Measuring Social Security Proposals by More than Solvency: Impacts on Poverty, Progressivity, Horizontal Equity, and Work Incentives
As interest in proposals to restore Social Security solvency rises, it’s timely to examine whether current policy analyses provide adequate information on important distributional questions. This project explores measures of changes in Social Security benefits’ adequacy, horizontal equity, and efficiency under different proposals. We apply the measures to simulation output from the Urban Institute’s Dynamic Simulation of Income Model under the National Commission on Fiscal Responsibility and Reform Social Security proposal. A series of exhibits illustrates how they work and could inform policymakers about the relative merits of varied options to restore the program’s long-run solvency and meet other objectives.
Although a number of measures are commonly used to evaluate Social Security proposals, they are often somewhat limited. Actuarial and microsimulation models routinely show actuarial balance, average or median benefits, replacement rates at retirement, and ratios of lifetime benefits to lifetime taxes. Identifying who wins and loses under alternative policies at a point in time – for example by lifetime earnings quintile – has also become commonplace in dynamic microsimulation analyses of changes to the Old-Age, Survivors, and Disability Insurance program (OASDI).
Often lacking, however, is a more complete, nuanced discussion of how Social Security benefits change relative to targeted objectives, such as enhancing adequacy for those with the greatest economic need, reducing the unequal treatment of dual- as opposed to single-earner couples with the same earnings, and improving work incentives for dually entitled and longer-term workers. For example, some studies that primarily address Social Security adequacy or equity issues show winners and losers from a benefit change, without providing a good sense of how much need is reduced or whether losers include those the system currently favors. Do we care, for instance, about whether women gain, relative to men, or is the issue whether lower-income individuals, who might disproportionately be women, gain? Similarly, should we care about whether a proposal increases the equality of treatment of those in equal circumstances – a change that may increase overall shares winning and losing?