Friday, December 28, 2012

What’s Driving Disability (and What to Do About It).

Harvard economist Edward Glaeser, writing for Bloomberg, discusses the research on the factors driving increased disability applications and the policies that might – and might not – help to keep the disabled on the job:

“The two primary alternative hypotheses for the rise are that either work has become less attractive or that disability insurance has become more attractive and available. The disability-claims approval process and the wider society itself have become more accepting of people receiving the benefits even if they have no visible ailment.”

“Duggan and Imberman argue that changes in the award formulas for recipients have made disability substantially more generous for poorer workers. For example, a male worker who is 30 to 39 and in the bottom 25th percentile of earnings distribution could expect disability insurance to pay 41 percent of his previous earnings in 1984 and 49 percent of his previous earnings in 2002.”

“The economists say the most important cause of the increasing number of recipients is the loosening of eligibility criteria. In 1984, Congress “shifted the criteria for DI eligibility from a list of specific impairments to a more general consideration of a person’s medical condition and ability to work.” As a result, the typical disability recipient today is far less likely to have an easily verifiable ailment.”

“As we reform the tax code, we must focus on providing stronger incentives to work, through the earned-income tax credit and reductions in the payroll tax for poorer Americans. The future of America depends on preventing a temporary economic crisis from becoming a permanent labor market catastrophe.”

Read more!

Jason Fichtner on the Chained CPI

My former SSA colleague Jason Fichtner, now of the Mercatus Center at George Mason University, wrote on the chained CPI for Marketwatch. And if you want to listen to Jason – along with Henry Aaron and Robert Kuttner – you can tune into NPR online.

Read more!

10 Reasons to Oppose the Chained CPI

Writing for the Huffington Post, Daniel Marans gives ten reasons  the chained CPI is “terrible policy.” I don’t buy all of them, but if you oppose the chained CPI and are looking for your talking points, this is the place to go.

Read more!

Thursday, December 27, 2012

Pro and Con on the Chained CPI

USA Today’s editors argue for shifting to the chain-weighted CPI for Social Security, while Rep. Jerrold Nadler argues against.

Read more!

Friday, December 21, 2012

New blog: Policy Memos

Former Treasury Department economist David Bernstein has a new blog, Policy Memos, and his first post is on the use of the chained CPI for Social Security COLAs. He concludes:

“The decision by the Obama Administration to include a permanent change to the Social Security COLA as part of an annual budget exercise is a really large concession. The change in the COLA is sensible fiscal policy but it will increase poverty among elderly Americans and will not protect the Social Security system from demands for future cuts.”

But read the whole blog post to see why.

Read more!

Wednesday, December 19, 2012

Good summary of potential reforms in Washington Post

The Post's Wonkblog discusses a range of potential Social Security reform options, giving particular emphasis to the distributional side: who gets hit and by how much. The Post relies heavily on work from my former colleagues in SSA’s Office of Retirement Policy, Mark Sarney, Kevin Whitman and Dave Shoffner. A good summary by the Post of good research by SSA.

Read more!

Friday, December 14, 2012

New papers from the Social Science Research Network


"Employment-Based Retirement Plan Participation: Geographic Differences and Trends, 2011"
EBRI Issue Brief, No. 378 (November 2012)

CRAIG COPELAND, Employee Benefit Research Institute (EBRI)

