A panel discussion of Hamilton faculty on April 9 discussed the context and implications of changes in the Social Security system. Ann Owen of Economics, Gary Wyckoff of Government, and Vivyan Adair of Women's Studies offered their remarks in a forum moderated by Professor Frank Anechiarico of Government.
Professor Owen began by speaking about the current state of the Social Security system. Sometime in the near future, Social Security will become actuarily unbalanced, when benefits paid will exceed taxes received to pay for them. The trustees of Social Security estimate that this actuarial tipping point will occur in 2017, and the trust funds accumulated from years of tax surplus will be exhausted by 2041. The only basic solutions to this problem is an increase in taxes coming into the system or a decrease in benefits being paid out of the system. If we were to reduce benefits by 13% or raise payroll tax by 1-2% today, the actuarial balance could be achieved, Owen explained. However, the changes would have to become greater the later they are made. Private accounts do not provide a solution for the long term solvency of the system, she said, but they could make it more feasible to reduce benefits at a later point.
There are also several macroeconomic trends that should be taken into account when considering Social Security policy, Owen said. First, there has been a dramatic decline in American savings in recent years, and one of the largest benefits of the Social Security system is that it is a forced savings plan. Next, there has been a decrease in income inequality recently (that is, an increase in the gap between rich and poor), and Social Security can serve as a form of income redistribution. Third, intergenerational transfers and spending on the elderly are becoming a larger part of the federal budget, and there is a question of whether or not this is an effective appropriation of resources. Payroll taxes, from which Social Security funds come, have also come to play a larger role in the tax structure today, even though they are a regressive tax which enlarges the gap between rich and poor. Lastly, Owen said, changes brought about by globalization have made labor income less of a safe bet from which to draw Social Security revenue.
Professor Wyckoff of Government, Director of the Public Policy Program, reviewed several alternatives to reforming the Social Security system. The current Bush plan, so far as it has yet been laid out by the administration, is a "carve out" plan, Wyckoff said. This means that a portion of payroll taxes would be "carved out" into private accounts that would be invested in the market. In the long term, this plan could provide both greater return on Social Security investement as well as greater risks, Wyckoff said. In the short term, however, the privatization plan is not a fix for fund woes and would actually create a transitional problem whereby one generation would have to pay into the system for both their parents generation and their own.
Wyckoff outlined some basic proposed strategies for reforming Social Security. One is to index benefits according to prices rather than wages, which would greatly reduce benefits over time. Other alternatives include raising the retirement age, increasing the payroll tax, or lifting the payroll tax cap. There are also combination plans which use several of these elements. The main issue in the Bush administration's privatization plan, said Wyckoff, is the issue of risks vs. returns.
Professor Adair, the Elihu Root Peace Fund Associate Professor of Women's Studies, spoke about how any changes in the Social Security system would greatly impact women, particularly women of color and those in lower classes. Since women make less income over their lives, are less likely to have pensions, and tend to live longer, women rely on Social Security in their old age far more than men. 60% of Social Security beneficiaries are women, and Social Security benefits make up 71% of eldery women's incomes, said Adair. Widowed and divorced elderly women particularly rely on Social Security, since they tend to have less assets and savings than single elderly women. The current system is an important protection against poverty for elderly women, particularly those of color. Without the system, over 50% of elderly women would be poor. Social Security dependent benefits are also crucial to preventing poverty in the young. Adair feels that discussions about Social Security reform do not take into account this important social facet of the system, and proposed changes do nothing to account for the poverty gender gap. For various reasons involving survivor and spouse benefits, privatization could also hurt women more than men.
Professor Anechiarico concluded the panel discussion by moderating questions from the audience.
-- by Caroline O'Shea '07
