Pat Allen: The View from Right Field

Social Security Trust Funds Running Out of Money Even Faster

The trustees of the Social Security trust fund issued their annual report yesterday.  And once again, the projected date that the trust fund has been moved up.  Now it’s 2036.  The disability trust fund is in even worse shape.  Its trustees say it is going to run out of funds in 2016, two years earlier than was predicted just last year.

And what is the Obama administration’s response?  Here’s what The Wall Street Journal reported this morning.  First on the disability trust:

“Treasury Secretary Timothy Geithner said the Obama administration would seek to work with Congress to come up with a long-term solution to repair the solvency of the disability trust but didn’t offer specifics. ‘The best thing to do is a long-term solution,’ he said.”*

And on Social Security itself:

“President Obama’s re-election campaign used the new data to attack Mr. Romney …, saying [Romney] would make ‘devastating cuts to Medicare and Social Security’.”*

But what is the President suggesting?:

“The Obama administration has said it would support changes to Social Security to improve the program’s solvency but hasn’t proposed any.”*

In other words, we’re just the Administration.  We can’t be expected to have a program.  Barack Obama doesn’t have a proposal.  He’s just the President.  He’s got an opinion on Trayvon Martin, but nothing on Social Security.  It’s like what Secretary Geithner told Representative Paul Ryan about Representative Ryan’s plan to solve our country’s long-range budget problem: We don’t have a plan.  We just know we don’t like yours.

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* Damian Paletta, “Stress Rises on Social Security,” The Wall Street Journal, April 24, 2012.

What Constitutes Pension “Reform” In Illinois

The headline in Wednesday’s Chicago Tribune (print edition) read: "Pension reforms go to Quinn”.  And it was a good bill.  It stops union leaders from adding time they spend working for the union to the time they spend working for government to get a higher government pension.  While I am sure there was a logic to the original rule, it doesn’t take into account that union salaries are higher than government salaries and that the people involved are getting pensions from the union for the same time.  It got so egregious that two different teachers’ union people were set to get teacher pensions for a combination of one day of teaching and a lot of time as a union official.  (Remember that the next time somebody from a teachers union says they are only interested in the kids.  I am sure is true for many of them, but it certainly isn’t true for all of them.)

In any case, while the headline made this seem like a big deal, it’s really small potatoes.  The real problem is not the pensions these people are getting or were going to get from the state.  It’s the pensions that the state has promised to all of its employees and which it is not funding.  It’s no news by now that Illinois’s public pensions are among the least funded in the nation.  At some point, not only are we going to have to start paying the full amount of our current contribution, we are also going to have to start making up the deficit, too.  And we are going to have to do that at a time when the current contribution is going up.

The situation actually reminds me of the story I heard (and I mentioned before) about the quality triangle: Good, fast, and cheap – pick any two.  Well, if we don’t do something about pensions in Illinois, we are going to have a state government triangle: pay pensions; have semi-reasonable taxes; and properly fund schools, social services, roads, public safety, etc.  And just like the quality triangle, Illinois will be able to pick any two because we won’t be able to have all three.

If our leaders in Springfield don’t want to face up to this, that’s fine.  They can put it off.  But it will happen.  And the longer it takes to deal with it, the worse it’s going to get.

Means-Testing Social Security and Medicare. Why Should We Be Giving Money to the Rich?

As at least some people in Washington struggle with the deficit and what to do with various entitlement programs, there was, a couple of weeks ago, a fascinating exchange, at least in the media, between Republican Representative Paul Ryan, chairman of the House Budget Committee, and Senator Bernie Saunders of Vermont, an independent who calls himself a democratic socialist and who caucuses with the Democrats.

According to Representative Ryan, “Means-testing is an obvious solution to our fiscal problems.  The alternative is everybody gets cut, so why don’t we put the money where it should go -- to the people who need it.”

Senator Sanders, on the other hand, doesn’t agree.  “The strength of Social Security and Medicare is that everybody is in.  Once you start breaking that universality and you say that if you’re above a certain income, two years later that income goes down and 10 years later it becomes a welfare program.”

