Sorry I haven’t been posting much, I’ve been sick. Considering recent discussions here, I am reposting one of the very first posts from my own blog which seems appropriate: More and more, there is concern about the role money plays in politics. The basic concern seems to be that money deforms otherwise rational political choices. Contributions are thought to deform political outcomes. Often the outcomes are in the form of pork-barrel money which is thought to influence voter behaviour in the favor of the politician who was able to bring the bacon home. Democrats seem especially concerned that it might be damaging to allow corporations and individuals to give too much of their own money to influence politics.
I couldn’t find an overall number, but by looking at a number of charts on opensecrets.org I estimate that the total amount of money spent on national elections (President, Senate, and House) is in the $500-$600 million range. That is quite a bit of people’s own money being spent trying to influence these elections.
I have recently been re-exposed to the idea that Democrats universalize programs which are normally defended on safety net grounds because universalizing them gives them greater political support. (See Matthewyglesias and many commentors or Calpundit commentors Daryl and Lori or Commentor Nasi on my site .
According to the Social Security and Medicare Trustee’s Report we spent about $265 billion on Medicare and about $453 billion on Social Security. That totals $718 billion spent on the two programs in 2002. Considering the demographics of the nation, and the fact that poor people are less likely to survive long into retirement age, at least 3/4 of that is given to the middle and upper classes. So if we accept the political support explanation which has been so eagerly offered, about $538 billion was spent in gaining political support for the safety net functions of SS and Medicare in 2002 alone. That is about $538,000 million of other people’s money spent to gain national political support compared to a total presidential year campaign contribution estimate of $600 million in personal and corporate funds spent to gain national political support.
Interesting.
End repost:
The bribery effect of the social security program is approximately three orders of magnitude greater (and even if I am way off on the numbers it is at least two orders of magnitude greater) than the expenditures which people complain about when talking about how money corrupts political choices in all of the national elections put together.
Update:
I think it was unfair of my argument to lump together Social Security and Medicare since they operate under rather different assumptions in how they distribute money. Let’s just focus on the Social Security $453 billion per year. Also, since I originally wrote the post, we can now discuss the outlays for the 2004 election. The 2004 election was the most expensive election in history. According to opensecrets.org the total contributions for all federal candidates was approximately 1.9 billion dollars. I think that information doesn’t count the 527 expenditures so we can eyeball it at an additional 500 million dollars. I’m sure I’m missing some smaller sources so lets round that to an even 2.5 billion dollars. In the most expensive national election in history, in one of the most highly charged elections in recent memory, the total expenditures for all candidates and campaigning is dwarfed by the routine year-to-year expenditures on Social Security. If we take the bribery element of Social Security at 1/2 of the expenditures (though I suspect the actual amount to be closer to 2/3) we get $226.5 billion. That is just under 100 times the high mark of the most contested and expensive election in history.
Post currently needs a title, Sebastian.
Hope you’re feeling better.
Whoops, title insterted.
Sorry to hear you’ve been ill. Hope you’re feeling better now.
ditto on hoping you feel better soon.
Why do you hate my grandparents?
Are you sure that this wasn’t an argument that we ought to have more bribery in politics?
I think the effort to try to cast social security and medicare as bribery of the same kind as political spending falls down for several reasons:
1) The current effect of money on our system is that politicians have to spend all their time in a continual shill for more cash in order to successfully win elections. This has a permanent deforming effect on the behavior of politicians, day in and day out, forcing them to chase the cash wherever they can find it. This is the primary form of damage done by our current campaign financing system.
2) Social Security and Medicare exist because of our collective decision through our representatives to dispose of our collective resources. Campaign contributions, on the other hand, represent an attempt to exert personal influence (for both good and bad reasons, of course) on the behavior of politicians.
3) A much better parallel are the pork programs. These don’t reflect collective choice; they reflect individual Congressmen sticking in things to benefit their particular constituency and no one else. Arranging 3 million dollars for the Wisconsin Cheese Museum…that’s bribery of the voters.
