Armchair Pundits

Skip on Social Security: Three Bad Ideas

The other morning I listened to a portion of an interview with Skip Humphrey. Skip, the former Minnesota Attorney General and former candidate for governor, is now apparently the head of the MN AARP. Given his new position, he was pontificating about Social Security. Of course, Skip and the host were bashing the White House’s Social Security reform proposals. During the course of the interview, he made quite an amazing statement. He stated that there was no Social Security crisis. Interesting. And, by the way Captain, we did just hit an iceberg, but everything is alright.

As far as reforming the Social Security system, he stated that the AARP had some ideas for modifications that could be made to Social Security. Now, I don’t know if these were actually Skip’s ideas or the AARP’s ideas. Irregardless of whose ideas they are, the ideas need some more thought. And, they need to find someone better than Skip to present their ideas. Maybe they should find somebody who actually knows what they are talking about.

The first idea that was presented was that the Social Security Administration (SSA) should be allowed to invest in something other than government bonds. An interesting idea I thought. He is saying that the SSA should be given some investment choices. That’s nice. Of course, just moments earlier, Skip thought it was a bad idea to give individuals the ability to invest their Social Security funds in some different investment options. For the individual it was too risky. For the government, however, it is just fine.

You may remember how in an earlier post, I described the differences between liberals and conservatives. This is a perfect example. Conservatives want to give the individual some authority over their Social Security funds. Liberals, on the other hand, believe the individual is incapable of properly exercising such authority and that only the government should be given the opportunity to pick different investment options.

The second idea was that the Taxable Wage Base (TWB) should be raised. Skip did actually correctly define the TWB, but after that he got everything wrong. The TWB is a dollar limit. Social Security taxes are paid on all wages under the TWB. Any wages above the TWB are free from Social Security taxation. Skip got that right. But, then he continued with his description by saying that the TWB was around $84,000. Skip is apparently a couple years behind the curve. In 2002, the TWB was $84,900. The TWB for 2005 is actually $90,000.

This brings me to the next inaccuracy. As you can see above, the TWB increased from 2002 to 2005. Skip is obviously unaware of this, because he went on to say that the TWB should be indexed for inflation. Good, idea Skip. Unfortunately your just a bit late. The TWB is already adjusted each year for inflation. Every year a Cost-of-Living Adjustment is made to the TWB. Back in 1995 when I started working in a field that required I know about the TWB it stood at $61,200. So, since I started following it, the TWB has increased 47%. On average, since 1995, the increase in the TWB has been 3.95% per year.

Just so you know, Skip suggested that the TWB should be around $140,000. Again, an interesting idea. Let me see if I have that right. Skip is proposing a 7.65% tax increase but only on individuals making between $90,000 and $140,000. Hold onto your wallets America.

The final idea that Skip mentioned was that everyone who works should pay into the system. That sounds good on the surface but there is more. Skip continued by saying that all federal and state employees, who currently don’t pay into the system should. The rules for federal and state and local employees are very complex and would take far too much time to explain. For right now, however, all you need to know is that a certain number of these employees are not covered by Social Security or receive reduced Social Security benefits because they are covered under their own system. While making these employees pay into Social Security would bring in additional funds, it would also bring additional employees onto the Social Security rolls, which would only add to the problem. Unless Skip was planning to make these employees pay in without giving them any benefits.

I will be the first to admit that reforms to the Social Security system are needed. I also believe that neither the right nor the left has the perfect solution to this problem. The solution will come as the two sides debate the issue. This debate will cause the best ideas to rise to the top where they can be crafted, polished, and put into place. There is, however, one requirement to this great process. If you want to join the debate and put your ideas forward, you need to have clearly thought out your ideas. You can’t just throw out the first idea that comes into your head. Clearly there are problems with Skip’s ideas. He should be sent away to do some more thinking before he is allowed to join the debate again.

posted by Squirrel @ 7:05 PM