Topic: Social Security

Supreme Court Snubs Citizens Whose Social Security Will Be Confiscated If They Refuse Government Health Care

Some of the U.S. Supreme Court’s most significant decisions are those declining to hear a case. Two weeks ago, the Court made such a momentous non-ruling in refusing to hear a lawsuit, Hall v. Sebelius, challenging government policies that deny otherwise eligible retirees their Social Security benefits if they choose not to enroll in Medicare. (I previously wrote about the case, and Cato filed a brief supporting the retirees’ petition for Supreme Court review.)

Despite having paid thousands of dollars each in Social Security and Medicare taxes during their working lives—for which they never sought reimbursement—the five plaintiffs were told by officials at the Social Security Administration and Department of Health and Human Services that they had to forfeit all of their Social Security benefits if they wished to withdraw from (or not enroll in) Medicare. This determination resulted from internal policies that were put in place during the Clinton administration and strengthened by the Bush administration. The plaintiffs sought a judicial ruling that would prohibit SSA and HHS from enforcing these policies, which they believed conflicted with the Social Security and Medicare statutes. A sharply divided U.S Court of Appeals for the D.C. Circuit eventually upheld them. By its decision not to hear the case, the Supreme Court let that controversial ruling stand.

At this point, one might ask why someone would want to give up Medicare. The answer is that some people would prefer to keep their existing (private) health insurance, but that for various regulatory and economic reasons insurance companies are wary of insuring people already covered by Medicare. Talk about the prototypical case of government programs crowding out the private sector!

In any event, the troubling reality of the Supreme Court’s non-ruling is twofold: First, the government now has full authority to force citizens to participate in a financially troubled program (Medicare) that was originally intended to be—and operated for almost three decades as—a wholly voluntary program. If they refuse, SSA and HHS can deny them their Social Security benefits. If they seek to withdraw from Medicare, SSA and HHS can not only deny them future benefits, but force them to repay all benefits received from both programs. Second, the Supreme Court’s unwillingness to address the issue raised here allows federal agencies to bypass Congress with impunity when drafting and implementing their own rules.

Obama’s Dismal Record on Jobs, Captured in a Single Chart and Explained with Common Sense

Economists may not agree on much, but we all agree that economic output is a function of capital and labor. Ask a Keynesian, a Marxist, an Austrian, a monetarist, or any economist, and they’ll all agree that living standards are determined by the quality and quantity of these two factors of production.

So it should be very worrisome that there has been a big drop in the share of the population that is employed. Here’s a chart produced from Bureau of Labor Statistics data, showing labor force participation during the 21st Century.

Employment Population Ratio, 2001-2012

There was a big drop during the recession. That’s the usual pattern, and it definitely isn’t something that can be blamed on President Obama since the downturn began before he took office.

Employment Population Ratio, Long RunBut what is unusual is that the employment/population ratio has not bounced back. As you can see from this second chart, taken directly from the BLS website, there’s normally a “V” pattern. The numbers drop during a recession but then quickly bounce back.

FYI Memo for Senator McConnell: Medicare Is Already Means-Tested

Speaking of the “fiscal cliff,” a November 11 Wall Street Journal interview of the Senate minority leader asked, “What kind of a deal would Mr. [Mitch] McConnell accept? The senator’s top priority is long-term entitlement reform. ‘Changing the eligibility for entitlements is the only thing that can possibly fix the country long term.’ He wants means-testing for programs like Medicare. ‘Warren Buffett’s always complaining about not paying enough in taxes,’ he says. ‘What really irritates me is I’m paying for his Medicare.’”

In reality, means-testing entitlements would be a nonsensical “top priority” in fiscal cliff negotiations because (1) the fiscal cliff is not about fixing long-term problems but about preventing rather than postponing an imminent $536 billion tax hike, and because (2) the U.S. already imposes means-testing for both Social Security and Medicare.

With Social Security, the ratio of benefits to “contributions” is lowest for those who paid the most payroll taxes for the most years and highest for those who paid the least.  Making matters much worse, up to 85 percent of benefits are now taxable for seniors who either saved for retirement or keep working, but tax-exempt for others.  That highly-progressive 1993 tax on benefits is another devious way of means-testing after-tax retirement benefits.

