Response to stimulus package to shore up Social Security: Do you believe in the Easter Bunny?

2008 Social Security Trustee's Report

Some interesting responses to my plan to use the stimulus package to shore up Social Security:

From Walter Miklius, PhD economist, retired, artist and piano player:

“The only thing that the "Stimulus Package" will do is to stimulate pork barrel spending. If you really believe that this package of throwing money at the Smithsonian and financing Al Gore's hobbies will stimulate the economy, then you must also believe in the Easter Bunny. … You must have noticed that Obama and his gang have adopted my fortuneteller's forecast as their own without giving her any credit. What would you expect from Chicago hoods?”

From Robert Copeland, former Director, Office of Regulatory Analysis, Office of Policy, U.S. Department of Labor:

“I have no real problem with your proposal. It probably is the only way to get general revenue financing for social security other than to make the Feds pay a much higher rate of interest for borrowing from the trust fund (this is what I favor). The Feds have been shortchanging the trust fund for years by their borrowing shenanigans. Make the Feds pay prime plus .5 percentage points, and do it retroactively and the trust fund has no problems at all. Raising the cap [on the maximum earnings to which the Social Security payroll tax applies], as you mention, will take care of more of the problem than you imply.”

To add to Copeland’s response, I should explain that the Social Security payroll tax is currently generating a surplus above what is being paid out in benefits. And this has been going on for a long time. For example, between 2003 and 2007 the Trust Fund has generated a surplus of $860.6 billion. These monies have been used to help fund government obligations, including the war in Iraq. The federal government has been crediting the Social Security Trust Fund with interest on these surpluses. Copeland is suggesting that the interest payments to the fund have been too low, and that they should be higher. This can add up to real money, since according to the 2008 Social Security Trustee’s Report, the Trust Fund will generate another $2,247.9 billion in ‘surplus’ funds between 2008 and 2017.

Dr. Robert Shriner, Chief Economist and Managing Partner of Shriner-Midland Company:

“Nice try, Joe; but no cigar! That would certainly help the Social Security Trust Fund but, if I understand your idea correctly, adding it to the Trust Fund would do nothing to provide current stimulus to the economy, which is the purpose of the stimulus package. …It is also at best a mixed blessing to the Trust Fund, since it doesn't really get at the underlying problem that Social Security (and Medicare) will require an ever-growing share of total federal revenue. Your suggestion for the age of eligibility for SS (for retirees) to be increased is the better solution. We should be raising the age of eligibility regularly at least half the rate at which life expectancy is rising, to close the distance between the future retirement age and the current life expectancy to something closer to what it was when the SS program was first set up in the 1930s, when the difference was less than 5 years. The difference is now more than twice that, which is a major contributing factor to the mounting financial shortfall. It is also essential to make sure the public understands what the real purpose of the SS program is -- an insurance program against extreme poverty for those who are unable to work (i.e., a welfare program). …I headed the Chase Econometrics team that provided analytical support to the Greenspan Commission back in the early 1980s. The Commission's recommendations then were essentially on target but got nowhere since neither Congress nor the public really understood the program or the problems involved; and that's still true. The solutions are still pretty much the same as the Greenspan Commission recommendations; but they remain politically unacceptable.” [More on the Greenspan recommendations in a future post]

Shriner makes some good points. In my response, I would say, WOW! Just think what would happen to our confidence in Washington politicians and in the new Administration if they could solve the problems of the Social Security program within President Obama’s first 100 days in office. I think that would provide us some stimulus.

I would disagree with Shriner’s use of the term ‘welfare’ as applied to Social Security. While Social Security does serve to redistribute some income from higher to lower income groups, I think it would be a mistake to turn it into an explicit ‘welfare’ program. One of the program's strengths is that it has never been categorized as welfare. We all know what the political popularity of welfare is – absolutely zero.

Tax specialist Harry Bernat:

“I feel that the Social Security tax cap should be removed and that all income should be subject to Social Security taxes. Raising the retirement age is also a good idea since the life span in the U.S. has been rising. Finally, I agree with keeping the estate taxes on anyone having an estate over $5 million or maybe a little lower and dedicating part of it, or all of it to Social Security. At $5 million, only a very small proportion of Americans have to pay estate taxes.”

Shriner adds:

"Social Security deserves more than just one column. After the current economic crisis and the conflicts in Afghanistan and the Middle East, it's probably one of the biggest issues facing the country. Feel free to use any of my comments, if that's helpful."

For more on Social Security, see my, "How social security funds and Wall St. do not mix." If workers in 1965 were able to support all those children they were having as well as contribute to the income of their elderly parents and grandparents, workers today should be able to continue to contribute to, and then benefit from Social Security when it comes time for them to retire. They just need a little help in the form of some general tax revenues to be dedicated to the Social Security Trust Fund, more contributions to the Social Security Trust Fund from high earners by a removal of the cap on Social Security taxes, and a modest increase in the Social Security retirement age.

If you have some interesting, or even not so interesting, comments on Social Security or on President Obama’s stimulus package, I'm eager to hear them. Comment can be provided below.