Investor's Business Daily's Jed Graham comments on a proposal by economist James Galbraith to temporarily allow workers below the full retirement age of 66 to claim Social Security benefits without any penalty for early retirement. As Graham points out, this would imply a massive increase in lifetime benefits for eligible individuals – and a bit discontinuity for people who retired afterwards. Check it out here.
Thursday, August 5, 2010
Graham: Galbraith Social Security plan would create “mother of all notches”
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I consider myself a fiscal conservative and I think the Galbraith proposal deserves serious consideration.
There are a couple of ways to look at the potential cost of Galbraith's proposal to allow temporary retirement at 62 with full benefits. One is to look at it like Graham and add 25 percent to the lifetime benefits of those choosing this option. Another, which I think more accurate, it to merely count the three years of benefits a retiree gets from age 62 to 65. Isn't this really the difference between what happens and what would have happened if the person stayed in the workforce till 65? Based on average annual old age benefits, this works out to about $36,000, I think. The contributions that would otherwise have been made for those three years presumably are matched by contributions made by the person replacing the retiree in the workforce. Also, one needs to consider the reduction in unemployment benefits. Looked at in this way, the cost is pretty much a wash. This strikes me as being a much better strategy than various types of stimulus that throws money at projects with the hope a job will be created. Some other thoughts:
1. I'm not convinced by the fairness objection. In our puritanical pursuit of perfect fairness, we often make bad fiscal policy. Better to have good policy with some theoretical unfairness, than bad policy with perfect fairness (if there ever is such a thing). Is this any different from, say raising tax rates (or lowering them)? If I die this year and pay zero estate tax, is that fair to the person who dies next year?
2. One benefit of the idea, which should appeal to conservatives and libertarians, is that it is completely voluntary. Only those who want to and who can afford to retire early will. Also, it seems to redistribute jobs in a voluntary way to those who need them most. It seems to me that there are a lot of intangible benefits here, where two persons are presumably made happy by the same event (early retirement).
3. The problem, if there is one, is that it cannot well distinguish between those who are really retiring early because of the program and those who would have retired at 62 anyway. But, is this any worse than a targetted jobs credit? Perhaps it could be contingent on showing contributions to SS immediately before early retirement.
4. This is an idea that perhaps can be tweaked and worked with and not rejected out of hand on a rather selective concept of "fairness".
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