America desperately needs genuine entitlement reform to avoid a Greek-style fiscal future.
The biggest problems are the health entitlements such as Medicare, Medicaid, and Obamacare, but Social Security also has a huge long-run fiscal shortfall.
That’s why I’m a big fan of the very successful reforms in places such as Chile and Australia, where personal accounts are producing big benefits for workers. These systems also boost national economies since they generate higher savings rather than added unfunded liabilities.
And I’m very happy that we now have more than 30 nations with personal accounts, even tiny little jurisdictions such as the Faroe Islands.
But many statists object to reform, presumably because they don’t want workers to become capitalists. They apparently prefer to make people dependent on government.
Not all leftists take that narrow and cramped approach, however. Some academics at Boston College, for instance, produced some research showing some big benefits from Australia’s private Social Security system.
And new we have some remarkable admissions about how minorities are net losers from Social Security in a study from the left-leaning Urban Institute.
We use historical and projected data from 1970 to 2040 to measure the ratio of old age, survivors, and disability insurance (OASDI) benefits received to taxes paid by members of each race or ethnicity each year. This measure captures the transfers that occur in a given year from current workers to current beneficiaries of each group. We then examine benefit-tax ratios for each race or ethnicity into the future to determine how these redistributions will play out in the coming years. Our conclusion: When considered across many decades—historically, currently, and in the near future—Social Security redistributes from Hispanics, blacks, and other people of color to whites.
Why does the program have this perverse form of redistribution?
On average, blacks are more likely to be low income and short lived and are less likely to marry than whites. …Given this, one would expect forced annuitization and auxiliary benefits related to marriage and divorce to redistribute from blacks to whites.
And that’s exactly what the research found.
…whites have clearly received a disproportionate share of benefits relative to the taxes that they pay in at a point in time. Their benefit-to-tax ratio has been higher than that of blacks, Hispanics, and other ethnic groups for as long as the system has existed, while projections continue that trend at least for decades to come.
Here’s a chart from the study showing how different races have fared in terms of taxes paid and benefits received.
In other words, if folks on the left really cared about minorities, they would be among the biggest advocates of genuine reform.
By the way, it’s also worth noting that Social Security is a bad deal for everyone. The Urban Institute study simply investigates who loses the most.
And the system is getting worse for every new generation.
Recent studies have also documented how different generations are treated within Social Security, with succeeding generations achieving successively lower “returns” on their contributions.
This helps explain why the evidence shows personal retirement accounts are superior – even for folks who would have retired at the peak of the recent financial crisis.
Here’s my video on why we should replace the bankrupt tax-and-transfer Social Security system with personal retirement accounts.
P.S. You can enjoy some Social Security cartoons here, here, and here. And we also have a Social Security joke, though it’s not overly funny when you realize it’s a depiction of reality.
P.P.S. Thanks to Social Security, I made a $16 trillion mistake in a TV debate. Fortunately, it didn’t really change the outcome since I was understating the fiscal shortfall of the current system.
[…] to congratulate her. She accidentally has provided a very good argument for why folks on the left should support personal retirement […]
[…] groups are particularly harmed by this aspect of the current program, including minorities, women, older workers, and low-income […]
[…] groups are particularly harmed by this aspect of the current program, including minorities, women, older workers, and low-income […]
[…] groups are particularly harmed by this aspect of the current program, including minorities, women, older workers, and low-income […]
[…] groups are particularly harmed by this aspect of the current program, including minorities, women, older workers, and low-income […]
[…] groups are particularly harmed by this aspect of the current program, including minorities, women, older workers, and low-income […]
[…] groups are particularly harmed by this aspect of the current program, including minorities, women, older workers, and low-income […]
[…] groups are particularly harmed by this aspect of the current program, including minorities, women, older workers, and low-income […]
[…] need to reform Social Security. As I have mentioned before Social Security redistributes money from blacks and other minorities to white people. You would think that considering the stakes, BLM would put it on their […]
[…] program is a very bad deal for workers (especially minorities), offering a paltry retirement benefit compared to what could be obtained with private […]
[…] it’s not just a fiscal crisis. Social Security is also an increasingly bad deal for workers. Especially minorities with lower average lifespans. When compared to what they would get from a private retirement […]
[…] Social Security reform is especially beneficial for blacks and other […]
[…] high-income people who get a bad deal. Social Security isparticularly bad for young people. And many minorities also are disadvantagedbecause of their shorter life […]
[…] high-income people who get a bad deal. Social Security is particularly bad for young people. And many minorities also are disadvantaged because of their shorter life […]
[…] the numbers might be even worse in the United States since many minorities already are screwed by Social Security because they have shorter […]
[…] the numbers might be even worse in the United States since many minorities already are screwed by Social Security because they have shorter […]
[…] Because of lower life expectancies, African-Americans are very disadvantaged by the Social Security system. A system of personal accounts presumably wouldn’t help them […]
[…] Because of lower life expectancies, African-Americans are very disadvantaged by the Social Security system. A system of personal accounts presumably wouldn’t help them live […]
[…] Because of lower life expectancies, African-Americans are very disadvantaged by the Social Security system. A system of personal accounts presumably wouldn’t help them […]
Reblogged this on The Insomniac Libertarian.
