Retirement-and-Income-Security (RAISE)


BegichMurray_20140610

"Retirement and Income Security Enhancements Act"

Endorsement

This proposal is part of the effort to expand Social Security benefits.  There is no point trying to improve upon the thoughts of Charles Blahous, a public trustee of the Social Security, " Though such proposals may bear a superficial political attraction for some, the policy consequences of their actual enactment would be hugely damaging."

How Does It Work?

This reform increases the benefit levels of some retirees, and increases taxes on the top 1% of workers.   The benefit increases target spouses in divorce, widows/widowers, and children of retired/deceased workers.  It pays for these benefits by taxing people with incomes over $400,000 by 4%.

Strengths

It is difficult to any idea strengths in this proposal.  The benefit increases in the proposal target divorce, spousal benefits, and children of retirees. 

Weaknesses

We generally oppose any benefit level associated to welfare or financial need because Social Security has no view into a beneficiaries need.   Social Security has no ability to know who is in need and who is not.  The government has many programs which do. 

This plan expands the benefits levels that we recommend lowering.  Read about Pete Stark (here) to understand why we think that these benefits should under review.

 This Act would increase benefit levels which aren't paid for.  The payroll tax rate is the same for the person who is married and for the person who is single.  Yet, the benefits provided to the married worker are substantially higher in large part due to the benefits that this Act would increase.  According to the Moneys-Worth studies of the SSA, these benefits as much as double the cost to provide benefits to workers.

The last thing that Social Security needs is more complexity. The bill provides a corresponding credit for earnings in a secondary average indexed monthly earnings (AIME) formula for benefit computation.  It creates a second AIME calculation.  At a time when many do not understand the first AIME formula, DC wants to add a second. 

This law creates a dangerous precedent.  It transitions the financing of Social Security from contribution to a tax.  With a contribution, the worker gets a promise of future benefits.  A tax is collected without the promise of any future benefits.  FDR specifically opposed this type of financing because taxes are a matter of political priority, where as a contribution gives workers 'a legal, moral, and political right' to receive benefits. It is true that the system is not what FDR envisioned, but this is another step away from original concept.

Distortions

"Beginning in 2015, the RAISE Act would apply a two percent payroll tax rate on earnings over $400,000, with the threshold wage-indexed after 2015.

The Act scored by the SSA's chief actuary called for 4% (split between employee and employer.  

"The bill provides a corresponding credit for earnings in a secondary average indexed monthly earnings (AIME) formula for benefit computation. "

This is bill provides that workers will get virtually nothing for their contribution.

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