NCPA's daily Policy Digest reports on former GAO director David Walker's recommendations to fix Social Security in his new book Comeback America. Here's NCPA summary:
"For the next few years, Social Security is fine, however, the system is already setting off alarm signals. The disability program is already in a negative cash flow position and the retirement and survivor's income program is expected to have a negative cash flow in 2010-2011. If we keep on doing nothing until the trust funds that finance the program run dry in 2037, monthly benefits will have to be cut by about 24 percent across the board and the cuts will get deeper than that, says David Walker, who served as the seventh comptroller general of the United States and was the CEO of the U.S. Government Accountability Office. "
"In his new book, "Comeback America," Walker has several suggestions on how to save Social Security.
"Benefits:
- Focus on people who are most in need; provide a new higher-level floor benefit for Americans who have worked at least 30 years to insure they will not live in poverty.
- Do not eliminate Social Security benefits for higher-income individuals but reduce the relative benefit for middle- and upper-income persons through progressive wage indexing or otherwise.
- Raise the normal and the early retirement eligibility ages on a gradual basis, and require that they keep pace with increases in life expectancy; a relatively modest increase phased in over a 20-year period would have a significant impact.
- Allow all individuals to defer their Social Security benefits to any age they choose and increase their monthly benefits based on life-expectancy tables; this would encourage people to work longer.
"Revenues:
- Increase tax revenue; keep the payroll tax rate at the current level of 6.2 percent but raise the cap on taxable wages from the 2009 level of $106,800 per person to around $150,000.
- This would be less than the historical dollar level at which 90 percent of total wage income would be subject to the Social Security payroll tax ($171,900 in 2009).
"Savings:
- Require supplemental savings accounts; an additional 2 or 3 percent payroll deduction would go into an individual account for each worker.
- Individuals would have several professionally managed investment options to choose from along the lines of the Federal Thrift Savings Plan, which is now used for federal elected officials and employees.
"Source: David M. Walker, "Comeback America: Turning the County Around and Restoring Fiscal Responsibility," Random House, January 12, 2010."
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3 comments:
Three brief notes.
One it is a little odd to frame a 'crisis' in the form of a 24% benefit cut thirty years out and then propose a solution that simply phases in those benefit cuts faster. While I can see the value in avoiding a sharp discontinuity the net effect is to seriously disadvantage people who would according to the mortality tables be unlikely to still be collecting benefits in the year 2038. And while I understand both the history and much of the motivation for Boomer bashing, it is not clear that we are really at fault here. After all if there really was a backwards transfer to early generations of recipients we were mostly the people who paid for that. Asking that Boomers 55 and under sacrifice a decade and a half of benefits so that Gen X will not take quite a big a hit in what would even after be a better real benefit than my parents get seems to be piling on. Particularly given the uncertainty about whether that cut will be as deep as expected or on the current timetable. And of course ignoring the fact that CBO would put the event at a totally different place in time and scores the gap much smaller to begin with.
Two. Simple journalistic fairness suggests that every time David Walker is referenced that not only his previous job title is given but also his current one. Yet Mr. Walker is in my experience ALWAYS described in some way as "Former Comptroller General" but in maybe one article in ten by his current job title. Perhaps in fear that people might think his views are somehow influenced by the guy that ultimately funds his paycheck. On the other hand if I was President and CEO of a billion dollar endowed foundation I would think I would want that known, why this isn't newsworthy would be kind of a mystery to most people. Though not to me for whom that job title would be all too revelatory.
We shouldn't need a Captain Midnight Magic Decoder Ring to understand a press release or news article.
Three. It is a little egregious to put forth a proposal that includes a mandatory 2 or 3 percent payroll deduction without offering people the alternative of simply taking a 2.01% such deduction and foregoing all of the wage indexing, changes in retirement age, and cap lifting. What Walker is proposing here is just another version of LMS which was a worker financed 5.2% solution to a problem then scored at 1.92%. Nowhere in this piece is it suggested that the real goal is to minimize transfers from the General Fund to Social Security over the next 75 years. Why not be totally open about the fact that none of this is about a potential 24% benefit cut in 2037 (because a 2.01% increase would prevent all that) and that all of it is about 'sustainable solvency'?
