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Tags: senator sanders | social security

Sander's Plan for Social Security Overpromises Again

Sander's Plan for Social Security Overpromises Again

Sen. Bernie Sanders, left, talks with Rep. Peter DeFazio on February 11, 2014 in Washington, D.C. (T.J. Kirkpatrick/Getty Images)

By    |   Thursday, 23 February 2017 11:22 AM EST

On February 16, Sen. Bernie Sanders, I-Vt., and Rep. Peter DeFazio, D-Ore., introduced legislation to boost the Social Security benefit levels for seniors and strengthen the finances of the vital program.

As proud as they are of their proposal, I think that they will be shocked and appalled at what their legislation would do. While the proposal has little prospect of success in the GOP-controlled chambers of Congress, it does offer a troubling picture into the gap that exists between the promises of politicians and the mechanics of the system.

If you accept the presentation provided by the legislation’s crafters, you would believe that the proposal would help poor retirees today and bolster confidence of those under 30, who doubt that they will collect anything ever in exchange for the rich paying a little bit more in tax.

If you read the analysis of the Social Security Administration on the other hand, you would realize that the plan is to have our children pay the taxes that we won’t, and accept the benefit cuts that we will not even discuss. Today’s seniors aren’t helped. Future retirees are really no better off.

On the revenue side, the legislation represents an ever increasing tax that starts falling progressively on the Millennial middle class as they age. It would subject all wages to the payroll tax, and would expand the revenue reach of the system from wages to all income — starting at $200,000.

On the expense side, the proposal reigns in costs by excluding the increased revenue from the equation for the retiree’s benefits. Workers pay more, but get the same check.

This represents a historic shift in the principles of the program. The founders wanted benefits to be a function of contribution, not politics. FDR said that contributions would give workers “a legal, moral, and political right to benefits.” He did not want politicians like Sanders and DeFazio determining who does and who does not need benefits.

Yes, $200,000 or $250,000 sounds like a lot of money today. As Senator Sanders points out, only 1.6 percent of wage earners today exceed that threshold. The problem is that the threshold is fixed and wages generally rise. If wage growth over the next 30 years resembles that of the last 30 years, the taxes on investments will reach jobs held by more than 10 percent of the work force.

The problem with this legislation is not, however, limited to the theoretical questions about the independence of the program. The press releases for it suggest a significant disconnect with the way the system works.

Senator Sanders claims,“ The bills would increase benefits by about $1,300 a year for seniors now making less than $16,000 annually.” The SSA however says that the 65-year-old who retired in 2016 would get $0. Their analysis predicts that the existing senior who worked low wage jobs over his 30 year career will not get $500 in incremental benefits per year until he is 95.

While I am sure that there is a retiree at some point in the future who will appreciate the changes, not many fit this profile today. The law excludes all existing retirees from the protection against poverty. Further, the worker must work “annually” at this wage for 30 years in order to qualify. People over the age of 42 do not participate fully in the changes to the weighting on lower-wages.

For the vast majority of seniors today, this proposal means nothing. In terms of current seniors, the use of CPI-E for COLA would help, but the chief beneficiary is the high-benefit senior who lives a long time. In 2019, Senator Sanders and his wife would get roughly $100 extra per year while the retiree who collects $16,000 a year would get a little more than $30 this year. The lifetime minimum wage worker would get closer to $20.

In the other house of Congress, Rep. Defazio assures constituents that this legislation would “close a tax loophole.” In fact, this legislation creates a tax loophole that protects current upper middle class voters from a tax that future workers will face.

If we are going to end the cap, just end it.

This is what this law means to the guy who is 25. Over his career, he is likely to see his taxes rise, and the credit for his contribution reduced to zero. He will enter retirement exactly as a retiree enters today. He will arrive at retirement to face a public grousing about the cost of a program that is rapidly heading to insolvency.

This isn’t how we save Social Security for future generations. This is exactly how past generations created the instability in the first place.

Brenton Smith writes on all aspects of Social Security reform, translating the numbers and jargon of the issue into terms that everyone can understand. His work has appeared in Forbes, MarketWatch, Fox Business, The Hill, and a number of regional newspapers. To read more of his reports — Click Here Now.

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This isn’t how we save Social Security for future generations. This is exactly how past generations created the instability in the first place.
senator sanders, social security
Thursday, 23 February 2017 11:22 AM
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