They (SS benefits) will not be entirely cut…
A pitchfork majority will support means testing, whereby, the lifetime contributions of those who did significant/exceptional/high value work (i.e. the wealthier) will be retroactively confiscated. Those that lived their lives in mediocrity will get some of their contributions back, while those that produced little will get more than they put in.
Great thoughts for everyone when they wake up tomorrow morning, leave their families at home, drive by the golf course, your peers that retired early and are now waving to you doing tai-chi as you drive by the park, cross the stream you could be fishing in, read the email from your friend sailing the Caribbean… and go lock yourself up in the four walls of an office.
Oh! Of course, I forgot!! don’t overlook to retain enough enthusiasm in your job tomorrow. Your company faces the worldwide competition of four billion emerging world souls. And voter-lemmings are counting on you to do something worldwide exceptional, so that the American middle class can maintain its top ten percent standard of living in the world. Oh what a wretched decline are they in for.
To all, especially Stout HP:
SS is, in the vernacular, a Ponzi scheme. Permit me to explain.
SS is funded by the Payroll tax, all of which is paid by the worker (in the form of withholdings and foregone salary).
Moneys collected via the payroll tax go to the SSA
By law, the SSA can do 1 of two things with the cash receipts from the payroll tax:
1. pay them out to current recipients, and (if there is any left after disbursements)
2. invest the remaining cash balance in a special Treasury bond (this particular bond can only be held by the SSA)
So, at this point, the SSA has covered current disbursements and “invested” any remaining cash in Treasury bonds (in effect IOUs)
If there is not enough cash coming in to cover disbursements, then the SSA must redeem some its bonds for cash sufficient to cover the legally mandated outlays. Cash receipts might be insufficient if a recession was depressing employment or if a significantly higher number of folks were retiring.
When the SSA presents bonds for redemption, the Treasury is required to redeem them at full face value. If there is insufficient cash available in the general account, the Treasury must float debt to cover the difference.
SOME IMPORTANT NOTES:
1. The baby boomers’ impending retirements are going to reduce payroll taxes (they will be replaced by younger people with lower salaries) and increase disbursements.
2. The cash received by the Treasury in return for the SSA bonds masked the extent of previous deficit spending; it has already been spent.
3. THERE IS NO SS LOCKBOX OR TRUST FUND
4. Current SS disbursements come from the current budget, which is funded through tax receipts, tariffs, and debt/printed money.
5. One confirmation of this is that Obama could not guarantee SS checks if the debt limit was not increased in 2011 and 2012; if a trust fund actually existed, then there would be no need for new debt to make payments.
So, to Stout HP: SS is an entitlement which you think you earned; however, what you paid in previously went to earlier SS recipients or was spent by the government. Whatever you think you deserve to be paid now will come from current taxpayers, in the form of taxes, or future taxpayers, in the form of debt.
And when current taxpayers decide they do not want to continue to pay higher taxes or further enslave generations yet unborn, your SS benefits will be cut.
What cannot continue will not.
I’ve said this for years! Minorities and blue collar workers and their future generations would be helped the most by owning their own accounts – assuming they are allowed to transfer it to the retirement of their heirs!
I have been saying for years that SS is racist, sexist and anti-gay. If you are a Native American male living on a reservation, the chances of living long enough to earn benefits is actuarially about nil. Whereas an Asian woman with a Ph D. will outlive almost everyone else. And unless your state recognizes same sex marriage, the partner of a gay couple will not be able to take survivor’s benefits that would be available to a married couple.
Those that say SS is an earned right amuse me. Take your SS statement to the bank and ask for a loan based on your contributions. If the banker doesn’t hurt himself falling out of his chair laughing so hard, he will probably escort you to the door in the hopes that your craziness isn’t catching. All the money you have already paid in went to support your parents or someone else who is disabled. There is no account with your name that is holding your tax paid money waiting for you.
The problem with enacting reform is that too many of us are relying on the past promises of politicians to pay back our contributions. Just ask veterans and Native Americans about the promises of the government. But I have a proposal that would hopefully deal with the problem without killing SS, at least for now.
Set up an investment account for every tax payer. Up to age 18, 100% of the contributions would go into the account, where the worker could use fund managers who would invest for high return, or medium risk or low risk at the taxpayer’s direction. At age 19 98% of the contributions would go into the individual’s account and 2% would go to the SS Trust fund to pay for others. Every year there would be a 2% increase in the amount going to the SS Trust so that at age 43 for example, half would go to the individual account and half to the SS Trust. From 68 on, the full amount of the contribution would go to the SS trust, funding those earlier retirees who were not able to make individual contributions. Because the individual’s money has been invested the longest, it has the greatest opportunity to grow, while at the same time the government can at least attempt to provide the promise of benefits made to earlier workers.
