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Politics : American Presidential Politics and foreign affairs
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To: LLCF who wrote (68686)1/11/2014 11:56:55 AM
From: TimF  Read Replies (1) of 71588
 
I personally don't think that SS retirement funds are best described as insurance. Its more tax and spend redistribution than it is insurance against risk.

But if you want to go with "its insurance". Insurance does not "pay out when you need it". It pays out when you have an insured loss. If Bill Gates bought a cheap econobox, insured it, then got in to an accident, he could get an insurance pay out despite the fact that he would not need it. Insurance is not means tested.

Which doesn't mean I'm against the idea of more means testing for federal benefits, even maybe for Social Security, its just that RMF is correct that the means testing doesn't fit well with the insurance paradigm. Also it can create negative incentives unless it tapers off very slowly. As someone makes more money, they often lose benefits and start to pay taxes, then taxes at a higher rate. Adding a reduction in SS payouts to that can make the effective marginal rate on the loss of money rather large, and so disincentive earning higher incomes and creating wealth. Already in certain special cases (mostly involving people with minor dependent children so it wouldn't be applicable to most SS retirees) people can be worse off by making more money. The Obamacare subsidy setup adds to that. If we keep adding more and more benefits and/or taxes that operate that way, more and more people will see that it isn't in their interest to try to make any more.
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