On Fox News this morning, Democratic Strategist Bob Beckel proposed that anyone with an annual income higher than about $50,000 or $75,000 at retirement age should get nothing at all from Social Security – zero, zilch, nada.
Beckel has long been an influential voice within the Democratic Party. He managed the 1984 Presidential campaign of Walter Mondale after working in the Carter White House. His version of “means testing” takes this idea further than most have yet dared to articulate, yet it is not conceptually different from President Clinton’s 1993 surtax on Social Security benefits for retired couples with other income exceeding $44,000. The same theme was also apparent in Senator Kerry’s comment about "making sure that high-income beneficiaries don't get more out than they pay in." (see http://www.cato.org/dailys/10-03-04.html). The misnamed Brookings Institution book Saving Social Security by Peter Diamond and Peter Orszag is just a sneaky variation on the Beckel theme, since it relies on new and increased taxes on higher earners for about 83 percent of the alleged fix, while also “reducing benefits for higher earners.”
It is easy to imagine some future Democratic Congress further reducing Social Security benefits for those with above-average incomes and also raising taxes on the same people to pay for their shrinking benefits. After all, as Beckel rightly noted, the founders of Social Security never really promised anything to anyone. The unfunded future promise of allowing Social Security and Medicare grow to a size larger than the entire federal government are just illusory projections based on a hoax. Something nasty is apt to happen before the well runs dry, and any solution that eschews personal accounts is unlikely to be gentle with young people who work too hard or save too much.
The Beckel Plan reflects a common leftist belief that some people just happen to end up with higher retirement incomes than others, as a matter of random luck, so the government can rob such people with impunity. In reality, incomes in old age depend on the economic virtues of industriousness and prudence – working hard for many years (often well past age 67) and saving for retirement. To reduce or eliminate Social Security benefits for those who set aside a half-decent retirement income or continued to work past the customary retirement age would amount to a confiscatory tax on hard work and thrift.
All means-tested “solutions” to Social Security’s looming financial crisis are offered as an alternative to allowing young people to put some of their Social Security “contributions” into their own personal savings account. In reality, the fact that such ideas are taken seriously should serve as a warning to young people to lobby hard for Retirement Choice – that is, their right to opt out of this rip-off before the politicians finish converting it into nothing more than a massive income redistribution scheme.
Mr.Beckel’s proposed “fix” for Social Security’s unpayable bills, like the Diamond-Orszag plan and others, proves the political risk of expecting any positive return from Social Security far exceeds any conceivable market risk from owning stocks and bonds.