Thomas Sowell, a Senior Fellow at the Hoover Institution, recently proposed that “ending subsidies to billionaires will cut spending.”
My plan would start by cutting off transfer payments to billionaires. . . . . . . [for example] agricultural subsidies go to a number of billionaires. Very little goes to ordinary farmers.
Mr. Sowell’s commentary proded my interest in a government practice I have been following since the early days of my career. I have always had a difficult time reconciling the fact that some of those in the highest income brackets in America are receiving Social Security benefits. I thought Social Security was designed to provide for people who had little or nothing else with which to sustain themselves in retirement.
Out of the approximate 115,000,000 households in America only about 13,500 have an annual realized income of $10M or more. The average is approximately $30M; the median, over $17M. Only one household in approximately 8,500 is in the $10M or more realized annual income bracket.
Nearly 1 in 5 of those in this high income category (18.6% or approximately 2,500) receive Social Security benefits. The majority of the others in this category will eventually qualify for these benefits at age 66. More than 4 out of 5 (83%) currently generate salary and wages/earned income. These high end recipients have an income that is nearly 200 times the median net worth of an American household and nearly 350 times the median income.
Yes, yes, yes, I understand that these people paid into Social Security. But do they really need that monthly check to make ends meet? With all this talk about the pros and cons of “taxing the rich” both sides of the aisle should come together and propose a more equitable distribution of Social Security dollars as well as government subsidies for agriculture, etc.
Assuming each of these recipients receive the maximum monthly benefit of $2366, eliminating them from the roles would save just under $70,980,000.00 annually. Not exactly a solution to close our $1,000,000,000,000.00 annual deficit (this yields about .7% of a solution). Of course, this does not consider that these high earners pay taxes on the amount of social security received (despite already paying taxes on their contributions), so the yield is actually less.
The moment the public or elected officials decided that someone else did not NEED their own property…the property they earned…was the moment we breeched a levee holding back flood waters of public greed. Now how much does someone need? And who decides this? What if the public decided it was okay for a poor person to walk into a wealthy estate and steal property without punishment? After all, they don’t need it.
Consider that the wealthy and high income earners can reinvest better than government. The 10-20k they’d receive in benefits could be invested to provide more jobs. Doesn’t seem like much, but Microsoft was started on less.
And where do you stop? Its 10 million today. Next year it could be 1 million. And then $250k. And then 50k. The point of this republic saws to protect the minorities. To give them equal rights to property and life and liberty. Refusing to return what the government took by force but promised to return is tantamount to theft.
There are far more productive solutions to the looming social security crisis than this.
Wow, I was going to do one of those countdowns to libertarian crazy, but Rainer’s post beat me to it.
Seriously, you think rich people invest their money in jobs? They don’t. They usually put excess money in investments, which are usually purchased on the secondary market. The people who are employed from that are incidental. The wealthy may invest better than the government, but it’s to their profit, not to the benefit of society.
And, on a more solemn note, if the government is taking your taxes by force, you’re doing you taxes way wrong. I suggest hiring some capable help.
If our government insists I invest with them (SS) but if I’m independently successful, I’ll not get any return on my mandatory investment …. I think that is a questionable philosophy for our government to have.
I thought I read of studies that said programs that apply equally to all generate less feelings of inequality between “haves” and “have nots” then do targeted/means tested programs (to poor or rich). I suspect that most folks living in poverty (I’ve been there) would agree with the notion that if someone earned it, they should be able to get it.
With that said, fixing decades of over-promising and living on credit is going to cost everyone. The next one of our elected representatives that votes to give out things we can’t afford should have to give back a percentage of their wealth and income in proportion to whatever the current deficit might be. Make them responsible, for life, for the decisions they make (or vote for).
Swintah —
“You think rich people invest their money in jobs? They don’t.”
Really? They stick it under their mattress? I personally know several multi-millionaires, and EVERY ONE of them started secondary businesses with the profits of their first. These businesses HIRE PEOPLE.
As documented in Stanley’s books, the majority of self-made millionaires make their money through small and medium-size businesses. If these businesses are so successful at creating wealth, why would a self-made rich person suddenly abandon them? Businesses and ergo JOBS are great investments, and the rich know it.
“They usually put excess money in investments.”
Uh, right. Like businesses. Investments are not magic, they must CREATE VALUE in order to generate profit. Even IF the wealthy didn’t invest directly in additional businesses (which they DO), money invested in “secondary” investments also increases jobs. Investing in a company’s stock, for example, ALLOWS THAT COMPANY TO EXPAND FASTER.
Investment and expansion = more jobs for more people. Viva Free Market Capitalism.
Benjamin —
I will see your several multi-millionaires personally known and raise you an additional dozen plane-jane millionaires. Most of the millionaires I know don’t “invest” in jobs, they will invest in securities traded on the secondary market (or maybe some real estate, but let’s not complicate things.) Yes, the secondary market indirectly creates some jobs. Eventually. But that’s not the primary purpose of the markets for the wealthy. The primary purpose of the secondary market for the wealthy is as a store of value that will diversify risks and may have returns that will exceed inflation or generate larger profits than alternate investment options. That a secondary market will eventually create additional jobs is a nice unintended consequence, but not the point of the investment.
Jobs are terrible “investments” and the rich know it. Remember, payroll is an expense, not an investment. I can guarantee you that every small business owner I know would reduce their workforce in a heartbeat if they could still maintain their sales or quality of service on fewer people. Jobs are those things they make only when they absolutely must. Small business owners generally seek to maximize profit, not stakeholder value, not the quality of their local community, and not society as a whole. That these things sometimes benefit from investment and expansion is yet another unintended consequence.