I don’t know if we can afford Senator Sanders’ position, but I understand his point.  Means-testing could turn Social Security into just another welfare program.

On the other hand, those who favor some kind of means-testing for social security and Medicare, argue like Democratic Representative Steny Hoyer of Maryland:  “I don’t adopt the premise that you’ve got to treat Ross Perot the same as Mr. and Mrs. Jones, who are making $40,000 a year.”  And Karl Rove: “When he start receiving Medicare, Bill Gates should bear a greater share of his healthcare costs than the less healthy or less wealthy.”  And finally, Senator Dick Durbin of Illinois: “We have to acknowledge that some in the highest-income categories, frankly, can take care of themselves.” 

The problem with these comments is that, when you start to look at them, you realize how similar they are to proposals to balance the budget by taxing the rich.  And just as you can’t solve the deficit by taxing the rich (because the money’s not there), you can’t solve Medicare’s problems, or ensure Social Security’s solvency, by cutting benefits for Bill Gates and Ross Perot – or even the people “in the highest-income categories”.* 

To solve the problems of Social Security and Medicare by means-testing, you need real money.  To get at real money, you have to go to at least some part of the middle class.  And if you do this, people are going to be surprised how low those “highest-income categories” wind up going.  I’m not saying it shouldn’t be done.  I’m just saying we need to understand what such proposals really mean and not hide behind references to Bill Gates and Ross Perot.

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* This is not to say that you shouldn’t restrict certain benefits for the really rich.  Just because the money is small, is no reason not to do it.  Every little

Promising Pensions. Paying for Pensions.

Chicago Mayor Richard Daley is mad.  He is complaining about a law that Illinois Governor Pat Quinn signed last week.  The new law requires Chicago to have the pensions for its public safety employees funded at the 90% level by 2035.  And this is making Mayor Daley mad.  He says it will require a 60% in Chicago’s property-tax levy. 

I can see why Mayor Daley is upset.  That would be a huge increase in property taxes.  And it’s not like Mayor Daley has had anything to do with the underfunding.  It’s not like he has been mayor for the last 22 years while the underfunding got worse and worse.  It’s not like he could have done anything in the ‘90s or the 2000s to try to address the problem earlier.  It’s not like he has had anything to do with the fact that worker contributions for their pensions have not increased in 34 years (or at least the last 22 of them).

Oh, wait.  He could have done something about this situation.  He’s been mayor since 1989.  He knew what the problem was.  He wasn’t surprised by what happened – other than the fact the State of Illinois is actually trying to force cities to pay for the pension promises they make.

This is actually a very simple situation.  You promise pensions.  You pay for pensions.  Very simple.  But Mayor Daley doesn’t like it.  He’d actually have to pay for his own promises.

Means-Testing Social Security

Earlier this week, Ross Douthat suggested, in The New York Times, that a new Republican agenda could include means-testing Social Security and Medicare. The Wall Street Journal mentioned the same idea in an editorial on December 29, 2009, though, not surprisingly, they did not mention it in a favorable way.

One concern about means-testing Social Security: If you means-test Social Security, so that people with more money would get lower payments than they would have otherwise received, or maybe no payments at all, even though they paid into Social Security every year while they were working, haven’t you destroyed the universal nature of Social Security – and of the taxes that are paid to support it.

If you means-test Social Security, aren’t you changing Social Security, and the tax monies that support it, into nothing more than just another welfare program – and thus undermining the social consensus that supports Social Security?

Inflation-adjusted increases in Social Security over the last 35 years have helped protect our senior citizens from poverty once they stop working. Those increases were possible because of the consensus supporting Social Security. There never has been this kind of support for programs to aid poorer Americans, and money paid out under those programs has decreased, in inflation-adjusted terms (except for medical care expenses), over the years. (Here and here.) If Social Security becomes just another welfare program, would the same thing happen to it?

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Update (1/8/10 12:08 pm): Added links in the last paragraph.  Also, added the parenthetical to the third sentence in the last paragaph.