Social Security

SOCIAL SECURITY….Mindles Dreck has an interesting post up suggesting that Social Security isn’t really in big trouble. Why? Because we haven’t been taking into account the widespread popularity of tax deferred savings accounts (such as IRAs). When the boomers retire, they are suddenly going to have to start paying taxes on those accounts, and this will generate an extra $12 trillion that nobody’s expecting, more than enough to cover the projected shortfall.

Now, Mindles does warn that “There are so many ways I can think of to manipulate this number I’m going to remain skeptical until I’ve digested this,” and that’s probably good advice. Still, it’s an intriguing proposition and it will be interesting to see how the rest of the economics community reacts to it.

Of course, I’ve never been convinced that Social Security has any serious problems anyway. Although Medicare may be a bit tricky (since it’s tied up with the whole problem of rising medical costs in general), Social Security is pretty simple. Workers of the future will easily be able to support the Social Security retirees of the future, and the only question is how we feel like funding it. By my back-of-the-envelope calculation, for example, all we have to do is let the current $80,000 payroll tax cap gradually rise to about $300,000 or so over the next few decades and everything is taken care of without any increase in the tax rate at all. Simple. Then again, if this new study is correct, we don’t even have to do that. Even simpler.