4) The bulk of Americans currently are paying into Medicare and Social Security, while not yet recieving any benefit. Whereas, with campaign contributions, every politician is getting them and immediately benefiting. One can expect rather more influence in the latter case, especially since politicians are desperately dependent on campaign money.
5) Rather than throwing around absolute values, the real measure of ‘bribery’ levels would be a per-capita figure. If you measure per-capita, politicians recieve far more money to influence them than joe the average American recieves from Social Security/Medicare.
In fact, I expect the average federal candidate gets more bribery in the form of contributions for one campaign than most Americans will get from Social Security/Medicare over the course of their _entire lives_.
So, ultimately, I think your argument is highly flawed.
Not as currently implemented. The original implementation assumed that those who received benefits would do so for an average of one year before dying, and that nearly half would never receive benefits.
First, they get the ‘promise’ of benefits in return for their support for the program. Second, it is not at all clear that campaign contributions run all in the same direction. I think it can be safely presumed that many campaign contributions end up canceling each other out in terms of influence. Not so social security money, where all of the money spent to the well off is go in the direction of bribing them into supporting the system.
I don’t agree at all. If it were just a matter of time, we wouldn’t worry about it as much. The problem is that people suspect that organizations get to unduly influence the choices. Typcially I think that organizations tend to support those who already agree with them, so influencing the vote isn’t as much of a worry for me. According to the “we can’t means test because the safety net would vanish” theory the money is not being spent on those who would normally agree, it is being spent to change the minds of those who allegedly would not agree. Therefore the term bribe is descriptive. In fact it is more descriptive than it would be when describing campaign contributions to support someone who already agrees with you–which is how you use the term in: “In fact, I expect the average federal candidate gets more bribery in the form of contributions for one campaign than most Americans will get from Social Security/Medicare over the course of their _entire lives_.”
Sebastian,
would you please address John Biles point #5? I think the per capita point he makes is worthy of rebuttal.
thanks in advance!
SocSec constitutes a bribe if and only if (IFF for the mathematicians) the middle and upper-middle classes who have retired and who are about to retire actually SAVED enough to continue their lifestyle. Otherwise, SocSec simply constitutes the modern retirement plan.
Spare me the reminisces to the golden days of FDR. FDR’s Great Society was popular as a response to the Great Depression. Maybe it was a bad idea in retrospect, but since the only other thing going was Hoover’s “things will get better any day now” it’s not surprising people went with FDR.
but, you know, times have changed and the program has evolved with them. back in the 30s and early 40s most americans were staunchly isolationist. Now we have troops and bases in most every country in the world. Life expectancy has risen dramatically; savings rates have plummeted. So SocSec has changed — big deal.
I wait with baited breath for the links to studies regarding the INCOME and WEALTH available to those 55 and over.
Francis
Edo, I responded to point #5 in the last paragraph of my 3:00 post.
Fdl,
Poverty rates as measured by income alone are lower among the elderly than the general population. And since a larger percentage of the elderly population owns a much larger percentage of the non-income wealth, there is no reason to believe that they are overrepresented in a wealth + income standard.
See for example Table 1 here. It shows that when the poverty level is defined at 50% of national median disposable income (which in my opinion is definitely too high to define the poverty level) only 24.7% of the elderly population falls below that line. At the 40% of national median, only 15% of the elderly population falls below the line. We could defintely handle making payments to 15-20% of the elderly population. See also the site which has this page for part of the picture on non-income wealth.
I thought of diving in here, but the whole metaphor is off. It’s rotten, unfair, framing, like the “death tax”. If you’re arguing in defense of social security from Sebastian’s premise, you will lose, and that’s the point.
A politician structuring government programs to benefit a majority of the country, in the hopes that they will vote for him as a result–that’s what politicians do. It’s not a bribe.
If it is a bribe, any fiscal policy you disagree with can be characterized as a bribe. If social security did redistribute more, well, that would be bribing poor voters. The Bush tax cuts bribe rich voters. Every single tax deduction, every grant, every regulation tightened or loosened–it’s all helping one person or another.
