The Social Security issue is perhaps the thorniest and the most complex. If most Texans understood how the system currently worked, they would likely opt for open rebellion rather than an orderly Texit. Before looking at how Texas should handle this issue in the negotiation and transition phase, it is important to make an honest assessment of the Social Security system as it is now in the United States.
While Social Security retirement benefits are perceived as an earned benefit, in actuality the benefits paid are at the discretion of the federal government. It amounts to a government-sponsored, government-mandated Ponzi scheme that relies on an increasing number of workers who pay into the system in order to pay out the benefits promised by the self-serving political class.
The faith in the government’s ability to meet its promises is eroding daily. A 2015 survey by Pew Research Center found that 41 percent of Americans think there will be no Social Security benefits for them when they retire. Another third believe they will receive significantly reduced levels of benefits.
In CNBC’s article about the PRC report, they painted an even direr scenario.
“The Social Security and Medicare Trustees’ 2014 report projects that all the Social Security trust funds will be depleted by 2033. At that point, the agency will be able to pay out about 77 percent of retirement benefits from payroll taxes collected. By 2088, the trustees forecast the agency will be able to pay out 72 percent of benefits. (Studies from Harvard and Dartmouth project the trust funds could be depleted sooner than that and claim the Social Security Administration’s actuarial forecasts have been consistently overstating the financial health of the program’s trust funds since 2000.)”
When contemplating the path forward in negotiating this aspect of Texit, it is important to keep in mind that the real possibility exists that Social Security retirement will disappear sooner rather than later. It is also important to think about current and future Texans who are forced to pay into a retirement system that could leave them destitute in their old age.
In a post-referendum Texit, Texas will need to think about Texans first and will have to advocate for them. While we can look for common ground in other areas of negotiation and seek opportunities for a win-win solution, when it comes to Social Security, Texas must take a “no surrender” approach.
Any Texan who has paid into the Social Security system and is currently receiving benefits should continue to receive them. This is non-negotiable. This was an obligation of the federal government to those who paid into the system and should, therefore, be met without question, hesitation, or reservation. This should be no problem for the federal government since it is possible for Social Security recipients to move to a foreign country and still collect their benefits. Additionally, those who have paid in should be able to preserve their accrued benefits for exactly the same reason.
To lessen the impact of a sudden change in the system, workers who are currently paying into that system should be given an option to continue paying into the United States Social Security system or opting out completely. It’s safe to assume that many Texans will opt out and invest in private retirement accounts, but some will want to continue paying into the federal system, especially those close to retirement age. Given the reports of how dire the situation is for the Social Security Trust Fund, the federal government will likely find it appealing to have some Texans still paying into the system.
Moving forward, Texans may find it beneficial to establish a voluntary retirement and pension system similar to the one that already exists for state employees and educators. An easier step would be to open enrollment for either or both of those systems to any citizen in Texas.
Where the future relationship between Texas and the United States is concerned, this is more important than it might seem on its face. Post-Texit, there will be businesses that have feet in both Texas and the United States. Those businesses will want to seamlessly transfer workers from one place to the other without potentially subjecting them to dual Social Security taxation, the situation that occurs when a worker from one country works in another country and is required to pay Social Security taxes to both countries on the same earnings.
This is accomplished by the execution of what are known as international totalization agreements. Totalization agreements allow workers to combine the years they have worked in two different countries in order to be eligible for retirement benefits in one or both countries. The retirement benefits paid by each country are prorated based on the number of years worked there.
Totalization agreements are not alien to the United States. They currently have such agreements with Australia, Austria, Belgium, Canada, Chile, the Czech Republic, Denmark, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Japan, Luxembourg, Netherlands, Norway, Poland, Portugal, the Slovak Republic, South Korea, Spain, Sweden, Switzerland, and the United Kingdom.
Steven Weiser, a tax lawyer with a practice focusing on international tax matters, explained how these totalization agreements work.
“For example, if an individual accumulates six years of coverage under the U.S. social security system and ten years of coverage in another country’s system that requires 15 years of coverage for full benefit eligibility, both countries will treat the individual as if a total of 16 years had been completed under each system. However, the U.S. benefit would be 5/16 of the benefit computed on the basis of earnings in both countries during the 15-year period (and 10/16 in the other country).”
Regardless of the final shape of any agreement on Social Security, it is important to mention that, if the United States fails to negotiate in good faith on this issue or if they fail to honor their obligations to hard-working Texans who have paid into their system, Texas will always take care of its most vulnerable citizens. The total amount of federal money that comes back to Texas annually for federal pension benefits is approximately $74 billion. This is far short of the $120-$160 billion annually that we overpay into the federal system that will now stay here in Texas. In short, if they choose the immoral route, we’ve got it covered.