Why Eliminating the Social Security Payroll Tax Cap Is Not an Easy Fix

Every few years, politicians think they have found the silver bullet for solving Social Security's financial woes. This time, it is Senators Elizabeth Warren (D-MA) and Bernie Moreno (R-OH) proposing to eliminate the Social Security payroll tax cap of $184,000. The argument is simple enough: tax earnings above the current cap, collect more revenue, and the program can keep going. If only it were that simple.

As I detailed last year, Social Security's challenges are rooted in demographics and the structure of the program itself. Eliminating the payroll cap sounds like a sound solution, but it is an expensive workaround that does not deal with the declining worker-to-beneficiary ratios, longer life expectancy, or the pay-as-you-go financing structure.  

If eliminating the payroll tax cap were an obvious solution its supporters claim, you would at least expect broad agreement among tax policy experts. But even the Left-leaning Tax Policy Center (TPC) argues that the Warren-Moreno proposal is flawed.

The TPC calculated that this proposal would bring in $2.5 trillion in revenue over the next decade. That sounds like a lot of cash, but here's the catch. It does not actually save Social Security. It only closes about half of the long-term financing gap, and annual deficits return in about 4 years. By the way, this is the best-case scenario. 

TPC points out another issue: severing the link between contributions and benefits. Social Security was created as a a safety net during the Great Depression, but policymakers also deliberately structured it as social insurance, with benefits tied to workers' earning histories and payroll contributions. Workers have generally viewed their benefits as something they earned through payroll contributions. 

Eliminating the cap while leaving benefits largely unchanged weakens that relationship. For many higher-income workers, additional contributions would no longer purchase additional benefits. Once the program is perceived more as income redistribution, it risks undermining the broad political support. 

Higher marginal tax rates can create economic distortions by educing the incentives to earn additional income, invest, or expand business. When taxpayers keep less of each additional dollar earned, some may alter their work decisions, compensation arrangements, or investment strategies to minimize tax exposure. While these effects may be modest for some, policymakers should consider the broader consequences of increasing taxes on productivity, economic growth, and future revenue generation. A policy intended to strengthen Social Security should not undermine the economy that funds it. 

The debate over eliminating the payroll tax cap shows that policymakers are more focused on finding more money over reforming a structurally flawed program. Higher taxes can postpone difficult decisions, but they cannot fix demographic realities, a low return on investment, or the lack of personal ownership over retirement savings. The people of America need more than paying more to Social Security. It needs reform that can provide the working American with the ability to comfortably retire instead of struggling in their later years.

Social Security’s 2032 Cliff: The Countdown That Congress Would Prefer to Ignore

Social Security is an insolvent and unsustainable retirement program. That much I wrote about last year during Social Security's 90th anniversary. It has become that much more apparent with the latest Trustees Report that was released earlier this week. The big finding from that report is that the retirement benefits, under the Old-Age and Survivors Insurance (OASI), is set to expire at the end of 2032. This is one year sooner than was projected last year. 

Why was this deadline accelerated? To quote the Peter G. Peterson Foundation, "Legislation includes the January 2025 passage of the Social Security Fairness Act that repealed the Windfall Elimination Provision and the Government Pension Offset, and the July 2025 One Big Beautiful Bill Act that expanded the income tax deduction for seniors. The former legislation increases program outlays, while the latter decreases revenues." 

What does this mean once the Trust Fund is depleted? All beneficiaries regardless of age, income, or need will see their benefits slashed by 22 percent. This decrease in benefits is to allow Social Security to keep going for the next 75 years. But here's the thing: even after the depletion of the Trust Fund, "Social Security will still spend more than it earns in payroll tax revenue. Over the next decade, Social Security will spend $3.8 trillion more than it collects, which is 2.7 percent of taxable payroll or 0.9 percent of GDP." 

Additionally, lower fertility and lower immigration are both contributing to Social Security's deteriorating state. The Cato Institute argues that the Social Security Administration is being overly optimistic on their fertility rate assumptions, which creates rosier financial projections for Social Security.

The Trustees Report reinforces a familiar but uncomfortable reality: Social Security’s imbalance is no longer marginal. Even after the Trust Fund is depleted, the program is projected to spend trillions more than it collects over the following decade.

What makes this particularly consequential is that the system does not gradually adjust as insolvency approaches. It waits, then it cuts. That design choice means policymakers are not managing a slow-moving problem. They are managing a countdown. 

In that sense, the choice facing policymakers is not whether Social Security will change, but whether change will be deliberate or forced. And the window for choosing the former is closing.

