Some preliminary recommendations from the White House Debt Commission were released. (See NYT article, “Panel Seeks Social Security Cuts and Higher Taxes“). While these recommendations are yet to be negotiated among commission members for release in a final
report, they at least represent a willingness of members to consider the elephant in the living room: Social Security.
First, kudos to the Commission for considering gradually raising the retirement age to 69 by 2075. This reflects the fact that people are living longer but it also serves as a healthy dose of reality to young workers: Government can no longer plan your retirement. The responsibility is yours, enjoy it or not. If it means skipping the daily latte and putting the money saved into a reti
rement account, so be it.
However, the Social Security program is designed to loosely tie labor earnings to the amount of benefits received at retirement. But one recommendation may further deteriorate this relationship. Currently, Social Security taxes are paid only on the first $106,000 of annual earned income. Maximum monthly Social Security benefits are also capped. The Commission is considering reducing the monthy benefits (with the exception of a minimum monthly benefit for low-earning workers) but lifting the cap on labor earnings that are subject to the Social Security tax. This is the point at which Social Security resembles a welfare program.
A final report from the Commission is due out by December 1, but it is my hope that the final product will be entitlement reforms that promote personal retirement planning and saving while emphasizing a lesser (and less costly) role of government.