Thursday, August 19, 2010

Social Security Reform

The Wall Street Journal has an article up called "Cuts in Social Security Weighed by Fiscal Panel." As everyone knows, touching the third rail of American politics is not only politically painful, but accomplishes little or nothing. How long have people been talking about or making proposals for Social Security reform? It's not like we haven't been aware for a long time of the inherent problems with the system. Here are some of the latest ideas.
Raise the retirement age.

Reduce the rate at which benefits grow each year.

Reduce benefits for wealthier retirees.

Subject a greater portion of income to Social Security tax.

Raise the Social Security payroll tax, now 6.2% for employer and employee.

The first one makes a great deal of sense in my opinion. It's a fact that people are now living much longer than when Social Security was introduced, and are capable of working into their later years. I have no problem with this option. The second one makes less sense. We are going to have benefits that don't increase to reflect cost of living and inflation? That seems unworkable.

I have also long been in favor of cutting benefits for the wealthy. Social Security was never meant as supplemental income for the rich. I'd favor drastic cuts for those making over a certain amount -- although exactly what amount that would be is a huge question mark. But, since Social Security is an entitlement, that means people who are already in the workforce feel entitled to it -- with some justification. In order to enact such a reform, it would have to be done as a long-term change, with current benefits grandfathered in for those already in the workforce, or at least beyond a certain age.

The third option is another reasonable possibility, particularly if reform number two is not used, but it amounts to a tax hike when the economy is already in bad shape. The last option is a terrible idea, as well as an economy wrecker. Social Security taxes are already a major burden on both employees and employers. The last thing we need, particularly right now, is another tax hike that will directly reduce the amount of money in the pockets of workers, while simultaneously increasing the tax burden on businesses.

Like most talk of Social Security reform, this latest panel is probably just indulging in idle speculation. It's far more likely that we are just going to have to find more ways of funding it and maintaining benefits than coming up with any real reform.

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