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Friday, July 9, 2010
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Occasional comments on the economics and politics of Social Security policy by Andrew Biggs.
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About me
- Andrew G. Biggs
- I am a Resident Scholar at the American Enterprise Institute in Washington, where my work focuses on Social Security policy. Previously I held several positions within the Social Security Administration, including Deputy Commissioner for Policy and principal Deputy Commissioner. Prior to that I was a Social Security Analyst at the Cato Institute. In 2005 I worked on Social Security reform at the White House National Economic Council, and in 2001 I was on the staff of the President's Commission to Strengthen Social Security. My Bachelor's degree is from the Queen's University of Belfast, Northern Ireland. I have Master's degrees from Cambridge University and the University of London and a Ph.D. from the London School of Economics and Political Science. I can be contacted at andrew.biggs @ aei.org.
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6 comments:
It is obvious from the chart that over time the percent of workers who made over the cap has reduced. This is why the average OASI benefit of previous generations are higher than those today (they maxed out). At the same time it clearly shows that with a low cap, many people making more than the cap, that the percent of earnings above the cap increased.
Clearly the six fold drop in percent or workers making over the cap shows the base has increased.
The real problem is that raising the cap does not solve the OASI problem. It is like trying to save the SS Titanic. You may extend the life to 2085, but in 2086 you are right back where we are today, but only worse. The cliff we will eventually fall from is twice as high.
Let OASI implode under its own weight and let workers save on their own. Those born after 1985 at most will receive 29 cents in benefits for each dollar of OASI tax paid plus interest at the US Treasury rate. If you cut benefits, keeping taxes where they are, you pay the same for less; still 29 cents. If you raise the retirement age; you pay longer and more for fewer benefits; still 29 cents. If you raise the tax, you pay more for more years for the same promised benefit; still 29 cents.
When will people realize Social Security is not worth the cost?
It is obvious from the chart that something changed dramatically in 1983. Of course, we know what that is. Also in 1979, although fewer people know the details there.
"Those born after 1985 at most will receive 29 cents in benefits for each dollar of OASI tax paid plus interest at the US Treasury rate."
I have no idea where this one comes from.
I don't think anything in the '83 reforms would have affected tax max issues, if I'm remembering right. The 1979 changes did increase it. But the larger point is that there's a lot that happened over Social Security's history that's obscured in the original chart.
Very interesting example of how different things can look depending on the window of information being shown. However, I think starting the chart around 1982 can be justified by the fact that around this time was when the last major increases to the tax max were enacted (first through automatic wage indexing starting in '75 and then as you note a few more statutory changes around 1979). So from the early 1980s onward, with the tax max automatically growing by average wage growth each year, the tax max provides a good benchmark about how the earnings distribution has changed. The fact that the percentage of earnings above the cap has risen considerably since the early 1980s shows that earnings inequality between above max earners and all other earners has risen.
It is also quite interesting to see this info since 1937 and to see how much the Tax Max has evolved through Social Security's history!
I think it's fine to point out that the tax max was last changed in 1979, but I still don't really see the reason not to show the other years. People can take from it what they want, but if you don't show them the data they don't have the opportunity to make their own judgments.
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