), while also collecting Social Security spousal and survivor benefits. The GAO report concluded that the loophole would cost the Social Security trust fund hundreds of millions of dollars.
To qualify for the GPO loophole, a retiring teacher had to work his or her last day, prior to retirement, in a position simultaneously covered by Social Security and the state pension plan, which is the Texas Teacher Retirement System (TRS). Generally, a retiring teacher would do this by morphing into a janitor (or cafeteria worker or clerk) - one day prior to his or her retirement. A cooperating school district would then pay the 1-day janitor a nominal amount (usually minimum wage), and would withhold 2 or 3 dollars of FICA tax, plus TRS, from his paycheck. The dual withholding of FICA and TRS was what the retiring teacher needed to effect the GPO "exemption," and the pay stub was the only evidence he would need to present to the SSA upon his retirement. That pay stub would qualify the teacher-janitor for about $113,000 in benefits!
Although this loophole was legal, per se, the PPTO and Joe Fried discovered that certain school districts were merely pretending that they met the threshold qualifications for use of the loophole. These districts could not legally provide the requisite Social Security coverage to one-day workers, due to agreements executed with the federal government many years earlier.
To read about the PPTO investigation, the OIG confirmatory audit, and the legal cases that ensued, click here>>
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How to report fraud If you wish to report possible waste or fraud in the Social Security system, contact the Office of Inspector General. There, you will find an online form for reporting this information. |
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PRAs would help, but they're not enough!
The PPTO agrees that Social Security reform is needed, and believes that a properly-designed
system of Personal Retirement Accounts (PRAs) could be a valuable part of such reform.
However, the PPTO believes that PRAs are not enough: Other reforms are also needed (see below).
PPTO proposes some fixes for Social Security
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As printed in the Chicago Sun Times on February 6, 2005]Congress should give serious consideration to the president's proposal to create an optional system of personal retirement accounts. A modest system of personal accounts could increase retirement wealth and could help bridge the gap between rich and poor (by giving low-income workers a chance to bequeath assets to their children).
However, we also need to eliminate some of the ''sacred cows'' of the Social Security system.
We need to stop shifting extra benefits to affluent workers with stay-at-home spouses. Spousal and survivor benefits are "extra" benefits because they are acquired through marriage -- not by the payment of Social Security tax. ''Means testing'' those extra benefits (to eliminate them for the wealthiest 30 percent of workers) could eliminate up to 60 percent of the actuarial deficit.
About 5 million state and local government workers are exempt from Social Security tax. By simply requiring the newly hired government workers to join Social Security, we could eliminate about 11 percent of Social Security's pending actuarial deficit.
The current method of taxing benefits is illogical, inequitable and confusing. If we start taxing Social Security benefits in the same way we tax other pension benefits, as much as 24 percent of the actuarial deficit could be eliminated.
We no longer require disabled beneficiaries (below retirement age) to get vocational rehabilitation. This is one reason Social Security disability costs are soaring.
Joe Fried, Director
Public Program Testing Organization
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A Conversation on Strengthening Social Security with - President George W. Bush - - Cedar Rapids, Iowa, March 30, 2005 -
PPTO Director Joe Fried participated in an informative "Conversation on Strengthening Social Security," held on March 30, 2005 in Cedar Rapids, Iowa. The program, which was hosted by Des Moines' Newsradio1040 radio host, Jan Mickelson, included many topics related to Social Security, and involved the following participants: President Bush, Senator Charles Grassley, former Congressman J.C. Watts, and American Spectator contributor David Hogberg. Audio clips of each speaker are available at this link>>.
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CATO reports success in Chile's PRA program (9/9/05)
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Is there really a Social Security trust fund? Why would PRAs help?
Hear Joe Fried discuss these issues with radio show host Mike Rosen
(December 22, 2003). Courtesy of 850KOA radio. The clip is about 1.3
MB (Click radio). |
"The Superintendent of the AFP System in Chile (the equivalent of PRAs) announced recently that rates of return remain high for the 7 million workers who have opted in to the personal accounts system. Over the last 36 months, the five available investment funds have averaged a real rate of return of 30.8 percent. However, only 10 percent of the participants are invested in the lowest performing option (which at 12.7 percent is still enjoying rapid growth)—overall, 90 percent of participants in the AFP system have seen returns between 27 and 55 percent over the last three years." Read more.
