Improving Social Security's Progressivity and Solvency with Hybrid Indexing

摘要: Virtually everyone familiar with U.S. Social Security financing understands that the system cannot pay currently legislated benefits for more than another three or four decades without significant, probably politically unacceptable, tax increases. Some analysts predict cash crunch will come substantially sooner that. Various ways to measure financial inadequacy of are outlined in recent annual reports Trustees. However, all reasonable measures system’s finances lead same fundamental conclusion and revenue sources must be significantly rebalanced. The only issue is when necessary policy changes should imposed. Even if one takes most favorable perspective on long-term funding situation Security, it important consider time minimize disruptive effects rebalancing could have future beneficiaries taxpayers. intermediate “best guess” estimate Trustees combined OASDI trust funds completely exhausted 2042 under current law, although their conservative suggests depleted by 2031. When exhausted, dramatic adjustments benefit payments trust-fund revenues required. If we assume continues operate law until depleted, latest projections at exhaustion would cut one-third then retired order bring back into balance (U.S. Board Trustees, 2003). Alternatively, payroll increases imposed workers. To wait make this problem upon us grossly unfair and/or workers time. In response situation, proposed reform options put forward president’s Commission Strengthen (2001) featured a modification way retirement calculated future. Given Trustees’ assumption average wages grow 1.1 percent per year faster overall price level, implies people retiring 40 years from now roughly 55-percent higher terms purchasing power today’s retirees. One President’s was eliminate growth real shifting determining initial wageindexing prior earnings price-indexing them after 2009. Under levels maintained but not increased. This change indexing alone deficit faced over 75-year projection period employed its actuaries (Commission 2001). fact, running substantial surplus end window. net effect substituting wage gradually reduce relative worker’s lifetime wages. replacement rate fall level 43 percent. Just clear, reduced alternative, they what promised retirees law. Future increases, which embedded legislation rise prices, eliminated. An across-the-board reduction sort * Pozen: Harvard Law School, Griswold 304, Cambridge, MA 02138; Schieber: Watson Wyatt Worldwide, 1717 H Street, N.W., Washington, DC 20006; Shoven: Department Economics, Stanford University, Stanford, CA 94305.