Why won’t this idea go AWAY?
Like Frankenstein’s monster, it seems the corpse of Senator Marco Rubio’s horrendous paid family leave bill has been taken apart, rearranged, sewn back together, and resurrected in the form of the latest stimulus proposal.
Is this simply robbing Peter to pay Paul or a sub-optimal policy proposal that is sufficiently politically palatable for both Democrats and Republicans to stomach?
The proposal, called the “Eagle Plan”, was unveiled in a 29-page memo written by economist, Dr. Joshua Rauh and Andrew Biggs of American Enterprise Institute. The goal of the plan is to offer a stimulus strategy that puts money directly in Americans’ pockets while avoiding massive government expenditures and deficits.
Sounds great, right? Have a look at the proposal. If you’ve been with us for a while, it will definitely sound a little familiar.
The Eagle Plan proposes to offer Americans a direct stimulus payment of $5,000 to help with expenses—far more than the $1,200 dollars provided by our last stimulus measure. And unlike proposals to cut taxes, it is a direct payment, something we know has much more of an immediate impact for everyday people’s economic health.
But from what giant piggy bank do you think these millions of dollars will be coming? We’d give you three guesses, but the first thing that probably came to your mind was the correct answer.
Social Security. In exchange for $5,000 in emergency relief payments—paid out by the Trust Fund—the borrower would agree to delay their full Social Security benefit for up to three months.
Yeah, we know. Déjà vu, right?
But, wait! This proposal is different! In THIS scenario, borrowers would only delay their full benefits by three months at most. And the borrowing of potentially MILLIONS of $5,000 increments in an incredibly short amount of time would be offset by the interest rate added to the repayment upon filing for Social Security. For the first three months after filing for retirement, borrowers would have that $5,000 taken out of their benefits PLUS the interest rate needed to make it so that this mass borrowing doesn’t actually affect the actuarial balance of Social Security in the long-term!
Also, did you know that if you spent every single cent of money in your bank account to buy a house that appraises for more than what you paid, you actually have MORE money than you started out with? Anyway, good luck with paying that light bill this month.
Right now, as far as we know, Social Security is set to bleed reserve funds dry by 2035. If the Coronavirus pandemic doesn’t have any impact on the long-term health of the Trust, we have 15 years of solvency left. Very probably, that won’t be the case. Some economic experts project a future recession event caused by the pandemic could reduce solvency by several years, putting a more realistic insolvency date at 2029 or 2028. Eight short years from now.
Our question is this: is everyone going to pay that $5,000 back with interest within the next eight years?
If our worst case scenario projections are true, what good does offsetting some future actuarial balance do when the Trust Fund is nearing insolvency RIGHT NOW? What good does paying that money back when the borrower files for retirement do RIGHT NOW? That borrower may not be anywhere near retirement age. Are all the borrowers going to be in their fifties and sixties?
While we wait for those borrowed funds to come back to Social Security, today’s retirees and near-retirees could be drawing their benefits from a system that no longer has the funds in reserve to issue full scheduled benefits. What does this proposal do to protect them from benefit cuts in the interim?
And as with Rubio’s paid family leave proposal, there remains the criticism that we would be tempting younger people with without the ability to see into the future to leverage their only assured retirement income for financial stability right now. It’s a no-brainer for people suffering at this present moment to take the money when they need it. But in 20, 30, 40 years? They may be in a far worse situation. They may not be in a position to cope with even three months of delayed full payments.
Asking people to gamble their retirement security for security right now is wrong. And “wrong” doesn’t even BEGIN to explain the nature of only making time to remember Social Security’s finances when we need a quick source of cash.
Social Security is suffering. It was suffering long before we started going through what we’re going through now. Congress has been sitting on it’s hands for decades knowing Social Security doesn’t have the money to pay full benefits very soon. And yet it keeps entertaining the idea of using what little reserves we have left to pay out even more with no immediate plans to increase solvency.
OASDI is for seniors and retirees ONLY. This is ridiculous.