Your Social Security Benefits May Be For Sale
Another attempt to privatize Social Security is afoot
In a recent article published by The Hill, economists Joshua Rauh and Andrew Biggs offered a stimulus check proposal that could serve as a precursor for the privatization of Social Security. The plan would offer voluntary loan checks of up to $5,000. In exchange, recipients delay Social Security benefits, in retirement, by up to three months on average.
The average earnings and delay time cited in the proposal include individuals with higher incomes and, consequently, higher monthly benefit amounts. This is noteworthy because it sets the stage for a future discussion about the benefits of investing in a portfolio with diversified risk — a dog whistle to salivating prospectors for the new trillion-dollar frontier Social Security would offer.
However, before we dive into the purpose of the proposal, let us explore the ramifications of the passage of the proposal in its current form. Based on my decade of experience working at Social Security, I believe the high-income earners will be less likely to leverage their benefits for a government loan of $5000.
When applying for Social Security benefits, claimants are informed about the pros and cons of filling at the age of 62, 66, and 70. Applying for benefits at the age of 62 could reduce your benefits by up to 30%. Claimants with stable jobs and relatively good health are usually compelled to continue working until their full retirement age.
Of course, there are exceptions to rule. For instance, a federal employee with 20 years of service may be willing to retire at the age of 62 because he or she would receive the full pension amount. Even with a reduction in their Social Security check, they may find that their pension, coupled with their small payment from their Thrift Savings Account, is more than sufficient.
The same logic applies to individuals with 401k plans or Roth IRAs. The commonalities among the claimants that decide to wait, rather than file for benefits, are the availability of funds in their employer-based investment accounts, pensions, and, even asset accumulation. Oftentimes, the high-income earners have likely just paid off their mortgages and student loan debt.
People that wait until age 70 accrue delayed retirement credits — an 8% increase in their benefit amount per year. The extra income earned from one’s pension and the delayed retirement credits become more beneficial than a loan from the government.
This loan would not only prevent the claimant from experiencing continued benefit growth but also risk a freeze in their benefit payment for an untold amount of months (recall the three months cited above is an estimate).
This risk is considerably higher for low income and disabled individuals. Filing for disability is often a humbling and sobering experience for the claimant and representative. It is not unusual for the paper on which benefit estimates are printed to be moistened by tears of the claimant.
It is not inconceivable to suggest the claimant is in their most vulnerable point as panic, despair, and bewilderment begins to encroach upon their ability to grasp the more complex rules of disability. During these interviews, claimants often make a heartfelt plea to the representative to instruct them on the best way to move forward.
If this proposal is in place, at some point, the representative would be required to inform this vulnerable soul about the $5000 loan. Reading from a script on the screen, the representative would recite the spiel about the purpose of the loan, terms of the loan, and the penalties for not paying off the balance timely.
For a person writhing in pain and facing the recent loss of income due to their disability, $5000 would seem beneficial. The bill collectors are rarely moved by such compelling stories and, therefore, the claimant may be compelled to submit to the terms of the loan. Unfortunately, the claimant would eventually discover that the $5000 merely postponed their woes and significantly delayed their benefit payment — perpetuating a vicious debt cycle well unto old age.
This scenario is repeated every week in American households. Following well-established trends of poorly contrived laws, it would disproportionately affect black and brown folk, as well as, low-income households. This is due to the previously established, exhaustive list of discriminatory policies.
Many questions arose as I read through the plan. But, the most pressing question is: if you opt-out of receiving the loan, will there be an alternative assistance plan that does not require one to go into debt during the pandemic? Will everyone be required to make a decision of applying for the loan or languish in the pandemic induced poverty spreading across America? Are Americans being asked to sign on the dotted line and agree to pay back an unknown amount of money when they are most in need?
Ask any financial expert and they will likely inform you that the worst time to take out a loan is when you are on a fixed income. Also, this plan does not mention individuals or families receiving Supplemental Security Income (SSI). Will they be subject to the same collection policies? SSI comprises a substantial portion of claimants — which says less about the claimant and more about the dire economic conditions of America.
It has been stated that the COVID-19 crisis has exposed the regressive and racist nature of American economic and social policies. Across the board, Black, Latinx, and low-income individuals are left to cover the bill for bad economic, healthcare, and educational initiatives.
Now, let’s discuss the purpose of the proposal. There have been numerous attempts to privatize social security. Oftentimes, the discussion follows a heartfelt plea to save America’s fiscal future or maybe a tax plan that essentially drains trillions from America’s money pot. Numbers and percentages are thrown at the innocent reader struggling to determine if the article is “fake news” or not.
Finally, halfway through a cup of joe, the reader discovers the only way out of this mess is privatizing Social Security. Apparently, the tax plan did not work. So, the next best thing, according to Biggs and Rauh, is to use the “significant pool of household assets that could serve as collateral for government loans to affected households, allowing them to borrow modest amounts at very reasonable interest rates. These assets are the $38 trillion in Social Security benefits that households accrued as of last year but have not yet received.”
What about leveraging the pool of assets in corporate America? Are there no other options available? Are we being given a false dilemma in which we are told the only way to successfully protect America’s future is by privatizing Social Security?
I thought the obvious approach to wealth creation would be providing more jobs, increasing incomes and savings, and increasing government tax receipts. But, Biggs and Rauh suggest using Social Security as a type of collateralized debt is the key to our recovery out of the COVID-19 economy.
The COVID crisis has shown us that the American government could print trillions of dollars to boost our economy. Biggs and Rauh suggest that these are freebies as opposed to a taxpayer insurance plan to help citizens mitigate the risks of COVID-19. This proposal is nothing more than a nod to the movement to privatize Social Security. The model being used in the proposal is based on a collateralized loan objects (CLO) market in which a security is backed by a pool of debt.
In the CLO market, investors are provided debt payments for assuming the risk of the loan. This proposal is a ruse that hinges on the desperation of our time. Who stands to gain for collateralized debt? Who benefits from this model? It will not be Joe and Nancy from middle America. Indeed, following Biggs and Rauh’s standards would qualify that as a freebie.
However, the model proposed by Biggs and Rauh, allows investors to capitalize on our need and lack of resources — which, by the way, is not a freebie, but sound economics. These high yielding financial instruments are the Nepalese honey of investments — accessible to a select group, well beyond our tax brackets. Our debt of desperation becomes the fertile soil by which corporate America would rise from its COVID-19 ashes, like a phoenix with viral immunity. Yes, we will be left in the ashes poorer and with fewer options.
As I see it, we have all paid into this system and trusted the principle articulated in America’s preamble to “promote the general welfare.” Now is the perfect time for the taxpayer-funded government to support plans that promote our general welfare. We have been patient and we certainly deserve it.
