Thursday, April 25, 2013

Munnell: Don’t Scrap the Cap

Boston College Professor Alicia Munnell, writing for Marketwatch, argues that progressives should think twice about trying to fix social Security by “scrapping the cap,” that is, the $114,000 ceiling on which payroll taxes are levied and benefits are calculated. While eliminating the cap may seem fair in one sense – that high earners would “pay taxes for the full year” – it also would mean that high earners would pay a lot more in taxes than they’d ever receive back in benefits. In Social Security’s context, which tries to not be too progressive, that approach could backfire.

It’s a thoughtful piece – check out the whole thing here.

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Tuesday, April 23, 2013

Chained CPI: A sucker’s deal for Republicans?

I’ve previously written that I think the chained CPI isn’t great policy – it cuts benefits where they might be higher and leaves benefits alone where maybe they should be cut. But over at Real Clear Markets, I argue that the things the GOP would need to give up in order to get the chained CPI – namely, a lot of tax increases – make it a pretty bad deal from their perspective.

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Andrew Biggs: Cut payroll taxes for workers 65 and older

Here is some video from last month's AEI event on improving fairness encouraging longer work lives through Social Security and Medicare policy. Check out the whole event here.

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Friday, April 19, 2013

CBO testimony on the chained CPI

Jeffrey Kling of the Congressional Budget Office testified at the Social Security subcommittee of the House Ways and Means Committee on the chained CPI. You can read his testimony here.

I don’t believe the other testimony is available online at the Committee’s website, but I’ll post it when I find it.

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Tuesday, April 16, 2013

Expanding Social Security is a bad idea

My comments on the New America Foundation proposal for expanded Social Security, over at The American, AEI’s online magazine.

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Monday, April 15, 2013

My take on the Chained CPI: A bad deal all around

I write that:

The Chain-Weighted Consumer Price Index (or chained CPI, for short), which President Obama included as part of his formal budget proposal, seems like a no-brainer for any White House–GOP grand bargain on the budget deficit. After all, the chained CPI is a better measure of inflation than the indices the federal government currently uses, and this simple technical fix would reduce entitlement spending and increase tax revenues by a combined $340 billion over ten years, providing something for both sides to like and dislike. Yet as pressing as federal deficits and debt are, the chained CPI is bad policy that both liberals and conservatives may come to regret.
Check it out, over at National Review. Read more!

Monday, April 8, 2013

Are you entitled to your entitlement benefits?

The argument against cutting Social Security and Medicare is that Americans “earned” those benefits through the taxes they paid over the years. But did they? The New York Times looks at the issue here.

I ran some numbers on Medicare benefits here.

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Friday, April 5, 2013

New papers from the Social Science Research Network

SOCIAL SECURITY, PENSIONS & RETIREMENT INCOME eJOURNAL

"The 2013 Retirement Confidence Survey: Perceived Savings Needs Outpace Reality for Many"
EBRI Issue Brief, Number 384, March 2013

RUTH HELMAN, Mathew Greenwald & Associates
Email: RUTHHELMAN@GREENWALDRESEARCH.COM
NEVIN E. ADAMS, Employee Benefit Research Institute (EBRI)
Email: nadams@ebri.org
CRAIG COPELAND, Employee Benefit Research Institute (EBRI)
Email: COPELAND@EBRI.ORG
JACK VANDERHEI, Employee Benefit Research Institute (EBRI)
Email: vanderhei@ebri.org

This paper presents key findings from the 23rd annual Retirement Confidence Survey (RCS), a survey that gauges the views and attitudes of working-age and retired Americans regarding retirement, their preparations for retirement, their confidence with regard to various aspects of retirement, and related issues. The percentage of workers confident about having enough money for a comfortable retirement is essentially unchanged from the record lows observed in 2011. While more than half express some level of confidence (13 percent are very confident and 38 percent are somewhat confident), 28 percent are not at all confident (up from 23 percent in 2012 but statistically equivalent to 27 percent in 2011), and 21 percent are not too confident. Retiree confidence in having a financially secure retirement is also unchanged, with 18 percent very confident and 14 percent not at all confident. One reason that retirement confidence has remained low despite a brightening economic outlook may be that some workers may be waking up to a realization of just how much they may need to save. Asked how much they believe they will need to save to achieve a financially secure retirement, a striking number of workers cite large savings targets: 20 percent say they need to save between 20 and 29 percent of their income and nearly one-quarter (23 percent) indicate they need to save 30 percent or more. Aggressive as those savings targets appear to be, they may not be based on a careful analysis of their individual circumstances. Only 46 percent report they and/or their spouse have tried to calculate how much money they will need to have saved by the time they retire so that they can live comfortably in retirement. Retirement savings may be taking a back seat to more immediate financial concerns: Just 2 percent of workers and 4 percent of retirees identify saving or planning for retirement as the most pressing financial issue facing most Americans today. Both workers and retirees are most likely to identify job uncertainty (30 percent of workers and 27 percent of retirees) and making ends meet (12 percent each). Cost of living and day-to-day expenses head the list of reasons why workers do not contribute (or contribute more) to their employer’s plan, with 41 percent of eligible workers citing this factor. Debt may be another factor standing in the way; 55 percent of workers and 39 percent of retirees report having a problem with their level of debt, and only half (50 percent of workers and 52 percent of retirees) say they could definitely come up with $2,000 if an unexpected need arose within the next month. Worker confidence in the affordability of various aspects of retirement continues to decline. Just 23 percent of workers (and 28 percent of retirees) report they have obtained investment advice from a professional financial advisor who was paid through fees or commissions. The 2013 Retirement Confidence Survey was co-sponsored by the Employee Benefit Research Institute (EBRI), a private, nonprofit, nonpartisan public-policy-research organization; and Mathew Greenwald & Associates, Inc., a Washington, DC-based market research firm. The survey was conducted in January 2013 through 20-minute telephone interviews with 1,254 individuals (1,003 workers and 251 retirees) age 25 and older in the United States.