Why don't liberals support Social Security reform? (7/5/05)
A recently-issued Cato study suggests that liberals should welcome Personal Retirement Accounts because they would advance liberal ideals. In the study, Noble Lies, Liberal Purposes, and Personal Retirement Accounts, a Cato policy analyst claims that "Social Security has a barely progressive overall structure, if it is progressive at all." And, he suggests that "a system of personal retirement accounts plus a means-tested safety net would serve the 'social insurance' function better than the Social Security status quo according to liberal standards." To read the study, click here>>
The Social Security Wealth Transfer Machine
The Social Security system uses very crude and obsolete mechanisms (built into the benefit formulas) to transfer billions of dollars of wealth each year. The system presumes that single workers and 2-worker couples are relatively wealthy. Therefore, benefits for these workers (who comprise a majority of workers) are particularly meager. On the other hand, the worker with a stay-at-home spouse is presumed to be relatively poor. His or her benefits are good - relatively speaking. Of course, we all know that the worker with the stay-at-home spouse is often far wealthier than average. Conversely, the single mom with several kids is often the poorest among us.
The system also favors workers with low average wages (married or single), because they are presumed to be poor. However, many workers with low wages have other sources of income. In fact, their wages may be low simply because they have no need to work. For example, if Mrs. Bill Gates were paid wages of a few thousand dollars per year for serving as an advisor to a nonprofit organization, the Social Security system would presume her to be poor. She would get a higher rate of benefits than the average worker - say a truck driver or salesman - notwithstanding the fact that she has millions of dollars of dividend income (from Microsoft).
Social Security benefit formulas should be altered to eliminate the payment of these extra benefits. This would result in savings that could be used to increase the benefits of other workers and/or reduce the pending insolvency crisis. How significant are these wasteful transfers? If we stopped transferring extra benefits to people in the upper 30% of income ranges, most of Social Security's pending insolvency could be eliminated.
Wealth transfers are discussed in great detail in How Social Security Picks Your Pocket, by Joseph Fried. In addition, the book provides dollar estimates of the cost of the waste. To read a very brief excerpt, click here>>:
Bush's proposed SS plan is in use in several countries around the world!
Although the Bush proposals regarding Private Retirement Accounts were rejected by Congress, about 30 countries have reformed their pay-as-you-go Social Security systems with personal retirement accounts (PRAs). As a result of these changes, Britain, Chile and many others have virtually no unfunded liability. To read more about this study by the National Center for Policy Analysis, click here>>
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What do you think?
A visitor to our Web site has strong feelings about the out-of-control growth of entitlement spending in America - including the growth of Social Security spending. Jon N. Hall proposes that the special treasury bonds held in the Social Security trust fund be redeemed only with surpluses in the treasury's general fund (if any). And, under his plan, this limitation would be imposed, whether or not personal retirement accounts are adopted. It's pretty tough medicine. Does he make the case? To read his proposal, click here>>. Visit Jon's blog by clicking here. |
Is it possible for someone to pay more in taxes than his income? Yes - if that person is a senior citizen. (3/15/05)
S
ome senior citizens are subject to two special taxes which, in combination, produce marginal tax rates that can EXCEED income. On the other hand, many Social Security recipients pay very little tax on their benefits. If we were to tax Social Security benefits in the same simple manner used for most pension income, greater equity would be achieved AND SOCIAL SECURITY INSOLVENCY COULD BE CUT BY AS MUCH AS 24%. To read more, click here. (And if you don't believe the calculation, show it to your CPA!)|
SS Disability rates continue to soar (3/10/05)
Not for the verifiable illnesses, mind you. Rates for verifiable illnesses have gone up moderately. It's the easy-to-fake disorders that are skyrocketing. Consider, for example, claimed mental illness, which now accounts for 1/3 of all worker disability awards. In the 6 years between 1997 and 2003, the number of mental impairment disability awards increased (in the worker program) by a compounding yearly rate of nearly 8%. And, among juveniles (in the SSI program) the problem is worse. In the 6 years between 1997 and 2003, the number of mental impairment awards increased by a compounding yearly rate of over 11%. To read more about the disability crisis, click here>>.
To hear Joe Fried and Jan Mickelson discuss the
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We need a wide-ranging debate, says Social Security Expert
(2/10/05)Eugene Steuerle, a senior fellow at the Urban Institute and former deputy assistant Treasury Secretary, says that the Social Security debate should not be limited to Personal Retirement Accounts. In an op-ed in USA Today (2/10/05) Dr. Steuerle describes a system that is outdated and in need of comprehensive reform:
"Yes, we should debate these [PRA] accounts and their funding. But the real problem is that Social Security was designed decades ago for the needs of a different age."