Means-Testing Social Security Is a Better Band-Aid, But Still Not a Cure

Social Security was born out of crisis. In the depths of the Great Depression, about half of the elderly in America lacked sufficient income to be self-supporting. The idea was simple: ensure that those less fortunate, the elderly in particular, would not fall into destitution. It was not meant to be elegant. It was simply meant to help people stay afloat during a time of economic crisis. 

Nearly a century later, the program has exceeded its initial scope and is struggling under the weight. Social Security's long-term financing is no longer a concern in the distant future. The Social Security Trust Fund could be depleted as early as 2032. Once that happens, there will be a statutory cut to Social Security benefits up to 24 percent. 

Faced with this fiscal reality, policymakers have proposed increasing taxes, cutting benefits, or some combination of both. Increasingly, politicians have eyed benefits to higher earners, both for political and fiscal reasons. Earlier this week, the bipartisan Committee for a Responsible Federal Budget (CRFB) proposed a Six Figure Limit (SFL). The SFL would cap a couple's normal retirement age (NRA) earnings at $100,000, whereas that cap would be at $50,000 for a single person. For clarification, those caps are for not just Social Security income, but all income, including wages or earnings from work, investment income, pension income, and any other income sources. 

The SFL has a number of benefits. One is that would close at least 20 percent of Social Security's solvency gap. This option would save at least $100 billion over a decade while reducing the debt-to-GDP ratio by at least 2 percentage points. Since debt is a drag on economic growth, this is indeed good news.   

Some might complain that the SFL might weaken the link between benefits and contributions. However, the SFL would bring it back to what Social Security was in its inception: a modest safety net. The fact that Americans receive more in retirement benefits from the government than even the French do is ridiculous (see below). 

A proposal like the SFL that can improve solvency and reduce government debt while scaling back Social Security is definitely an improvement over the status quo. However, I would still contend that the SFL is a second-best option. 

Last year, I criticized Social Security in honor of its 90th anniversary and pointed out how it is structurally problematic. One issue is the pay-as-you-go payment mechanism. This is unsustainable due to demographic shift of fewer workers supporting more retirees, which creates an inevitable shortfall. The second issue is precisely that there is a strong link between contributions and benefits. Higher-income individuals receive disproportionate benefits, which acts more like a redistribution scheme rather than a safety net. 

As much as I can appreciate that the SFL can help mitigate the fiscal woes with Social Security, it does not address or resolve Social Security's structural and systemic issues. The pay-as-you-go mechanism will continue to be untenable, whereas the link between contributions and benefits imposes more costs on those with lower earnings. 

On the other hand, a private social security account would allow individuals to control their own retirement savings while being able to have way more saved for retirement. It is time to stop treating Social Security like a handout and start treating it like an investment. Ditching the Social Security program would put retirement savings where they belong: in the hands of the people, not the government. 

Social Security at 90: An Outdated, Broken System Failing Retirees and Betraying Future Generations

On August 14, 1935, President Franklin Delano Roosevelt signed the Social Security Act. With the stroke of his pen, FDR established the Social Security program that we know today. Social Security was initially created as a safety net for the elderly during the Great Depression, many of whom lost their savings, jobs, and family support. Over time, Social Security became a source of supplementary retirement income. It has also faced increasing criticism, including here at Libertarian Jew. It drew enough of my ire that I listed it as one of the twelve reasons we should all dislike FDR. What makes Social Security so terrible? 

Why Social Security Is Fiscally Unsustainable 

Social Security is insolvent and fundamentally unstable. Why fundamentally unstable? In part, it has to do with its pay-as-you-go mechanism. In spite of what most Americans believe, recipients do not have their personal account with their own funds. Current workers pay the benefits of current retirees through the pay-as-you-go mechanism. Social Security's pay-as-you-go mechanism shares structural similarities with Ponzi schemes in that current contributors fund current recipients. Although Social Security is legally sanctioned (unlike a Ponzi scheme), this structure of transferring income instead of saving it raises sustainability concerns. No one has money saved in a personal Social Security retirement account because money is transferred from current taxpayer dollars to current beneficiaries. The only difference between a Ponzi scheme and a Social Security is that when the payout pyramid collapses, no one goes to jail. Taxpayers simply pay more. 

Because Social Security relies on current workers' contributions to pay current retirees, its stability is directly tied to the number of workers supporting each beneficiary. When the ratio is high, the system can function smoothly, like it did when the worker-to-beneficiary ratio was 159.4 to 1 in 1940 (SSA). With the Baby Boomer generation retiring, that ratio has decreased to 2.7 in 2023 and is expected to decrease to 2.1 workers by the end of the century (Pew Research). This decreasing worker-to-benefit ratio means that there are fewer workers shoulder the burden of a growing system, thereby putting greater financial strain on Social Security. 

