Soc Sec XXIV: Treasury’s Social Security Issue Brief no. 5

More homework for Coberly and Arne (and any others who want to join in).

Andrew Biggs alerts us to the release of the Treasury Department’s Issue Brief No. 5: Social Security Reform: Strategies for Progressive Benefit Adjustments

The proposal seems quite interesting. Rather than simply readjusting the benefit schedule by some blunt change in method of calculating CPI, this would adjust benefits with an eye on both the income and cost sides. The end result would be to adjust the benefit both in relation to actual changes in real wages and prices. This contrasts to the current model which rather locks you into a rigid set of projections from the outset.

The proposal seems to have two big advantages from my perspective. First it pretty much sidelines the Intermediate Cost/Low Cost probability discussion, if IC happens you get the result as shown in the Issue Brief, if something closer to LC happens you get a progressively better result by an automatic readjustment of the benefit formula in relation to actual real world results. And nothing in the model would prevent some slight adjustment up or down in FICA as circumstances warrented.

But the second advantage is even better. Whether we have a preference for a tax based solution, a benefit based solution, or some blend, once that preference is accepted all urgency bleeds out of ‘crisis’, it is then deemed fixed, and so any impulse to move to private accounts is made that much more difficult to sell.

Warning the Issue Brief is kind of wonkish, but for those who don’t mind putting on the green eyeshades worth reading and commenting on.