Friday, May 11, 2007

Why should the wealthy subsidize middle class retirement benefits?

One of the ongoing arguments over Social Security is the notion that the 'wealthy' should pay more taxes to help make sure that the system has adequate funding. The most common suggestion is that the income limit subject to FICA taxes should be raised or eliminated. Doing so would naturally bring in more revenue and would help maintain solvency. Of course, this suggestion is generally made by people who would also argue that Social Security isn't, or shouldn't be turned into a welfare program. I've got news for these people, Social Security already is a welfare program, and raising the income limit would just make it more of one.

To understand why this is so, you have to think about how Social Security benefits are determined. The benefit is based on what you pay in over your working career, particularly your later years, but the payback is bottom weighted. This means that lower income workers see a larger return on the amount they paid in than do higher income workers. For example, a worker born in the mid '40s whose earnings are in the bottom 20% might see a return of 5% on their FICA 'investment based on current law. The middle 20% of workers born that year might see %2 and for someone in the upper 20% the return might be %1. Clearly lower income workers are being subsidized by higher income workers, or to put it more clearly, money paid in by higher income workers is being transferred to retirees who earned lower incomes during their career.

So we are faced with a situation where higher income workers born in the mid 40's can only expect maybe a 1% return on their FICA. However, the situation is even more grim for younger workers. A higher income work born in 1970 can be expected to earn a return of 0% on their 'investment'. Lower income workers can expect %4 and middle income workers can still expect %2.

Let's now implement the 'solution' of raising the income limit on FICA taxes. This will mean that higher income workers will pay even more into the system, but will not see an increase in benefits. Now, instead of just earning a paltry 0% on their investment, they can expect to receive a negative return on their investment. All of this in an effort to keep paying benefits to middle and lower income retirees. If this doesn't constitute middle class welfare, I don't know what does.

The truth of the matter is that Social Security has always been a welfare program. Raising income subject to FICA tax just makes it more so.

Monday, May 07, 2007

What constitutes a 'safe' drug?

Recently, Dr. David Graham of the FDA's Center for Drug Evaluation and Research spoke at a roundtable on drug safety at the University of Michigan Medical Center in Ann Arbor. Dr. Graham stated that the FDA remains a "culture of denial" more focused on whether drugs are effective than whether those drugs are safe for patients.

This is all well and good, however, what constitutes a 'safe' drug? All drugs have side effects, some worse than others. If the drug is effective at treating a problem, who decides the level of side effects which constitute 'safe'? It's a typical cost/benefit problem. Does a patient incur the cost of the side effects for the benefit of treating a medical problem? If I'm given a drug to cure toenail fungus and the side effect is my arm will fall off, I'll probably choose to live with the toenail fungus. If, however, I'm given a drug which will likely kill my cancer, but might cause me to have a secondary cancer 10-20 years later, I'd be willing to take that drug, even though it is clearly not 'safe'.

The key thing is that evaluation of drug safety cannot be made by a government agency. It can only be made by the patient in consultation with their physician. It is certainly important for drug manufacturers to publish full details on their drugs so that consumers and physicians can make intelligent decisions, but the decision on whether a drug is 'safe' or not ultimately has to belong to the patient.

Dr. Graham likes to say that 60,000 people died from taking Vioxx due to cardiovascular problems. The danger in overly focusing on drug safety is that you will end up killing hundreds of thousands more people because key drugs aren't made available because some government agency determined that the drug wasn't safe enough. The problem is that deaths attributed to Vioxx are visible, the deaths attributable to drugs which aren't made available are not. I would prefer to know that there is a drug which might help my medical condition even if it had side effects, than to not know that a drug existed at all.

Thursday, May 03, 2007

Raising the income limit is no solution so Social Security woes

Recently The Ann Arbor News ran an editorial in in favor of raising the income limit on which Social Security wages are taxed as a way to help the financial stability of Social Security. The editorial didn't indicate whether or not they also supported raising the benefit level paid to higher income workers, but I would have to ask if not, why not?

The current Social Security benefit structure is somewhat progressive, in that workers who pay in less over their career get a bit more of a return on the taxes they paid in than those who paid more. If the income limit is raised, or eliminated, those with higher incomes would be paying substantially more in taxes, and would see little or no increase in their benefit level. This would greatly increase the progressivity of the system and will even likely result in a negative return for those workers who have higher incomes for much of their career. Somehow people have it in their head that high income workers are somehow not paying their fair share. This is patently false. A high income worker gets less of a return on his/her 'investment' than those who earn less. To increase the level of income which is subject to tax doesn't make the system fairer, it does quite the opposite.

Wednesday, May 02, 2007

It's not your money

Discussion of adding 'private' accounts to Social Security invariably result in people complaining about how any privatization, no matter how small, will spell doom for Social Security. There is a fear that benefits will be cut, benefits that people 'earned' by paying into the system.

I'm sorry to burst anyone's bubble, but the money you pay in FICA is a tax plain and simple. Once you pay it, it no longer belongs to you, it is property of the U.S. Government to be spent as Congress sees fit. As was made clear in the Flemming vs. Nestor court case decided by the U.S. Supreme Court, no person who has paid into the Social Security system has any entitlement to receive anything back on their 'investment'.

Social Security is a Congressional 'social' program and Congress can decide who gets benefits and how much. There is no 'guaranteed' benefit at all. Those little statements you receive annually from the Social Security Administration are nothing more than government propaganda designed to continue the illusion that there is some sort of guaranteed benefit.

It's clear that many people believe that they are entitled to some return on the taxes they've paid over their working careers. What people don't realize is that the only way to make that a certainty is if they actually own the investment. The best way to accomplish this would be to fold Social Security into the general fund and means test benefit payments. Workers would then be free to take the money which would have been taxed away and invest it as they see fit. Certainly there are concerns about whether people would save enough, or whether people would invest wisely. This is where private organizations should step in to help. Unions, Churches and other private institutions could easily offer investment advice to their members. AARP, instead of spending money lobbying for the status quo, could provide real value to their members in the form of investment advice.

It's time to stop the myths and lies about Social Security. Your tax money is gone. There are no guaranteed benefits. Let's end the charade and let people make their own decisions about retirement.