Shouldn't PGP and 2.01% be at least part of the conversation?
On point 1: Walker wouldn't solve the deficit only by cutting benefits, but by doing so mainly for high earners. He also seems to favor raising taxes on high earners (like Pete Peterson!). Your point on the backward transfer and baby boomers isn't right; there was a backward transfer, but baby boomers haven't really paid for it. Most of the payment will be for future retirees, who will receive lower returns than people retiring today do.
2. Ok, fair point on the Peterson Foundation. But do you really think Walker shifts his views because of his employer, rather than, say, being picked for his job because his employer agreed with his views? This claim isn't plausible.
3. Your argument that LMS (and I guess the Walker plan) solves a 2 percent of payroll problem with more than 2 percent of contribution increases or benefit cuts is and has always been wrong. LMS, like almost all other plans, openly seeks to address "sustainable solvency," meaning solvency beyond 75 years, while the 2 percent deficit refers only to the 75 year time frame. Walker references the benefit cut in 2037, but he doesn't say that's the only problem he's looking to solve.
1. Progressive wage indexing and increases in retirement age as briefly described here seem to extend significantly beyond those who could be described as 'high earner'. So 'mainly' is kind of strong. As to raising taxes on Peterson, well I don't see it. First of all taxing billionaires on their first $150,000 of income is hardly a tax at all, and for all I know it has been several decades since Peterson had actual wage income as opposed to what is quaintly called 'carried interest' and so taxed not only at capital gains rates but to my knowledge are equally shielded from FICA. Either way arguments along the line of "Even Bill Gates has to pay $6,000" not going that far with me.
2. Well in the world you operate in the model of "hire talent whose views you admire" might be operative, but 99% of the world is hired with the expectation that whatever their own views, when representing the company or the organization they will deliver the policy line of that company and organization. In the case of a CEO and President of a Foundation committed to a particular policy line it is or should be abundantly clear that you are speaking for and on behalf of that organization and not just speaking as John Q Citizen who used to have job X.
This is particularly troubling because of the pattern on cross endorsement that has "everyone from Bob Bixby of Concord, to former Comptroller General David Walker, the reporters of The Fiscal Future news service, to Maya MacGuineas of the CRFB, the blogger Economist Mom, the members of the Peterson-Pew Commission, and the Brookings-Heritage Fiscal Seminar agrees--" in press releases praising I.O.U.S.A: the Movie or the Cooper-Wolf Safe Commission proposal without open acknowledgment of what I call 'the Nexus' that connects them all.
3. As to LMS I see little in it that suggests that they define 'sustainable solvency' as being after the 75 year window. From page 7
"Sustainable solvency is achieved – The Social Security actuaries find that actuarial balance would improve by 2.14 percent of taxable payroll over the 75-year projection horizon. The current Social Security deficit is 1.92 percent of payroll. Therefore, the changes in the plan would lead to a 0.22 surplus. Trust fund balances in the last year of the actuaries’ projection period are positive and increasing."
The Table which illustrates this (Table 2 page 7) is labeled "Contributions to 75-year Actuarial Balance" And Table 3 which is labeled "Comparison with Other Plans" specifically references only to exclude deficits outside the 75 year window. This may have more to do with the scoring practices of the Office of the Chief Actuary than anything but I have read LMS pretty carefully many times and can't accept that it defines 'sustainable solvency' as applying over the Infinite Future, and still less apply the modifier "openly" . And in any event the same question would apply, per the 2004 Report Unfunded Obligation over the Infinite Horizon was projected at 3.5%
http://www.ssa.gov/OACT/TR/TR04/IV_LRest.html#wp267528
I could equally ask why a 5.2% solution to a problem scored at 3.5%
As to Walker, whatever problems he is trying to solve the 24% gap was the one he chose to lead with and serve as his hook.
In any event the question stands why not offer workers the following policy choice: "Or you can fix all of the problem of the next 75 years and 2/3rds of the problem for the 25 years after that for 2.01% and in the process buy yourself two or three more years of retirement"
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