Obama's Amnesty Impact on Social Security

The long-term financial condition of Social Security and Medicare will vastly worsen as a result of Obama's executive order legalizing an estimate 5 million illegal immigrants.

• Most workers pay into the programs for their working careers, between 40 and 50 years. But millions of Obama's newly legalized are working-age adults with children, so many could be in their 40s or older.  Thus they could pay FICA taxes for the next, say, 15 or 20 years — less than half the average American worker — and be eligible for the full array of Social Security and Medicare benefits.
• In addition, most will be lower-income workers. The U.S. Bureau of Labor Statistics estimates that foreign-born, full-time workers earn about 80% of native-born Americans ($33,500 vs. $41,900).  Social Security is a social insurance program and is structured to provide disproportionately more benefits for lower-income workers. Medicare pays the same regardless of how much a worker pays in.
• Given the demographic unknowns, estimating the amnesty's financial cost to our retirement programs — and so to U.S. taxpayers — can only be approximate. But using a basic simulation model, we believe the government will receive about $500 billion in payroll tax revenue (including Part B and drug premiums), and expect it to pay out some $2 trillion in benefits over several decades. 
• In one executive order Obama may have created his biggest income transfer scheme yet, and imposed the worst financial challenge to our two already-struggling retirement programs. And millions of Americans can expect to see their taxes go up in the future to pay for it.

Source: Obama's Amnesty Will Create a Fiscal Nightmare for Entitlements, Merrill Matthews and Marke E. Litow, Investor's Business Daily

Building a Better Social Security System

The New York Times started the discussion by "accidentally admitting" that the Netherland's privatized pension system is a more secure, reliable system than the American government-run system, and Dan Mitchell @ thefederalist.com carries it forward.

Under the Dutch system:

• each generation pays its own retirement costs through private savings and private investments in diversified, professionally-run pension funds (unlike the US, which is based on inter-generational redistribution);
• annual worker savings are government-mandated, typically about 18% of workers' pay (the American Social Security system is roughly 16.4%);
• government doesn't control—and can't access—any of those pension funds (unlike the American system which is wholly controlled and owned by the federal government);
• workers' incomes used to build retirement accounts are taxed only once (similar to American Individual Retirement Accounts):  no tax is levied on pension contributions, and pension funds' investment performance isn't taxed; pension benefits are taxed only when their owners receive them; and
• Dutch retirement plans are intended to amount to about 70 percent of workers' lifetime pay (compared to just 40 percent of American worker's income in retirement).

Mitchell argues, that while there are some things about the Dutch market-based system that could be improved,

I would gladly trade the U.S. Social Security system for the Dutch mandatory pension System. An imperfect system based on private savings is always a better bet than a perfectly terrible tax-and-transfer scheme. For more information, here's the video I narrated explaining why personal retirement accounts are far superior to government-run schemes such as Social Security.

Mitchell adds that, in his estimation, the best role model is Australia's pension system.

Should Social Security Be Means-Tested?

It's curious that so many, including the Heritage Foundation, want to fix the federal debt by means-testing Social Security, especially since it would be the surest way to kill the program by turning it into a pure federal welfare program. After all, why should voters continue to support FICA deductions (i.e., Federal Insurance Contributions Act) from their paychecks when only the poor would ever receive anything from it?

In "Is Means-Testing Just," Paul A. Rahe develops a strong argument that means-testing is the wrong solution to the Social Security problem, and he cautions conservative policy-wonks not to "march over the cliff" without thinking this through. It's an important read, particularly for young conservatives.