Steuerle notes that single workers and 2-earner couples get short shrift from the system, compared to 1-earner married couples. Other problem areas include the failure of Social Security to adequately deal with changing life expectancies, poverty, and rising disability costs. Read this excellent article by clicking here>>.
Is Social Security Insurance? Get real!
Defenders of the Social Security status quo like to say that we should not compare the program to private pensions. Instead, they say, Social Security is "insurance" to cover the misfortunes of life. If you are middle class or affluent, you shouldn't expect too much from Social Security - after all, you don't need it. But is the insurance analogy logical? Jon Hall, a guest columnist for the Kansas City Star, has prepared an excellent analysis of this issue. Click here>>.
Have SS actuary's underestimated life-span increases?
(12/31/04)The New York Times reports that a leading demographer, Prof. Samuel Preston of the University of Pennsylvania, believes that the Social Security Administration has greatly underestimated likely increases in longevity rates. If he is right, the fiscal problems of Social Security will be far worse than now predicted. Read more by clicking here>>.
Would Chile's Social Security program work in U.S.?
Jose Pinera, former secretary of labor and social security in Chile, discusses Chile's successful reform program with Colin McNickle, editor with the Tribune-Review. To read article, click here>>.
Sales tax to replace Social Security PR tax?
Economist Laurence J. Kotlikoff proposes to use a federal retail sales tax to replace the Social Security payroll tax. In addition, his plan would eliminate further Social Security benefit accruals. Only benefits owed to current retirees and current workers would be paid (using the retail sales tax receipts). In addition, he proposes that a personal retirement account system be established for those now entering the work force.
The new personal retirement accounts would be split 50-50 between spouses, and invested in a single, global, market-weighted indes fund. All workers would get the same fully diversified portfolio and rate of return. The government would guarantee against economic loss (so individuals could only gain on their invested funds).It's an interesting proposal.
Read more about it in the WashingtonPost.com.
Private Retirement Accounts:
Would administration costs outweigh benefits?During the run up to the 2004 presidential election the Kerry campaign cited a study claiming that private retirement account administration costs would "eat 20% of the benefits" in an account held by an average worker. (Click here to see AP report.) Theoretically, this study by Austan Goolsbee, University of Chicago Business Professor, makes sense - but the assumptions are ridiculous. The professor assumes that all workers would opt for privately-managed accounts when their balances reach $5,000. No worker would have to do that, and many or most workers probably would not do that. Workers could be given the option of keeping their funds in something similar to the Thrift Savings Plan used by federal workers since 1986. In the Thrift Plan, annual overhead charges average just one tenth of one percent (0.1%). For a brief and balanced overview of this issue, refer to an excerpt from the book, How Social Security Picks Your Pocket, by Director Joe Fried. The excerpt is found by clicking here.
Do we need a Constitutional Amendment to Fix Social Security?
What do you think?
An intriguing issue is raised by Donald N. Farmer, in a letter to the PPTO. Mr. Farmer advocates adoption of the following constitutional amendment:
Section I The Congress shall ensure the continuation of the Social Security program and its continued solvency, in a manner that provides qualified recipients with equal to or greater than the accepted minimum standard of living.
Section II The Congress shall have the power to enforce this article by appropriate legislation.
Does a constitutional amendment make sense? Is this the right one? Please read on - and send us your views. Click here>>
The impact of taxes on retirees ... it's disgraceful
The taxation of Social Security benefits is complex and inequitable. Many retirees pay a double tax on their benefits, and are subject to harsh penalties for working while collecting those benefits. This can result in effective marginal tax rates exceeding 100%! In How Social Security Picks Your Pocket, author Joe Fried (PPTO Director) illustrates and quantifies this outrageous problem. Read More>>
Ticket to Shirk?
The Ticket to Work program, designed to encourage the disabled to return to work, is off to a slow start. Maybe that’s a good thing. Read more>>
Is it time for Personal Retirement Accounts?
If properly designed, a system of optional Personal Retirement Accounts (PRAs) could give almost all retirees significantly better retirement benefits. Let's take a close look at one of the proposals included in the report of the bi-partisan President's Commission to Strengthen Social Security. Read more>>
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