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Social Security, Clarified: Echoes Book of the Week

By Nikolai Krylov

Apropos of this week's discussion on the Echoes blog about Social Security's history, I'd recommend Charles Blahous's useful guide, "Social Security: The Unfinished Work."

Blahous, a public trustee for the Social Security and Medicare programs and a former deputy director of the National Economic Council, admirably explains the competing proposals to remake Social Security and cuts through the thicket of actuarial balance estimates and accounting controversies to show that the program's future is at risk.

About 52 million people now receive Social Security benefits. By 2035, 88 million will. If future retirees receive the benefits that are now promised them, the burden of paying those benefits will absorb 17.1 percent of workers' taxable income by that year.

The longer we put off shoring up the system, Blahous shows, the more difficult it will be. The Social Security payroll tax, when you include the employer's share, is already 12.4 percent. (In 2011, the employees’ share was temporarily reduced to 4.2 percent, but it will return to 6.2 percent in 2012.) Unless we slow the growth in benefits or raise the retirement age (or some combination of both), the payroll tax will have to increase further to sustain the mounting obligations.

Any successful overhaul of Social Security will have to be both actuarially and politically sound, and Blahous is sensitive to how proposed changes will be received by the public, especially the issue of progressivity, or the extent to which the program redistributes wealth from higher-income to lower-income people.

As Blahous writes, Social Security was designed as a "contributory entitlement program: the more you pay in, the more benefits you receive. This ethic has long distinguished Social Security in the public's mind from welfare programs." If the relationship is severed between a taxpayer's contributions to Social Security and the benefits he receives from it -- and if some taxpayers would receive benefits without ever having paid into the system, while others would receive no benefits despite having contributed all their working lives -- then the public may come to see Social Security as a welfare program. This might make it politically unviable in the long term.

Even readers without a particular interest in Social Security will find this book valuable, because it also serves as a how-to guide to evaluating competing policy arguments intelligently. For example, Blahous writes: "If Person A charges Person B with wanting to 'cut benefits by 33 percent,' then Person A must admit that his own preferred policy would have taxes 'higher by 50 percent.'" The point is obvious, but rarely expressed so clearly in editorials. And clarity is always elusive when we're debating the uncertain future of our entitlement programs.

(Nikolai Krylov is a contributor to the Echoes blog. The opinions expressed are his own.)

-0- Jun/02/2011 19:03 GMT

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