| May 2012 | ||||||
|---|---|---|---|---|---|---|
| S | M | T | W | T | F | S |
| 1 | 2 | 3 | 4 | 5 | ||
| 6 | 7 | 8 | 9 | 10 | 11 | 12 |
| 13 | 14 | 15 | 16 | 17 | 18 | 19 |
| 20 | 21 | 22 | 23 | 24 | 25 | 26 |
| 27 | 28 | 29 | 30 | 31 | ||
Wall Street Journal editorial board member Susan Lee discusses Social Security Reform in a recent op-ed piece. Her observations were a surprise to me. I’d been under the impression that there was no plan currently under discussion that could rescue the program.
Lee notes that current Social Security payments increase from year to year to keep pace with increases in wages. She contends that if increases kept pace with increases in prices, rather than wages, that alone would fix the system:
All [social security] benefits are based on something called the primary insurance amount. This amount, in turn, is based on a worker’s earnings, indexed to the growth in average real wages, for the highest 35 years of earnings…So every retiring worker gets to take advantage of overall economic prouductivity, pushing up the level of wages during the time in which the work was performed. This adjustment allows the purchasing power of benefits to grow over time…
Under the current arrangement, the purchasing power of benefits grows over time. In other words, historically wages are increasing faster than prices—which in itself is a very interesting and encouraging insight. Possibly the original planners of Social Security did not foresee this. It’s this disparity, Lee observes, that’s crushing the system:
If benefits were indexed to prices however, Social Security would, at this very minute, be in balance over the long-termthe system would be permanently solvent. Not only would future revenues equal future costs, but there would be a surplus!
Indexing for price changes alone would protect retirees, new and not-so-new, from inflation, thereby maintaining purchasing power.
Hal Pawluk of BlogCritics disagrees:
Earlier in her column she quickly glosses over a couple of key facts:
...the proposed switch to price indexing would reduce benefits relative to what the current law promises (and would require a 50% increase in payroll taxes to finance). [Ibid.]
So how wonderful is that? If the payroll taxes are raised without privatization, Social Security is fixed, so why privatize and reduce the benefits?
Hal is saying that he finds a mere 50% increase in payroll taxes to be a perfectly acceptable way of fixing Social Security. If that’s the best argument against what Lee is saying, then the opposition to this appears weak.
Tyler Cowen of Marginal Revolution agrees with Lee, saying “Did you get that right? Just stop boosting benefits.” [Emphasis in original – ed.]
It is encouraging that what Lee is proposing isn’t some pie-in-the-sky plan that will never get a chance to be implemented. It’s part of a plan that has been proposed by the President’s Commission to Strengthen Social Security:
Look no further than Plan Two offered by the President’s Commission to Strengthen Social Security, in 2001. ...Plan Two changes the way benefits are allowed to grow. How? You guessed it, by replacing the computation of benefits via wage indexing to a policy under which initial benefits would grow from one cohort to the next at the rate of price increases.
#1
#2Hi Hal,
Thanks for stopping by. I agree that you could fix this by just raising a very large amount of new taxes. But many feel that people in this country pay more than enough taxes already. We could wind up like France, with everybody being taxed to the hilt and dependent on the government for handouts.
No, that's not what I'm saying.
What I said was that if you're going to have to cut benefits and raise taxes, why go to all that bother? you could just raise the taxes without cutting the benefits and solve the problem.
But raising taxes 50% is not required. Check the AARP site, or for a faster read, my summary "The New American Dream: No Social Security" at http://www.tude.com/prn/prn05q1/p050124SSdream.htm
--
Hal Pawluk
http://www.tude.com/