At the end of the tax payer’s life, the amount invested in the individual’s account would become part of their estate which could then be bequeathed to their decided beneficiaries instead of the government.
[…] Dan Mitchell on Social Security: […]
Stout’s notion that SS is fully funded is like believing in Santa Clause. That post seems to have been written more out of fear than out of thought.
StoutHP: up to now, the elderly have been getting far more than they’ve put in; what they’re getting now is money from what workers now are paying in. I have no reason to suppose I’ll ever see a cent of what’s been taken from me.
By not admitting parentage, the do not get social security for their offspring upon their death, but instead get immediate government support for them while they are alive.
Leftists? Care? Come on now, never gonna’ happen!
Actually, it seems more or less true that Government-Run ANYTHING Is Bad News for Blacks and other Minorities as well as most of the rest…
Not only do you have the misfortune of being short lived, but you must also contribute so that those lucky enough to outlive you can retain an American middle class standard if living, ie. in the world’s top 10%.
But the central overriding dynamic is that those who die young are a minority – or to be exact, those who die young and know about it for enough electoral years to vote accordingly, are a minority. Most people who die young become aware of it from a few seconds before death (eg. accidents and violence) to a few years (eg. most cancers). These people spend too few electoral years in the knowledge of their shortened life to be able to override the majority. Of course the majority wants and coerces them into working for as long as possible in order to contribute to the retirement of the long lived.
As with most things, being in the minority amongst an amoral and ultimately suicidal majority — and a weakened constitution — you get screwed. Yes, the American constitution/contract does not authorize the coercion of government and the majority to establish a mandatory retirement monopoly where everyone must participate — but the constitution is ignored whenever it attempts to impede majorities from coercing minorities.
But in this round robin dance of shifting majorities oppressing shifting minorities, everybody takes turns getting screwed, the effort-reward curves flatten, uncertainty increases, growth slows, and the growth deficit compounds the coercive voter-lemming society’s prosperity into decline.
So when I say “amoral” majority, I mean it in a utilitarian sense. Because ultimately it is utility that evolves into morality. But the utility and morality of using the polling booth to convert your neighbor’s wallet into a public resource, leads to decline.
The major determinant if SS lifetime benefits is how many years you live after you retire. The effect of longevity is purely proportional.
What one has contributed does plays a role, but benefits use a progressive formula so the impact is flattened.
In short, if you contribute all your life and die soon after retirement (or worse before you even reach 62) then you get little to nothing.
Whoops! I misspoke. Those who put money into Social Security and Medicare should ethically have a right to benefits, but in fact they do not.
According to the Supreme Court ruling in Flemming v. Nestor (1960), the government has no “contractual” obligation to pay benefits, since no contract exists and therefore benefits cannot be considered “property”.
Stout:
If someone has an entitlement, it means they have a right to something.
Those who have put money into Social Security and Medicare definitely are entitled to benefits. The same cannot be said of Medicaid.
How often to we have to say that Social Security, Medicare and Medicaid are NOT ENTITLEMENTS. They are EARNED BENEFITS fully funded by the people who have been working all their lives and their employers. We receive Social Security and Medicare benefits based on the income we earned over our working careers. We are still paying for Medicare and it comes out of our Social Security checks–so this is absolutely not an ENTITLEMENT. If you think minorities are receiving lower benefits, then that means that they did not work at jobs giving them high enough incomes to earn more benefits. They should not be entitled to more than anyone else. Everyone’s benefits are determined by the amount of income they earned over their working years. If you think certain groups are receiving less Social Security income, do some research and see that the amount of Social Security people receive is determined by how much they earned over their lifetime. People who didn’t earn as much also didn’t pay as much into Social Security and therefore are not entitled to more Social Security. We receive benefits according to what we paid in and our employers matched. This is a fully funded account. And for you to say that it isn’t is a lie. There are people who know that this account is fully funded for a long time to come. Government took funds out of this account which they were not allowed to do–but they did it anyway–and never, ever paid it back. Another fine example of the greed of the government. They think they can take money from funds they are not supposed to touch and never feel any guilt or any moral necessity to pay it back. Let’s get the real truth out there. Do you think whites get big increases each year? This year we are getting a little over 1% increase. 1%??? This isn’t even close to what it actually should be. I don’t know how they come up with this number even though they say it is based on the rate of inflation. The rate of inflation of what? We all know that prices on every product, food item, necessities, and everything needed to live day to day have gone up. Inflation cannot be only a little over 1%. They play with the numbers so we get as little yearly increase as possible. It is incomprehensible how they can come up with this little increase–this includes whites by the way. Stop playing the race card. You are obviously on the side of Paul Ryan. He doesn’t care about the people on Social Security. He only cares about his own greed and his money. I have absolutely no respect for Paul Ryan. You obviously published this email to help promote Paul Ryan’s horrible proposal. How much are you getting paid to promote his proposal. Yes, the wealthy should be paying in more Social Security. They get maximum benefits by paying in less that they should. The maximum for them to pay Social Security on a higher total income according to their wealth and what they are earning. Stop trying to scare people. That is what your objective is–fear mongering.