November 10, 2004
From Dartmouth, Andrew Samwick Sets Out His Social Security Position
Andrew Samwick writes:
Vox Baby: How to Reform Social Security: I have devoted a few posts to taking the Democratic leadership in both the Congress and the Presidential campaign to task for failing to play a constructive role in the debate on Social Security reform. In less strident language, I have also noted my disappointment that President Bush has not put more emphasis on this issue by, for example, submitting one of the plans devised by his Commission as a starting point for bipartisan legislative debate. So what do I think is the right way to reform Social Security?
Here are my objectives, in declining order of importance:
1. Restore Solvency. The pressing problem today is that the benefits promised under current law are projected to exceed the revenues collected. The present value of that excess is $10.4 trillion. We need to fill that hole.
2. Relieve Poverty. The purpose of Social Security is to provide insurance against poverty in old age. Social Security collectively refers to the Federal Old-Age, Survivors, and Disability Insurance programs. Any reform of the system should pay careful attention to these risks of elderly poverty.
3. Keep the Program Small. I do not believe that government programs should be any larger than they have to be in order to achieve their objectives. I consider myself to be a proponent of limited (though purposeful) government. If we can meet the objectives of having the program financially sound and keeping the elderly out of poverty with a small program or with a large program, then I choose the small one.
These three objectives don't make any mention of personal accounts. That's because they don't necessarily require the program to get any bigger, measured by the size of the taxes that are necessary to support it. (Solvency could be restored through progressive benefit cuts entirely.) However, most people who have proposed a specific reform have added new revenues. Once new revenues are being added to the system, then it becomes important to figure out where they should go--the Trust Fund or personal accounts.
Confronted with that choice, I opt for personal accounts. For me, an immediate and permanent contribution of 3.5 percent of taxable payroll into personal accounts for all workers, in addition to the 12.4 percent payroll tax that they and their employers already pay, is preferable to the current system. The contributions are 3.5 percent because that is the amount that the Social Security actuaries say is required to restore solvency even if invested entirely in Treasury bonds. But such a reform, though preferred to the current scenario, is also far from ideal....
Vox Baby: How to Reform Social Security: The last time I wrote for an academic audience about Social Security.... I argued that the most sensible way to restore solvency was by raising the age at which the system pays out full benefits, also called the normal retirement age, or NRA....
The dramatic increase in Social Security's cost rate over the next several decades is mainly due to the increase in the number of beneficiaries relative to covered workers. In 2004, there are 30 beneficiaries per 100 workers. By 2080, there will be 54, an increase of about 80 percent (as shown in this table). Over the same period, the program's cost rate--the ratio of benefits paid to taxable payroll--will increase from 11.07 to 19.39 percent, an increase of about 75 percent (as shown in this table). That the increases are so close shows that the projected deterioration in Social Security's finances is almost entirely the product of demographic shifts.
There are two reasons why there will be about 80 percent more beneficiaries relative to workers in the future: lower fertility rates and lower mortality rates.... Failing to index the retirement age to life expectancy implies an increasing portion of adulthood spent collecting benefits. Policy makers could craft a sensible justification for raising these ages. Consider how much easier it is to explain why retirement ages have to increase than it is to make sense of, say, an effective switch from wage indexing to price indexing in the calculation of the benefits (the centerpiece of Commission Model 2). Other reforms could be introduced to compensate for the impact of lower fertility rates on the system's finances, and I would not be against the ones that work by reducing future benefits rather than raising future payroll taxes. I would prefer to just stick with one policy lever to keep things simple.
A rough calculation suggests that the normal retirement age would have to increase to 73 by 2080 in order to restore solvency using only this policy lever. Though it seems to be a large change, it can be phased-in at a rate of about a year of age per decade (if we start now). When fully phased in, a worker who wished to retire at the currently legislated normal retirement age of 67 would face actuarial reductions of about 40 percent of benefits (e.g., the current early retirement reduction factor of 6 2/3 percent per year for 6 years). It would be perfectly reasonable to help people retire earlier than the NRA by facilitating a system of personal accounts, and, as I noted earlier, if any new money is coming into the system, it should be done through personal accounts.