I could be pretty well f*cked if they eliminate Medicare for the middle class. One of my relatives will really need it in a few years from now. S/he, and the rest of his/her family, really can’t afford to pay those medical bills. We really can’t. And private insurance is not a decent option because of preexisting conditions. So yes, I would like Medicare to continue for the middle class as well as the poor. And yes, that will influence my voting choices.
Does this make me a party to extortion? Of course not. To suggest that it does, destroys the actual meaning of the word “bribe”, and seeks to de-legitimate all government programs.
Table 2 at your first link shows that 72% of elder households are in poverty based on market income alone. (I believe Table 1 included socsec distributions.)
median net worth of households over 65, excluding home equity, appears to be $23,000, according to your second link.
Congrats. You’ve persuaded me that means-testing based on wealth is largely a waste of time, because most people are, in fact, retiring largely broke except for home equity. We can do simple means-testing based on income, i.e., make Soc Sec distributions count as taxable income, and solve the problem.
Great links, btw. very informative.
Just curious. Assume that an income vs. wealth distinction creates a whole field of senior planning in which their future “income” stream is turned into “wealth” for purposes of IRS definitions. What level of wealth should qualify for receiving SocSec? Do you break it down by life expectancy?
Cheers
Francis
According to this gentleman, the poverty rate amongst the elderly is at 10.4%, lower than any other age group.
“I thought of diving in here, but the whole metaphor is off. It’s rotten, unfair, framing, like the “death tax”. If you’re arguing in defense of social security from Sebastian’s premise, you will lose, and that’s the point.”
It isn’t my premise. I have repeatedly been forced to defend against the idea that we can’t means test social security because it can’t gain political support without paying rich people too.
I am merely exposing how much those payments for political support are.
If you don’t like it, talk to the people who defend Social Security on that basis. But don’t blame me for the analogy, Edward is right over there.
“A politician structuring government programs to benefit a majority of the country, in the hopes that they will vote for him as a result–that’s what politicians do. It’s not a bribe.”
On that basis, Social Security is not defensible. It is not good for the country as a whole. It distributes wealth from generally poorer workers to generally richer older people. It is almost always emotionally defended on the safety net basis. Whenever I talk about actually making it a safety net I get beat over the head by people who absolutely insist that you have to pay rich and middle class people or the safety net won’t survive. They don’t argue that it is good to redistribute wealth to rich people. They argue that if you don’t, the program won’t survive. That is the very definition of a bribe–paying someone for political support. I did not dictate the terms of this debate. They are continually thrust upon me whenever I mention means testing. Don’t get so huffy with me. Talk to your own side.
If you want to defend Social Security payments to the rich, feel free. But actually do it. All I ever hear is that you can’t have a safety net without paying to the rich. I’m exposing how expensive that alleged necessity is. I don’t believe it is a necessity. I think it would be MUCH easier to pay 1/3 to 1/2 what we currently pay in social security taxes to make an actual safety net. That has always been my argument. The fact that you don’t like the ramifications of the only argument your side makes in favor of Social Security payments to the rich is not my problem. The fact of the matter is that we spend over 225$ billion dollars every single year as a sop to the middle class and rich in Social Security payments every year. That is a whole lot of money. I don’t think we need to spend it on a continuing basis forever. But I don’t get to make that argument because of some trumped up shut-down to the discussion about it being impossible to have a safety net without payments to the rich.
I’m exposing that cost. I’m calling it what it is–a payment for the sole purpose of getting political support–a bribe. I didn’t classify it as a payment to gain political support, your side did.
I have repeatedly been forced to defend against the idea that we can’t means test social security because it can’t gain political support without paying rich people too.
Actually, the argument I’ve been seeing is that there’s no point means-testing social security because any means-test means two things for certain: (1) That many people who are eligible don’t get the benefit – they can’t figure out how to get themselves through the means-test, or they’re too proud to prove themselves poor enough to get it, rather than seeing it (as it is) as something they’ve paid for and deserve. (2) That once a benefit becomes means-tested, it becomes much more complex and expensive to administer.