This paper examines the level of participation by workers in public- and private-sector, employment-based pension or retirement plans, based on the U.S. Census Bureau’s March 2012 Current Population Survey (CPS), the most recent data currently available. It begins with an overview of retirement-plan types and participation in these types of plans and describes the data used in this study, along with their relative strengths and weaknesses. From these data, results on participation in employment-based retirement plans are analyzed for 2011 across various worker and employer characteristics. The report then explores retirement plan participation across U.S. geographic regions, including comparisons by state and by certain consolidated statistical areas (CSAs). In addition to the results for 2011, trends from 1987-2011 in employment-based retirement plan participation are presented across many of the same worker and employer characteristics as used for 2011. Furthermore, an accounting of the number of workers who work for an employer that does not sponsor a plan and of workers who do not participate in a plan is provided by various demographic and employer characteristics.
In 2011, 39.7 percent of all workers, or 61.0 million Americans, participated in an employment-based retirement plan. Among full-time, full-year wage and salary workers ages 21 to 64 -- those with the strongest connection to the work force -- 53.7 percent participated. This percentage of participating workers varied significantly across various worker and employer characteristics. Being nonwhite, younger, female, never married; having lower educational attainment, lower earnings, poorer health status, no health insurance through one’s own employer; not working full time, full year, and working in service occupations or farming, fisheries, and forestry occupations were all associated with lower levels of participation in a retirement plan. In addition, those working for smaller firms, private-sector firms, or firms in the “other” (not professional) services industry were also less likely to participate. Another factor in the likelihood of workers’ participation in a retirement plan was their geographic location, with workers in the South and West less likely to participate than those in other regions of the country. The increase in the number of workers participating in 2011 halted the three-year decline from 2008-2010, leaving the percentage of workers participating in a retirement plan essentially unchanged from 2010, while some of the categories examined had increases in the probability of workers participating and others showed decreases. Many of the categories of workers remained near their 2009 levels of participation. The downturns in the economy and stock market in 2008 and into 2009 showed a two-year decline in both the number and percentage of workers participating in an employment-based retirement plan. The 2010 and 2011 levels stabilized as the economy was more stable but not experiencing strong growth. As things stand now, the current economic environment is likely to result in 2012 participation numbers that are essentially unchanged or decreasing, though many other underlying factors will continue to affect the future direction of this trend.

"All or Nothing? An Expanded Perspective on Retirement Readiness"
EBRI Notes, Vol. 33, No. 11 (November 2012)

JACK VANDERHEI, Employee Benefit Research Institute (EBRI)

Past analysis using EBRI’s proprietary Retirement Security Projection Model® (RSPM) has found that roughly 44 percent of Baby Boomer and Gen X households are projected to be at-risk of running short of money in retirement, assuming they retire at age 65 and retain any net housing equity in retirement until other financial resources are depleted. However, that includes a wide range of personal circumstances, from individuals projected to run short by as little as a dollar to those projected to fall short by tens of thousands of dollars. This paper takes a closer look at where different types of people are likely to fall within the range of retirement income adequacy. Looking specifically at Gen X households (those born between 1965-1978, currently ages 34-47), EBRI’s RSPM analysis finds that (1) nearly one-half (49.1 percent) will have substantially more (at least 20 percent more) than the income threshold deemed adequate to afford basic retirement expenses and uninsured health care costs; (2) approximately one-third (31.4 percent) will be close to the threshold for retirement adequacy (between 80-120 percent) of the financial resources necessary to cover basic retirement expenses and uninsured health care costs; (3) about 1 in 5 (19.4 percent) are projected to be substantially below (less than 80 percent) of what is needed. EBRI also finds that a worker’s future years of eligibility in a defined contribution retirement plan makes a huge difference in his or her likelihood of having enough money to cover basic retirement expenses and uninsured health care costs. Among Gen Xer single females simulated to have no future years of defined-contribution-plan eligibility, nearly two-fifths (39 percent) are in the most vulnerable (less than 80 percent) category, although this shrinks to only 8 percent for those with 20 or more years of future eligibility in a defined contribution plan.
The PDF for the above title, published in the November 2012 issue of EBRI Notes, also contains the fulltext of another November 2012 EBRI Notes article abstracted on SSRN: “Self-Insured Health Plans: State Variation and Recent Trends by Firm Size.”