When the demographic shifts are combined with the pay-as-you-go mechanism, the payroll tax becomes a more unsound funding source of the Social Security program. Over time, the deficits add up and will deplete the Social Security Trust Fund. The most recent SSA annual report predicts depletion in 2034, although it is likely that one of the negative effects of the "Big, Beautiful Bill" is accelerating that date to 2032. Once that Fund is depleted, statute dictates that Social Security payments are limited to incoming revenue. According to the bipartisan Committee for a Responsible Federal Budget's (CRFB) estimates, that will translate into a 24 percent cut in Social Security benefits (see below). 

To maintain this behemoth that is 21 percent of the federal budget and the single largest item in the budget, the government needs to find a way to fund $25 trillion in unfunded Social Security obligations. Right now, the current Social Security tax rate is 12.4 percent: 6.2 percent paid by the employer and the other 6.2 percent by the employee. If you are self-employed, you pay the 12.4 percent. Historically, Social Security taxes have increased, not decreased (Tax Policy Center). Given that the worker-to-beneficiary ratio is expected to decline, do not be surprised to see the payroll tax increase as a response from Congress to try to "fix" Social Security.

The Burden on Younger Generations

Younger people especially get harmed if politicians decide to fund Social Security program in perpetuity. How much will it cost the median worker entering the workforce to keep Social Security going indefinitely? According to a Cato Institute analysis, it would cost $157,000, which is the equivalent of giving up 29 months of pay over a lifetime, which is more than two years' worth of salary. Despite paying more, these workers are expected to receive reduced benefits compared to current retirees, or even have reduced or means-tested benefits. In short, younger generations are being asked to pay more for less.

What is the Return on Investment?

And what does a taxpayer, regardless of age, get for paying all that money? A low return on investment, or ROI for short. The SSA publishes internal real rates of return (IRR), which act as a measure of ROI. Using a simple midpoint estimate of the IRR from its most recent IRR report, the ROI for Social Security is 2.7 percent, while the Treasury bond real rate of return is about 2-3 percent (nominal is closer to 4-5 percent). In contrast, the average stock market return in the last five years was 8.9 percent when adjusted for inflation; 8 percent in the last decade; and 6.3 percent in the last 30 years. 

Why the low ROI? The reality is that Social Security reserves are mandated to be invested in U.S. government securities only. Treasury bonds are essentially IOUs from the federal government to itself, which means that Social Security will never be high-yielding in its current form. A Tax Foundation study confirms that it is the combination of these investment choices, a lower birth rate, and a lower worker-to-beneficiary ratio that contribute to this low ROI (Entin, 2016).

For Social Security proponents, they see Social Security as a safety net that provides baseline financial protection. But what good is that safety net if it fails to meet the financial needs of retirees, especially those who depend on it as their primary or sole income source? With rising costs and increased lifespans, seniors need an investment tool that allows them to maintain a dignified standard of living. Social Security fails spectacularly on that front, especially when compared to the average ROI of the stock market. That safety net mentality of prioritizing insurance-like protection over investment-like returns is what has gotten the American people into hot water, much like it has with Medicaid. If retirees had the ability to invest their Social Security taxes elsewhere, 27 percent of Americans would not have to rely solely on Social Security for income (Pew Research). 

Structural Flaws and Moral Hazards

In case fiscal insolvency, a low return on investment, or disproportionately harming young workers was not enough, here are more reasons to take issue with Social Security:

• There is no ownership or inheritance of Social Security. If someone dies, they cannot pass on their hard-earned savings to heirs as they can with a 401K. Even the Supreme Court has recognized that individuals are not guaranteed Social Security contributions (Flemming v. Nestor).
• Despite its progressive formula, Social Security is not means-tested. High-income retirees can still collect full benefits, regardless of need. This feeds into the program's entrenched safety net mentality, which prioritize broad, guaranteed payouts over investment-like returns or personalized savings. This undermines both its financial sustainability and its ability to efficiently target those truly in need. The fact that it fails on both counts undermines its rationale for existing as a government program.  
• Social Security hits the poor harder with its flat tax, i.e., everyone pays the same rate. However, the tax cap at $176,100 effectively makes it regressive. The reason why it hits hard is that the 6.2 percent cuts into one's expenses when struggling to make ends meet. This tax takes a significant share of income that would otherwise go to basic needs or personal savings. 
• Social Security is designed as a lifetime, inflation-adjusted annuity. The longer one lives, the more one can collect through Social Security. Although lower earners receive a higher benefit as a percentage of their earnings, it is not so helpful because the structure disadvantages demographics with shorter average lifespans (e.g., Bostworth et al., 2016), such as low-income workers and certain racial minorities (e.g., African-Americans, Native Americans). 