I didn’t mean to mix into this argument again, but those two arguments against means-testing are the two I’ve seen most frequently. They’re virtually a universal argument against having an essential benefit means-tested. If you want to argue that social security should be means-tested, those cogent arguments are the two you really need to counter. (Tricky, because all the evidence I’ve ever seen, every time a non-means-tested benefit becomes means-tested, suggests that both (one) and (two) are inevitable. But if you can show an instance where a non-means-tested benefit becomes means-tested and was cheaper to run and more eligible people claimed it, cite it.)
Jesurgislac, I don’t think you are making the most common arguments, but I’ll respond anyway.
1) I imagine that the the yearly process would be maximumly as complicated as filing a 1040. If absolutely necessary I’m sure H&R Block could do it for you for $100 or less. As for protecting people’s pride, I think there are procedural ways of dealing with that without spending $100,000,000,000 on excess payments to rich people. (I’m being generous and only taking the top 1/4 when I’m rather sure we could take at least the top 1/3).
2) Thank you Jonas Cord for pointing out that to administer all tax issues the IRS runs on $10 Billion. If we make the absolutely ridiculous assumption that adminstering this rather simpler means test only on retirees (instead of the whole country of possible taxpayers) costs half as much as it costs to adminster all possible federal taxes for all possible federal taxpayers (including corporations), we are still talking about a savings in the $90 billion per year range. Suffice to say, that strongly suggests that the administrative costs do not outweigh the benefit of means testing.
I note you’ve offered imagination and conjecture, rather that any concrete instance where this idea worked.
I think spotting you the entire budget of the IRS is a rather generous ‘conjecture’. Do you think you need more?
Jesurgislac seems to be implying that it is impossible to means-test the program without those eligible for it not being able to pass the test.
Speaking of the IRS, why not then build the means-test into the 1080 form? Mark an X in this box if you are over 65. Since we already know their income from the form, eligibility can be thusly determined. What about assets, investments, properties? Forget about it. How many people squirrel away their wealth to get on welfare?
Sorry, but the “bribery” language is so out of place that it detracts from the other interesting analysis.
I guess we can also refer to excessive military spending as “bribery” for Republican support for the military industrial complex. As opposed to a debate about the underlying policy about how much to spend.
[pounds head on keyboard]
From the Jonas Cord link: “In 2002, out of $1.2 trillion in federal, state and local benefits, the poor received roughly $140 billion, according to the Census Bureau.”
my response: so what? how much of that 1.2 tril. was distributed to people who would be “poor” but for the assistance. and secondly, as a society to what degree do we demand that our elderly impoverish themselves before receiving soc. sec.?
Cord link: the elderly now have a lower poverty rate (10.4%) than any other age group
my response: hey, its working.
2 major questions, Sebastian and Jonas:
1. Most elderly are not wealthy — taking away home equity the median wealth of the elderly household is $23,000 according to a link provided by Sebastian in a subsequent thread.
What is the qualifying point in terms of retained wealth for Soc. Sec.? What deductions would you allow? I’d love to see what each of you believe is “rich”. Put your policy positions on the line.
2. Most elderly don’t have much income. Aobut 70% of all elder households make poverty level or less, per a a link provided by Sebastian in a subsequent thread. I expect that the number increases dramatically over a short age period.
What is the qualifying point for income? More to the point, is it possible to address your entire objection by counting SocSec distributions as taxable income?
Francis
This is the thing about “socialist” benefits that don’t means test — they seem counter-intuitive. Of course, a “safety net” should not be given to people at the top edge. We should means test so that it goes to the bottom group of people who need it and not to those who don’t.
The thing about Jesurgislac’s comments is that both 1 and 2 are important. A safety net needs to be there for the maximum number of people on the bottom, period. If you remove the entitlement for the top 30% but also put barriers in the way of, say, 5% of the remainder who need it, we pay all kinds of the external social costs associated with poverty.