Raising the NRA by this much would create a few complications, which could be easily addressed. Here is a list of the ones I think are most important:
1. The Early Eligibility Age. Workers can first claim benefits at the early eligiblity age (EEA), which is currently 62 and not scheduled to increase. Benefits are reduced at an actuarially fair rate for each year that benefits are taken before the NRA. When the NRA is 67, the total reduction for those 5 years will be 30 percent of benefits. If the NRA goes up, then the EEA should also go up. Otherwise, some people who live for a long time after claiming benefits at age 62 would be at risk for poverty later on in old age.
2. Pressures on the Disability Insurance Program. Workers who become disabled before their normal retirement age are eligible for disability benefits. These benefits are more generous than benefits taken early in the absence of disability. With higher ages for full and early benefits, there is more of an opportunity (and possibly a greater incentive) for workers to claim disability. This will increase program costs and can be addressed by having the normal retirement age increase a bit faster than a year per decade, if necessary.
3. The Bigger Hit to Low-Earners. People with higher incomes over their lifetime tend to live longer. Raising the Normal Retirement Age therefore disadvantages lower income workers more than higher income workers. This impact can be offset by changes in the benefit formula to give higher replacement rates for lower earnings, paid for by lower replacement rates at higher earnings levels.
With the retirement ages linked to projected improvements in life expectancy, personal accounts can serve two purposes. First, their accumulations can facilitate retirement at ages earlier than the legislated early and normal retirement ages. There is nothing wrong with people retiring when they choose--they just should not do so at the public's expense or at the risk of their own poverty later in old age. Second, when confronted with the magnitude of the increase in the NRA required to restore solvency, policy makers may decide that they prefer to bring new revenues into the system rather than rely solely on higher retirement ages. Investing those revenues in personal accounts rather than the Trust Fund helps to ensure that the additional revenues are actually saved for retirement rather than becoming a source of funds for the government to finance the rest of its expenditures.
The reason I like using higher retirement ages to restore solvency is that it simply brings our definition of "Old-Age" in Old-Age, Survivors, and Disability Insurance in line with contemporary (and evolving) notions of life expectancy. It gets Social Security to live within its means and allows the system to continue alleviating poverty among the elderly.
Note that he mentions, in passing, another reason to prefer putting extra resources added to the Social Security system into personal accounts rather than a general trust fund. Congress regards revenues used to purchase government bonds as things that it can spend. Congress won't, Samwick hopes, be able to do the same with money spent on personal accounts. Congress includes Social Security taxes in revenues when it thinks about the deficit. Congress doesn't include worker contributions to the Thrift Savings Program.
Posted by DeLong at November 10, 2004 10:05 PM
The thing I do not understand is how combining personal accounts with higher taxes adds to the system finances. I am presuming that "personal accounts" are personal, and form no part of the financing for the defined benefit portion of the system. A personal account is a defined contribution system. You can raise the tax rate, but, if the increase is diverted into personal accounts, then there is no increased revenue to the system.
"Personal accounts" run counter to Samwick's alleged desire for "smaller" government programs, but this receives no attention. The cost of administering "personal accounts" is going to be considerable, with concomitant increases in bureaucracy.
What's this 'Congress' thing? Last I heard, our President seemed to regard spending opportunities continuing as long as he had checks left in his checkbook. And our Maestro Greenspan is in on it up to his neck.
First, he confuses old chronological age with old worker age. It is one thing to be 65 with the reasonable prospect of living an additional 20 years and quite another to be 65 and a construction worker trying to work until he can retire at 73. The purpose of Social Security is to insure that workers who are no longer able to work have reasonable wage replacement. I don't see how Samwick addresses this issue unless he is willing to change the Disablity portion of the program to accomodate those who might be physically sound for a 65 year old but not sufficiently sound to be a contruction worker. Is he suggesting they serve slurpies at a 7-11 to bridge the years until they are 73?
