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Social Security

Social Security was developed in an era when few people lived beyond 65 years of age. The program now faces a demographic tsunami caused by the intersection of extended life expectancies and the baby boom. Despite that, the problems with the actuarial soundness of the program can be fixed with relatively little difficulty, if we start now. 


First, we believe that those at or near retirement (those currently older than 58) should receive the benefits that were promised to them. This does not mean, however, that they should get more than what was promised to them. Most, if not all, economists would agree that the current system for indexing Social Security has resulted in an unintended wealth transfer to the recipients. We support moving the system to a “chain index” for adjusting benefits for inflation. This approach is both reasonable and modest in its impact.


Second, the age for full retirement eligibility under the system should be raised gradually from 66 currently (gradually rising to 67 for those born after 1960) to 70 years of age.  We would suggest that those currently between 54 and 58 would have full eligibility at 67 years of age. Those currently between 50 and 54 years of age would have full eligibility at 68 years of age. Those currently between 46 and 50 would have full eligibility at 69 years of age. Those currently less than 46 would receive full eligibility at 70 years of age. 


The minimum age should also rise to 64 from 62 and the maximum age should rise to 72 from 70.


We expect that with these changes the Social Security system will be actuarially sound.  If reform is delayed for a number of years, the magnitude of the required changes to accomplish this objective will be much more severe.


We support maintaining the Earned Income Tax Credit, which is designed to offset the regressivity of payroll taxes, such as the Social Security tax.  For that reason we would oppose increasing the income limit on Social Security by any more than that necessary to make the system actuarially sound.  If the above actions are undertaken quickly, we don’t believe it will be necessary to increase the income limit on Social Security.


In thinking about the relative regressivity of Social Security taxes it should be kept in mind that the method for calculating benefits is already progressive, offering proportionately larger benefits to low income recipients relative to their contributions. In addition, the fact that, above a relatively low limit, Social Security benefits are taxable through the existing progressive tax system increases the the net after tax progressivity of the program.


Philosophically the intent of these changes is to do what is necessary so that, over the long term, the Social Security does not add to the deficit. We would be opposed to changes in Social Security that attempted to cut the deficit through changes in eligibility, benefits, or social security taxes.

 

 

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