Alternatives and a Case for Privatization

Reform is always kicked down the road because the myopia of the election cycle disincentivizes long-term thinking. As this report from the Cato Institute shows, reform is possible. Other countries have implemented social security reforms, whether it is transitioning to a basic benefit structure (New Zealand), reducing excessive benefits for higher earners, implementing automatic stabilizers (e.g., Sweden's age-indexed eligibility), or voluntary Universal Savings Accounts (e.g., Canada). Countries like Sweden and New Zealand have adopted innovated reforms that improve solvency and fairness, offering models that the U.S. could adapt. 

Changing demographics and increasing obligations make the current system outdated in terms of serving the needs of the retirees of today and in the future. Since Social Security is the "third rail" in U.S. politics, U.S. politicians lack the willpower to do anything aside from kicking this volatile can down the road. Rather than more incremental reforms, I would prefer privatization, in no small part because the Organisation for Economic Co-operation and Development (OECD) found that private accounts lead to broader economic growth. 

Individuals need greater control over their retirement savings, potential for higher returns, and flexibility in retirement goals to help avoid poverty in their old age. In short, they need autonomy over their future quality of life. If U.S. politicians stay mired in the inertia that is the myopia of election cycles and buying votes, future retirees remain vulnerable to government stupidity. It is time for politicians to embrace privatization instead of keeping retirees trapped in a subpar retirement system. 

Raising the Retirement Age Can Help Social Security, But It Is Not Enough to Save It

As we come to the climax of this presidential election, I think about Social Security and how neither presidential candidate intends to cut Social Security benefits. As I brought up last year, Social Security is not sustainable. The Social Security Trustees' Report calculates that the Social Security trust fund is to be depleted in 2035. Afterwards, there will be a statutory reduction in Social Security benefits. 

One commonly recommended policy alternative to help save Social Security has been to raise the retirement age to 69. It was a topic I explored back in 2013 and one you can explore further with this Congressional Research Service primer. While I was in favor (and still am) of raising the retirement age, there was a concern of mine: cutting the retirement age would not be enough. Over a decade later, it looks like my concern was justified. An analysis from the American Action Forum brought my attention to a Congressional Budget Office (CBO) letter published last month. Two main findings were 1) raising the retirement age would reduce benefits (which the Left-leaning Center for American Progress pointed out in July), and 2) it would not be enough on its own to extend the life of the trust funds. 

Per the CBO letter, Social Security spending would be 0.5 percent of GDP less than under current law, which is not bad considering that CBO predicts that Social Security spending will be 5.4 percent of GDP in 2054. But 0.5/5.4 is still less than a reduction of 10 percent. That simple back-of-the-envelope calculation shows how it barely scratches the surface. Even with variations of options about changing Social Security retirement age, as is presented by a September 2024 analysis from the Brookings Institution (see below), it still has a ways to go. 

Do not mistaken my analysis or any of these cited analyses as saying that we should abandon tinkering with early retirement ages for Social Security. As a pointed out with my analysis of the France case study last year, there are too many retirees pulling funds with too few workers contributing to public pension funds. When you have more money going out than going in for an extended period of time, a financial system cannot remain solvent. That is what has happened with Social Security in the United States. Plus, raising the retirement age is shown to improve economic growth by the fact that workers stay in the labor market longer and make more money in the process. 

Social Security is out of whack enough where it is going to take multiple policy alternatives in addition to altering full retirement age (e.g., lowering benefits, altering the formula) to make a difference with Social Security. Hopefully, it can add up to either making Social Security solvent once more. Or even better, the American people realize that privatizing retirement accounts brings them a better return on investment (ROI) and therefore is better for their retirement. 

Trump's Idea to End Taxation of Social Security Benefits Would Be a Budgetary Blunder

As we get closer to the elections in November, we will see more pandering from both Donald Trump and Kamala Harris in the hopes of winning the Electoral College. In an attempt to woo elderly voters, Trump posted the following on his alt-tech social media platform Truth Social: "Seniors should not pay tax on Social Security!" Trump's call to exempt senior citizens from paying taxes on Social Security sounds like a great political message. From a political tactic vantage, it makes sense because there are a lot of seniors out there and they are more likely to vote than younger generational cohorts. 

