Tuesday, December 28, 2004

 

Brookings institute Proposal For Social Security Reform

The Brookings Institute has a different look at the Social Security Problem. Basically, their proposal does not include personal social security accounts and pays for the changes in life expectancy, growing wages and the increasing number of beneficiaries by raising the maximum taxable income level, decreasing benefits for higher wage earners and adding a legacy tax to fund the current under-funding of social security. Their policy abstract:

Social Security is one of America's most successful government programs. It has helped millions of Americans avoid poverty in old age, upon becoming disabled, or after the death of a family wage earner. Despite these ongoing successes, the program faces a long-term deficit and policymakers should make changes to it sooner rather than later. Addressing the long-term deficit would put the program and the nation's budget on a sounder footing. Restoring long-term balance to Social Security is therefore necessary, but lawmakers do not have to destroy the program in order to save it.

Our plan restores balance to Social Security without drawing on general revenues, preserves the program's basic structure, and strengthens its social insurance functions. Its combination of revenue and benefit changes reflects the type of balanced approach that was successfully adopted in the 1983 reforms of Social Security.


An interesting idea but based on lowering benefits - albeit by 1% to 7% - and adding a legacy tax, I'm not sure it will fly. Certainly there is something to be said for their argument to bring back the idea that this is really an insurance policy for the poor, retired or disabled worker and not a government managed/funded retirement account. With this in mind, and given the notion that many 30 and 40 somethings do not even believe social security will be around for them, maybe we should be paying for the social security overhaul with huge decreases or even eliminations of benefits for those in the highest income ranges and more modest decreases for those in the mid to upper income ranges. Couple this with some expansions in the IRA benefits to make sure the mid to upper level earners save plenty for retirement and we may have a better solution. The key to the Brooking's or any reform plan is to implement it over many years. This is the part usually lost on the government and the media but the most important so that the changes are brought about gradually and do not surprise anyone.



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