Sunday, April 29, 2012

Both George Will and Paul Krugman are right about the retirement/social insurance problem

I watched the economic panel on This Week with George Stephanopolous this morning.  Toward the end, both Will and Krugman made salient points about Social Security.  Will pointed out that increased life expectancies have produced longer average payout periods for Social Security to beneficiaries.  Krugman pointed out that the more affluent half of the country has seen life expectancy rise far more rapidly than the lower half.  Will used the former statistics to argue for raising the retirement age.  Krugman used the latter statistics to argue that raising the retirement age would be regressive policy.

At minimum, all this suggests that one "fix" to Social Security (which actually needs less fixing than a lot of other things, but never mind that for now) would be to lift the cap on incomes that pay into the retirement portion of FICA.  But I can't help but think there is something to what Will says about life expectancy--I really see no reason why people with cushy jobs and long life expectancies shouldn't retire at a later age.  I am just not sure how one creates a retirement policy that links retirement age to lifetime income without creating some really weird incentives effects.


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TStockmann said...

More to the point, it would be relatively simple to use numbers to find out the pay-in pay-out ratios for income levels. I suspect that with the huge difference in the bend-ponts, that higher income contributors still have a lower return, even with life expectancy figured in. If this is true, then the implication that somehow the upper incomes should be paying in more reflects more than a simple notion of return - and implies a definition of "fairness" that is not universal.

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Stuart Arlen said...

Krugman outlined that the more rich half percent of the nation has seen life time increase far more quickly than the lower half percent.

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