Rubio's Social Security Plan

[Joe Economist]

On Tuesday, Sen. Marco Rubio (R-Fla.) outlined a number of reforms for Social Security at the National Press Club in Washington. And the press has fawned. The question is over what. His speech was word-strong and action-void.

His speech dealt with public policy on retirement in the 21st century, including a 4-point change to Social Security.

1. Eliminate the payroll tax for anyone over age 65 who continues to work.
2. Remove the retirement earnings test for seniors 62 and over
3. Raise the Social Security retirement age for those under the age of 55.
4. Increase benefits for low-income seniors and reduce scheduled initial benefit levels for wealthy retirees.

His words were strong. Rubio warned the audience, “(By 2038), Social Security will have been bankrupt for years. This is not a scare tactic. It is a mathematical certainty. The longer we wait to address this the harder it will be to fix, and the more disruptive those fixes will be.” These words contrasts sharply with the 2012 election in which we heard “Social Security is – you know – structurally sound.”

It is refreshing to see a politician speak candidly about Social Security for all Americans. At the same time, his comments paint a clear picture that the even the most courageous politicians remain distrait from a system on which they do not depend.

Oddly enough, a considerable portion of his proposal will make Social Security less solvent. Reducing payroll taxes will not help Social Security, particularly for seniors who, as Rubio notes, may get very little in return for their contribution. Removing the retirement earnings test will only encourage more people to start drawing benefits at 62, which creates near term pressure on the system. Likewise, increasing Social Security benefits for anyone makes Social Security less solvent.

There are two parts of his policy that will improve Social Security’s finances. One increases the age of retirement for those who are 54 and younger. The other targets wealthy retirees for lower benefit levels. So would these adjustments rescue Social Security for those under the age of 54?

The Social Security Administration has scored similar concepts, and the results generate little confidence that Rubio’s changes will add “years” as he claims. The research from the Social Security Administration suggests that it is closer to months. It isn’t even possible to say that these adjustments will offset the negative impacts of his other proposals.

These are scores of comparable ideas. None of these ideas increase the exhaustion point of the Trust Fund past 2033. The Social Security Administration:

• Scored a proposal to increase the retirement age for people 54 and younger. This change addresses about 12% of the financing gap.
• Projected that slowing the initial benefits of senior retiring in 2026 addresses 2% of the shortfall financing.
• Scored the changed to Chain-CPI would address 14% of the projected shortfall. That assumes of course that we change the system in 2016 rather than 2026, and apply the cost controls on all seniors rather than just those who reach normal retirement age after 2026.

There are some problems with Senator Rubio’s proposals. Specifically, Social Security does not have insight into a retiree’s wealth. His proposals use past income which may be connected to wealth, but it isn’t possible to say that his changes will even target wealthy retirees.

It is difficult to criticize someone who has the courage to step forward when no one else will. It is, however, a tiny step, one that does almost nothing. In the words of Senator Rubio, “anyone who is in favor of doing nothing about Social Security is in favor of bankrupting Social Security.” He is effectively doing nothing.

 

[fairsheet]

Rubio's scheme has a "tell" that jumps off the page. I think you're going to find the same tell in virtually any scheme suggested by a GOP. It's a tell that negates the enitre scheme.

Rubio's scheme includes zero tax increases - either to the payroll tax rate OR the cap. He's saying that IF we agree that tax increases are absolutely off the table, THIS is what we should do. Personally, I'm not prepared to argue for or against any tax/cap increase at this point, but any scheme that specifically declines to even discuss them, is fatally flawed.

As to encouraging older workers to work longer? It simply makes no sense to me, why we would so purposefully make jobs less available for those just entering the workforce. And sure....lots of states - the Euros for example - have raised their retirement ages of late. But remember, all they've done is raise to to around what ours our now.

 

[as seen on tv]

i dont think rubio's proposals are intended to address solvency. the public has repeatedly shown it is deaf to solvency concerns.

rather, its intended to garner votes of people 60+ who dont like the idea of having to give up the benefits they're entitled to just because they go out, earn some actual income, and pay taxes on THAT as well.

 

[lupehernandezdepedajack]

Rubio's scheme has a "tell" that jumps off the page. I think you're going to find the same tell in virtually any scheme suggested by a GOP. It's a tell that negates the enitre scheme.

Rubio's scheme includes zero tax increases - either to the payroll tax rate OR the cap. He's saying that IF we agree that tax increases are absolutely off the table, THIS is what we should do. Personally, I'm not prepared to argue for or against any tax/cap increase at this point, but any scheme that specifically declines to even discuss them, is fatally flawed.

As to encouraging older workers to work longer? It simply makes no sense to me, why we would so purposefully make jobs less available for those just entering the workforce. And sure....lots of states - the Euros for example - have raised their retirement ages of late. But remember, all they've done is raise to to around what ours our now.