Thanks to new redistributionist rules from the Obama administration, monthly Medicare premiums now rise from $99.90 on single seniors with less than $85,000 in income to $229.70 (including drug coverage) at incomes from $107,000 to $160,000, and to $386.10 above $214,000.   Since President Clinton removed any ceiling on income subject to Medicare payroll tax, those who had relatively high salaries while working paid many thousands more in Medicare taxes than they can ever expect to receive in benefits – assuming they are foolish enough to sign up (as I did not) for benefits that also cost nearly four times as much as others pay.

The most money that Medicare might save by denying benefits to the “top 1 percent” would be roughly 1 percent.  That would leave 99 percent of Medicare spending untouched.  If high-income people were denied benefits, however, they would also be relieved of the steeply-progressive new Medicare premiums.  Medicare would then lose all that revenue they are now expecting to collect by charging much higher premiums at higher incomes.    The net effect of eliminating both benefits and premiums of high-income seniors offers no solution to the nation’s long-term fiscal problems.  It is certainly no solution to the very-near-term threat of a series of massive tax increases on January 1.

 

 

 

Major New Study about the Top 1 Percent… And Much More

This new Cato Institute Working Paper by Senior Fellow Alan Reynolds confirms recent studies which find little or no sustained increase in the inequality of disposable income for the U.S. population as a whole over the past 20 years, even though estimates of the top 1 percent’s share of pretax, pretransfer (market) income spiked upward in 1986-88, 1997-2000 and 2003-2007.

It has become commonplace  to use top 1 percent shares of market income as a shorthand measure of inequality, and as an argument for greater taxes on higher incomes and/or larger transfer payments to the bottom 90 percent.  This paper finds the data inappropriate for such purposes for several reasons:

  • Excluding rapidly increased transfer payments and employer-financed benefits from total income results in exaggerating the rise in the top 1 percent’s share between 1979 and 2010 by 23 percent because a growing share of other income is missing.
  • Using estimates of the top 1 percent’s share of pretax, pretransfer income (Piketty and Saez 2003) as an argument for higher tax rates on top incomes or larger transfer payments to others is illogical and contradictory because the data exclude taxes and transfers.
  • Using highly cyclical top 1 percent shares as a measure of overall inequality leads, paradoxically, to describing most recessions as a welcome reduction in inequality, because poverty and unemployment rates typically rise when the top 1 percent’s share falls, and fall when the top 1 percent’s share rises.
  • Top 1 percent incomes are shown to be extremely sensitive (“elastic”) to changes in the highest tax rates on ordinary income, capital gains and dividends.  Although estimates of the elasticity of ordinary income for the top 1 percent range from 0.62 (Saez 2004) to 1.99 (Moffitt and Wilhelm), those estimates fail to account for demonstrably dramatic responses to changes in the highest tax rate on capital gains and dividends.

Reynolds estimates that more than half of the increase in the top 1 percent’s share of pretax, pretransfer income since 1983, and all of the increase since 2000,  is attributable to behavioral reactions to lower marginal tax rates on salaries, unincorporated businesses, dividends and capital gains. After reviewing numerous data sources, he finds no compelling evidence of any large and sustained increase in the inequality of disposable income over the past two decades.

You Shouldn’t Have to Give Up Your Health Insurance When You Take Social Security

This blogpost and the amicus brief it references were co-authored by Trevor Burrus and Kathleen Hunker.

When Brian Hall, former House Majority Leader Dick Armey, and other over-65 retirees requested to opt out of Medicare’s hospital insurance coverage (because they preferred their existing private coverage), the Social Security Administration didn’t thank them for saving taxpayers’ money. Instead, the SSA explained that, because of a guideline in its “Program Operations Manual System”—essentially a manual that explains how to operate the Social Security system—anyone who declined Medicare benefits would lose Social Security.

That is, Hall and the others could disclaim their Medicare hospital insurance coverage, but only if they forfeited all of their future claims to Social Security and repaid whatever benefits they already had received — roughly $280,000 altogether. The plaintiffs challenged the linking of Social Security and Medicare as being beyond the SSA’s statutory authority. Neither the Social Security Act nor the Medicare Act allows administrative agencies to precondition benefits under one program on acceptance of benefits from other. Instead, the plain language of both statutes states that petitioners are “entitled” to benefits, which according to legal and general usage describes someone who is “legally qualified” and thus has the option of claiming benefits.

The district court disagreed and the U.S. Court of Appeals for the D.C. Circuit, in a split decision, affirmed the trial court’s result but declined to grant the POMS rules deference. The court then unanimously denied a petition for rehearing. Recognizing that the D.C. Circuit ruling, if left in place, could encourage future encroachments on congressional power by administrative agencies, Cato filed an amicus brief supporting Hall’s request that the Supreme Court take the case and enforce the statute as it was written.