The second issue concerns forced saving accounts as a supplement to Social Security. Perhaps there is a sound policy reason to require workers to place a portion of their earnings in a retirement account in addition to the taxes they already pay for Social Security benefits but I don't see how one relates to the other. If we need to assure workers have adequate savings, and contend Social Security does not provide that, one could suggest we increase Social Security taxes and benefits to acheive the desired level of retirement benefits. This has the virtue of much lower administrative costs over private accounts and lowers, if not eliminates, the risk of imprudent investments in private accounts wiping out the savings intended to fund a decent retirement.
"The contributions are 3.5 percent because that is the amount that the Social Security actuaries say is required to restore solvency even if invested entirely in Treasury bonds. " Note: no citation given.
The actual Social Security Trustees:
"This deficit indicates that financial adequacy of the program for the next 75 years could be restored if the Social Security payroll tax were immediately and permanently increased from its current level of 12.4 percent (for employers and employees combined) to 14.29 percent."
For the record 14.29-12.4 = 1.89
2004 Report of the Trustees p.16
Either this guy is using stale-dated information or he is just making it up.
GIGO. Garbage in, garbage out. Until and unless people confront the numbers in the newest Annual Report, or at the very least give some link to the numbers they apparently grab out of thin air, I refuse to take any policy proposal seriously. Whence 3.5% Samwick? The 1993 Report?
For the evidence challenged my citation starts near the end of line 3 of paragraph 2 on p. 16 of the publically available "The 2004 Annual Report of the Board of Trustees of the Federal Old-Age and Survivors Insurance and Disability Insurance Trust Funds" which once again can be read, downloaded or had mailed in paper form, free with first-class postage paid by the government by going here:
On dKos you are "simply not allowed to make 'things' up'". I suspect that is also true in Professor deLong's graduate seminars and papers associated with. In my days of writing graduate papers at Cal we called them 'citations', in my new life I call them 'links'. Either way a good thing and one to be emulated on a web-page.
Perhaps this is off topic, but I've often wondered how much the social security "death benefit" is worth. It seems to me that if a young worker with kids loses a spouse there are good reasons to give the death benefit to that family. On the other hand, if you talking a dual income couple whose kids are grown, isn't the death benefit a bit of a windfall? I ask because I'm gay as a goose and it happens that when I get the summary of benefits from the soc sec admin every year and am reminded that my partner will get bupkis I go a little nuts.
So I'd be interested in learning the economics of the death benefit.
Pudentilla, my mother is in exactly the circumstances you describe. My father died 10 years ago, we were all grown, and she had gone back to work more than 15 years previous to his death. My understanding of the death benefit for her is that she gets an annual check in the neighborhood of $2000 as survivor benefits. I think she chose to receive it this way and could have taken a monthly payment as well. Note that my mother does not have any pension benefits (including any survivor benefits to my father's pension (which was very modest, but still, a couple hundred bucks a month)). It's hard for me to view my mother as getting a windfall, she was out of the work force for many years raising children and never recovered from an income standpoint, but I certainly understand your sentiment -- you are clearly disadvantaged compared to someone like my mother when it comes to the death of your partner.
Just as someone else alluded to above regarding raising the retirement age, SS benefits reflect assumptions about social patterns of behavior and expectations about what's reasonable in the world of work. As those patterns and expecatations change, it only makes sense to re-evaluate the program. For instance, an increasing proportion of jobs do not involve heavy labor. My mother is now 69, and she still works full-time in a medical office. Is it so unreasonable to expect someone to work longer if they are going to live longer? What if we were to relax disability standards to some extent for workers over the age of 62, so that infirmity and inability to meaningfully retrain or relocate would be more relevant to a disability determination once a person reaches an age at which they could retire, even at reduced benefits? This would likely help construction workers and other heavy laborers but still recognize the increasing number of people who really can and do work beyond the age of 65.
