Making Sense of Social Security Reform

by Shaviro, Daniel N.

• ISBN13: 9780226751160
• ISBN10: 0226751163
• Format: Hardcover
• Copyright: 2000-10-01
• Publisher: Univ of Chicago Pr

Summary

The Social Security Act of 1935 must be counted among the most monumental pieces of legislation ever passed by Congress. Today, sixty-five years after its enactment, public support for Social Security remains extremely strong. At the same time, there have been reports that Social Security is in grave danger of financial collapse, and numerous groups across the political spectrum have agitated for its reform. The president has put forward proposals to rescue Social Security, conservatives argue for its privatization, and liberals advocate increases in its funding from surplus tax revenues. But what is the average person to make of all this? How many Americans know where the money for Social Security benefits really comes from, or who wins and loses from the system's overall operations? Few people understand the current Social Security system in even its broadest outlines. And yet Social Security reform is ranked among the most important social issues of our time. WithMaking Sense of Social Security Reform, Daniel Shaviro makes an important contribution to the public understanding of the issues involved in reforming Social Security. His book clearly and straightforwardly describes the current system and the pressures that have been brought to bear upon it, before dissecting and evaluating the various reform proposals. Accessible to anyone who has an interest in the issue, Shaviro's new work is unique in offering a balanced, nonpartisan account.

Author Biography

Daniel Shaviro is a professor of law at New York University. He is the author of Do Deficits Matter? and When Rules Change: An Economic and Political Analysis of Transition Relief and Retroactivity, both published by the University of Chicago Press.

Table of Contents

Acknowledgments	xi
Introduction	1	(9)
Decomposition, or, Not Missing the Trees for the Forest	2	(3)
Integration, or, Not Mistaking the Forest for the Entire Landscape	5	(2)
Some Principles to Remember	7	(1)
Road Map for the Rest of the Journey	8	(2)
The Basic Building Blocks: Social Security Taxes and Benefits	10	(14)
The Social Security Portion of the Payroll Tax	10	(2)
Basics of the Social Security Benefit Formula	12	(7)
The Confusing Relationship between the Tax and Benefit Rules	19	(3)
Summary	22	(2)
Social Security as a System of Forced Saving and Limited Portfolio Choice Plus or Minus a Transfer	24	(20)
Who Pays for What in Social Security?	25	(2)
A Simple Model of the Social Security System as Forced Saving Plus or Minus a Transfer	27	(2)
Social Security as Forced Saving	29	(2)
Social Security as a Redistributive Program	31	(1)
The Limited Number of Mechanisms for Increasing Social Security Benefits	32	(2)
Varying or Unclear Interest Rates	34	(1)
The Risk-Return Frontier	35	(3)
Risk versus Return in Social Security	38	(2)
More on Social Security's Financing Risks	40	(2)
Summary	42	(2)
Social Security and Social Insurance	44	(32)
Private Insurance and the Circumstances Where Government Action Extending It May Be Desirable	44	(3)
Risk-Spreading and Risk Prevention	47	(1)
Social Insurance and Income Risk	48	(5)
A Single Comprehensive Insurance Measure?	53	(1)
Public versus Private Insurance against Income Risk	54	(2)
The Relevance of Household Status to Social Insurance	56	(2)
If Social Security Is the Answer, What Is the Question?	58	(7)
Issues Posed by Households in a Social Security-Type System	65	(1)
How Well Does the Design of Social Security Fit Its Social Insurance Function?	66	(7)
Summary	73	(3)
The Social Security Trust Fund: The Economics of Funding and the Politics of Accounting	76	(25)
The Relevance of Funding for Private versus Public Retirement Plans	77	(5)
Evaluating the Funding of Different Types of Retirement Plans	82	(3)
Actual Social Security as Approximately a Defined-Benefit Plan	85	(3)
Is the Social Security Trust Fund a ``Fraud''?	88	(2)
Is There a ``Right'' Way to Measure the Social Security Trust Fund?	90	(3)
Prominently Discussed Methods (Apart from Tax and Benefit Changes) for Augmenting the Social Security Trust Fund	93	(5)
Summary	98	(3)
Traditionalist Social Security Reform Proposals	101	(25)
Significance of the Current System's ``Fundamental Character''	101	(4)
Proposed Tax and Benefit Changes	105	(5)
Improving the Spousal Rules within Traditional Social Security	110	(3)
Investing a Portion of the Trust Fund in the Stock Market	113	(10)
Summary	123	(3)
Proposals to ``Privatize'' Social Security	126	(20)
What Does ``Privatization'' Mean?	126	(3)
Money Machines and the ``Transition Path'' Problem	129	(3)
The Bookkeeping Shift from a Trust Fund to Individual Accounts	132	(3)
Increasing National Saving through Full Funding	135	(2)
Privatization and Portfolio Choice	137	(3)
Administrative Privatization	140	(2)
Eliminating Social Security's Transfer Content	142	(1)
Spousal and Household Issues in Privatization	143	(1)
Summary	144	(2)
A Modest Proposal: Progressive Privatization	146	(13)
Service with a Smile	146	(1)
Main Conclusions concerning Social Security Reform	147	(5)
A Modest Proposal at Last	152	(4)
The ``Transition Path'' Problem, or, Getting There from Here	156	(1)
A Final World on Social Security Reform	157	(2)
Notes	159	(8)
Bibliography	167	(6)
Index	173