Social Security: Economists' Perspectives

Martin Feldstein

Graduated from Havard College and Oxford university.
Published over 300 economic research articles.
He was the chief economic advisor for President Regan and was chairman of the council of economic advisers from 1982 through 1984.
In 2004, he served as President of the American Economic Association.
He is now a professor of Economics at Harvard University and President of the National Bureau of Economic Research.
Bush appointed him to his foreign intelligence advisory board in 2006.

Traditionally, Feldstein has be a strong advocate of privatizing social insurance

In 1997, He described the problem of the aging population and therefore, the higher government costs for pensions and medical care. This is because the S.S. system is a pay-as-you-go system. It pays for the transfers by taxing the current workers. So, in effect we are paying for our parents to retire and our children would in effect pay for our retirement.
He estimated that Gov. spending would increase from 10% of GDP to 18% in 2030. \

To pay for that 18% by raising taxes would require the equivalent of doubling the personal income tax or raising the payroll tax rate from 15% to more than 35%.

So, he supports the idea of only taking 2% of people’s salary and putting it in into investments similar to that of people’s 401(k) retirement funds. This would provide the same amount as raising the payroll tax.

This type of system has already been successful in many South American countries and also in many European countries.

He understands that there would need to a phasing in of this privatization system, but he also shows that components of privatization could be used to supplement the current pay as you go system.

There would be a voluntary add-on tax that would be put in personal accounts and make up the difference between the decline in abilities for S.S. to pay out benefits.