Schwab advocates Social Security means test

Charles Schwab is dedicated to customer service. Now more than ever, clients will depend on Schwab financial services to build lucrative portfolios in tax-advantaged IRAs and Keoghs. Mr. Schwab has an odd way of showing customer appreciation, though. He's urging the government to take Social Security away from his own best customers.

It's very good of Mr. Schwab to suggest ways for the government to save money. That's what he does. If I wanted Mr. Schwab's advice on saving, I'd have to pay thousands of dollars an hour. But Mr. Schwab is deluging our leaders with free financial advice because he loves America so much. What a patriot.

It is probably ungrateful and deviant of me to wonder whether I'm being blackmailed to use even more Mr. Schwab's financial services to make sure my retirement income will be least $50,000 plus lost Social Security benefits.

Schwab advocates means-testing for Social Security benefits [Chicago Tribune]

Published November 11, 2004

Charles Schwab, chief executive of the investment firm that bears his name, says it's time to apply a means test to Social Security benefits.

Schwab, 67, who was credited two years ago with persuading President Bush to push for a tax cut on dividend income, said in an interview Wednesday that Social Security should be an income insurance program for retirees in need.

Currently, all Americans who pay premiums into the Social Security system during their working lives can claim retirement benefits, regardless of their wealth.

"After you turn 65, you would apply for the insurance," he said. Under his plan, "you can only apply if your outside income is less than $50,000. If you're above $50,000, you can't apply, because you have adequate income."

Schwab said he isn't wedded to the $50,000 figure, but said eliminating benefits at that point would save the Social Security system 15 percent of its future liabilities.

He said people who take advantage of tax-advantaged savings programs, such as IRA and Keogh accounts, and have resources to generate $50,000 in retirement income are able to surrender Social Security benefits, even though they paid into the program throughout their working lives.

"They can afford to do that," he said. [!]

Schwab said he has not discussed his idea with Bush but is developing a formal proposal for Congress and the White House to consider.

In August 2002, Schwab sat next to Bush at an economic summit in Waco, Texas. At that time, he advocated the end of the so-called double tax on corporate dividends: the tax paid by individuals on dividend income plus the tax paid by corporations on income before dividends are paid.

Bush later proposed, and Congress enacted, a reduction in the individual tax rate on dividend income to 15 percent.

Press accounts suggested that Bush bonded at the Waco summit with Schwab, whose wife, Helen, hails from Midland, Texas, birthplace of First Lady Laura Bush. Schwab's name briefly surfaced as a potential successor to former Treasury Secretary Paul O'Neill.

In July, Schwab resumed his post as chief executive of Charles Schwab Corp., after the firm fired David Pottruck.

A spokesman for Treasury Secretary John Snow said Snow has met with Schwab on several occasions but never discussed means-testing Social Security benefits.

A White House spokesman said Bush has not endorsed any specific plans, except four principles: no change in benefits for current retirees and near-retirees; strengthening the program without raising payroll taxes; voluntary personal accounts for younger workers to invest part of their premiums; and continued benefits for those who choose not to open personal accounts.

Applying a means test to Social Security benefits has not attained political traction for several reasons. Eliminating wealthier individuals from benefits could erode political support for the program as a universal safety net. A means test could result in attempts to hide income and wealth to retain eligibility.
In the recent presidential campaign, Democrat John Kerry denied that he favored means-testing, but he said wealthy Americans who live long lives should not collect more in Social Security benefits than they paid into the system. [Emphasis added.]

Comments

[Karlo]

There should be a means test. The top quintile already have much more than their share of the profits that have been produced by the bottom four quintiles. If there's concern about people hiding wealth to qualify, we could make the benefits kick in gradually instead of applying an absolute threshold.

[rob]

I concur with Karlo and Charles Schwab. I don't think means testing social security is an illiberal ideal at all. Right now Social Security amounts to a very regressive tax. Payments in from poor young people go out to rich old people.

The problem is that means testing social security would mean admitting that Social Security is a form of welfare, and not really a retirement account that we all share. I know FDR originally sold it as a retirement account, and he's a big hero for economic interventionists, but really, its time we admit that this is just a transfer payment, even if it is, for now, running a surplus.

[Lindsay Beyerstein]

I disagree. Social Security is pay as you go (self-financing). When you retire, you get your own contributions back with interest.

I'm all for redistributing wealth, but not through Social Security.

[sennoma]

I agree with Lindsay here. Where's the "transfer"? No one gets Soc Sec payments without having paid in, and you have to live a loooooong time to make money on the scheme -- unless I'm missing something.

It's a form of mandatory retirement saving, which is irritating when I think I could do better with the savings and a welcome safety net when I remember how prone I am to screwups, particularly financial ones.

[Charles2]

In a strictly reality-based world, there would be some kind of means test for Social Security; and nobody would have a problem with putting aside a little money for those who reach retirement with nothing. However, in the political world, where very little is based on fact, a means test is likely a non-starter.

So what's left? Futzing around with future benefits means that those who retire comfortably will miss out on a trip to Florida every couple of years. Those who retire with no savings will have to miss out on a meal every couple of days. And the fund still dries up in a few decades. Leaving things as they are is just inviting disaster.

The real pity is that there is noone in politics with either the wisdom or the gonadal fortitude to slice through this Gordian knot. The result? Tinkering around the edges and leaving the real problem to the next generation to fix. Just like always.

[CLEE R.RIDENOUR]

I am against means testing. Before they means test the retirees, they should return all monies plus interest to the retiree as they promised them social security benefites when they retired.this includes all the moneys they were forced to pay without question.

[The Phantom]

There should not be a means test...if there ever is one, it will be a long, slippery slope to a point where Social Security is regarded as a welfare program.

And it would be a complete abrogation of part of the social contract that has existed since its creation.

[larry thurman]

The money i receive from Social Security is money that i paid by hold out on my check each week. This is not free money some of you goons along with Schwab indicate. This is just payment back on my own money. I suppose some people would enjoy me working 35 years and paying in all the money i did and then just lose it or a big part of it, but not me .

[Ithinkforward]

It'll take benefit cuts of 60% of Medicare and Social Security to balance the budget in 2040. Or a doubling of federal taxes.

Today's senior subsidies are being laid at the feet of today's toddlers. They won't appreciate boomers' sense of self-entitlement.

Means testing is a strong, pragmatic possibility. It's either that or across the board cuts.

[Albert]

In college Social Security was described as mandatory insurance against old age and disability. It is insurance required by the government. People that paid in should get their benefits. There is so much money in this country for Lockheed Martin, Boeing and a billion other things, I know that we can provide for all of our people regardless of means. It is stupid and disgusting to renege on a lifetime promise.