Writing for Salon.com, Ike Brannon of the R Street Institute talks about what really would be needed to come to a deal on social security reform.
The answer: more than you might think. It’s well worth checking out.
Tuesday, March 19, 2013
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Wage Indexing is not the problem. Wage Indexing was introduced in the 1977 reform of the social security benefit. What this change did was removed Congress from setting the initial benefit. When you look at wage indexing mathematically, it is a correct method by which to determine each cohorts initial benefit. It is a fair method for ensuring that each cohort has an initial benefit consistent with buying power of the wages that were subjected to social security taxes at age 60.
The TRUEproblem for social security is its LEGACY DEBT. The Legacy Debt is nothing more than the unfunded portion of Social Security's start up costs. In 1937 workers began paying social security taxes, but within three years some workers turned 65 and had not paid much in taxes, yet received "meaningful" benefits. These meaningful benefits were far in excess of what a cohorts payroll taxes would have been able to pay on an actuarial level. It is relatively easy to calculate the cohort birth year at which payroll taxes covered a cohort
s benefits on an actuarial basis and that year is around 1940 for single workers and 1946 for non working spouses.
Therefore, changing wage indexing may fix social security, but only by making Social Security very unfair to those who have or will pay the highest payroll taxes of all cohorts.
Wage indexing is a mathematical divergent series. As the US Average Wage increases, the initial OASI Benefit increases at the SAME exact rate. When this wage growth exceeds the rate of interest earned by US Treasuries the OASI trust fund, then the OASI trust fund become totally meaningless since its rate of growth must equal or exceed the rate of growth in future benefits.
As I have said repeatedly since 1984 when my computer model of Social Security first revealed that increasing wage growth only made Social Security worse, there is no PAINLESS solution to social security's problem.
In fact the most painless solution is to actually repeal social security immediately, no phase out period! The reason is that with each passing day, 10.6% of wages are withheld from workers with no intent or ability to compensate them and thus this is a drag on economic growth.
Good luck and god bless.
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