An Analytical Framework for Strengthening Social Security

83 Pages Posted: 12 Nov 2020

See all articles by Charles Blahous

Charles Blahous

Mercatus Center at George Mason University

Date Written: September 2020

Abstract

Social Security faces a significant challenge, but by no means its only one, in its projected financing shortfall. The program’s uncontrolled further growth in the absence of reform would reduce its effectiveness in supporting a coherent income security policy. If Social Security is to serve future generations as it has current and past ones, policymakers must not only eliminate its financial shortfall but also ameliorate other problematic effects. Among the problematic trends requiring correction are the following ones: Social Security currently stands to, on balance, substantially reduce future workers’ lifetime incomes; its rising costs depress the after-tax incomes of workers compared to those of program beneficiaries; it deters workforce participation and personal saving; and, in many instances, it redistributes income from those who have less to those who have more. No single reform to Social Security can simultaneously accomplish all the objectives of improving its financial condition, achieving a sustainable rate of cost growth, improving intergenerational equity, restoring work and saving incentives, and better targeting benefits toward the households with the greatest need. A balanced package of reforms, however, can include individual provisions pursuant to these various objectives and, in combination, progress toward all of them.

Keywords: Social Security, OASI, trust funds, Social Security trust funds, sustainable solvency, Social Security trustees, trustees report, intergenerational equity, insolvency, actuarial imbalance, self-financing, population aging

JEL Classification: H53, I38

Suggested Citation

Blahous, Charles, An Analytical Framework for Strengthening Social Security (September 2020). Mercatus Research Paper, Available at SSRN: https://ssrn.com/abstract=3728972 or http://dx.doi.org/10.2139/ssrn.3728972

Charles Blahous (Contact Author)

Mercatus Center at George Mason University ( email )

3434 Washington Blvd., 4th Floor
Arlington, VA 22201
United States

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