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Willisms

« More Absurdity On Bolton's Confirmation. | WILLisms.com | Trivia Tidbit Of The Day: Part 25 -- American Oil Industry History. »

Grading AARP's Nine Plans For Solvency.

AARP has unveiled 9-options for addressing Social Security's solvency. We've graded each option, and it's not pretty:

aarpsocialsecurityoptions.gif
Click for full .pdf version.


The first six fall under the category of raising revenues:

1.
Raise the payroll tax cap.

AARP explains:

"This isn’t a new tax. It simply restores a policy already set by Congress."

What is it with the insistence of left-wing organizations like AARP that raising taxes to some arbitrary point that existed at some point in the past isn't raising taxes?

Raising the cap, as AARP envisions it, would unfairly raise the tax burden on upper-middle class families, not wealthy by nearly any standard. The cap has already risen dramatically, even in inflation-adjusted terms, since the middle of the century, so this solution on its own is not acceptable.

graded.gif

2.
Raise the payroll tax rate.

No. the payroll tax is already too high. Look at how it has climbed over the years, from 2% in the 1940s to more than 12% today. This solution misses the entire point of reform, and it would not permanently fix Social Security.


gradef.gif

3.
Raise taxes on Social Security benefits (double taxation).

This one must be a joke. How could anyone offer this up with a straight face.

The government taxes the heck out of people their entire lives, under the notion that those taxes will come back in the form of benefits at retirement. Now, AARP wants to punish people for success. This is a double taxation, and it is really a poor choice.

gradedminus.gif

4.
Reinstate death tax.

The death tax is fundamentally unfair. It punishes success, especially on the growing numbers of American small business owners and entrepreneurs. Secondly, this solution is disingenuous, because it misrepresents how Social Security, and how the government itself, are funded. The odds of the death tax being applied exclusively toward Social Security solvency are laughably miniscule.

Plus, it is the easy way out: "soaking the rich" is not a reform plan, it is an ideology.

graded.gif


5.
Force federal employees into Social Security.


AARP notes that 30% of government employees are not covered by Social Security. AARP wants to force them into Social Security, thus gleaning 12.4% of their salaries and buying Social Security a smidgeon of additional funding for the short-term.

This is an awful idea. We should let more people opt out, not force more people in. The political hurdles would be enormous on this one, as well. It just is a non-starter. Not gonna happen, even if it made sense (which is doesn't; even AARP believes this solution would cover 10%).

graded.gif


6.
Invest some of the trust funds in indexed funds.

In AARP's version of the world, the Trust Fund is not a filing cabinet in West Virginia, filled with IOUs. Rather, they imply that it is a real asset that will effortlessly cover Social Security's shortfalls until 2041.

The Trust Fund is more like a credit card than a check card; it is a debt, not an asset. It is a giant IOU, not a stash of easy money that can be used to bail out the government for its fiscal irresponsibility (which is primarily the result of entitlement spending, such as Social Security).

Thus, suggesting that we can just magically invest this non-existent trust fund is not a legitimate solution. It's also the worst among all available market-based options, an way of intentionally blurring the President's plan and distorting the argument.

gradef.gif

The next three are classified as trimming costs:

7.
Cost of Living Adjustment (COLA) adjustment, using a revamped Consumer Price Index (CPI).

This one is not such a bad idea, but it still lowers already-low future benefits. Alone, it would be a below average way to solve a moderate level of Social Security's shortfall, but personal accounts could easily offset the slower benefit gains under this proposed adjustment.

gradecplus.gif

8.
Make people work until they are 70.

The idea behind this aolution makes sense: when the program started, the average benefit recipient only collected Social Security for a matter of months. As life expectancy has risen, many people receive benefits for several years, even multiple decades. This demographic crunch places stress on the system.

But, higher life expectancy or not, what this proposal really does is force poorer and working class people to work more years in order to collect their full (already modest) benefit.

It is ironic that a 24-year-old should have to lecture an organization with the phrase "Retired Persons" in its title, but retirement should be the golden years for hard working Americans, a reward for a lifetime of contributions to society.

Again, it is hard to believe that AARP actually wants a higher retirement age, especially above the 70-year mark.

gradedminus.gif


9.
Benefit increases tied to prices, not wages.

This option is the best of the lot, but only when combined with personal accounts. Tie Social Security benefit increases to inflation rather than wages, and make up the gap with the compound-interest gains from personal accounts.

gradebplus.gif


So, of AARP's solutions:

4 result in higher taxes.
2 result in lower benefits.
1 results in a later retirement age.
1 forces even more people into the failing system.
1 results in government investment of funds.
0 include personal accounts.


Ultimately, one or more of the AARP options will be necessary (probably number 9). However, in the reform game there are vegetables, and there are desserts.

AARP is engaging in a classic case of misdirection. They are throwing out a series of "vegetable" proposals they know people won't eat; meanwhile, they don't even mention dessert. Any good faith effort to reform Social Security will include an honest discussion on solvency issues, but it will also include ways to offset benefit government-paid reductions through personal accounts. Meanwhile, there is no good reason to raise taxes.

Under the better reform plans on the table, the government's future liabilities are reduced through benefit reductions (actually, just slowed growth in benefit increases). However, because Social Security's benefits are already relatively modest (some would say meager), those same reform plans provide the opportunity to invest some payroll taxes into personal retirement accounts. These safe, diversified accounts, through the miracle of compound interest, provide returns that more than make up for what Uncle Sam is no longer providing. It just makes a lot of common sense to do it this way.

As The Wall Street Journal noted earlier this week, AARP is not negotiating in good faith. It endorses only the market solutions it knows have no chance of passing, all while benefiting from the market itself:

It's also worth mentioning the hypocrisy of AARP's deriding diversified bond and stock investment as too "risky" in other ads, while at the same time profiting by putting its brandname on various investment funds of its own. AARP sells 38 mutual funds, and makes north of $300 million annually by such co-branding of financial products.

Apparently AARP and its "ally and partner," Rock the Vote, believe younger people are not worth making a sincere reform effort.

aarpnotworthreform.gif

Posted by Will Franklin · 22 April 2005 08:26 PM

Comments

That is not a pretty picture... I am reminded of something my mother use to say to me!"Pretty is as pretty does." When you really look at it. It doesn't look too pretty! Does it? Hmmm... and it looked soooo attractive!

Posted by: Zsa Zsa at April 23, 2005 07:25 AM

I LOVE THIS BLOG!

Posted by: Zsa Zsa at April 23, 2005 09:02 AM

Our friends over at rock the vote need to be given a dose of reality! I hope they will tune in to WILLisms.com and maybe wake up and see the light! It is for their own good. I think they are brain dead from the liberal ideas about alot of this. It really is not so hard to see if they would just open those eyes!...

Posted by: Zsa Zsa at April 23, 2005 09:46 AM

Pull the plug on Social Security! It really is flat lined, and brain dead! It is so lame that if it were a horse with a broken leg it would be shot. If Social security were a Brain damaged Florida girl it would be killed with "dignity"... Where are all those right to die people when you need them?

Posted by: lisa at April 23, 2005 10:51 AM

I'm very suprised at No. 5. A change was made during the Reagan Administration requiring all federal employees needed to be in the SS system (1983 I think is when is started) There were some caveats and exemptions, but the youngest people affected by proposal 5 would now be in the workforce for over twenty years, and consequently be at least forty years old. (Which is the age that AARP starts targeting people for recruitment) The bulk of the people affected by proposal 5 would be in AARP's target demographic. Very odd from a political perspective.

Posted by: Kenny at April 26, 2005 01:20 AM