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The New Independent Party Blog

This Blog is maintained by Mike Barron, Executive Director and Founder of the New Independent Party. The views expressed here are not necessarily those of the Party, its Board of Governors or its Members.

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"Comeback America" by David Walker: Social Security

I am currently reading David Walker's book on the fiscal crisis. He was the former U.S. Comptroller (1998-2008). He has been touted as a possible third party candidate for President.

I will be commenting here on the differences between his proposals and those presented in the New Independent Party's Platform. But before taking on the first issue, I should mention that he has a variety of process recommendations that I will not be addressing. These recommendations are mostly centered around ways to get broad buy in to the proposals.

The first of the substantive issues that he takes on is Social Security.

There are several similarities between his recommendations and the Party's Platform including: leaving those currently at or near retirement largely unaffected and raising the full retirement age to 70. He does not mention switching over to the chain index for calculating the cost of living adjustment but he does suggest slightly lowering the adjustment, both of which are similar in their impact. He recommends raising the minimum retirement age to 65 which is essentially the same as the Platform's recommendation for 64 years of age. The Platform raises the maximum age to begin taking Social Security to 72; he suggests having no maximum age but allowing individuals to elect to indefinitely postpone taking Social Security in return for, actuarially equivalent, higher benefits beginning at a later time. This seems completely consistent with the proposal in the Party's Platform and I, for one, find it a reasonable addition.

There are however, three major differences between the Platform and his recommendations. The first is to increase the welfare like characteristics by raising the floor on benefits and reducing payouts for those with a history of higher incomes. The second it to raise the income cap on Social Security from $106,800 (2009) to $150,000. The third is to require a 2 to 3% contribution to an individual IRA.

The effect of the first two of these recommendations is to increase the welfare like nature of Social Security. It needs to be remember that compared to a private retirement plan Social Security is already tilted heavily in the direct of being a welfare program. Low income wage earners receive the Earned Income Tax Credit to offset their contributions. The benefit formula is tilted to disproportionately provide benefits to low wage earners. Finally, the benefits are taxed as income and when combined with the progressive tax system this further reduces the payout to higher income individuals relative to low wage earners. The Party Platform retains the redistributionist character of the current system including the Earned Income Tax Credit (actually recommending increasing it under certain circumstances), but opposes efforts to make the Social Security System even more welfare like than it already is. The Platform recognizes the possibility that the cap on the Social Security tax might have to be raised to make the system completely sound, but it views this as an escape valve to be used after the benefit changes discussed above are exhausted.

The third difference between his recommendations and the Platform is the recommendation for a required contribution to an IRA. This is not necessarily a bad idea but it may have a much smaller impact on the national savings rate, than Walker expects. The U.S. savings rate recently bumped up to around 5% after drifting down to around 3% during the housing bubble. During the bubble individuals viewed their homes as a form of savings and felt that additional savings were less necessary. As housing values declined savings rates rebounded. Similarly, if individuals are compelled to save 2 to 3% in IRA's they will feel, at least to some extent, a reduced need for other savings.

One objection raised to extending the age for receiving benefits is concern for those who may not be able to work longer in their careers by virtue of age. He suggests that those engaged in heavy labor be allowed to access Disability Insurance to tide them over until they are eligible for Social Security. I did not include this as a major difference because, to a certain extent, it is not a policy change at all since those who become too infirm to continue working are already entitled to disability benefits. If that is all that he means I don't think there is a significant difference between his recommendation and the Platform. If, however, he is recommending a special class of occupations and eligibility rules for Disability Insurance I think he is asking for a bureaucratic mess. All kinds of work become more difficult as we age, I don't think we want to go down the road of trying to deal with this governmentally.  Instead, individuals who are doing work that they are unlikely to either want or be able to do until they are 70 should save more and take the early retirement option. The government should not be expected to intervene to micro manage this situation.

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