Thursday, March 29, 2012

Is Obamacare Any Different than Social Security?

Fox Business Channel’s David Asman asks, if the health coverage mandate included in the Affordable Care Act is unconstitutional, wouldn’t Social Security also be? At first glance, perhaps.

But the drafters of the Social Security Act were more careful – or less ambitious – than those who wrote the Affordable Care Act. The Roosevelt administration was aware of potential constitutional issues, having been knocked down by the Supreme Court over previous attempts to expand federal powers as part of the New Deal.

As a result, Social Security was structured in two parts: a tax based upon your wages and a benefit based upon your wages, but not a benefit based upon your taxes. This separated out the question of whether the federal government could run, and citizens be compelled to participate in, what looked very much like a private insurance plan.

Moreover, the Supreme Court ruled on the constitutionality of Social Security during the period in which it was threatened with being “packed” with new members more amenable to the administration’s views.

The downside for believers in limited government is that, even if the health coverage mandate is ruled unconstitutional, such a ruling doesn’t say anything of great substance about the federal government’s power to effectively mandate the purchase of health coverage or, for that matter, pretty much anything else. It merely says that future designers of a health coverage mandated will have to be more careful in how they structure and draft their legislation. From my perspective, that’s a disappointment.


WilliamLarsen said...

“Social Security was structured in two parts: a tax based upon your wages and a benefit based upon your wages, but not a benefit based upon your taxes. This separated out the question of whether the federal government could run, and citizens be compelled to participate in, what looked very much like a private insurance plan.”

This is the crux of the problem. Benefits have no bearing on taxes paid. Benefits have been far more generous than contributions made by different cohorts, especially those born prior to 1942 at the detriment of those cohorts born after 1942, most seriously impacted are those born after 1984.

Is Social Security a Government Ponzi Scheme, YES? Many will disagree with this, but if you look at the structure, SS-OASI has only been able to pay benefits by first enrolling those category of workers who were not initially covered by the 1935 Social Security Act, raising the payroll tax, raising the payroll base, raising the retirement age (1983), subjecting some portion of the SS-OASI benefit to taxation (1983) and reducing the benefit by actually using a formula based on indexed wages in 1977 (yet once again there is no relationship between a beneficiary’s benefit and the taxes paid on that beneficiary’s wages). As with all ponzi schemes, they eventually implode under their own weight of losses.

The one aspect not mentioned is;

“There has been a temptation throughout the program's history for some people to suppose that their FICA payroll taxes entitle them to a benefit in a legal, contractual sense. That is to say, if a person makes FICA contributions over a number of years, Congress cannot, according to this reasoning, change the rules in such a way that deprives a contributor of a promised future benefit. Under this reasoning, benefits under Social Security could probably only be increased, never decreased, if the Act could be amended at all. Congress clearly had no such limitation in mind when crafting the law. Section 1104 of the 1935 Act, entitled "RESERVATION OF POWER," specifically said: "The right to alter, amend, or repeal any provision of this Act is hereby reserved to the Congress." Even so, some have thought that this reservation was in some way unconstitutional. This is the issue finally settled by Flemming v. Nestor.”

“Workers and beneficiaries have no legal ownership over their Social Security benefits. Instead, what they have is a political promise that can be changed at any time, by any amount, for any reason. In any retirement system a lack of legal ownership is a source of insecurity. In one that is under-financed in the long run by 25 percent, it is a serious problem.”

Politicians sure protected their behinds on this one. They do not guarantee anything! In my opinion they are pretty much a dishonest group.

James said...

What sucks in my opinion about all the conservative arguments pointing out the flaws and weaknesses of Social Security is the complete lack of honesty about a small but significant group of workers who has already suffered and is suffering the brunt of the program's unsustainability to date.

The workers born in the 60's, especially ones who have made at or near the limit their whole careers, especially ones with two spouses earning near the limit have been quietly robbed of half or more of their retirement income potential already, even if the program were to somehow remain solvent and paid the current law benefits.