"Exchanging Delayed Social Security Benefits for Lump Sums: Could this Incentivize Longer Work Careers?"
Michigan Retirement Research Center Research Paper No. 2012-266

JINGJING CHAI, Goethe University Frankfurt - Department of Finance
Email: chai@finance.uni-frankfurt.de
RAIMOND MAURER, Goethe University Frankfurt - Finance Department
Email: Rmaurer@wiwi.uni-frankfurt.de
OLIVIA S. MITCHELL, University of Pennsylvania - The Wharton School, National Bureau of Economic Research (NBER)
Email: mitchelo@wharton.upenn.edu
RALPH ROGALLA, Goethe University Frankfurt - Department of Finance
Email: rogalla@wiwi.uni-frankfurt.de

Social Security benefits are currently provided as a lifelong benefit stream, though some workers would be willing to trade a portion of their annuity streams in exchange for a lump sum amount. This paper explores whether allowing people to receive a lump sum as a payment for delayed retirement rather than as an addition to their lifetime Social Security benefits might induce them to work longer. We model the factors that influence how people trade off a Social Security stream for a lump sum, and we also examine the consequences of such tradeoffs for work, retirement, and life cycle wellbeing. Our base case indicates that workers given the chance to receive their delayed retirement credit as a lump sum payment would boost their average retirement age by l.5-2 years. This will interest policymakers seeking to reform the Social Security system without raising costs or cutting benefits, while enhancing the incentives to delay retirement.

"Reforming the Taxation of Retirement Income"
Virginia Tax Review, Vol. 32, No. 2, pp. 327-366, 2012
Illinois Program in Law, Behavior and Social Science Paper No. LBSS13-23

RICHARD L. KAPLAN, University of Illinois College of Law
Email: rkaplan@illinois.edu

Legal and financial analyses abound about various means of saving for retirement and the tax advantages that they present, but very little attention has been paid to how retirement income is generated and the tax consequences that pertain to its generation. This article fills that void by examining the three major sources of retirement income: Social Security, employment-based retirement plans, and personal savings. For each of these sources, this article considers how retirement income is generated, sets forth the applicable federal income tax treatment, and proposes reforms to make the pertinent tax rules more sensible. Among its recommendations are simplifying how Social Security retirement benefits are taxed, bifurcating defined contribution plan withdrawals into capital gains and ordinary income components, repealing certain exceptions to the early distribution penalty, reducing the delayed distribution penalty and adjusting the age at which it is triggered, and changing the residential gain exclusion to avoid unanticipated problems with reverse mortgages.

"Reform Proposals for Replenishing Retirement Savings"
SPP Research Paper No. 6-9

JACK MINTZ, University of Calgary - The School of Public Policy, CESifo (Center for Economic Studies and Ifo Institute for Economic Research)
Email: jmmintz@ucalgary.ca
THOMAS A. WILSON, University of Toronto - Department of Economics
Email: twilson@chass.utoronto.ca