"The Case for Reforming the Program's Spouse Benefits While 'Saving Social Security'"
Cornell Legal Studies Research Paper No. 12-67

PETER W. MARTIN, Cornell Law School

The Social Security Act currently provides secondary benefits to the wives or widows of covered workers who retire, become disabled, or die. To qualify, a woman must have been married to the worker for a short period and must be old (sixty-two, dropping to sixty in the case of a widow, fifty in the case of a disabled widow) or caring for children under sixteen. If a wife’s or widow’s primary retired-worker or disability benefits equal or exceed her secondary benefit entitlement, she receives only the primary benefits. However, if her secondary benefit amount is greater she receives both her primary benefit and enough of the secondary benefit to bring the total up to its level.
Men can also qualify for benefits based solely on their status as husband or widower of a worker; but spouse benefits go overwhelmingly to women.
No additional payroll tax is levied on the employee-spouse to cover spouse benefits nor do they constitute a shift in the payout pattern between spouses of a set amount of benefits. These are quite simply additional payments based on marriage.
Appended to Social Security in 1939 and dramatically liberalized since, spouse benefits represent a discrete and increasingly problematic feature of the program. At a time when analysts and politicians of nearly all persuasions agree that the long-term fiscal health of Social Security calls for legislative revision, one might expect serious proposals for spouse benefit reform, but so far that has not occurred. No doubt, that is because any prospective reduction in spouse benefits that promised to contribute to Social Security’s long-term fiscal balance would, standing alone, quite properly be perceived as having a negative impact on women. Costly, outdated, and inequitable, these marriage-based benefits may be, but unless supplanted by some less arbitrary way to connect Social Security to families and alternative measures to assure adequate retirement income for women they cannot be got rid of. On the other hand, any package of Social Security reforms that fails to rethink and revise the spouse-benefit provisions will miss a rare opportunity to improve the fairness and adequacy of the program’s benefits for women and run the risk of disadvantaging them as a group.
The article traces the history of the provisions governing entitlement to and the amount of spouse benefits, exploring why a program addition that seemed so attractive in the program’s early years has become a source of disturbing arbitrariness and inequity and how a measure specifically designed to improve retirement income for women has become less and less effective. The deficiencies of the present system are illuminated through comparison with alternative methods of connecting a family’s covered earnings with later benefits modeled on state marital property regimes and the law’s treatment of other forms of spousal retirement income. The article concludes with a survey of the challenges, administrative and political, that would confront any serious effort to pursue so dramatic a reform.

"Automatic Enrollment, Employee Compensation, and Retirement Security"
Center for Retirement Research at Boston College Working Paper No. 2012-25

BARBARA A. BUTRICA, Urban Institute
NADIA KARAMCHEVA, Boston College - Department of Finance and Department of Economics

This study uses restricted microdata from the National Compensation Survey to examine the impact of auto enrollment on employee compensation. By boosting plan participation, automatic enrollment likely increases employer costs when previously unenrolled workers receive matching retirement plan contributions. Our data show significant negative correlation between employer match rates and automatic enrollment provision. We find no evidence that total costs differ between firms with and without automatic enrollment, and no evidence that defined contribution costs crowd out other forms of compensation, suggesting that firms might be lowering their potential and/or default match rates enough to completely offset the higher costs of automatic enrollment without needing to reduce other compensation costs.

"Changing Sources of Income Among the Aged Population"
Center for Retirement Research at Boston College Working Paper No. 2012-27

BARRY BOSWORTH, Brookings Institution - Economic Studies Program
KATHLEEN BURKE, Brookings Institution

This paper focuses on an explanation for the large shift over the past two decades in the composition of the income of the aged (65 ), increasing the role of earned income and reducing the importance of income from their own assets. We find that the pattern of change is consistently reported in all of the major household surveys. The increase in the importance of labor income can be attributed to delayed exit from the labor force by workers at older ages. We attribute the increase in work time to a rise in the proportion of more educated workers who choose to continue working, changes within the pension system that previously encouraged early retirement, and a decline in the availability of retiree health insurance. The increase in work time is concentrated among the highest income groups and those with the most education, suggesting that it is largely voluntary. The fall in asset income can be traced to lower interest rates and a reduced propensity for the aged to convert their wealth to annuities. It does not reflect reduced wealth at older ages. A measure of the annuity equivalent of their wealth holdings suggests that there has been no decline for aged units. We also find only a weak relationship between changes in asset income and the decision to remain in the workforce.

