Dallas, TX (PRWEB) February 03, 2014
Workers at all ages could be better off from smaller Social Security benefits rather than higher payroll taxes, according to a new study from the National Center for Policy Analysis (NCPA).
As Congress gears up to debate entitlement spending reform, they must consider the $23.1 trillion Social Security shortfall (in present value) projected by the program’s Trustees. A plan developed by House Budget Chairman Paul Ryan includes raising the retirement age, reducing benefits, but making the benefit formula more progressive.
The NCPA study considers two ways of reducing future benefits:
The study found that current workers benefit from changing the benefit formula and raising the retirement age when compared to the baseline program that retains the current benefits formula but requires an immediate 3.3 percentage point tax increase.
For example, a 40-year-old single male who:
For a 25-year-old the results are similar:
“If you’re going to take Social Security benefits away from younger people, you need to give them a greater opportunity to put money in a ROTH IRA to replace those benefits,” said NCPA Senior Fellow Pamela Villarreal. “That means changes to current regulations.”
“You can’t just focus on the change in benefits,” said Thomas R. Saving, an NCPA Senior Fellow and Director at PERC. “You have to compare the taxes necessary to fully fund any reform as well as the taxes necessary to fund scheduled benefits.”
With these two reforms, the Social Security program would eventually be 25% smaller than without reform.
“The biggest problem with making Social Security solvent with the current benefit structure is that it commits the government to a larger program,” said co-author Andrew J. Rettenmaier, an NCPA Senior Fellow and executive Associate Director at the Private Enterprise Research Center (PERC) at Texas A&M University.
The study is co-authored by Private Enterprise Research Center (PERC) Research Scientist Liqun Liu, and NCPA Senior Fellows Andrew J. Rettenmaier and Thomas R. Saving who are respectively PERC’s executive Associate Director and Director.
The National Center for Policy Analysis (NCPA) is a nonprofit, nonpartisan public policy research organization, established in 1983. We bring together the best and brightest minds to tackle the country's most difficult public policy problems — in health care, taxes, retirement, small business, and the environment. Visit our website today for more information.
*Table Note: The baseline program retains the current benefit formula and is funded by the current statutory tax plus an immediate 3.3 percentage-point payroll tax increase to make the program solvent for a total tax rate of 13.9 percent. The reformed program includes two provisions: progressive price indexing and future increases in the retirement age and is funded by current statutory taxes less a small decrease. Estimates assume a 2.9 percent real discount rate, present values at age 65, benefit receipt beginning at scheduled or reformed normal retirement ages, and income-adjusted life expectancies. See the text of the study for further discussion.