The 2008-2009 economic crisis dealt a serious blow to Canadians’ retirement savings. While markets have since partially recovered, the ratio of Canadians’ household net-worth relative to disposable income still remains below where it was in 2007. So much wealth that workers had accumulated to prepare for retirement has been wiped away, while the years since 2008 that might have otherwise been spent compounding retirement savings have been spent, instead, on trying to recover losses in a low-interest-rate environment that has limited returns. With large waves of older workers approaching retirement age, and these future retirees projected to live longer than previous cohorts, Canada now faces the very realistic scenario that a significant number of people will reach retirement age without the funds they will need to provide a comfortable post-working-life income.
Canadian policy-makers may not have the ability to restore that destroyed wealth. And with most governments already struggling to resolve serious deficits, the situation is not likely to be ameliorated with anything that requires additional spending, or that could reduce tax revenues. But there are policy reforms available that can help at least in better preparing the coming waves of retirees for a financially secure retirement. The reforms need not be far-reaching to have a meaningful impact. And they need not be costly, either.
They can include a modest expansion of the Canada Pension Plan (CPP) to allow larger contributions — shared by employers and employees, or covered entirely by employees — that would, in turn, allow retiring workers to draw a larger maximum pension, rather than having to rely on the guaranteed income supplement (GIS). CPP contributions could also be made deductible from taxable income, like RRSP investments, to encourage workers to maximize contributions. To minimize an increase in payroll taxes, the eligibility age for CPP benefits could be increased to 67 years of age, similar to old-age security eligibility. Meanwhile, the tax treatment of group RRSPs — for which employer contributions are currently subject to payroll taxes — should be made the same as it is for defined-contribution registered pension plans (RPPs).
There is also the option of increasing the age limit for RPP and RRSP contributions, from 71 to 75 years, to reflect the increase in life expectancies. RRSP contributions can be altered to allow lifetime averaging, allowing workers to take advantage of additional contribution room. Contribution limits on Tax-Free Savings Accounts should be increased as well. Policy-makers should also look at creating a capital-gains deferral account, to allow investors to sell off underperforming assets, without fear of triggering a tax bill, as long as they reinvest the proceeds. The freedom to unlock unwanted investments, and make better ones, will improve revenue prospects for investors and the government.
Many of these reforms can be phased in gradually, to assess their effects on government revenue and savers’ behaviour. But they all appear to have the potential to encourage increased saving, without significantly harming long-term government revenue, helping Canadians better prepare for comfortable retirements, even after the serious wealth destruction that accompanied the recent economic crisis.

"Public Employee Pensions in Missouri: A Looming Crisis"
Show-Me Institute Policy Study, No. 36, March 2013

ANDREW G. BIGGS, American Enterprise Institute
Email: andrew.biggs@aei.org

This paper describes how public employee pensions currently measure their financial health; discusses the consensus among economists that current accounting rules significantly understate pension liabilities and overstate pension funding levels; and describes how pension financing would appear using accounting rules similar to those required for private sector pensions or for public employee plans in other countries. Following that is discussion of objections to fair market valuation. Finally, we discuss the costs and benefits of potential reforms, including shifting to defined contribution or cash balance pension structures.

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Not saving enough? Blame it on your grammar…

New from the American Economic Review.

The Effect of Language on Economic Behavior: Evidence from Savings Rates, Health Behaviors, and Retirement Assets

M. Keith Chen

Languages differ widely in the ways they encode time. I test the hypothesis that the languages that grammatically associate the future and the present, foster future-oriented behavior. This prediction arises naturally when well-documented effects of language structure are merged with models of intertemporal choice. Empirically, I find that speakers of such languages: save more, retire with more wealth, smoke less, practice safer sex, and are less obese. This holds both across countries and within countries when comparing demographically similar native households. The evidence does not support the most obvious forms of common causation. I discuss implications for theories of intertemporal choice. (JEL D14, D83, E21, I12, J26, Z13)

Full-Text Access | Supplementary Materials

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Wednesday, April 3, 2013

Upcoming event: “Disability Insurance: Inherent problems, practical solutions, and action for reform”

The first day of a two-day event series:

Disability insurance: Inherent problems, practical solutions, and action for reform (Part 1)

Cosponsored by AEI, the Brookings Institution, and the Secretary's Innovation Group

RSVP

Description

Disability program expenditures and applications are rising at a rapid pace. The Social Security trustees report predicts that absent change, the Social Security Disability Insurance (SSDI) trust fund will be insolvent by 2016. These realities point to the need for fundamental changes to the way disability is insured and managed.     
This first day of a two-day conference will feature three panels. Panel A will discuss the causes of SSDI program growth and its implications for the future solvency of the SSDI trust fund. Panel B will then discuss the extent to which the SSDI program enrolls individuals capable of full- or part-time work. Finally, Panel C will discuss the effects of increased work participation on the health and well-being of disability applicants and beneficiaries. A full-form agenda can be downloaded here.

 

Details

Friday, April 12, 2013
8:30 AM - 12:30 PM

Rayburn House Office Building
Room B-318
Independence Avenue and South Capitol Street
Washington, DC 20003
[Map]

This event will not be livestreamed.

RSVP to attend the April 12 event.