Just FYI, I used to work on disability benefit determinations, and the standards are very inflexible, and (IMO) the program really does shaft unhealthy older workers. Among other things, it deterines the availability of appropriate new jobs using the "national economy" as a benchmark -- so if people are doing light manufacturing in Alabama and you are a 55 year old bricklayer in Idaho, you are in theory supposed to move to Alabama and get an easier job . . . And it's amazing how many people could, if all else fails, be ushers at movie theaters, and so on.
One thing that I rarely see discussed is the wage cap on Social Security deductions. I believe it is currently around $87,000. So once a person reaches that income level in a tax year, no more SSI deductions are taken.
Whenever I bring this subject up among my friends or acquaintances, almost all of whom make less than this amount (and I have spent my entire working life waiting to reach this vaunted level, even as the cap has increased---I'm still not there), the response is surprise or even shock. Few people know this, and I think if more people knew it, there might be political support for raising the cap, perhaps significantly. Would this solve the problem? I don't know. I do know there is probably zero chance of it happening in today's political climate.
But more people should know just how regressive the forced Social Security contributions are.
Actually I support the cap as well as the fact that exactly zero income from investments goes into the Trust Fund. Because that allows us to draw a bright line under "It's our money". The only reason why the rich feel they have a right to monkey with Social Security is because of the belief they will have to bail it out sometime in the future. Which "fact" justifies them borrowing from it in the present to finance their tax breaks. If the narrative ever shifts to "It's always been pay as you go, it always will be pay as you go, and all paid by workers, and BTW where is my interest on the money you borrowed" their illusory claim to entitlement to reshape the system evaporates.
Which fact in part explains the repeated trips to the river De Nile seen here and elsewhere. There is an elaborate narrative that has been created over the last 22 years over the "Crisis of Social Security". The notion that the "Crisis" has dissipated is so threatening to a bunch of people's economic worldviews that they simply refuse to confront the numbers.
"2 points or 2% - that's all it takes". Productivity growth of 1.9% OR payroll tax hike of 1.89 percentage points. Problem fixed. Privatizers' heads explode.
Details available at http://www.ssa.gov/OACT/pubs.html or at a weblog near you opening soon (prototype open now).
That's the argument for privatization - accounting treatment?
Look this whole argument is totally bogus. SS is perfectly solvent for the foreseeable future. After paying roughly 40% more than the program required over 30 years (all of which was used to cut taxes for rich people), workers have earned a general fund subsidy. The current projection is that that subsidy will last for about 30 years from 2017 to 2047. The 25% shortfall of revenues people talk about is the long term steady state shortfall of payroll tax revenues to promised benefits using extremely conservative projected growth rates (1.6% real GDP). Fully funding the program out 75 years at such low growth rates pretty much insures that SS revenues will always exceed payouts and that SS will become a permanent subsidy to the general fund. That truly is stealing from working people.
The right solution to SS is to give it a permanent general fund subsidy of about 3% and then it is solvent forever. This is actually the most likely outcome under current law. Assuming slightly more favorable (and historic) economic growth of about 2%, the shortfall in payroll tax revenues is very nearly the return on the peak trustfund balance, so the system would stabilize with a general fund subsidy of roughly 20% of payout. Very minor corrections to retirement age, taxation of benefits (with proceed to SS) and the statutory interest rate on SS bonds could guarantee stability.
So much of this argument is about accounting that the economics and even common sense are hard to discern. It is not clear to me why if it is good policy to have a general fund subsidy for SS (as we will from 2017-2047 under current law) it was desirable or necessary to have SS run a surplus for 30 years first. Yes it maintains the fiction of a self financing program, but the connection between current income tax payers and future ones is sufficiently tenuous that giving one a windfall and the other the bill seems a bit capricious.