I say increase the cap maybe do away with the cap

 

[fairsheet]

I say increase the cap maybe do away with the cap

You've reminded me - again, that I've gotta look this one up but....there's a pretty simple reason why just raising the cap is fundamentally unfair - I just don't remember what that reason is!

Anyway, Sen. Sanders (of all people) has put together a really simple plan that solves that problem with a "doughnut hole". The existing cap stays on the same schedule it's on, and then the payroll tax starts accruing again at a higher income level.

I'm still skeptical about raising the cap by any scheme, because of how relatively easy it would be for the really rich to shift themselves from payroll to capital gains.

Therefore, I like my scheme better. I say the tax should apply to ALL income - payroll and capital. If we did that, we could cut the rate at least in half, if not more. This would put a bit of a bite on the really rich, but it would represent a huge boon to the rest of us and our economy.

 

[Woolleybugger]

On Tuesday, Sen. Marco Rubio (R-Fla.) outlined a number of reforms for Social Security at the National Press Club in Washington. And the press has fawned. The question is over what. His speech was word-strong and action-void.

His speech dealt with public policy on retirement in the 21st century, including a 4-point change to Social Security.

1. Eliminate the payroll tax for anyone over age 65 who continues to work.
2. Remove the retirement earnings test for seniors 62 and over
3. Raise the Social Security retirement age for those under the age of 55.
4. Increase benefits for low-income seniors and reduce scheduled initial benefit levels for wealthy retirees.

His words were strong. Rubio warned the audience, “(By 2038), Social Security will have been bankrupt for years. This is not a scare tactic. It is a mathematical certainty. The longer we wait to address this the harder it will be to fix, and the more disruptive those fixes will be.” These words contrasts sharply with the 2012 election in which we heard “Social Security is – you know – structurally sound.”

It is refreshing to see a politician speak candidly about Social Security for all Americans. At the same time, his comments paint a clear picture that the even the most courageous politicians remain distrait from a system on which they do not depend.

Oddly enough, a considerable portion of his proposal will make Social Security less solvent. Reducing payroll taxes will not help Social Security, particularly for seniors who, as Rubio notes, may get very little in return for their contribution. Removing the retirement earnings test will only encourage more people to start drawing benefits at 62, which creates near term pressure on the system. Likewise, increasing Social Security benefits for anyone makes Social Security less solvent.

There are two parts of his policy that will improve Social Security’s finances. One increases the age of retirement for those who are 54 and younger. The other targets wealthy retirees for lower benefit levels. So would these adjustments rescue Social Security for those under the age of 54?

The Social Security Administration has scored similar concepts, and the results generate little confidence that Rubio’s changes will add “years” as he claims. The research from the Social Security Administration suggests that it is closer to months. It isn’t even possible to say that these adjustments will offset the negative impacts of his other proposals.

These are scores of comparable ideas. None of these ideas increase the exhaustion point of the Trust Fund past 2033. The Social Security Administration:

• Scored a proposal to increase the retirement age for people 54 and younger. This change addresses about 12% of the financing gap.
• Projected that slowing the initial benefits of senior retiring in 2026 addresses 2% of the shortfall financing.
• Scored the changed to Chain-CPI would address 14% of the projected shortfall. That assumes of course that we change the system in 2016 rather than 2026, and apply the cost controls on all seniors rather than just those who reach normal retirement age after 2026.

There are some problems with Senator Rubio’s proposals. Specifically, Social Security does not have insight into a retiree’s wealth. His proposals use past income which may be connected to wealth, but it isn’t possible to say that his changes will even target wealthy retirees.

It is difficult to criticize someone who has the courage to step forward when no one else will. It is, however, a tiny step, one that does almost nothing. In the words of Senator Rubio, “anyone who is in favor of doing nothing about Social Security is in favor of bankrupting Social Security.” He is effectively doing nothing.

SS is not and will not ever be bankrupt. How many times do we have to say this to you?

http://angrybearblog.com/2014/06/social-security-cost-solvency-debt-and-tf-ratio.html

As long as we have a fiat currency and owe debt in our own currency, we can never go bankrupt. This is like saying the subway token machine will run out of tokens one day if the traffic gets too high. There is no limit to the amount of tokens they can issue and no limit to the amount of currency the FED can issue. The only restraint is policy driven and how much inflation we want to tolerate when we are at full capacity or effective demand. As for SS, if you insist on having it balanced every year, just raise the caps. Rubio wants us to work longer yet does nothing about creating an economy that operates at peak demand. The real solution lies in the other direction. Let us retire earlier so young people can get our jobs. As for the FICA taxes, if that stimulates job creation, good idea. If the companies just pour that delta into their profits without giving employees more income or hiring more, then it's a waste of money.