The Grasshoppers are Coming for your Savings
A recent Reason magazine article included a poll on how the public would like to address the Social Security crisis:
In other words, most people don’t want to sacrifice anything; they want someone else to bail out the troubled program. What a surprise!
This reminded me of a famous parable:
In Aesop’s original fable the grasshopper spends the entire summer chilling out, while the ant works to store up food for the winter. Long story short, winter comes, the starving grasshopper begs the ant for food, the ant refuses because the grasshopper was lazy, the grasshopper dies, and we all learn about the value of hard work and long-term planning.
When I see this sort of poll my initial (visceral) reaction is that those spendthrift grasshoppers that didn’t save very much wish to take away the social security benefits of thriftier people (like me.) But I doubt whether these answers can be trusted. I doubt whether people understand that limiting the benefits of wealthy people would only make a dent in the problem if “wealthy” were defined to include “middle class people who were thrifty”. There aren’t many truly wealthy American retirees, but there are a whole lot of middle class retirees with substantial 401k plans (like me.) That’s an influential political bloc, and won’t take kindly to major cuts in their social security. It’s not politically feasible to take away the social security benefits of the top 20% of retirees—they are too powerful. Perhaps you could give then a 10% haircut, but that wouldn’t be enough to solve the problem. We need some combination of more immigration, higher tax rates and/or cuts in other federal programs.
In practice, I suspect that the actual reforms will include a mix of current tax increases and benefits cuts that are pushed well into the future. Young people will pay the price, but as we saw with the 1983 reforms, young people don’t care very much about benefit cuts that won’t take effect for 30 years.
Also keep in mind that many benefit cuts are disguised tax increases. Restricting benefit cuts only to wealthy people is equivalent to a tax on wealth creation. It would represent a rise in the implicit marginal tax rate on income and saving.