Thursday, May 26, 2016

Butler: “It's time to end Social Security for the rich.”

The Brookings Institution’s Stuart Butler argues that Social Security should be means-tested to focus benefit on those who need them the most:

What if we were to recast regular Social Security as true insurance? Insurance is something that pays out only when things go wrong. If you don’t have a car crash, or your house doesn’t burn down, you don’t get your premiums back later in life. What you do get is protection and peace of mind.

So imagine Social Security as insurance protection against being financially insecure in retirement. If it were that, it would be very different from today.

For one thing, we would want the lowest-income retirees to get the largest regular check – assuming they had dutifully paid their payroll tax “premiums” when working – and also enough to keep them comfortably out of poverty without having to rely on SSI. Some retirees with a modest income from, say, an IRA, might still need a small Social Security “insurance payout” to maintain a reasonable standard of living.

In a true insurance model like this, retired Americans with healthy income from assets would get no Social Security check at all, rather than getting the largest checks as they do today. If Social Security is seen as insurance against financial insecurity then Warren Buffet clearly doesn’t need a check. Nor do other older Americans for whom a monthly Social Security check is just a little bit more icing on an already rich cake.

I’m not a fan of means-testing, though I do agree with Butler that Social Security needs to be refocused as a base benefit to insure against poverty rather than a middle- and upper-income substitute for personal saving. But others will disagree. Either way, Butler’s piece is well worth reading.


Arne said...

If Social Security were simply insurance then people with good savings habits (which is greatly assisted by having good income) should pay in less rather than more. I like to frame SS as first insurance against running out of retirement savings, but I understand that it is much more complicated than that. Butler's suggestion does not show much understanding that the compromises that make it not just insurance help make it a working safety net.

Heni Herbal said...
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JoeTheEconomist said...

I have to disagree with you on the merits of reading. It is a piece about the meaning of words.

"What if we were to recast regular Social Security as true insurance? Insurance is something that pays out only when things go wrong."

"True insurance" I am glad that my house, auto, and fire do not work as "True insurance". In his mind if I have an auto wreck and can afford it, I would get paid.

Once wealthy people get no benefit at all it isn't Social Security. It is a welfare program. This is like fixing a broken refrigerator by calling it a doorstop.