Thursday, October 31, 2013

Response to Kevin Drum on Social Security reform

Mother Jones’ Kevin Drum is one of the more sober analysts of Social Security reform on the left. But apparently my recent podcast with AEI’s Jim Pethokoukis on my own ideas for Social Security left him unconvinced. He calls it “How to Save Social Security By Slashing Benefits.”

There’s certain merit to what he says. If you want to save Social Security and you don’t want to raise taxes – I explain why not here and here – then cutting/“slashing” benefits is tough to avoid. But if you read my recent National Affairs article, which I hope Drum will do, it outlines some of the problems with Social Security that go well beyond solvency. Social Security is not a program that’s perfectly fine with the exception of being a couple trillion dollars short of cash.

It’s a program that discourages saving, labor force participation, delayed retirement, and even fertility, all of which are important to its own future financing health, not to mention the overall economy. Likewise, as I discuss here, Social Security offers a very leaky safety net. Due to the complexity of the benefit formula, some low earners do very well from the program but a lot of others don’t. While Social Security is progressive on average, it isn't consistently so. Think of it as a social insurance policy that may or may not pay off if you need it.

My proposal, which combines a flat poverty-level benefit for all retirees with a supplementary pension savings account, improves in all these areas. It would do less to discourage work and saving, eliminate the payroll tax on older workers to encourage delayed retirement, and cut taxes on parents to avoid penalties for larger families. Moreover, unlike current proposals to cut COLAs, my plan would pay a COLA 1 percentage point above the rate of inflation, to raise benefits for older retirees who are at greater risk of poverty. Yes, it cuts benefits over a period of decades, but it also would boost the economy and take the poverty rate for seniors from around 9 percent to around zero percent.

The point isn’t just to make a Social Security program that’s solvent. It’s to make a Social Security program that really works.

1 comment:

WilliamLarsen said...

I hate to burst your bubble, but there is no social security program that "really works."

Re packaging a broken program does nothing but continue the same old con. Repeal the OASI program and eliminate all benefits. If you want a social net, then create it for those now 20 and have them pay into it, collect and invest those funds and in 47 years begin paying benefits to these contributors based on their actuarial payments.

Government has no idea how to invest in human capital let alone financial capital. Politicians have run continual deficits in the General Budget since 1958. Each and every year the national debt has increased since 1958 => proves there has been no surplus since 1957.