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Monday, May 02, 2005

Social Security and Income Redistribution

This New York Times Op-Ed talks about some points that Honest Partisan made in the comments to this post of mine:

Social Security has an image as a progressive program because low-income workers get back bigger monthly checks, relative to their salaries, than high-income workers do. They're also more likely to get disability benefits. But they lose out in other ways. They tend to start working and paying taxes at a relatively young age because they don't go to college, but then end up collecting benefits for fewer years because their life expectancy is shorter. They're more likely to be unmarried, making them ineligible for benefits earned by a spouse. 'The amount of income-related redistribution in Social Security is a lot less than people think,' said Jeffrey Liebman, a Harvard economist and a former official in the Clinton administration. 'If you get the details right, you can design a personal-account retirement system in which groups with high risks of poverty in old age come out at least as well as with the current system.' So why are his fellow Democrats so dead set against it? Their usual answer has been that any move to privatization would doom the poor along with the whole Social Security program. If you let the middle and upper classes opt out and finance their own retirement, the argument has gone, there will be no political support for even the modest subsidies that Social Security now provides to low-income workers - just look at what Republicans did to welfare and public housing programs. But the elderly poor are different from the younger poor. For one thing, they're more likely to vote, a fact not lost on even the most hardhearted Republican. They also arouse much more public sympathy. Kicking 25-year-olds off welfare was popular because it was thought to be good for them. Nobody claims that forcing that widow to eat cat food will build character.
I think that Social Security does a terrible job as a vehicle for saving for retirement and only a mediocre job as income security for poor people. I think we can, with a smarter program, do better on both accounts. I am fairly libertarian minded, and thus opposed to most income redistribution schemes, however, I think that we, as a society, should provide for poor people who cannot work. If I think this, then I am pretty sure that the fears liberals have that if Social Secuity is reformed voters will stop supporting it and it will disappear leaving our elderly to starve are unfounded. Most people, and an even larger percentage of voters, are not going to let old people starve. If anything, with things like the prescription drug benefit, the trend is in the other direction. So we should at least try to make a better retirement program, and not simply try to patch up the one we have because of fears that a new system will leave old people out in the cold.


Blogger honestpartisan said...

I suppose that fire insurance can be inefficient, too if you pay premiums for years and never have a fire. Social Security is insurance against destitution upon retirement. You don't have to be poor during your working years to face poverty in retirement.

Framing the debate as one about "making the system better" is fine and good. The devil is in the details. The details of Bush's plan are either nonexistent or would weaken the system.

The way I understand Bush's proposals, they would hurt the middle class much more than the rich. This is because benefits already phase out as your income goes up anyway, so the proposed benefits cuts for the richest wouldn't make much of a difference to those beneficiaries. It's the people who would be poor were it not for Social Security that would be most in danger from the cuts.

Bush may sound like Robin Hood as much as John Tierney thinks he does. But that doesn't make his proposal progressive.

5/02/2005 02:07:00 PM  
Blogger Dave Justus said...

I don't think the fire insurance anology is a good one.

If Social Security was like insurance presumably everyone would pay the same ammount for coverage (or perhaps the 'poor' would pay more as they have a higer risk of old age poverty) and only certain people would recieve benefits (those who fell below a minimum threshold.)

That of course isn't how it works at all. The coverage formula is deliberately arcane, but to an extent, the more you pay into the system the more you are entitled to recieve from it. That makes it more like a retirement savings account than old age insurance.

Obviously you are correct that the middle class have the most to lose in any revamping of Social Security. As I stated above, we won't let the poor starve to they are unlikely to get any worse, and the rich arn't greatly affected as Social Security tends to be an insignifigant portion of their income. However, the middle class have the most to gain from private accounts as well.

5/03/2005 07:51:00 AM  
Blogger Greg said...

You bring up the lower life expectancy for the poor as evidence that Social Security isn't as progressive as described.

Well, we men get screwed in the same way.

Social Security and pension plans don't use the best mortality assumption to establish a benefit, but rather they pay out uniform benefits. Despite the higher mortality rate (and thus lower life expectancy) for men, their benefits aren't higher for a same contribution.

You can throw out that argument, since pension plans and Social Security will never be changed to reflect life expectancy.

5/03/2005 04:14:00 PM  

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