"An Insurer's Accountability for Variable Pension Annuity"
The IUP Journal of Applied Economics, Vol. XI, No. 4, pp. 60-71, October 2012

MAHITO OKURA, Nagasaki University

The purpose of this research is to investigate the insurer’s accountability effort associated with the sale of variable pension annuities. For the purpose of the study, a very simple model is built and two propositions are derived. The success probability of the investment exceeding a certain value is the necessary condition for selling the variable pension annuities. An increase in this success probability always increases the level of equilibrium pension premium, but not necessarily the level of equilibrium accountability effort.

Read more!

Wednesday, December 12, 2012

Entin: "Leave the CPI and COLAs Out of the Budget Talks

Stephen Entin, writing for the Tax Foundation, argues that switching to the chain-weighted CPI isn’t a good fix either for Social Security or the tax code. Excessive COLAs, Entin argues (correctly) aren’t the cause of Social Security’s funding shortfalls. Moreover, Entin points out, lowering inflation-adjustment of the income tax brackets generates “bracket creep,” where a greater share of worker’s incomes fall into higher tax brackets. This would increase taxes over time without any adjustments by Congress.

I made a similar argument here.

Read more!

Kaus: Why Social Security is Different From Medicare

Mickey Kaus gives an interesting discussion of why most Democrats oppose cutting entitlement benefits for the rich – solidarity – but argues that Social Security, where you merely cash a check, differs from Medicare, where individuals are actually participating in a health care system themselves.

Read more!

Tuesday, December 11, 2012

New paper from the NCPA: “Lifetime Income, Longevity and Social Security Progressivity”

From the NCPA’s daily policy email:

December 11, 2012

Should we raise the age of eligibility for Social Security and Medicare? Life expectancy has increased seven years since 1970. So, should the eligibility age be raised seven years as well? One problem. Over the past 20 years, life expectancy at age 65 has risen five years for men with above average income but only one year for men with below average income. In a new study, NCPA Senior Fellow and former Social Security and Medicare Trustee Thomas Saving and NCPA Senior Fellow Andrew Rettenmaier explain how we can skirt this problem: raise the age of eligibility for Social Security and at the same time make the benefit formula more progressive. For Medicare, you could make the premium payments more progressive.

The authors find:

  • Once longevity differences are accounted for, Social Security's progressivity is lessened, relative to estimates based on average longevity estimates by birth year.
  • However, even for the most recent group of new retirees analyzed, the program remains progressive.
  • Further, the study finds that within birth years, the program redistributes from high to low earning workers, even after accounting for income-related differences in longevity.

Combining an increase in the retirement age for all workers with an adjustment to the benefit formula would result in a program that could be financed in the long run at the current tax rate and would retain the program's relative lifetime progressivity.

Progressive price indexing is a reform by which low-income workers' past earnings continue to be indexed by average wages whereas high income workers earnings would be indexed by price level changes. Progressive price indexing would further address concerns about the growth in total benefit payments while retaining and perhaps enhancing the system's progressivity.

Source: Liqun Liu, Andrew J. Rettenmaier, and Thomas R. Saving, "Lifetime Income, Longevity and Social Security Progressivity," National Center for Policy Analysis, December 2012.

Read more!

Monday, December 10, 2012

PolitiFact on Social Security and the Budget Deficit

Check it out here.

Read more!

