About the Article
The future viability of the Social Security system in the United States has pervaded public policy and political debate in recent years. Changing population and age demographics arguably threaten the financial stability of the current “pay-as-you-go” infrastructure, which pays current retiree distributions out of the coffers amassed from current workers’ program contributions and past surpluses. In the following article, Dr. Jeffrey Brown, Dr. Kevin A. Hassett, and Dr. Kent Smetters identify and analyze multiple half-truths and proposed solutions regarding Social Security reform that have gained public momentum. Among them, the authors dispel notions of both the program’s long-term stability under the status quo and catastrophic doomsday scenarios advanced by skeptics. Instead, the authors methodically demonstrate that while the current Social Security system forecasts a deficit within a few decades, the shortfall is addressable through potential changes in benefit levels, tax rates, and rechanneling of program payments into personal retirement accounts. Short of recommending a particular remedy, the authors argue that any proposed solution to Social Security’s projected shortfall will demand fundamental shifts in both the revenue (i.e., tax) and cost (i.e., benefit) sides of the financial equation. It is a reality that must be internalized by budget analysts in addressing Social Security’s ills, and the time is now for an action plan that recognizes and instills such revisions.
About the Authors
Dr. Jeffrey Brown is an associate professor of finance at the University of Illinois at Urbana-Champaign and was recently named the Julian Simon Fellow at the College of Business in August 2004. His other current positions include Research Associate at the National Bureau of Economic Research and Associate Director of the NBER Retirement Research Center. In January 2005, he was nominated by President Bush to serve on the Social Security Advisory Board, for which he is awaiting Senate confirmation. Dr. Brown holds a Ph.D. in economics from MIT, a Master’s degree from Harvard University, and a B.A. from Miami University.
Dr. Kevin A. Hassett is the Director of Economic Policy Studies and Resident Scholar at the American Enterprise Institute. He is also a weekly columnist for Bloomberg. In addition, Dr. Hassett is a member of the Joint Committee on Taxation’s Blue Ribbon Dynamic Scoring Advisory Panel and its Estimating Review Panel. He holds a B.A. from Swarthmore College and a Ph.D. from the University of Pennsylvania.
Dr. Kent Smetters is an associate professor at The Wharton School at the University of Pennsylvania. He received his Ph.D. in economics in 1995 from Harvard University and worked for the U.S. Congress from 1995 to 1998 before coming to the University of Pennsylvania in 1998 as an assistant professor. He remains active in Washington, DC, and recently served as a member of the Blue Ribbon Panel on Dynamic Scoring for the Joint Committee on Taxation of the U.S. Congress.
This paper was prepared for the Center for Retirement Research at Boston College. The authors thank Andrew Biggs, Andy Eschtruth, Jason Furman, Jeffrey Liebman, and Olivia Mitchell for helpful comments and/or discussions and Kathryn Newmark and Gordon Gray for expert research assistance.
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