The best example of the impact of accounting on these decisions is in discussion of means testing. The easy way to means test SS is to tax the benefits and dedicate the revenue to the system. We did that in 84 (50%) and again in 93 (35% but to the hospital trust fund). We can go the last 15% without having to create a whole new bureaucracy to establish SS eligibility. Oddly CONSERVATIVES rail against this solution which they see as increasing taxes and the scale of the program, whereas they see direct means testing as a smaller government solution (alright I know this is just rhetoric and they really want the welfare stigma to kill SS altogether) even though the net payouts might be the same.
I doubt very much that shuffling within accounts is gonna have any direct impact on Congressional responsibility, or the ability to focus popular attention on the problem. We just need the Dems to scream really loud over and over about how the Republicans are stealing your Social Security to drive this point home. It is the responsible thing to do.
"Investing those revenues in personal accounts rather than the Trust Fund helps to ensure that the additional revenues are actually saved for retirement rather than becoming a source of funds for the government to finance the rest of its expenditures." In fact the money will not be saved but invested in the stock market. The government may not pay as much interest on the Treasury Bonds as the stock market supposedly will pay, but in both cases they are two forms of investment. With the personal accounts system the money will in fact not be "saved", but used by private companies to finance its expenditures, after all.
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It would be nice if Mr. Bush pursued any policy at all in a bipartisan manner. That is not his style. The Bush style is the CEO hands down the policy and the minions try to make it work.
For a variety of reason, retirement accounts need to be portable for workers. However, does SS need to be defined contribution for the same reasons? No.
Besides, we won't have a SS shortfall until 2040. After 2020 (maybe somewhat before) SS revenues will fall below payouts and the trust fund will start to be depleted. When we start depleting the trust fund, doesn't that make individual accounts unnecessary or undesirable because there will be no surplus to pay into the private accounts in the future?
Part of the missing discussion is who pays for retirement. Under Reagan, older workers started paying 50% more in payroll taxes to pay for their own retirement. However, GOP mismanagment of fiscal policy has squandered the payroll tax increase on tax cuts for the wealthy. The GOP has played a shell game. The extra SS taxes that should have gone to retiring debt, so the government can borrow in the future when it is needed has been looted by the wealthy. This means that the young workers and yet unborn will be stuck with the bill- unless, the money given to the wealthy is reclaimed. Instead of private savings accounts, we should come back with an estate tax of 70% on wealthy families with estates over $5 million. They got our SS taxes. Our SS should get their future revenue from them.
I thank Brad for the link to my posts. I read his blog as much for the comments as the posts.
I want to address something that is posted above in Bruce Webb's comment, suggesting that I am "simply making things up" and don't offer a citation.
This is absolutely not true. There is a link on my blog to Table IV.B8 of the 2004 Trustees Report. That page is: http://www.ssa.gov/OACT/TR/TR04/IV_LRest.html#wp267012. Unfortunately, this link does not get carried over to Brad's blog when he copies the excerpt.
So what's the difference between the 1.89 and the 3.5 percent? The actuarial deficit is 1.89 percent if it is calculated only based on the first 75 years. It is 3.5 percent if it is calculated over all future years.
Raising revenues of 1.89 percent of taxable payroll for 75 years leaves the system in that 75th year with one year's worth of benefits in the Trust Fund. Annual deficits starting in that year are about 6 percentage points of taxable payroll. Thus, that Trust Fund will be exhausted in about the 78th year, because benefits are nearly 20 percent of taxable payroll in that year. Then what? Annual deficits equal to about half of the payroll tax revenues (12.4 percent) with no monies earmarked to pay for them. The goal of prefunding (whether in the Trust Fund or personal accounts) is to avoid leaving future generations in this position. Looking only at the first 75 years, without regard to what happens thereafter, does not strike me as a comprehensive way to characterize the program's financial shortfalls.
Off Topic, but mentioned above: there is a persistent notion that money invested in the stock market somehow funds productivity increases. With the exception of IPOs this is wrong.
On Topic: the idea that we can project the economic and deomgraphic situation in 2080 to the accuracy used here is absurd.
