This paper explains how "pension reform," as it has been practiced in Chile and elsewhere, may simply constitute a relabeling of existing fiscal institutions that end up imposing high investment and ...insurance fees on workers.
America's aging coupled with high and growing old-age health and pension benefits augers for much higher payroll taxes, with damaging effects on the U. S. economy. This prognosis is supported by our ...analysis of a detailed dynamic life-cycle general equilibrium model. The FairTax, which proposes to replace the federal payroll, personal income, corporate income, and estate tax with a progressive consumption tax, offers a potential alternative to this dismal economic future. According to our simulation model, these policy changes would lead to major improvements in the U.S. capital stock, long-run real wages and the well-being of the majority of Americans.
Kotlikoff and Wise document the continued backloading of pension benefits and the extent of retirement incentives by examining pension accrual in over 1,500 companies with defined benefit plans. They ...also perform a detailed analysis on the retirement plan of a "Fortune 500" company.
For anyone with an interest in pensions—workers and employers, personnel directors, accountants, actuaries, lawyers, insurance agents, financial analysts, government officials, and social ...scientists—this book is required reading. Now, without the aid of a pension specialist, anyone can determine how their particular pension plan stacks up against the average. Using virtually all available government sources (includingcomputerized data unavailable in print) and their own extensive surveys, the authors present a comprehensive description of the structural features and financial conditions of U.S. private, state, city, and municipal pension plans. The introductions to the hundreds of tables explain and highlight the information.The picture that emerges of the "typical" plan and its significant variations is crucial to all those with a financial stake in pensions. The reader can compare pension vesting, retirement, and benefit provisions by plan type, plan size, industry, union status, and many more characteristics. With this information, workers can evaluate just how generous their employer is; job applicants can compare fringe benefits of prospective employers; personnel directors can judge their competitive edge.The financial community will find especially interesting the analysis of the unfunded liabilities of private, state, and local pension funds. The investment decisions of private and public pension funds and their return performances are described as well.Government officials and social scientists will find the analysis of pension coverage, the receipt of pension income by the elderly, cost-of-living adjustments, and disability insurance of special importance in evaluating the proper degree of public intervention in the area of old age income support. Pensions in the American Economy is comprehensive and easy to use. Every reader, from small-business owners and civil servants to pension fund specialists, will find in it essential information about this increasingly important part of labor compensation and retirement finances.
Although privatizing social security raises some real concerns, the most important of which is probably the potential reduction in life-span insurance, it does not sacrifice Bismarck's fundamental ...goal of forcing people to save for their old age. Privatizing social security is not a magical elixir that will eliminate all long-term fiscal woes, but it does make clear who is paying for what, and that may help prevent the problem from getting worse. Privatization may also substantially improve economic efficiency as well as inter- and intragenerational equity.
What is the main explanation for savings? Is it primarily accumulation for retirement as claimed by Albert Ando, Richard Brumberg, and Franco Modigliani in their celebrated Life Cycle Model of ...Savings? Is it primarily intentional accumulation for intergenerational transfers? Or is it primarily precautionary savings, much of which may be bequeathed because of imperfections in annuity markets? The answer to the savings puzzle has many policy implications and is key to understanding the distribution of wealth. A major piece of the puzzle is the quantitative importance of intergenerational transfers to the accumulation of wealth. As I will argue there is strong evidence that intergenerational transfers play a very important and perhaps dominant role in U.S. wealth accumulation. This does not mean, however, that intentional saving for gifts and bequests is the main motive for savings. Significant intergenerational transfers could also arise in the Life Cycle Model in the absence of well-functioning private annuity markets or close substitutes for such markets. In such a setting, bequests would be involuntary and potentially quite sizeable. Let us first look at the evidence on the importance of intergenerational transfers and then turn to the deeper question of why such transfers arise.
The role of bequests in propagating wealth inequality has long interested economists, policymakers and social commentators. It is found that many, if not most, bequests in the U.S. appear to arise ...because the resources of the elderly are not fully annuitized. Consequently, who receives inheritances is, in large part, a random process, which can, according to the model, equalize the distribution of wealth. While bequests are important, the main determinant of wealth inequality, according to the model, is earnings inequality. As to bequests, assortative mating, the annuitization of retirement savings via Social Security, the inheritance of skills and interest rate heterogeneity play more limited roles in generating wealth inequality.
Many, if not most, baby boomers appear at risk of suffering a major decline in their living standard in retirement. With federal and state government finances far too encumbered to significantly ...raise Social Security, Medicare, and Medicaid benefits, boomers must look to their own devices to rescue their retirements, namely, working harder and longer. However, the incentive of boomers to earn more is significantly limited by a plethora of explicit federal and state taxes and implicit taxes arising from the loss of federal and state benefits as one earns more. Of particular concern is Medicaid and Social Security’s complex earnings test and clawback of disability benefits. This study measures the work disincentives confronting those age 50 to 79 from the entire array of explicit and implicit fiscal work disincentives. Specifically, the paper runs older respondents in the Federal Reserve’s 2013 Survey of Consumer Finances through The Fiscal Analyzer—a software tool designed, in part, to calculate remaining lifetime marginal net tax rates.
We find that working longer, say an extra five years, can raise older workers’ sustainable living standards. But the impact is far smaller than suggested in the literature, in large part because of high net taxation of labor earnings. We also find that many baby boomers now face or will face high and, in very many cases, extremely high work disincentives arising from the hodgepodge design of our fiscal system. A third finding is that the marginal net tax rate associated with a significant increase in earnings, say $20,000 per year, arising from taking a full-time or part-time job (which could be a second job) can, for many elderly, be dramatically higher than that associated with earning a relatively small, say $1,000 per year, extra amount of money. This is due to the various income thresholds in our fiscal system. We also examine the elimination of all transfer program asset and income testing. This dramatically lowers marginal net tax rates facing the poor. Another key finding is the enormous dispersion in effective marginal remaining lifetime net tax rates facing seemingly identical households, that is, households with the same age and resource level. Finally, we find that traditional, current-year (i.e., static) marginal tax calculations relating this year’s extra taxes to this year’s extra income are woefully off target when it comes to properly measuring the elderly’s disincentives to work.
Our findings suggest that Uncle Sam is, indeed, inducing the elderly to retire.
Building on Gokhale, Kotlikoff and Sluchynsky's (2002) study of Americans' incentives to work full- or part-time, this paper uses ESPlanner, a life-cycle financial planning program, in conjunction ...with detailed modeling of transfer programs to determine (1) total marginal net tax rates on current labor supply, (2) total net marginal tax rates on life-cycle labor supply, (3) total net marginal tax rates on saving and (4) the tax-arbitrage opportunities available from contributing to retirement accounts. In seeking to provide the most comprehensive analysis to date of fiscal incentives, the paper incorporates federal and state personal income taxes, the FICA payroll tax, federal and state corporate income taxes, federal and state sales and excise taxes, Social Security benefits, Medicare benefits, Medicaid benefits, Foods Stamps, welfare (TAFCD) benefits, and other transfer program benefits. The paper offers four main takeaways. First, thanks to the incredible complexity of the U.S. fiscal system, it's impossible for anyone to understand her incentive to work, save, or contribute to retirement accounts absent highly advanced computer technology and software. Second, the U.S. fiscal system provides most households with very strong reasons to limit their labor supply and saving. Third, the system offers very high-income young and middle-aged households as well as most older households tremendous opportunities to arbitrage the tax system by contributing to retirement accounts. Fourth, the patterns by age and income of marginal net tax rates on earnings, marginal net tax rates on saving, and tax-arbitrage opportunities can be summarized with one word--bizarre.
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