Wednesday, March 5, 2014

Phil Swagel: Do the Math on Social Security

My AEI colleague Phil Swagel, with whom I also had the pleasure to work during the Bush administration, writes in the New York Times on how to think about Social Security reform – and the opportunities President Obama may be missing in putting reform on the back burner. Check it out here.

1 comment:

WilliamLarsen said...

I read the article. Sounds like more of the patch and continue method used since 1950.

The metric to determine if any proposal works was not discussed (or I missed it) but I assume that the metric will be the 75 year solvency period. In this case, like an ice burg it hides the largest part.

It really amazes me that people are still trying to prolong social security. Raise the tax on higher wage earners or reduce their benefits while maintaining the current benefit/tax for low wage earners.

The problem in a nutshell is that you either have to cut benefits by 40% or raise taxes by 80%. In none of the proposals I have seen does it ever approach this value.

"If retirement and disability funds are considered together, system reserves will be depleted in 2033, with revenues in that year sufficient to pay 77 percent of scheduled benefits, a figure that declines to 72 percent of scheduled benefits in 2078."

OASI and DI are not "normal" which means statistically and mathematically they cannot be combined and a solution derived. So why do they do this, stupidity, ignorance, hope to minimize the problem?

The article also has a link with interesting info.

Importantly, the increase in America's elderly population was fully anticipated at the program's birth in 1935. Edwin Witte, the Wisconsin economist who was its architect, estimated for Congress that by 1980, one-eighth of the U.S. population would be 65 or older, and they would have to be provided for: "Whether you do it in the form of pensions or in some other way, there is no way of escaping that cost."

Incidentally, Witte actually overestimated the elderly population. In 2011, his figures would put the 65-plus population of the U.S. at 39 million. That year, according to the Social Security Administration, the number of retired workers including dependents collecting benefits was 38.5 million. What does Ryan suggest should be done with all these people? He doesn't say.

An projection made in 1980 that exceeded projections by 1.2% over a 31 year span. I would call that pretty good. If projections in population are so accurate then why does OASI have a problem? Could it be designed to fail?

that some of the increase in beneficiaries over the years is due to new benefits enacted by Congress, such as stipends for school- and college-age children of deceased workers.

For a given improvement in the system’s financial condition, then, the two alternatives are to maintain current benefits and have higher taxes or to keep taxes the same but slow benefit growth from what is now promised, but not payable.

Either way, the net impact is the same, with the burden of the adjustment falling on high earners in both instances. The plan with higher revenues does provide greater assurance to one group: people who made lots of money while working and then spent it all.

Why is this the only option? Who are we trying to save social security for, current beneficiaries or future generations? If it is for future generations, do they want it?