Sunday, October 21, 2012
Increasing Social Security tax contributions and mitigating benefits will be a tricky proposition (Diamond/Orzag)
Dylan Matthews has an important article on p. G4 of the Washington Post, Sunday Oct. 21, 2012, “A nobelist’s views on Social Security”, in which he discusses the writings of Peter Diamond, and Peter Orszag, “Saving Social Security: A Balanced Approach”. The Wonkblog that hosts the article was not available online Sunday morning. But there is an earlier interview of Peter Diamond Oct. 14 here.
Matthews points out that raising the full retirement age will reduce the benefits (by percentage) of those who retire early, and he also notes that those who retire early tend to have lower life spans. He feels this is wrong.
Generally Diamond and Orszag favorite benefit cuts for the better off and progressive but small tax increases.
He also points out that Paul Ryan’s proposal includes health insurance premium income in the wage base, and effectively raises the FICA tax for ordinary workers, instead of raising the wage base maximum.
The nice thing about privatization is that, although the government could make savings mandatory and regulate the way they are invested, the account owner would get the actuarial value of his savings at retirement (calculated as an annuity) and would not be subject to the possibility of political expropriation for “means testing.” But it is very difficult to get there without sacrifices.
The Diamond-Orzag plan goes all the way back to a paper published in 2005 by the Brookings Institution, Vol. 2, Issue 1, Article 8, “A special issue on Social Security”, link here.
Wikipedia attribution link for Grandfather Mountain picture (my last visit, 1994).