Republicans and Democrats need to settle their differences on 2011 tax rates.
For Social Security, a Birthday Makeover [NYT]
The NYT Op-Ed page editors asked six experts to recommend specific fixes that could be part of a comprehensive reform package for the nation’s largest social insurance program.
Cut Benefits, But Do It Fairly by Robert Pozen.
How do we maintain Social Security in the fairest way? Consider progressive indexing, which would preserve benefits for the bottom third of wage earners who rely on the program for almost all of their retirement income, but recalculate the benefits of higher-paid workers who have other sources of retirement income — including 401(k)s and IRAs — that are tax-subsidized by the federal government.
To calculate initial benefits at retirement, Social Security currently takes workers’ average career earnings and increases them by the rate at which average wages rose during their careers, a mechanism called wage indexing. Once workers start receiving benefits, they are increased annually by the amount that consumer prices rose in the prior year, called price indexing.
Under progressive indexing, by contrast, the initial benefits of the top earners would be calculated by price indexing, while the initial benefits for the bottom third would still be calculated by wage indexing (a grace period would be put in place for workers within three years of retirement). The initial benefits for the middle third would be calculated by a blend of price and wage indexing.
Progressive indexing would reduce the long-term Social Security deficit from $4.7 trillion to between $1.2 trillion and $1.7 trillion, depending on the design of the middle-income blend. Why? Because over the span of a worker’s career, wages tend to rise about 1 percent faster than prices.
In short, progressive indexing would preserve Social Security benefits for the neediest workers while allowing the benefits of other future retirees to grow at the rate of consumer prices or higher.
— ROBERT C. POZEN, chairman emeritus of an investment management firm and senior lecturer at Harvard Business School
Bashing Beijing Will Not Help Our Trade Deficit [WSJ]
Higher wages, not a stronger yuan, will help Chinese workers and reduce U.S. imports.
A bitter health care pill offsite [Boston Globe]
To contain ever-rising health care costs, a commission established by the state recommended a year ago that Massachusetts replace the traditional payment model in which each doctor is paid for delivering each medical service, with the “capitation” approach in which a group of doctors is paid an annual fee for providing a patient with all healthcare.
Will the US be a global securities policeman? [Financial Times]
Will the US courts become the policemen for securities transactions throughout the rest of the world? The US courts have recently pulled back from that role, but they may be overruled by the recent financial reform legislation.
Robert Pozen: One on One [PBS Ideas in Action]
Jim Glassman asks Bob Pozen: Now that the U.S. financial system has come “back from the brink,” what more should be done to re-structure our banking system?
Caught in a bind over closing tax loopholes [Financial Times]
Congress is being pulled in opposite directions by rising concerns about budget deficits and continuing pressures to prop up a fragile economy. This means it probably enact the higher tax rate on incentive fees of fund managers proposed in The American Jobs and Closing Tax Loopholes Act of 2010, writes Robert Pozen
How to keep politics out of rating agency reform [FT]
By requiring a neutral third party to select the rating agency, Congress would significantly improve the quality of bond ratings relied on by small institutions and individual investors. Yet this approach avoids excessive political influence on the ratings process by limiting the government’s role to the minimum necessary to avoid ratings shopping.