Monday, November 22, 2010

Social Security reform likely to make it more "progressive", more like wealth redistribution than a personal "annuity"

Peter Orszag has a major op-ed in the New York Times, “Safer Social Security”, Nov. 14, where he starts out with “Social Security is not the key fiscal problem facing the nation.” He does say that measured over the next 75 years, the Social Security “deficit” would amount to 0.7% of the economy. The link is here.

There are several approaches possible to reducing the deficit (some of them incorporated into Simpson-Bowles). The most obvious is to increase the maximum social security wage base. Another is to reduce benefits in response to longer life spans. Of course another is to raise retirement ages and early retirement ages. Finally, and the most controversial, and related to “means testing” is to make the tax and benefit structure more “progressive”, offering mathematically more benefits to lower wage retirees and less to higher earners.

It’s the last proposal that has led libertarian-leaning conservatives to favor privatization, and absolute ownership of one’s own contributions, as with a life insurance annuity contract.

But it is the political fact that privatization, proposed during the Bush years, has fallen off the table that makes a "progressive benefit" structure and "wealth redistribution" model more likely.

Ultimately, the debate on social security mixes with a debate on “social responsibility” – whether shared through mandatory public programs like social security and welfare, or by increasing the requirements for personal family and filial responsibility. That makes proposals by Longman and others regarding having children interesting, to say the least.

Check also the letters in the Sunday times. Generally, the public seems to favor raising the wage base tax on the “rich.”

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