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Social Security: A Story of its Past and a Vision for Its Future
In a time of record-setting deficits and concern over burgeoning debt, perhaps no single issue is more hotly debated than how to fix Social Security, a program long called the "third rail" of American politics because it killed the political career of anyone who touched it. But the immediacy of America's fiscal problems presents an opportunity to reform and renew one of the largest expenditures in the federal budget. Fixing Social Security requires us to understand the purpose of the program, how it was designed to work, and why it is going broke. In Social Security: The Story of Its Past and a Vision for Its Future, Andrew G. Biggs retraces the history of Franklin Roosevelt's plan to provide for retirees, explains why the current system is unsustainable, and offers a plan to pay back "legacy debt" and create a sound Social Security system for the future.
88 pages, Paperback
First published January 1, 2011
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October 20, 2014
In his mini-book, “Social Security: The Story of Its Past and a Vision for Its Future,” Andrew G. Biggs does not propose that the United States abolish Social Security, but seeks to outline reforms that would put the program on track to achieve its original goals. The author argues that the original goals of the program should make sense to “people who believe in limiting the size of the government and increasing individual responsibility and freedom.” (p. 4)
Biggs outlines criteria for the success of any public pension plan:
1. Required savings
2. Assisting those too poor to save
3. Protecting against the risk of outliving your assets or leaving your household indigent in the case of disability or death
4. Financially sustainable
5. Benefits should be provided in a way that is clear and understandable to its participants
The idea that Social Security is going broke is not due entirely to a decrease in birthrates and an increase in life expectancy. It is a pay-as-you-go program. Although “current and future participates will pay more than enough to finance their own benefits, past and many present retirees didn’t pay nearly enough.” (p. 39) The program was originally designed to be pay-as-you-go. It was amended shortly after its creation so benefit payments could be more immediate. This was perfect for retirees of earlier generations because they could receive full retirement benefits even though they only paid into the program for a few years.
On pages 43 – 49, Biggs outlines the massively complicated formula for Social Security. He points out that it is almost impossible for an individual to calculate how much they can expect to receive from the program when they retire because the formula is so difficult to navigate. For example, “Social Security benefits are based only on a worker’s highest 35 years of earnings; therefore, two individuals with the same total lifetime earnings could receive very different benefits if one compressed those earnings into 30 years of work while the other spread them over 40 years.” (p. 48)
Social Security will not fix itself. Biggs proposes that there be mandatory retirement savings accounts. Social Security offers little incentive to save and therefore causes part of the problem it seeks to address.
Biggs offers the following reforms:
1. Each American would be subject to a dedicated tax design to cover Social Security’s legacy costs
2. Each worker would automatically be enrolled in a workplace pension plan
3. Each eligible beneficiary would receive a flat dollar benefit equal to the federal poverty guideline
The following were noteworthy passages:
“Generous protections for the poor cause a certain number of people to fail to take responsibility for their own financial situation.” – p. 3
“When the worker-beneficiary ratio declines, the burden of supporting each beneficiary is divided up among fewer workers.” – p. 37
“Because the total benefits paid out by Social Security must ultimately equal the total taxes it collects, if past participants in Social Security received $17 trillion more than they paid in, future participants must receive $17 trillion less.” – p. 41
Biggs outlines criteria for the success of any public pension plan:
1. Required savings
2. Assisting those too poor to save
3. Protecting against the risk of outliving your assets or leaving your household indigent in the case of disability or death
4. Financially sustainable
5. Benefits should be provided in a way that is clear and understandable to its participants
The idea that Social Security is going broke is not due entirely to a decrease in birthrates and an increase in life expectancy. It is a pay-as-you-go program. Although “current and future participates will pay more than enough to finance their own benefits, past and many present retirees didn’t pay nearly enough.” (p. 39) The program was originally designed to be pay-as-you-go. It was amended shortly after its creation so benefit payments could be more immediate. This was perfect for retirees of earlier generations because they could receive full retirement benefits even though they only paid into the program for a few years.
On pages 43 – 49, Biggs outlines the massively complicated formula for Social Security. He points out that it is almost impossible for an individual to calculate how much they can expect to receive from the program when they retire because the formula is so difficult to navigate. For example, “Social Security benefits are based only on a worker’s highest 35 years of earnings; therefore, two individuals with the same total lifetime earnings could receive very different benefits if one compressed those earnings into 30 years of work while the other spread them over 40 years.” (p. 48)
Social Security will not fix itself. Biggs proposes that there be mandatory retirement savings accounts. Social Security offers little incentive to save and therefore causes part of the problem it seeks to address.
Biggs offers the following reforms:
1. Each American would be subject to a dedicated tax design to cover Social Security’s legacy costs
2. Each worker would automatically be enrolled in a workplace pension plan
3. Each eligible beneficiary would receive a flat dollar benefit equal to the federal poverty guideline
The following were noteworthy passages:
“Generous protections for the poor cause a certain number of people to fail to take responsibility for their own financial situation.” – p. 3
“When the worker-beneficiary ratio declines, the burden of supporting each beneficiary is divided up among fewer workers.” – p. 37
“Because the total benefits paid out by Social Security must ultimately equal the total taxes it collects, if past participants in Social Security received $17 trillion more than they paid in, future participants must receive $17 trillion less.” – p. 41
Displaying 1 of 1 review