RE: DAILY SUMMARY April 29 - May 4

[Reed Davis <rdavis2@ix.netcom.com>]

Barbara Brandon wrote:
>
> This summary covers a number of topics that were discussed in the
> Values and Why Reform Now forums and have not been included in
> previous summaries.
>
Your well-written summaries do much to organize the numerous topics.  In
looking through it, I am convinced that many of the discussions would be
fascilitated by splitting Social Security into its component parts.  As I
previously mentioned, those parts are the retirement system, insurance,
and safety-net.  Benefits in a retirement system are determined and funded
by individual contributions.  Benefits in an insurance system are determined
and funded by individual premiums.  Benefits in a safety-net are determined
by "need" (as defined by some set of rules) and are typically funded by some
sort of progressive taxation on society at large.  Following is how I think
this approach would facsilitate some of the discussions.
>
> A GENERAL NOTE- In a May 1st post, Bob Myers, one of our consulting
> experts, framed a key issue for this dialogue -- the distinction
> between a "floor of economic protection" and a safety net.
>
A safety-net does provide a "floor of economic protection".  Hence, the
discussion is just a matter of how high that floor should be.  Only by
splitting the safety-net (or economic floor) out can we determine its
current level.  Then we can decide explicitly what level we think it
should be set to.
>
> THE "SUSTAINABILITY" DEBATE- Several participants engaged in a
> discussion about how to judge the sustainability of the existing
> system with those who advocate maintaining the current structure
>
The safety-net is sustained by continuing the progressive taxation that
pays for it.  Insurance is sustained by the same actuarial science on
which the entire insurance industy depends.  The retirement system is
sustained by the returns on the invested contributions.
>
> THE PRIVATIZATION DEBATE- An actuary who works for the PBGC (who
> is not speaking for his employer) offered two criticisms of private
> accounts.  He pointed out that statistically it is" far cheaper to
> guarantee a level of income with pooled funds for a group than with
> individual accounts. In addition he pointed out that the inheritability
> of a private accounts leaks income out of the retirement system as
> a whole.
>
It's not clear to me that the government should be mandating any level of
retirement accounts.  As long as we have a safety-net and insurance (which
the government arguably could mandate), then there is no real need for a
mandatory retirement program.  If people wish to have a standard of living
higher than that provided by mandatory insurance, that's their business.
At the very least, it does not seem that the government should be forcing
people to save money that is to be inherited by their heirs.
>
> REDISTRIBUTIVE BENEFIT FORMULA- While some participants object on
> principle to redistributing effect of the benefits formula, most
> commenters do not.
>
A safety-net, by definition is redistributive.  Retirement and insurance
are not.  I very much support a safety-net.  However, I think that any
safety-net should be visible to those paying for it and those receiving
benefits from it.  It's strange that this seems to be considered a radical
proposal.  We should be developing a rationale for a proper safety-net,
not hiding it from taxpayer and recipient alike.
>
> DOUBLE-DIPPING- A spirited debate arose about this issue. Many
> participants argue for further reform to curb the perceived unfairness
> of this practice whereas several posters have objected to the
> impacts previous reforms have had on their retirement incomes.
>
Double dippers should receive the returns on their contributions and
premiums, like everyone else.  Likewise, they should be eligible for the
safety-net.  However, they should also be subjected to the progressive
tax that pays for the safety-net.
>
> RAISING THE RETIREMENT AGE- Several contributors suggested that
> the retirement age should be raised because of increased life
> expectancies and changes in the nature of work.
>
The precise retirement age is not critical as long as the individual
pays high enough premiums to qualify for the minimum mandated level of
insurance.  If we wish to retire earlier, we must pay higher premiums.
The age at which people become eligible for a retirement safety-net (one
in which they need not search for work) is an open question, however.

Splitting Social Security into its component parts does not solve all
the problems.  For example, there would be transition costs for the
insurance and retirement portions (but not for the safety-net portion).
However, I do think that it would greatly fascilitate the debate and make
the search for solutions much easier.

Reed Davis