Publications of Interest

September 8, 2000

The Urban Institute released "Social Security Benefits and the Language of Guarantees" by Eugene Steuerle and Adam Carasso. The authors address the issue of property rights and Social Security reform: "Many workers believe that the Social Security benefits suggested by current law belong to them-that they have 'property rights' to future payments. However, 40 years ago, the Supreme Court ruled that this isn't the case: Retirees have no legal right to claim ownership over unpaid benefits. The ruling deters beneficiaries from suing the federal government if an altered benefit formula delivers payments that fall short of expectations. But it frees policymakers: Removing any guarantee that benefits will conform to expectations gives them the flexibility to change the program and address either inequities in the program's current formula or its long-term solvency."

While Steuerle and Carasso's point is well taken, legislators' flexibility to reduce benefits comes at a cost of workers' security. After all, a worker nearing retirement has no time to change his savings plans in response to cuts in his benefit entitlement. Moreover, if legislators know that the benefit obligations they undertake are legally binding, they will have greater incentive to formulate lasting reforms rather than "quick fixes" that will have to be addressed again in the future. See "Property Rights: The Hidden Issue of Social Security Reform," by Charles E. Rounds Jr.

The Concord Coalition released "The Missing Issue In The Campaign," by Neil Howe and Richard Jackson, which highlights the disproportionate amount of federal spending on seniors and argues that resource trade-offs should be a central issue in the presidential and congressional campaigns: "What's most remarkable about the growth in senior benefits is that it has continued with only an occasional pause for four decades, no matter what the party in power and no matter what the fiscal and economic outlook. Somehow, it's never the right time for reform. When economic times are bad, the argument in favor of spending more on the elderly is that they are vulnerable and dependent. When times are good, the argument is that younger adults are going to be so affluent that it would be criminal not to share their wealth with the old."

"Neither argument withstands scrutiny. The elderly, for one thing, aren't as vulnerable as they used to be. Over the past quarter-century, the real median income of households aged 65 and over has risen by over one-third, while that of households under age 45 has remained virtually stationary. Today, elderly household income per capita is about on par with the national average-and that's before taxes, where the elderly enjoy huge advantages. Beyond income, the elderly have a higher average net worth than younger adults. And, counting in-kind benefits like Medicare, their poverty rate is as low as the rate for any age group and just one-half the rate for children."

"The premise of the second argument-that the young can finance current-law senior benefits and still enjoy big gains in after-tax living standards-is equally mistaken. In fact, hiking taxes to pay for the growth in senior benefits would, under SSA's official economic and demographic scenario, erase nearly nine-tenths of all growth in pretax worker earnings over the next fifty years. And this projection may be optimistic, since it assumes that longevity and health costs will grow at just half their historical rates. Under a 'high-cost' scenario, after-tax earnings could suffer a catastrophic decline."

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