Wednesday, April 30, 2008

Short Soc. Security article with nice summary

This is a few years old, but I think it's got some good discussion of issues in the social security debate:
http://www.nytimes.com/2005/04/12/business/retirement/12andrews.html?pagewanted=print&position=

In the terms we discussed yesterday, this would be the 30,000 feet view, I suppose.

2 comments:

Paul Hewitt said...

The 2005 article referenced in Mr. Repici’s post provides many helpful facts. But several key points rely on a National Academy of Social Insurance report, which argues that the “actuarial deficit” can be substantially closed by imposing a new 12.4 percent tax on all wages above the Social Security payroll tax cap, which this year is $102,000.

That analysis is correct, as far as it goes. But the actuarial deficit is an artificial concept that young people, in particular, should view with great skepticism.

Imagine standing on a beach just a few yards from the water. You know that the depth increases dramatically the further out you go. But you make plans to wade out 75 yards based on what you calculate to be the average depth. By this measure, the water is going to be just a little above your head.

So to fix this problem, you pile a bunch of sand where you’re standing.

You’ve raised the average depth to tolerable levels. But you haven’t changed that fact that fifteen yards out, the water will still be over your head.

Advocates of trust fund accounting say that by saving today’s payroll tax surplus, you can, in a sense, build a platform that will allow you to wade those 75 yards without drowning.

But, of course, that 76th step will be a doozy. And next year, when you start your 75 yard wade from one step closer, your average will be under water again.

This, incidentally, is why experts the world over have come to the view that, in the end, it’s more humane to pursue policies that enable retirees to swim on their own – that is, by saving, rather than expecting each successive generation to devote a larger share of its lifetime income to the support of dependent retirees.

Going back to the specific proposal of lifting the payroll tax cap, the Social Security actuaries have calculated that it would close less than half of the system’s projected cash flow deficit in 2060 – and even less after that. If 2060 seems a long way off, remember that, based on current life expectancy, Americans who are age 24 this year will be collecting benefits in that year.

We have graphed this calculation at: http://www.youthentitlementsummit.org/Resources_files/Effect%20of%20lifting%20wage%20cap.xls.
Or you can go to the sources at: http://www.ssa.gov/OACT/TR/TR07/lr6F6.html)

repici said...

I agree, generally, with the idea of pursuing policies that allow people to save for their own retirements. However, I think 1) this will not be possible for allpeople under the best of circumstances and 2) in reality there are people who will meet 'bumps in the road' thta will impede their ability to save for their own retirement.

Also, I think raising the payroll tax ceiling is something to consider (though I'm open to data/argument that it is not a good idea). In your example of the man walking 75ft into the ocean, isn't it better that he is still able to breath at year 74, instead of drowning at 30?

But I think the arguments we are making, to some extent, both need consideration and are not oppsed. That is, you are addressing 1) questions about the fundamental principles of a reirement system, while 2)incresing the payroll ceiling (and other like idea) are about augmenting our present system to make it more sustainable. I think true reform of social security (and entitlements more broadly) will require consideration and implimentaion both kinds.