Sunday, May 10, 2015

Huckabee: giving retirees what they paid for

Over at the Corner, my AEI colleague Ramesh Ponnuru looks at former Arkansas Gov. Mike Huckabee’s shameless – and I think mistaken – pitch to seniors as Huckabee launches his campaign for the GOP presidential nomination. Huckabee says:

“You were forced to pay for Social Security and Medicare for 50 years. The government grabs money from our paychecks and says it will be waiting for us when we turn 65. If Congress wants to take away someone’s retirement, let them end their own Congressional pensions-not your Social Security. As President, I promise you will get what you paid for!”

One problem with this statement is basic math: since Social Security and Medicare are (vastly) underfunded, we either need to pay more in or get less out. Sure, politicians promised us a certain benefit formula, but they also promised a certain tax rate. Huckabee implicitly asserts that changes should be in the tax side, not the benefit side. Good luck running in a Republican primary on that platform.

Second, as Ramesh points out, Huckabee’s support for the Fair Tax implies a 30% sales tax on goods and services. So seniors’ benefits might not be cut under a Huckabee administration, but the amount they could buy with their benefits would fall by 30%. Again, good luck.

Finally, Huckabee’s basic “get what you paid for” statement is incorrect: by law, Social Security benefits will be cut when the trust fund runs out (next year for disability, in the early 2030s for retirement). Whatever you may believe about the economics of the trust fund – personally, not much – the trust funds’ exhaustion is by definition a signal that Americans haven’t paid enough to fund the benefits they’ve been promised. In other words, Huckabee’s Social Security policy could be to slash benefits across the board by 25% when the trust fund runs out and that policy would be entirely consisting with his promise that “you will get what you paid for.” Just not a penny more.

4 comments:

WilliamLarsen said...

"the trust funds’ exhaustion is by definition a signal that Americans haven’t paid enough to fund the benefits they’ve been promised."

Americans as a whole have not paid enough to fund the benefits. The problem is we know who did not pay enough and who are paying far more.

There is also one other cause for the trust funds's exhaustion. Social security paid meaningful benefits without meaningful taxes to those cohorts born prior to 1938 and those with non working spouses ~1945.

Today's workers are paying far more for their benefits than they are worth. This means today's workers have paid for their benefits.

It is a shame that politicians did not explain Social Security to the public. I suppose had they done so back in 1943, it would have been repealed very quickly. But politicians covered up the fiasco and swept it under the rug. The problem is the tax is 10.6% of wages, trust fund will be exhausted and unfunded liability grows by more than $1 Trillion a year.

JoeTheEconomist said...

Huckabee and the whole army of we have paid for our benefits, comes from one idea. They want to be excluded from the financing costs of the first set of retirees.

The first 40-50 years of retirees took out benefits disproportionate to contribution. This gift cost someone money. You have only paid the full price of benefits provided that you were excluded from paying for the gift. Huckabee has yet to explain why he should be excluded from helping with the 'start-up' costs.

WilliamLarsen said...

"One problem with this statement is basic math: since Social Security and Medicare are (vastly) underfunded, we either need to pay more in or get less out."

There is a third way. Repeals the Social Security Act. IS this any less fair than asking workers to pay more or for current beneficiaries to get far less?

Social Security was never fair and cannot be made fair. With each passing year, it becomes far more unfair than fair.

The SS Social Security has water coming in so fast there is no way to save it. The best thing to do is get as many off it as possible before it takes everyone down.

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