Even More on Greenspan

A staffer at The Century Foundation, about which I know little other than that Ruy T. is affiliated with it, alerts me to a short article by Bernard Wasow on Greenspan. The article concludes with

So Mr. Greenspan would pay for massive tax cuts, about half of which go to the richest one percent of Americans, by reducing Social Security benefits from their current princely level of about $10,000 per beneficiary per year. All retirees would face benefit reductions, but his proposals would particularly burden those who die young and those who die very old. Now we know.

I suspect most of my readers agree with this.

I do have one quibble, however. Wasow says that “[we’ll pay for the Bush tax cuts] by reducing spending on one of the lowest income groups in the United States, retirees.” That statement is true, but misleading. Retirees, precisely because they are retired, are in fact one of the lowest income groups. But they are also the highest wealth group, so don’t pity them too much. Not to say that I don’t think SSI is a good program; it is. Nor even to say that all low income retirees have significant wealth; they don’t.

However, a reasonable case for means-testing SSI benefits exists. After all, it’s insurance, and insurance is generally designed to pay off in the event of a bad outcome (fire, theft, early death, retiring poor, …) But it would only make sense to means test SSI based on wealth, not income. Given current interest rates, a retiree with $1m in assets would only have income of $30,000-$50,000 (less if a big chunk of that $1m is in their home.)

Means testing based on wealth carries its own risks, however, as it encourages profligate spending just before retirement. A very slow and gradual phase out of the SSI benefit is one possible solution to this problem. In any event, this post is not about means-testing. My point is that wealth and income are different things and, particularly in the context of retired persons, the distinction is important.


CLARIFICATION: Skimming this post, I should clarify that by “A very slow and gradual phase out of the SSI benefit is one possible solution to this problem,” I mean phase out the benefit as income rises, not over time. Don’t end SSI, just decrease the payment as wealth increases and either use the savings to increase benefits to the remaining retirees, to lower the regressive payroll taxes, or to keep the program solvent.