We note that administrative agencies have no powers not granted to them by Congress and that regulations must be anchored in the operative statute—as well as the agency’s fair and considered judgment—in order to warrant judicial deference. The POMS regulation fails this standard because Congress’s use of the word “entitled” was clear and unambiguous. Combined with the fiscal irresponsibility of forcing citizens to accept costly benefits in an economic recession, the POMS rule appears to be an arbitrary power grab rather than a faithful effort to implement the will of Congress. We conclude by reminding the Court that agency overreach imperils the separation of powers and therefore liberty.

When Congress fails to counter an unauthorized expansion of power by an administrative agency, the judiciary has a duty to uphold the Constitution by enforcing the relevant statute as written.

The Supreme Court will decide later this fall whether to take the case of Hall v. Sebelius.

The Road to Ruin

I have often warned against the dangers associated with conventional wisdom. With the onset of the financial crisis and the corresponding plunge in asset prices, I noted that people who were wealthy or who were close to retirement were the ones getting clobbered. New evidence now confirms this: Americans nearing retirement took the biggest hit after the financial crisis.

The sad truth is that their road to ruin was, in many cases, paved by conventional wisdom about investing.

That wisdom had many believing that, over the long run, stocks produce the highest returns; that a diversified stock portfolio protects you against loss; and that the risk of owning stocks is small, if you hold them for a long time.

While the number of decades in which U.S. equities underperform other asset classes may be small, the size of the shortfalls, when they occur, can be huge. For those who are near retirement, the shortfalls can be devastating. As a recent study from the Pew Research Center shows, the plunge in asset prices that followed the financial crisis has resulted in “a lost decade of the middle class,” with the median real net worth in America now resting roughly where it was in 1983.

And if that’s not bad enough, those folks might not ever get a shot at making up the loss in their lifetimes. As Catherine Rampell’s recent reporting in the New York Times shows, median household income has fallen most sharply among 55–64 year olds, since June 2009.

Diversification is useful, in varying degrees, most of the time. But there are occasions when all stocks dive simultaneously, and in these cases a diversified stock portfolio won’t save you.

Beware of conventional economic wisdom. Some 95% of what you read in the financial press is either wrong or irrelevant.

Big Government Cripples Incentives to Save, Promotes Risky Culture of Immediate Gratification

America’s political elite is nauseating for many reasons, but perhaps most of all when they blame others for problems that are caused by misguided government policies. A stark example is the way they attacked the Facebook billionaire who moved to Singapore because of punitive taxation and class-warfare policy.

Today, let’s look at an example that affects almost everybody rather than just a handful of rich people. Many people in Washington sanctimoniously say that American households and businesses are too focused on the short term and that we don’t save enough.

But as I explain in this CBNC interview, tax and spending policies from Washington have undermined the incentive to save.

Allow me to elaborate on three of my examples.

1. Look at this post comparing the red ink from America’s bankrupt Social Security system with the huge levels of private savings generated by Australia’s system of personal retirement accounts.

Good politicians would respond by copying Australia and reforming Social Security. But good politicians are like unicorns.

2. Or look at this chart showing the extensive double taxation in our tax code, as well as these international comparisons of how America over-taxes dividends and capital gains.

Good politicians would respond by junking the tax code and adopting a flat tax, which has no double taxation of income that is saved and invested. But good politicians are like the Loch Ness Monster.

3. And consider the fact that the Obama Administration has just imposed a regulation that will discourage foreigners from depositing money in American banks, thus driving capital from the U.S. economy.

Good politicians would minimize the damage of anti-savings policies by keeping America a haven for foreign capital. But good politicians are like Bigfoot.

The moral of the story, just in case you haven’t picked up on the theme, is that bad things happen because politicians can’t resist expanding the burden of government when they should be doing the opposite. Which is why this poster is funny, but in a painful way.

P.S. I should have mentioned that some politicians think that we can boost savings by imposing a value-added tax! This is not only a perverse example of Mitchell’s law, but it’s also completely illogical.

A VAT does not change the incentive to save since current consumption and future consumption are equally taxed. But it does reduce the amount of money people have, thus reducing both private consumption and private savings.

Statists would argue that a new tax will reduce the budget deficit and thus reduce the amount of private savings that is being used to finance government debt. That’s only true, though, if you’re naive enough to think politicians won’t spend the new revenue. Good luck with that.