Federal spending mandated by our major entitlement programs (Social Security, Medicare, Medicaid) today comprises the majority of the federal budget and will bankrupt the United States absent imminent structural reforms.
Not only do these entitlement programs drain federal spending dollars, but they don’t do a particularly good job of delivering promised services and benefits. Social Security provides a shameful rate of return for most recipients, especially when compared with private sector alternatives. And seniors and the poor are finding it increasingly difficult to find a doctor who will accept Medicare or Medicaid patients.
IPI has proposed specific, concrete solutions that would not only make these programs solvent and sustainable, but also deliver superior benefits. Entitlements should not be reformed solely for the benefit of the federal government, but also for the benefit of taxpayers and recipients.
There Are No "Transition Costs": A Hamiltonian Solution to the Social Security Crisis
Establishing personal retirement accounts creates no net new cost to the Social Security system. The act of refinancing and formalizing the $12 trillion liability is incorrectly interpreted as a “transition cost.” It is simply the part of the unfunded debt obligation that must be covered from sources other than current workers’ FICA contributions. Refinancing enables an eventual elimination of the liability. Alexander Hamilton performed a similar feat during the early days of the Republic.
The Cost of Personal Retirement Accounts
It is mistaken to assume that the cost of transitioning to Social Security personal accounts is based on the amount of general revenues that would be needed to finance the transition. This measure, which excludes items that are true costs and includes other items that are not true costs, is biased against personal accounts.
Social Security Reform: Half Measures and Mismeasures
Some suggest that proposals for Social Security reform should be judged by the degree to which they require general revenue financing. But this flawed yardstick is biased against personal account plans, because it doesn't accurately measure transition costs, and doesn't account for the dramatically increased benefits of personal accounts. The only way to evaluate reform plans is to weigh all of the costs against all of the benefits.
No Risky Scheme: Retirement Savings Accounts that are Personal and Safe
One of President Bush’s most controversial campaign proposals was to let workers place a portion of their Social Security payroll tax into a personal account. Can such accounts avoid the risk associated with the stock market? Twenty years ago, three Texas counties opted out of Social Security and they have never lost a dime. These counties provide a real, working model for personal accounts that are as safe as a bank.
Retiring the Social Security Earnings Test
A relic of the Great Depression, the Social Security retirement earnings test penalizes people receiving Social Security benefits who work. The earnings test puts a huge tax on wage inome, creating an effective marginal tax rate of between 41 and 80+ percent.
This Issue Brief outlines the case for eliminating the earnings test, and finds that "the long-run costs of eliminating the earnings test are almost nothing."
Let 50 Flowers Bloom: Welfare Reform in the States
Have you ever thought of vacationing in Hawaii and not coming back? Should you decide to do this and be unable to find a job, never fear - you can fare well on welfare. In Hawaii, 88.8 percent of the 'poor' collect welfare benefits rather than seek work--a higher percentage than any other state. Why? Hawaiians can draw up to $664 weekly ($34,528 annually) on a permanent vacation or work for average local wages and earn $476 weekly ($24,752 annually.) Which would you choose? The 'poor' do make rational economic decisions in deciding whether or not to seek work. The success of 'workfare' programs bears this out.
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