Medicare and Medicaid are good examples, in fact, of how not to do it. The European-style socialised medical systems work in exactly this way; you can get healthcare from the national system regardless of how rich you are, nobody checks your wallet at the door. It’s “unfair” in its fairness — if Joe Moneybags can afford it, why should he get it for free?
But, compare this system to the increasingly complicated US-style way of doing things, and the “fairer” system on paper looks rather more unfair.
1) It still misses people out, and people end up going without any form of coverage. Dealing with these people with “emergency” protection from the government costs more than a lower level of permanent coverage, which leads into
2) It costs more. Per capita, the combination of insurance to cover yourself and the taxes you pay to cover the uninsured poor costs you MORE than if it were all nationalised, because you’re paying twice rather than once, and for the least efficient part of the process each time.
Theory is one thing, but in practice it turns out that the most cost-efficient way of making sure that everyone at the bottom is covered is to blanket cover the population. It means you end up with a generally lower-grade median standard across the board, but that the absolute bottom-end baseline is still high enough to avoid the serious social costs of a significant percentage of the population having no money.
And at the end of the day, that’s where the big ideological disagreement ends up with every issue like this. Some people, normally on the right, think that losing some people from the bottom of the pile is worthwhile in order to ensure maximum efficiency for the whole bunch. Some people, normally on the left, think that sacrificing some efficiency so that we can ensure as many people at the bottom have a minimum standard of living is worthwhile. Real policy tries to score a compromise between these positions, but it is a genuine disagreement of ideology and one side’s “facts” won’t change the other side’s opinions, or vice versa.
Francis,
I don’t have a precise policy position, but if I have to make one up on the back of an envelope…
According to this, 66% percent of SS recipients rely on it for 50% of their income. If for the sake of statistical simplicity, we figure we won’t touch the bottom 71.2% of SS benefits. Ending benefits above this amount results in savings of roughly $130 billion dollars.
Remember, the reason we’re in this mess to begin with is because people haven’t saved or invested enough money to retire. Assuming we make workers to put their savings in private retirement accounts means we’ve reduced employee/employer FICA from 15.30% to 10.9%. This means we’ve got 4.4% for the private accounts, a full 1.4% more than the 3% suggested by this report, showing that putting 3% in private accounts can provide anywhere from 36 to 106% of what an average worker would expect from a magically solvent SS program. Note that these projections do not reflect the skewing in favor of lower income workers included in the current SS system – I’d be all for putting that back in.
Reindex all future benefits to inflation instead of wage increases. Now the oft-cited “the economy will soar and it’ll be ok” thesis can actually happen and perhaps further help solvency. And with that, I am done reforming.
Remember, those who either retire too early to contribute much to private accounts – or who managed to lose it all – are still covered by virtue of being at the bottom end of the income levels here. I vaguely suspect that the combination of mandatory accounts and 401ks and pensions and whatever else will make most people pretty well off, therefore reducing the amount of safety-netting we need, therefore overtime reducing payroll taxes further.
That’s it.
Jonas, I’m more or less ready to go with something like that. (I’d maybe want to control risk and fees more than you are comfortable doing — if we can’t trust people to decide whether or not to borrow money against a paycheck due in 2 weeks, it’s hard to see leaving the whole vast retirement thing to them. And we don’t want too much moral hazard: some people, at the margin, are going to play the lottery with their accounts, figuring that if they don’t win, the safety net will take care of them).
Politically, though, it’s completely dead. Because people now receiving benefits have been promised no reduction, you’ll have to factor out of your calculations all the benefits you planned to get from cutting payments to them. In Sebastian’s argot, this bribe has to be paid.
On the back of my envelope, this means that in Reform Year 1 you have effectively 0 to put into private accounts. I don’t know what you have in Reform Year 2, but it’s pitifully low.