Off Topic, but mentioned above: there is a persistent notion that money invested in the stock market somehow funds productivity increases. With the exception of IPOs this is wrong.
On Topic: the idea that we can project the economic and deomgraphic situation in 2080 to the accuracy used here is absurd.
The way to restore solvency to Social Security is to roll the entire program over to MicroSoft.
Not only would this increase computer literacy among the elderly, and vastly increase the use of electronic currency, but it would automate the SS application and registration process, allowing the bloated SS administrative overhead to be outsourced electronically to Central Asia.
Here's how it would work.
At age 55, a computer in WA DC would generate a random number mailer and send it to you. They know exactly how old you are and where you live.
You would log in to MS$ecurity.Net, and using your random number password, get your MS$ecurity Passport. That becomes your unique identifier to the Magnificent Security Network (MSN).
Now that you're 55 and logged in to MSN, you would automatically be registered at AARP, and begin to receive every piece of electronic junk mail reserved just for the elderly and feeble.
Feeling low? With our MS$ software, you can receive a "chakra alignment" just by holding your computer mouse to your forehead!
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Thank you Mr or Prof Samwick for at least engaging here.
But you are being just a little disingenous. First an entire year of surplus seventy-five years out seems okay by me. People will still be paying payroll taxes in 2079, and if they have to immediately increase them by 6 percentage points, well maybe that is a problem they can start addressing say in 2042. Surely an entire generation will give them time to get a handle on things.
Second that 1.89% payroll tax increase also assumes a long-term growth rate in productivity of 1.6%. It is laudable of you to be so concerned about the seniors of 2079, most of whom are not even born today, but perhaps we could structure the economy to perform at or above the 1.9% productivity benchmark that would make all reform unnecessary and save them that 6% sticker shock.
"So what's the difference between the 1.89 and the 3.5 percent? The actuarial deficit is 1.89 percent if it is calculated only based on the first 75 years. It is 3.5 percent if it is calculated over all future years."
Only in the 2004 Report did the Trustees even begin to estimate the impact outside the traditional 75 year threshold, holding in previous years, reasonably enough, the belief that predicting economic results for the 22nd century was more akin to fortune-telling than economics. You suggest we extrapolate to infinity. This is simple desparation.
Your proposal as plainly stated: "For me, an immediate and permanent contribution of 3.5 percent of taxable payroll into personal accounts for all workers, in addition to the 12.4 percent payroll tax that they and their employers already pay, is preferable to the current system." takes a figure based on a practically recessionary 1.6% annual growth forecast and yet implicitly assumes that these personal accounts will generate historic rates of return on equities. You are not going to get them with 1.6% productivity growth (barely above the 1.5% population growth).
Privatizers, or if you prefer private accounters want to work from two sets of books. They adobt one set of assumptions to prove the crisis (1.6% productivity growth) and then suggest solutions that implicitly rely on much better economic conditions. You really have two choices here: One show me how that 3.5% of payroll personal account works in an environment where the economy is only growing by 1.6% annually. The second is to provide me with the growth assumptions you are using so I can compare them to the Low Cost Alternative. Bear in mind that any number above 1.9% solves the "Crisis" completely.
Good luck. Because the motto I coined in 1996 is truer today than it was then.
"If Privatization is Necessary it Won't be Possible, If Privatization is Possible it Won't be Necessary"
A couple of points:
1. The purpose of Social Security is not "to relieve poverty"; it's to insure against loss of income due to age, disability or becoming a widow or orphan.
2. Prediction is a difficult art, particularly when it concerns so far into the future. Statements like "By 2080, there will be 54 [beneficiaries per covered worker]" (my emphasis) need extensive qualification. To baldly extrapolate present trends for the next 75 years is unjustifiable.
3. I don't have a big problem with the idea of linking NRA to life expectancy. I think raising the contributions cap would be healthy (though, with this administration and congress, unlikely). Both measures would be preferable (to me, and more politically acceptable to the country at large) to raising the contribution rate, whether the new money went to private accounts or not.