New pension papers from the IMF

Working Paper No. 12/283: A Tradeoff between the Output and Current Account Effects of Pension Reform Author/Editor: Catalan, Mario ; Magud, Nicolas

Summary: We compare the long-term output and current account effects of pension reforms that increase the retirement age with those of reforms that cut pension benefits, conditional on reforms achieving similar fiscal targets. We show the presence of a policy trade-off. Pension reforms that increase the retirement age have a large positive effect on output, but a small (and often negative) effect on the current account. In contrast, reforms that cut pension benefits improve the current account balance but reduce output. Mixed pension reforms, which extend the working life and cut pension benefits, can simultaneously boost output and the current account.

Working Paper No. 12/285: Pension Reforms in Japan Author/Editor: Kashiwase, Kenichiro ; Nozaki, Masahiro ; Tokuoka, Kiichi

Summary: This paper analyzes various reform options for Japan’s public pension in light of large fiscal consolidation needs of the country. The most attractive option is to increase the pension eligibility age in line with high and rising life expectancy. This would have a positive effect on long-run economic growth and would be relatively fair in sharing the burden of fiscal adjustment between younger and older generations. Other attractive options include better targeting by “clawing back” a small portion of pension benefits from wealthy retirees, reducing preferential tax treatment of pension benefit incomes, and collecting contributions from dependent spouses of employees, who are currently eligible for pension benefits even though they make no contributions. These options, if implemented concurrently, could reduce the government annual subsidy and the government deficit by up to 1¼ percent of GDP by 2020.

Read more!

Friday, December 7, 2012

New SSI study from the National Academy of Social Insurance

The National Academy of Social Insurance has released a new brief on SSI by Shawn Fremstad and Rebecca Vallas. The brief examines the importance of SSI for families of children with disabilities.

About 8 to 9 percent of children in the United States have a relatively serious disability. Families caring for these children are more likely to experience various economic hardships than other families with children, even when their incomes are the same. Recent research finds that costs associated with raising a disabled child, including lost parental income, average at least $6,150 a year. Costs at the high end, which are more likely to reflect the subset of disabled children who are most impaired, are around $20,000 a year.

Supplemental Security Income (SSI)—run by the Social Security Administration, but separate from the Social Security program—offsets some of these costs and helps parents provide the basics that children with disabilities need to thrive and become successful adults. In 2012, the maximum monthly SSI supplement was $698 and the average amount received by child beneficiaries was $619. About 1.3 million low-income children with disabilities—fewer than 1 in 4 children with disabilities—received SSI in August 2012. This relatively low number is mostly due to SSI’s means-test and strict disability standard. Recent research finds that SSI increases family economic security, reduces reliance on food stamps and other means-tested assistance, and does not reduce parental employment. Download a full PDF of the brief here.

Read more!

New papers from the Social Science Research Network


"Portability of Pension, Health, and Other Social Benefits: Facts, Concepts, and Issues"
CESifo Working Paper Series No. 4002

ROBERT HOLZMANN, University of Malaya, Institute for the Study of Labor (IZA), CESifo (Center for Economic Studies and Ifo Institute for Economic Research), World Bank
JOHANNES KOETTL, World Bank - Human Development Sector, Institute for the Study of Labor (IZA)

Portability of social benefits across professions and countries is an increasing concern for individuals and policy makers. Lacking or incomplete transfers of acquired social rights are feared to negatively impact individual labor market decisions as well as capacity to address social risks with consequences for economic and social outcomes. The paper gives a fresh and provocative look on the international perspective of the topic that has so far been dominated by social policy lawyers working within the framework of bilateral agreements; the input by economists has been very limited. It offers an analytical framework for portability analysis that suggests separating the risk pooling, (implicit or actual) pre-funding, and redistributive elements in the benefit design, and explores the proposed alternative approach for pensions and health care benefits. This promising approach may serve both as a substitute and complement to bi- and multilateral agreements.

