Thursday, May 28, 2015

Capretta: “What is the Huckabee plan for Social Security?”

My AEI colleague Jim Capretta writes for National Review on former Arkansas Gov. Mike Huckabee’s unusual position regarding Social Security reform:

Former Arkansas governor Mike Huckabee is setting out on a populist course in hopes of securing the Republican nomination for president in 2016. Among other things, he has come out against the next round of free-trade agreements. He also wants to be seen as the GOP defender of middle-class entitlement programs. In announcing his candidacy, he said, “If Congress wants to take away someone’s retirement, let them end their own congressional pensions — not your Social Security.”
Huckabee’s populism is music to the ears of some conservatives in Washington. They want the GOP to adjust its economic message going into 2016. They argue that the Republican nominee for president will need to do much better among working-class voters than 2012 nominee Mitt Romney, especially in the Midwest.
They are right about that, of course. But there’s got to be a better way to go about it than Huckabee-style populism.

Check out the whole article here.

4 comments:

WilliamLarsen said...

Is there a right or wrong way to deal with Social Security? Are not all US Citizens equal under the law? Social Security was begun with the basis that it would not be a welfare program. This was the reason for the cap on wages. It was also a reason for applying the tax solely to wages - workers earn wages and this makes them participate in social security. Applying the social security tax to unearned income would not fit the objective of Social Security being supported by workers and not welfare.

Now we have politicians on the verge of realizing that Social Security is in trouble. Politicians created the problem and now people want them TO DO SOMETHING ABOUT IT.

The fact is Social Security was not designed to work period. Had it had a good design, it would not be crashing now and about to implode. Since it is crashing and the SSA even states the trust fund will be exhausted at some future date, it will implode. What will be left is the ability to pay 75% of scheduled benefits and declining little by little each year until around 2065.

So what happened to all the money paid into SS by boomers, nearly $18 Trillion in value with credited US Treasury Rates since they began working? What happened to all the trillions paid into SS by those born later than the boomers? From the SSA website we can look at the out flows and see that 96% of all payroll taxes to OASI have been paid out in benefits. This can only mean that a very sizable portion if not all the boomers and those after the boomers saw their payroll taxes not set aside to pay their benefits but used for another purpose.

Bernie Maddof used money given to him with the express purpose of investing that money to make a return. What he actually did was created false statements showing great returns to all investors when in fact he had not invested any money. When people began to cash in their accounts, it became increasingly difficult for Maddoff to make good on the statements. At some point in time the game was up and $50 Billion was unaccounted for. Some of it went to pay fictious returns to those who cached out early.

In the case of Social Security, the payroll taxes paid in by workers went nearly all to the first 30 cohorts of beneficiaries. Nothing was actually set aside for future beneficiaries. Politicians then began to use pay-as-go and over the decades workers seem to have forgotten FDR's objective and failed to realize there was no design.

Now the game is up. Who is to blame? Politicians for not having the back bone in 1950 or any year afterward to come forward with the truth? But to be honest many have come forth over the decades identifying the truth, but voters seemed to believe politicians or bury their heads in the sands and say it is not true, it can;t be true, it is only a bad dream.

It is not a dream, but a nightmare. Social Security is broke. Now we have politicians saying we can fix it by applying the tax to investment income, raising/eliminating the base, means testing, etc. Is this equal protection under the law or mob rule?

Who determines who wins and loses? A democracy is we vote on matters, a republic says even the fewest are equally protected against majority. Social Security was never fair, cannot be made fair and will never be fair because those who got the windfall from so many cohorts of workers blood sweat and tears have passed on.

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?

Arne said...

What Congress enacted in 1935 was already mostly a Pay-As-You-Go program. Politicians did not trust the government to invest, so they made it fully PAYGO by 1942. It did not get to Boomers before they "saw their payroll taxes not set aside to pay their benefits", but to pay for the benefits of those who needed it in the same year it was collected.

Rather than bemoan that SS would be better if it were not PAYGO, we need to ask how do we make it work since it is PAYGO. Step 1 is to realize that we do find value in participating in insuring that our parents do not outlive their retirement resources. If all you do is calculate the present value of a future income stream for the worker paying the tax, you can never understand how SS works.

The answer is that if you make income and outgo balance while providing valuable insurance, you make SS work just fine.

If we do not use the excess collected from 1983 to 2008 to smooth the transition from 2020 to 2045, we will have been stupid, but it will not be because a PAYGO program is inherently unworkable. It will be because we refused to understand how it does work.

Unknown said...

As for Huckabee's plan. Well it is not clear to me that a plan of Nothing, which is what critics are implying is his plan, would actually be worse for workers than any plan proposed by his rivals.
Certainly a 23% cut in benefits essentially overnight would be one - a huge blow to then beneficiaries and two - an immense challenge to then policy makers to make up the difference. But frankly it seems that all too many "reformers" are more intent on avoiding two by gradually draining the Juice from the Third Rail so that by 2033 that 23% cut would simply be phased in.

Now me, I am on the other side of this debate, as I think is my old acquaintance and erstwhile SocSec colleague Arne. My priority is to find a way to preserve as near as possible current scheduled benefits, which can only be done by addressing the revenue side of the equation. Which in turn means policy to increase the wage base and/or to adjust contribution rates. And there are any number of ways to do that, many perhaps not acceptable to the Republicans. But from my perspective if any Republican approach is acceptable it is that of Huckabee. Who at least thinks it a bad thing to cuts benefits even if he has no current proposal to maintain them.

As doctors say: "Primus non nocere" A principle that in relation to Social Security is not I think widely shared by Republican Presidential hopefuls.

JoeTheEconomist said...

Andrew,

You link is to Peggy Noonan, not an article about Huckabee...