There are going to be real costs associated with the new system (I’ve never thought they would eat up the benefits, just that they have to be accounted for). I think you’ll find that when you run all the numbers, a lot of money gets spent, some folks (on Wall Street) get a big windfall, and you still have the problem of aging boomers sucking alot of life out of the system.
Going forward, you’re going to have to get well off people aged 45 to 65 to support the thing. A disproportionate number of those whose support will be needed will expect to be among those who won’t get the benefits. Good luck with that: Sebastian’s right that people have voted to pay themselves an unrealistic benefit. At the expense, to a very considerable extent, of people who don’t vote.
There’s a lovely bit of poetic justice at work with that: the Admin got way more support for estate tax repeal than self-interest would provide, in substantial part (not completely, by a long shot) because a great many people who have no reasonable concern about having to pay the estate tax were nonetheless willing to believe that they might have to. Now, to get support for your reform from those same “optimistic” folks, you’ll need for them to believe that well, I guess their ship isn’t going to be coming in after all, and so supporting this huge benefits cut isn’t going to affect them at all.
[A law prof I’ve met in a less than prosperous red state does a great deadpan retelling of how back in 2001 his dental hygenist was so happy about the end of the Death Tax. He explained the numbers, but she refused to believe them, because, well, if that’s what the whole thing was really about, why would anyone have even tried selling THAT to someone like her . . .]
Jonas: thanks for your willingness to put hard figures on the line.
my take: from the same website, I’d put the cutoff at, say, $40,000. but what to do about those over $40K, cutoff completely, tax the benefits, do nothing?
seems to me that a promise has been made, and needs to be kept. i understand that sebastian disagrees, and that distributions to families with annual income over $40K represents almost 25% of the program.
i dunno. i respect his frustration, BUT . . .. well, it’s late and i’m tired and the antibiotics have been ruining my concentration for several days now. i’ll pick up in the am.
Francis
The promise has been made and needs to be kept…for those retired right now. I actually think that is the best defence of Social Security. But we could phase in the means testing. We could reduce benefits for the wealthy by 3 1/3% per year and only for those entering retirement each year. 30 years from now we would have phased out all Social Security benefits for the well-off. 35 year-olds and younger would know that they weren’t going to get SS benefits.
We could also means test on a sliding scale. Starting at $30,000 or so, the benefits would slide down by 33 cents for every extra dollar earned or something like that. It doesn’t have to be a sharp drop off. But we don’t have to pay well-off retirees either.
Charley,
Central to my point of view is that this is a mandatory investment account that can, in theory, let people make the safety net themselves. Therefore, taking out loans against the account should not be allowed.
But I am perfectly happy to let people invest it anyway they like. I’m simply don’t understand safety nets that don’t require you to fall off the highwire first. Keep in mind, many people will probably still need the SS “welfare” benefit not because they were too risky, but because they were too conservative in their investment. I’m far more comfortable letting people do what they want and then help them if they screw up, rather than assume they’ll screw up and tell them what a good investment strategy is and make them do it.
You’re absolutely right, my unsophisticated calculations don’t take this into effect. But the structural changes made, if we phase this in slowly as Sebastian recommends and index to inflation rather than wages means that now rather than the program over time will grow to staggering proportions; instead it will either stay the same as it now or grow smaller. I think… unless I’m forgetting something.
You are right that this is politically difficult, if not impossible. But someone is going to something drastic at some point, so we may as well have an idea of what we want done when that day comes…
Francis,
I’m saying for the sake of simplicity of calculation, cutoff completely above $40k. I’m sure more sophisticated policy could be crafted to make sure this isn’t deabilitating to anyone.
I’m actually glad I put together the figures now, because I’ll have a starting point to compare to whatever Bush winds up proposing.
Starting at $30,000 or so, the benefits would slide down by 33 cents for every extra dollar earned or something like that. It doesn’t have to be a sharp drop off.
Interesting that you don’t regard a 33 percentage point increase in the marginal tax rate to be a sharp increase. I’ll have to remember that for future discussions of taxes.