Second-Litter Subsidy Says A Lot About Social Security

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By on March 9, 2018 in Retirement with 0 Comments

A broken piggy bank with a few coins framed inside of a Social Security card

The Washington Post recently published a piece on Social Security benefits which provides an illuminating view into the brokenness of the program’s finances – just not in the way that the authors intended.

Specifically, the article mentions the fact that President Trump’s son, Barron, is eligible to collect benefits based on his father’s work record, which the authors speculate could generate an annual payment of maybe $15,000 for the care of young Trump. They are right. It is appalling that a billionaire is apt to collect a bonus that approaches what the average retiree collects in total.

While the authors are incredulous over Trump’s potential haul, the President is hardly the most egregious example. In a more visible case, Pete Stark, a former House member from California, fathered 3 children after the age of 65 who enjoyed nearly 2 decades of public subsidies.

These payments are called the second-litter subsidy, named for those octogenarians who start a 2nd, 3rd, and 4th families decades out of their generation. This feature of the program has also generated a number of urban legends of grandparents who adopt their grandchildren in order to increase their benefit take.

As troubling as these payments are, here is where the article truly shines a light on the brokenness of the system.

“There’s the ‘single parent shortchange’, whereby many single parents — largely mothers with below-average earnings — pay Social Security taxes to cover spousal and survivor benefits for other people even though the solo parents can’t receive them.”

“Shortchange?” Are you kidding me? These benefits are not paid for by anyone. They represent perks added to the system in 1939 purely at the expense of future voters. Instead of increasing payroll taxes for the incremental benefits, Congress reduced payroll taxes steadily over the ensuing decade. Today, workers pay 12.4 percent whether they can collect these benefits or not. These payments are essentially freebies, thrown in by a system that is hemorrhaging red-ink.

Thus, the piece serves more as an example of why the program is broken than a remedy for its troubles. Instead of acknowledging that the cost of the generosity of the system is borne by future retirees, the authors are readily willing to spend any savings on some other voter. In this case, they would target extra benefits for the poor.

This is the shining light: the problem with the discussion of Social Security reform is for every penny saved there is a politician or pundit readily willing to spend two.

How about just ending the payments? These payments simply reflect the heavy hand of politics that has systemically rewarded voters at the expense of future voters for nearly 80 years. Today, Washington is considering adding benefits for parental leave to the system. Separately, another element of politics wants to allow workers to payoff student loans with benefits. Washington views Social Security as a massive pot of cash that can solve any number of issues.

Instead, pundits and policy managers alike want to blame “demographics.” Who hasn’t heard the blah-blah-blah about the declining workers to retirees. This narrative is the feel good story in which the greatest accomplishment of government is simply a victim of forces beyond our control. The unfortunate fact is that we can’t have enough babies to offset the ability of politicians to make empty promises.

Readers of this column are understandably critical because I never propose solutions. Here, I am making a recommendation. Just end these payments. Do not grandfather existing beneficiaries. Just end them. Congress wouldn’t be reducing earned benefits. It would be ending political pork-barrel that is corroding the system’s long-term finances.

This isn’t the entirety of the solution, but it is certainly part of it. More than reducing the shortfall in the program’s finance, such a change would open a discussion about what Social Security is supposed to do.

© 2018 Brenton Smith. All rights reserved. This article may not be reproduced without express written consent from Brenton Smith.

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About the Author

Brenton Smith (A.K.A. Joe The Economist) writes nationally on the issue of Social Security reform with work appearing in Forbes, FedSmith.com, MarketWatch, TheHill.com, and regional media like The Denver Post.

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