I also agree that investments are not magic. They also don’t magically link value and profit. Allow me to point to our recent securitized mortgage debacle. There were a lot of mortgages written that were fraudulent or in complete disregard of creditworthiness. They were then securitized and sold at a profit, even though they were nearly valueless. How could this happen if investments must create value in order to profit?
Remember, free market capitalism is desperately reliant on the government to maintain markets that are equitable for the participants and free from violence and fraud. That the government is imperfect at this task doesn’t mean the markets will benefit from the removal of government (in spite of what some political movements would have you believe.) Free Market Capitalism is not the source of all good things. It’s a valuable economic tool that should be used when it is most effective, and disregarded where it will be ineffective.
The point is, wealthy people who seek to maximize profit may provide incidental benefits or employment to others, but that is usually an unintended consequence. Instead of revering them as the great providers of jobs, perhaps we should use strategies to create jobs that do so directly and provide immediate benefit to both the job seekers and those served.
Swintah –
The real-life facts and numbers don’t match your claims.
Fact is, the most profitable companies ALSO provide the most jobs. (Reference URLs below.)
And as for your government “strategies to create jobs that do so directly,” more facts: The government is HORRIBLE at creating jobs, while businessmen are FANTASTIC at it. A quick example: One SINGLE company (WalMart) employs more people than the U.S. Federal Government. When you combine all companies together, the number of business-provided jobs is off the charts.
Put swindlers and crooks in jail, yes — and then get out of the way and let U.S. business do what it does best.
References:
http://money.cnn.com/galleries/2010/fortune/1004/gallery.fortune500_mostprofitable.fortune/index.html
http://en.wikipedia.org/wiki/List_of_companies_by_employees
http://money.cnn.com/magazines/fortune/global500/2009/performers/companies/biggest/
Of course it’s true that people earning 10M or more don’t need social security. My concern, however, is that to cut off people who have paid into social security is a slippery slope.
What’s to stop someone else from saying that someone with 5M or 1M in income doesn’t deserve it. Carried further, I could see a time when the conversation changes to those who have saved adequately may not need to collect social security. At that point it begins to affect me. As I understand social security it is not considered welfare or redistribution of wealth as much as it is a forced retirement plan for U.S. workers. Those that aren’t offered workplace facilitated retirement options or don’t have the ability or interest to plan for themselves have this forced plan as a “safety net”. That’s great, I just don’t want it to get to the point where people who have been successful or have been good planners are penalized for their success.
Really? Once again,a penalty for doing well in society. Let the multi-millionaires decide whether to redistribute their SS back to the poor. Many already give in excess of any SS benefit they may receive and are likely to continue doing so.
Socialism will never lead to a productive society. Poor people can benefit so much more by studying the rich than by fleecing them with the help of the government.
So, Benjamin, you’ve proved that the private sector is larger than the public sector in the U.S. Bravo. Sadly, it has nothing to do with the discussion at hand, which is do the wealthy (people, not corporations) prefer to purchase labor (make jobs), or purchase other items? (I assert they prefer to purchase securities on the secondary market.)
I have yet to meet a wealthy individual who receives Social Security payments and proclaims: “By gum, I’ve got money in excess of my needs/wants! What shall I do? I know; I’ll purchase some labor!” Instead, they usually chuck it in their checking account (the contemporary analog of storing money under the mattress, i.e. hoarding), spend it on increasing their lifestyle, or invest it in securities.
The point (which you are so quick to evade) is that wealthy people don’t care about jobs. That’s not their goal. They are concerned with maximizing their wealth and influence (generally). That others benefit from this eventually is incidental.
Thus, I propose we use monies that may create jobs eventually or indirectly to directly create jobs and the related benefits to society immediately.
Also, Benjamin, you can call the persons working on securitizing mortgages “swindlers” all you want, but they were doing their jobs and were doing (virtually) nothing illegal. Yet their free market machinations have put housing markets in shambles and done terrible violence to our economy. They actively removed value from their customers, both the purchasers of mortgages and the purchasers of the mortgage security, and made a princely sum for doing it. All you hand-waving and dismissal in the world won’t change the fact that your assertion that investments must create value to profit is patently and demonstrably false.
If the government were to get out of the way and let businesses do what they do best (aggregating money to the shareholders), I shudder to think of the misery that would ensue. The markets have shown over and over again that government regulation is absolutely necessary for their effective functioning. Otherwise, we would put ourselves at the mercy of the whims of the wealthy and powerful, and history shows us those mercies are not tender.
Dear Rhonda,
If the punishment for earning $10 million is to lose Social Security, then I will grudgingly accept the terrible punishment and loss of my old age pension and console myself by swimming in my pool of gold dubloons in my money bin, which I would buy with my $10 million income.
Yours in applying a sense of scale and proportion to the problems of our age,
Swintah
I am a little disillusioned by your lastest post prof. Stanley. Why would u make these hard working individuals contribute to social security and not get anything back? Doesn’t make any sense. Why instead of making the “high income” earners contribute to social security why not make them opt-out if they so desire?
I don’t understand why the go’vt doesn’t just lift the cap of 106K. Granted, Bill Gates could be paid $1, but most of the athletes would pay more in SS. Maybe not a ton more, but I sort of agree that if you have a huge net worth, sacrificing your SS isn’t that big of a deal.