Tennessee to Cut Health Program
By ASSOCIATED PRESS
NASHVILLE - Gov. Phil Bredesen announced Wednesday that Tennessee planned to dissolve its financially troubled program expanding Medicaid, a decision that would cut as many as 430,000 people from state health care rolls.
The governor held out some hope for saving the program, called TennCare, saying he would try for seven more days to work out an agreement with advocates who have won several court decisions on the level of health care the state must provide to TennCare enrollees.
But Mr. Bredesen, speaking at a news conference, said an agreement was unlikely, and a lawyer for TennCare recipients also expressed pessimism.
TennCare offers health care coverage for the poor, the uninsured and the disabled, benefiting 1.3 million Tennesseans, or about 22 percent of the state's population. If it is eliminated, those dropped from the state's rolls would largely be families of the working poor whose income exceeds Medicaid's limits. The remaining 900,000 or so would continue to get coverage under basic Medicaid.
Mr. Bredesen, a first-term Democrat, ran for governor two years ago with a promise either to fix or to end TennCare, whose annual cost of $7.8 billion - $2.5 billion from the state, most of the rest from the federal government - was projected to mushroom in coming years.
Until now, all TennCare participants have had unlimited doctor visits and prescriptions. Under the stripped-down plan that the governor wanted to adopt, 270,000 of the beneficiaries would be facing annual limits of 12 doctor visits, 45 days in the hospital, 8 outpatient hospital visits and 10 laboratory procedures or X-rays, as well as a monthly limit of 6 prescriptions.
Andrew Samwick :)
Frankly, I do not much care right now what happens to Social Security in 75 years. These last 20 years, we have been devoting enough in payroll taxes to take us through the baby boom generation with minor adjustment. There is no Social Security crisis. The concern I have is that in opting to fix what does not need fixing, Republicans are intent on convincing us that Social Security benefits for the baby boom generation can not be sustained.
Andrew Samwick notes on Vox Baby:
'Really, closing the "funding gap" of Social Security is easy. Doing so in a way that maintains SS's popularity in the face of it's providing increasingly negative returns, reducing the wealth of so many, when so many *much* better investment options today are available for that 12.4% payroll tax, will be the challenge.'
I would agree. There seems no reason why we could not partially invest payroll tax revenue in the Total Stock Market Index.
I can solve the social security problem with two words: more immigrants.
On the 75 year, or greater, time horizon: we tend to overestimate our ability to project precisely here because we can in fact predict the age profile of the population a generation or two ahead with greater precision than we can predict most things. But even a 75 year horizon goes beyond what we can sensibly make decisions about. There are just too many other variables.
Indexing retirement ages is a good idea. Suppose that the drafters of the original Social Security law had had the foresight to include an index that would adjust retirement ages to keep retirees and workers in a workable balance. They would have prevented many of the subsequent problems and done us all a great favor, no? Would we not be doing our grandchildren a similar favor by doing that now? Although I am an anti-alarmist about Social Security already, on behalf of my minor children I would favor greater certainty of benefits when they get to be in the oldest X% of the population over knowing the benefit eligibility ages decades in advance.
Brad argues that Congress sees some funds as available to spend, others not. We ought to note that this is not economic analysis of congressional spending behavior. Rather, it is convention wisdom. It might be true, but there is no evidence. Clinton wanted to spend $60 bln, then $16 bln, on an early stimulus package. It wasn't worry over what account the money would come from that stopped him. It was the politics of the situation. I see little evidence that anything could have restrained the Bush/GOP-Congress cabal from spending like drunken sailors. Again, it was the politics of the situation. Buying an election is hard work. Relying on niceties, on conventional wisdom, rather than on ballots, to enforce good government seems a bit wishful.
"Relying on niceties, on conventional wisdom, rather than on ballots, to enforce good government seems a bit wishful."
Policy in Congress, even more than before, will be designed to secure a Republican majority for years and years and years.