Roger Lowenstein’s article in this week’s New York Times Magazine effectively debunks the pervasive notion that the US Social Security system is headed for insolvency. (If I’m not mistaken, it’s the Medicare system that’s got problems ahead, not Social Security.)
The article makes a couple of points worth comment:
1. The argument that we need more babies in order to prop up Social Security is hooey. As Lowenstein writes, "though future generations of workers will have to support more retirees, they will also be having fewer children. In fact, according to the Social Security actuaries, the total ‘dependency’ burden (that is, the number of nonworking seniors and kids that each working-age adult will have to support) will remain lower than at its baby-boom peak." It’ll be no harder to support boomers in their retirement than it was to support them in their childhood. In fact, it’ll be easier, because we are so much richer now. (I made a similar point here.)
(An aside: the situation in Canada is worse, but not much worse. Canada is aging more rapidly than the United States because it had a bigger baby boom. But it also allows proportionately more immigration and, therefore, more working-age newcomers.)
2. Fixing the small projected problems in Social Security, which are far in the future, wouldn’t be too hard. Lowenstein’s favorite fix, which is also my own, is to gradually raise the cap on income subject to the payroll tax. As it currently stands, the payroll tax is harshly regressive: it’s graduated in reverse, as discussed in our book Tax Shift (pdf, see page 19). Raising the income cap ameliorates this regressivity even while it pushes the prospect of default off the radar screen.
