House Minority Leader John Boehner was interviewed this week in the Pittsburgh Tribune-Review. Along with the issues of the economy, war, and oil spill in the Gulf he discussed social security and how to save it. Boehner said. "He'd favor increasing the social security retirement age to 70 for people who have at least 20 years until retirement, tying cost-of-living increases to the consumer price index rather than wage inflation and limiting payments to those who need them. We need to look at the American people and explain to them that we're broke," Boehner said. "If you have substantial non-Social Security income while you're retired, why are we paying you at a time when we're broke? We just need to be honest with people."
While I like the idea of being honest with people let's look at the economics of the situation. This year the social security payments exceeded the revenue collected a situation that economists did not predict would occur until 2016-18 (depending on the source). Social security cannot be "saved" we can only postpone the inevitable as we have in the past when we have raised the tax rates and ages in the past. In 1983 the congress raised the retirement age to 67 over 22 years to receive full benefits.
Now if we want to keep social security then this plan may work for a while, but as economists are fond of saying "incentives matter." Boehner's idea of means testing social security creates a perverse incentive. Social security already creates an incentive to not save for retirement. Creating a means test will only create the incentive to be sure that ones income is below whatever the threshold is set at to be able to receive their social security payments. Social security is a Ponzi scheme and must collapse at some point. Rather than try and "save" social security we should be looking at ways to privatize or phase it out of existence.
While I like the idea of being honest with people let's look at the economics of the situation. This year the social security payments exceeded the revenue collected a situation that economists did not predict would occur until 2016-18 (depending on the source). Social security cannot be "saved" we can only postpone the inevitable as we have in the past when we have raised the tax rates and ages in the past. In 1983 the congress raised the retirement age to 67 over 22 years to receive full benefits.
Now if we want to keep social security then this plan may work for a while, but as economists are fond of saying "incentives matter." Boehner's idea of means testing social security creates a perverse incentive. Social security already creates an incentive to not save for retirement. Creating a means test will only create the incentive to be sure that ones income is below whatever the threshold is set at to be able to receive their social security payments. Social security is a Ponzi scheme and must collapse at some point. Rather than try and "save" social security we should be looking at ways to privatize or phase it out of existence.
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