Is Chris Christie’s proposed Social Security reform plan any good?
AEIdeas
New Jersey Governor Chris Christie, a probable candidate for president, put forward on Tuesday a set of ideas to reform the Social Security program. These include:
— Allowing the Social Security retirement age to continue its gradual increase, from the current age of 66 today, to the already-legislated level of 67 in the year 2020s, and eventually on to 69 by 2034.
— Instituting a mean-test under which retirees with non-Social Security incomes between $80,000 and $200,000 would gradually see their Social Security benefits eliminated.
— Eliminating the 12.4% Social Security payroll tax for individuals aged 62 and over.
My take: I’m okay on raising the retirement age along with longevity, though I didn’t include it in the plan I outlined in National Affairs. Also in National Affairs, I wrote against means-testing Social Security benefits. A means-test is an effective tax on work and saving, and those are things we want more of. I also don’t believe any politically-viable mean-test will produce significant savings, so I’m not sure it’s worth the effort. The payroll tax cut for older workers, however, is a good idea that I championed in The Wall Street Journal. Social Security pays very poor returns to workers on the cusp of retirement, but these individuals are very sensitive to changes in after-tax wages. Reducing the payroll tax could significantly increase labor supply from near-retirees, improving both the economy and their own retirement security.
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A means-test based on current income is silly when Social Security has essentially access to lifetime earnings. It’s far more sensible to decrease Social Security payouts to people with high lifetime earnings.
Means-testing based on retiree income means preferring to tax working class or lower middle class people who saved a lot instead of upper middle class people who spent instead of saving. Upper middle class people who made a lot of money but spent it all can live on similar Social Security income to the working class.
Any raise of the retirement age that does not account for the vast discrepancy in life expectancy between the educated and uneducated would be grossly unfair. Sure, a college graduate can work to 70; a man who never graduates high school is likely never to see 70. The idea that everyone works and lives as long as anyone else is becoming more and more farcical; there are vast gaps of based on income and education (and probably IQ) and it is getting worse. Ask Charles Murray about all that. Too many wonks don’t recognize that their lives are vastly different than are growing underclass.
Means testing Social Security will provide a horrible degree of uncertainty and unpredictability for seniors, who relied on the government’s promises for more than forty years.
Chris Christie and the Heritage Foundation liken Social Security to insurance. Seriously? Would you pay 12.4% of your annual salary for a term life policy or auto insurance? You might pay that much for annuity if you didn’t have to fork it over to the government to fund someone else’s retirement.
Means testing provides little benefit yet changes the fundamental, universal nature of Social Security and hijacks any meaningful discussion of reform.