 

Participants

Participants include:

Richard Burkhauser, AEI

Kim Burton, Center for Health and Social Care Research, United Kingdom

Jennifer Christian, Webility! Corporation

Michael Donnelly, Kansas Rehabilitation Service

Robert E. Drake, Geisel School of Medicine, Dartmouth College

Mark Duggan, Wharton School of the University of Pennsylvania

Stephen Goss, Social Security Administration

Dorcas Hardy, Social Security Administration

Ron Haskins, Brookings Institution

Henry Olsen, AEI

Bryon Macdonald, World Institute on Disability

Roger Mahan, Office of the Majority Leader, US House of Representatives

Kathy Ruffing, Center on Budget and Policy Priorities

Bob Steggert, Marriott International

[Full Agenda]

 
 
The second day of a two-day event series:

Disability insurance: Inherent problems, practical solutions, and action for reform (Part 2)

Cosponsored by AEI, the Brookings Institution, and the Secretary's Innovation Group

RSVP

Description

Disability program expenditures and applications are rising at a rapid pace. The Social Security Trustees report predicts that absent change, the Social Security Disability Insurance (SSDI) trust fund will be insolvent by 2016. These realities point to the need for fundamental changes to the way disability is insured and managed.     
This second day of a two-day conference will feature three panels. The first will discuss the extent to which the current disability determination process is effective in selecting and supporting individuals who are unable to work. A second panel will then discuss the role of the business sector in supporting employment for individuals with disabilities. The final panel will discuss several proposals for fundamental SSDI reform. A full-form event description is available for download here.

 

Details

Friday, April 19, 2013
8:30 AM - 12:30 PM

Rayburn House Office Building
The Gold Room 2168
Independence Avenue and South Capitol Street
Washington, DC 20003
[Map]

This event will not be livestreamed.

RSVP to attend the April 19 event.

 

Participants

Participants include:

Eloise Anderson, State of Wisconsin

Jo Anne Barnhart, Social Security Administration

Doug Besharov, University of Maryland

Richard Burkhauser, AEI

Ron Haskins, Brookings Institution

Kim Jinnett, Integrated Benefits Institute

Harold Krent, IIT Chicago-Kent College of Law

Henry Olsen, AEI

Richard J. Pierce, Cato Institute

Jack Smalligan, Office of Management and Budget

David Stapleton, Center for Studying Disability Policies

Allyn C. Tatum, Tyson Foods

Jason Turner, Secretary's Innovation Group

Richard Victor, Workers Compensation Research Institute

[Full Agenda]

Contacts

For more information, please contact Michelle Hays at disabilityeventapril2013@gmail.com or Brad Wassink at brad.wassink@aei.org.
For media inquiries, please contact MediaServices@aei.org (202.862.5829).

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Five ways to reform Social Security Disability Insurance

From the Washington Posts’s Dylan Matthews. And they’re all practical and non-ideological, meaning they might have a shot at actually getting passed. Hey Congress, take a look!

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Tuesday, April 2, 2013

New paper: “Do Income Projections Affect Retirement Saving?”

The Center for Retirement Research at Boston College has released a new Issue in Brief:

“Do Income Projections Affect Retirement Saving?”

by Gopi Shah Goda, Colleen Flaherty Manchester, and Aaron Sojourner

The brief’s key findings are:

  • One barrier to saving may be ignorance about how it translates into retirement income.
  • A recent study conducted a field experiment to see whether providing workers with retirement income projections affected the amount they saved.
  • The results show that such projections, accompanied by information on retirement planning, could modestly increase saving.
    • The experiment’s positive effect on saving works, in part, by boosting individuals’ knowledge and confidence.
    • But its effect on saving is limited among those with who have difficulty paying bills, prefer to “live for today,” or tend to procrastinate.

The brief is available here.

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Monday, April 1, 2013

Job openings at the CRS

Congressional Research Service (CRS) Domestic Social Policy Division

The Congressional Research Service (CRS) Domestic Social Policy Division is seeking several analysts who will provide congressional committees, Members of Congress and their staff with the vital analytical support they need to address complex public policy issues related to one of the following areas: Social Security (e.g. financing issues, impact on beneficiaries, and program design and operations), Health Care Financing and Insurance (e.g. private health insurance and/or Medicaid, Medicare, CHIP and health care reform) and Education (e.g. students with disabilities, English language learners, student assessment and academic achievement, and school finance).


JOB DESCRIPTION: Analyst duties include preparing objective, non-partisan analytical studies and descriptive background reports on issues of national significance; providing personal consultation and assistance to congressional committees, Members, and staff on public policy issues throughout the legislative process; and participating in or leading team research projects and seminars.

APPLICATION PROCEDURE: Applicants MUST apply online. For more information, please visit: http://www.loc.gov/crsinfo

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