NCPA - Reformed SS

"NCPA: Evaluating Social Security Reforms in the Age of Budget Deficits"

Endorsement

This proposal largely replays the reforms of the past in which voters give themselves more based on the assumption that our children will accept less.  At best, this approach trades less misery through time where we avoid misery today by creating a larger problem tomorrow.  At worst, we think that this approach to Social Security creates an unstable end to the system.  

How Does It Work?

The reforms would phase in increases in age requirements and progressive price indexing  (ie lower benefit payments for higher-earning people. )  

Strengths

The concept of fix here is real.  Fix means that the system has no problems where as most solutions look at the cost to make our problem a problem for our children.  

The solution separates itself from the other ideas because it  is grounded in the economic returns of the system.  We disagree with their conclusions.  We do not believe that future generations will tolerate this level of return.  Moreover, the people, who make significant investments at 2.9% real, are likely to arrive at retirement in poverty.

Weaknesses

This plan works on the same idea that Social Security has operated for nearly 80 years : we assume that our children will accept less than we give ourselves.   If any future generation says "No", the whole system collapses.  This is designed failure.

Today Social Security is the largest expense that most Americans make in retirement planning.  It already delivers negative returns.  We can't be seriously surprised to find that people who invest their money into poor investments end-up in poverty in retirement.  If we make the investment even worse, the number of people in poverty in retirement will grow.  Social Security is suppose to alleviate poverty in the elderly not create it. 

The proposal should make clear that the direction of the reforms really go against the original intent of the system. In 1944, AJ Altmeyer laid-out 4 guiding principles of the system. (1) Provides specific benefits (2) these benefits come as a right without a means or need test (3) the system is self-funded (4) the system operates on a long-range basis rather than a year to year basis. We have none of these principles.

Distortions

The most significant problem in the proposal is that it protrays its results against a single solution - raising taxes.  It is a straw-man argument in that it suggests that it is the only other solution is to increase payroll taxes substantially.   Ironically enough, this is a solution that will make the problem worse.  (see Why Social Security Is Broken)

The piece claims to be based in "intergenerational equity" and then lays-out a plan which treats every successive generation worse and worse.

The piece inaccurately paints progressive price indexing as means testing. This solution reduces benefit levels based upon what your means were rather than what they are. This change would affect people who are in complete poverty.

The proposal ties Social Security benefits to the budget deficit when the revenue and expense of Social Security is not counted in the budget process.  Social Security reform - as much as it is needed - will not change our budget deficits. 

The writers inaccurately compare the unfunded liabilities of Social Security with government debt. If these liabilities were like government debt, then they would not be unfunded.  Government bonds are a contractual obligation.  The benefits of Social Security are a promise with no contractual obligation.  It is not possible to compare the two. 

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