A payroll tax could help Social Security
Higher earnings would keep more people from retiring early.

Article Highlights

  • We should cut the 12.4% payroll tax for workers nearing retirement, say, at age 62.

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  • #Americans on average still retire more than two years earlier than they did in 1960, despite less strenuous jobs

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  • The typical worker will spend one-third of his adult life in retirement, financed by entitlement programs.

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The annual Social Security Trustees Report, released on Monday, confirms that the program is significantly underfunded. After decades of delay, Congress and the next president will need to take steps to restore Social Security's finances and improve Americans' retirement income security. Although it might seem counterintuitive, one positive step toward achieving both goals is to cut the 12.4% payroll tax for workers nearing retirement, say, at age 62.

The reason is that the current system encourages too many individuals to retire early, forgoing the extra savings they could have by extending their work lives.

It is true that, in the aftermath of the Great Recession, more people are postponing retirement to rebuild their battered 401(k)s. Nevertheless, Americans on average still retire more than two years earlier than they did in 1960, despite less strenuous jobs and significantly longer life spans. The typical worker will spend one-third of his adult life in retirement, financed by entitlement programs that cannot bear the strain.

The full text of this article is available via subscription to The Wall Street Journal. It will be posted to AEI.org on Monday, April 30, 2012.

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