"An Overview of American Indians and Alaska Natives in the Context of Social Security and Supplemental Security Income"
Social Security Bulletin 72(4): 1-10, 2012

NOLAN SMITH-KAPROSY, affiliation not provided to SSRN
PATRICIA P. MARTIN, Government of the United States of America - Social Security Administration
KEVIN WHITMAN, U.S. Social Security Administration

This article examines the economic security of the American Indian and Alaska Native (AIAN) population by exploring AIAN receipt of Social Security benefits and Supplemental Security Income (SSI). This analysis uses data from the 2005–2009 American Community Survey Public Use Microdata Sample, which provides a larger AIAN sample size than many other sources, thereby enabling more reliable estimates. We find that adult AIANs are less likely to receive Social Security benefits and more likely to receive SSI than are adults in the total population. In both programs, median benefit amounts are lower for AIAN recipients than for recipients in the total population.

"Holding Out or Opting Out? Deciding between Retirement and Disability Applications in Recessions" Free Download
Center for Retirement Research at Boston College, CRR WP 2012-26


Workers over age 55 with chronic health conditions must choose between applying for Social Security Disability Insurance (SSDI) benefits or continuing to work until their Social Security retirement benefits become available. Previous research has investigated the influence of macroeconomic conditions on disability application and, separately, on retirement claiming. This project uses data from the Survey of Income and Program Participation Gold Standard File to determine whether there is a relationship between national and state unemployment rates and disability applications, taking into account the current or future receipt of Social Security retirement benefits. First, reduced-form estimates indicate that retirement beneficiaries are more likely to apply for SSDI as unemployment increases – and, conversely, eligible individuals who have not yet claimed benefits are less likely to apply when unemployment rises. But after accounting for unobserved characteristics associated with both the decision to apply for disability insurance and Social Security benefits, individuals are no more likely to apply for disability benefits when unemployment is high. Second, we find that the probability of SSDI application among individuals age 55-61 is unrelated to macroeconomic conditions and unrelated to proximity to one’s 62nd birthday. These results suggest that, unlike prime-age adults, the decision among older individuals to apply for disability is based primarily on health, and not financial incentives.

"Mismeasurement of Pensions Before and after Retirement: The Mystery of the Disappearing Pensions with Implications for the Importance of Social Security as a Source of Retirement Support"
NBER Working Paper No. w18542

ALAN L. GUSTMAN, Dartmouth College - Department of Economics, National Bureau of Economic Research (NBER)
THOMAS L. STEINMEIER, Texas Tech University - Department of Economics and Geography
NAHID TABATABAI, Dartmouth College - Department of Economics

A review of the literature suggests that when pension values are measured by the wealth equivalent of promised DB pension benefits and DC balances for those approaching retirement, pensions account for more support in retirement than is suggested when their contribution is measured by incomes received directly from pension plans by those who have already retired. Estimates from the Health and Retirement Study (HRS) for respondents in their early fifties suggest that pension wealth is about 86 percent as valuable as Social Security wealth. In data from the Current Population Survey (CPS), for members of the same cohort, measured when they are 65 to 69, pension incomes are about 56 percent as valuable as incomes from Social Security. Our empirical analysis uses data from the Health and Retirement Study to examine the reasons for these differences in the contributions of pensions as measured in income and wealth data.
A number of factors cause the contribution of pensions to be understated in retirement income data, especially data from the CPS. One factor is a difference in methodology between surveys affecting what is included in pension income, especially in the CPS, which ignores irregular payments from pensions. In CPS data on incomes of those ages 64 to 69 in 2006, pension values are 59 percent of the value of Social Security. For the same cohort, in HRS data, the pension value is 67 percent of the value of Social Security benefits.

