Thursday, January 20, 2005

Social Security: Ratios for solvency

David Tufte proposed an interesting idea. Whether he actually advocates it, I don't know.
"In principle this is an easy thing to fix. If Congress stipulated that the ratio of earners to receivers would remain at some fixed ratio (say 3 to 1), and that eligibility to join the group of receivers would be determined by the availability of slots that did not decrease that ratio, then social security would be sustainable forever."

While this is an interesting idea, it would mean that Social Security would have a very different meaning in 20 years than it does today. I've already heard one proposal to provide payroll tax credits for having children. These children, of course, are the ones that are funding the system and so, the theory goes, people should be rewarded for having them.

Serious questions remain for me about Social Security that must be addressed in any recommendation for reform. First, what impact will lengthing life expectancy have on the system? I was listening to Mike Leavitt's testimony in his confirmation hearing before the Senate to become the Secretary of the Department of Health and Human Services. He noted that as govenor he hosted a luncheon for everyone in the state over age 100. He explained that for a little girl born today in Utah, she would have over 100,000 associates at the governor's luncheon in 100 years. There are a lot of people that are living longer--and that makes a real difference to evaluating a system like Social Security. I don't have the numbers to back me up, but I expect that people wouldn't quality for social security in Tufte's "slot" system until well beyond age 70. Can poor people really wait that long for a benefit? Wouldn't people with low-paying physical labor-type jobs be those that are going to have the shortest useful working lifetime and thus need retirement help sooner?

Tufte commented that Social Security is not a pension system. Perhaps this word has some more precise meaning for economists than that definition which is normally understood (from Princeton WordNet), "a regular payment to a person that is intended to allow them to subsist without working."

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