In the early eighties, when our working lives had barely begun, Reagan and the Congress by raising payroll tax rates and pushing out the retirement age (but only for younger workers)feathered the beds of people that were retiring in the 80s through 2020. People who were 40 to 60 in 1982 had already enjoyed low tax rates for half or more of their careers but lost NO future benefits. They made it even better for them by more recent legislation that let's them keep earning while receiving benefits. It was twenty + years of sucking up to the elderly and short shrifting the young upper middle class wage earners. It continues, almost all reformers talk about shielding the over 55ers from any changes, and removing the cap or flattening the benefits with contributions is never, ever discussed by conservatives.

A couple (like my family) that has consistently earned near double the ss withholding limit but has received/ earned only a tiny fraction of our income unearned or above the limit (that simply is where the best earning opportunities happened to present themselves for us) since the early eighties get ss statements that combined show we have paid in close to half a million dollars and are still a decade away recieving our first dollar in benefits, and that's if we take them at a 30% reduced rate at age 62.

It's a travesty that the super wealthy and boatloads of independent business owners and investors who can channel their incomes to themselves without paying payroll taxes are the loudest complainers about the future precariousness of the system. None of their proposals will ever change the fact that had I been able to take ownership of my employer and employee payroll taxes myself and invested it identically to my self directed retirement contributions over the last 30 years, the current value of our combined retirement savings would already be enough to retire at 100% of our current income. It's not lost on me that the total number of employees in the country at any given time is only about half the population. Subtract out the over 62, under 16 and all the unemployed workers and you still have great swaths of self sufficient individuals who get their living expenses and other income from family, passive investments and other income sources than wages. There is no defensible reason that I can think of why these people are free from the compulsory old age tax system I have been faced with my whole career.

The super wealthy and non-wage income individuals have simply avoided that life altering, selectively progressive inconvenience on all but an incremental portion of their income, but they are the loudest to denounce the program and any of the suggested reforms make earners in my situation give up the most in future benefits and guarantees.

Now when I say that I want at least what I've been told I would get for paying in my outsized contributions for decades (as a percent of my total income compared to the super high earners and non-wage income earners), I get told by the ultra-comfortable class that I am bankrupting my children and grandchildren. That's total BS.

WilliamLarsen said...


You are a few years younger than I am. I am not sure when you realized Social Security was a bum deal for you and your wife. You may have realized it while still in high school or shortly after you began working.

I always ask people your age one particular question; In 1983 whom did you vote for and did you ever write your representatives about your concerns for Social Security? If you did neither, then my generation (boomers) and your generation (the baby bust) simply let ourselves be used.

Social Security is a terrible program that deceives people of all income levels. Increasing the wage base does nothing to help pay scheduled benefits. It simply increases the future scheduled benefits of these wage earners. If we subject all income to the Social Security tax, then are we robbing others to benefit ourselves?

SS-OASI has under $2.6 Trillion in funds that many will say are worthless IOU's. These worthless IOU's were once redeemed between 1971 and 1983 to fund SS-OASI benefits by borrowing funds from others in order to redeem them. No increase in the national debt, just a change in ownership; like refinancing a mortgage.

The present value of the unfunded liabilities (you and your wifes, mine and my wife's siblings and children) total more than $23 Trillion and it could be much higher if the US Treasury Rate does not return to its normal rate,

I leave you to contemplate the following:

When a person says “We Earned it!” what exactly do they mean?

To me, this phrase is a righteous euphemism for making the more truthful statement: "We were snookered by this Social Security Ponzi scheme, and now we are going to snooker the next generation!"

If Social Security benefits have been "earned" who is obligated to pay benefits to those who "earned" them? Workers? On a regressive tax basis? Why? Why perpetuate a fraud upon the innocent? Who is responsible for bearing the burden of a fraud? The person defrauded? Or an innocent or unborn child?

I truly wish there were some way to solve the problem, but with any ponzi scheme some make out well, but the majority simple loose all.