Some pension wealth “disappears” at retirement because respondents change their pension into other forms that are not counted as pension income in surveys of income. Altogether, 16 percent of pension wealth is transformed into some other form at the time of disposition. For those who had a defined benefit pension just before termination, the dominant plan type for current retirees, at termination 12 percent of the benefit was transformed into a state that would not count as pension income after retirement.
For those who receive benefits soon after termination, there is a 3.5 percent reduction in DB pension value at termination compared to the year before termination. One reason may be the form of annuitization that is chosen.
A series of caveats notwithstanding, the bottom line is that CPS data on pension incomes received in retirement understates the full contribution pensions make to supporting retirees.
Institutional subscribers to the NBER working paper series, and residents of developing countries may download this paper without additional charge at

"Corporate Governance and Pension Fund Performance"
Contemporary Economics, Vol. 6, No. 1, pp. 14-44, 2012

OSKAR KOWALEWSKI, Kozminski University, Warsaw School of Economics - World Economy Research Institute

This study provides new evidence on the impact of governance on the performance of privately defined contribution pension plans. Using a hand collected data set on governance factors, the study shows that the external and internal governance mechanisms in pension plans are weak. One explanation for this weakness is the potential conflict between the pension beneficiaries and the fund’s owner, which depends on who bears the investment risk in the pension plan. Hence, different governance factors are found to be important for pension fund return on invested assets and also for its economic performance. Consequently, the overall policy conclusion is that more focus should be put on the governance of the pension funds, taking into account the different interests of the beneficiaries and owners as it may determine their performance.

Read more!

Tuesday, December 4, 2012

New paper: “What Makes Annuitization More Appealing?”

The National Bureau of Economic Research released “What Makes Annuitization More Appealing?” by John Beshears, James J. Choi, David Laibson, Brigitte C. Madrian, and Stephen P. Zeldes. 


Abstract: We conduct and analyze two large surveys of hypothetical annuitization choices. We find that allowing individuals to annuitize a fraction of their wealth increases annuitization relative to a situation where annuitization is an "all or nothing" decision.

Very few respondents choose declining real payout streams over flat or increasing real payout streams of equivalent expected present value. Highlighting the effects of inflation increases demand for cost of living adjustments. Frames that focus on flexibility, control, and investment risk significantly reduce annuitization. A majority of respondents prefer to receive an extra "bonus" payment during one month of the year that is funded by slightly lower payments in the remaining months. Concerns about later-life income, spending flexibility, and counterparty risk are the most important self-reported motives that influence the annuitization decision, whereas the desire to leave a bequest has little influence on this decision.

Read more!

Monday, December 3, 2012

Barone: American men find careers in collecting disability

AEI’s Michael Barone writes on rising disaiblity rolls for the Washington Examiner. Check it out here.

Read more!

Samuelson: Put Social Security on the Table

Washington Post columnist Robert Samuelson says that Social Security reform should be included as part of larger budget talks. He argues that three main objections to doing so don’t hold much water:

“One argument is that most elderly are poor; benefit cuts will further impoverish them. Not so. The Administration on Aging reports that in 2010, 25.9 percent of households headed by someone 65 or older had incomes exceeding $75,000; 19.4 percent had incomes from $50,000 to $74,999; and 18.8 percent had incomes from $35,000 to $49,999.”

“Another argument is that recipients "earned" benefits through their payroll taxes, which (many believe) were saved. But they weren't saved; they paid the benefits of earlier retirees. Even had they been saved and earned interest, they typically wouldn't cover lifetime Social Security and Medicare benefits, estimate the Urban Institute's Eugene Steuerle and Caleb Quakenbush. A couple with average wages retiring in 2010 would receive $966,000 in benefits against taxes of $722,000.”

“Finally, it's often said that Social Security -- no one makes this argument for Medicare -- doesn't add to the budget deficit because benefits are still covered by payroll taxes. Again, not true. In 2010, benefits exceeded taxes and are expected to do so indefinitely. The Congressional Budget Office estimates the gap to average 10 percent over the next decade and to be 20 percent by 2030. This bloats deficits.”

Click here to read the whole article.

Read more!