How is it from a policy or budgetary standpoint? You would think that being a libertarian, I would be inclined towards supporting this policy. As I have brought up as early as 2017, tax policy cannot be simplified into "tax cut = good." Last February, I discussed the argument for eliminating the grocery tax. Eliminating the grocery tax might sound like a positive from a viewpoint of making government smaller, but it actually caused more problems. As we will see shortly, a similar argument can be made about exempting Social Security benefits from taxation. 

What about those poor seniors? As current Social Security policy stands, taxpayers with a Modified Adjusted Gross Income (MAGI) between $25,000 and $34,000 are required to report up to 50 percent of their benefits as taxable income. For those with greater than $34,000, that goes up to 85 percent of their benefits being taxable. Part of where Trump's argument gets diminished is that about 60 percent of Social Security beneficiaries do not pay taxes on their Social Security benefits because their MAGI is less than $25,000. Given the progressivity of the Social Security tax rate structure, it means that higher-income households are paying this tax. Removing this tax would mainly benefit higher-income households (see modeling from the Tax Foundation to see that effect), not the seniors who primarily or solely rely on Social Security for retirement income.

As a side note brought up by the American Enterprise Institute, it makes even less sense to create the tax exemption when the tax treatment of private pensions is roughly equivalent to that of Social Security benefits. Why should two retirees with two identical MAGIs have two different post-tax incomes simply because they have different mixes of retirement savings? 

Isn't taxing Social Security benefits a form of double taxation? Representative Thomas Massie (R-KY) is claiming that taxing Social Security benefits is a form of double taxation. If it were a form of double taxation, like it is with the corporate tax or wealth tax, I would take issue with the double taxation effect and criticize accordingly. Here is the issue. According to a report from the Social Security Administration, 85 percent of Social Security benefits are funded with pre-tax dollars. This would make Massie's double taxation claim largely false. The Right-leaning Tax Foundation, which has no love for double taxation (see here, here, and here), argues that Social Security income should be subject to the income tax. 

Trump's proposal will exacerbate federal budgeting. The income tax from those Social Security benefits currently funds the Social Security and Medicare Hospital Insurance (HI) trust funds. Unless Trump provides an alternative revenue source to replace those funds, we have to assume that a shortfall is created in the process. The bipartisan Committee for a Responsible Federal Budget (CRFB) estimates that the following would occur over the next decade if Trump's plan is enacted:

• Increased deficits by anywhere between $1.6 trillion and $1.8 trillion
• Increase Social Security's 75-year shortfall by 25 percent while increasing Medicare's 75-year HI shortfall by nearly triple
• Advance the Social Security and Medicare HI trust fund insolvency dates by one year and six years, respectively 

This tax cut would not do a good job at fostering economic growth. The Tax Foundation uses both static and dynamic modeling to measure the effects of Trump's proposal. Even when factoring the boost in economic growth and increased incentives to work, save, and invest, the dynamic model estimates that it would still create a $1.3 trillion shortfall over the next decade. What is implicit in these findings is that this tax cut would not be a great way to boost the economy. 

Conclusion: In concept, it sounds lofty to want to lower taxes. However, we cannot look at this policy prescription in isolation. Trump did not make any significant Social Security reforms in his first term as president. In March 2024, Trump said that he would not do anything to "jeopardize or hurt Social Security or Medicare." The truth of the matter is that there is even less appetite from either political party to make reforms on Social Security than there has been in decades past.

To fund the shortfall that Trump's tax exemption would create, the main solutions would be to raise taxes elsewhere or to lower benefits. All Trump would be doing is narrowing the income tax base while exacerbating federal fiscal woes. As I pointed out last year, Social Security is such an insolvent mess that I argued for its privatization. Social Security also has been a major driver in the U.S. federal budget for quite some time. We need more salient solutions than Trump's political pandering if we want true Social Security reform. 

Protests in Paris About Raising Retirement Age Beg Questions About Social Security Solvency in France and the United States

It might have faded from the U.S. media's attention, but France has continued the protests that started on January 19, 2023. I know that holding protests is part of French tradition. What has the French so upset that they have been protesting for the better part of four months? Pension reform. In a very unpopular move, President Emmanuel Macron raised the retirement age from 62 to 64 by 2023. Why would he do something that would have the French citizenry in such an uproar?

France has one of the lowest retirement ages in the industrialized world. France also has one of highest percentages of public spending on pensions (OECD). France spends 14.5 percent of its GDP on pensions, which is almost double the OECD average of 7.7 percent. Furthermore, the worker-to-retiree ratio is expected to decrease from 1.7 in 2019 to 1.2 in 2070. This worker-to-beneficiary ratio is even more dire than that of the United States' Social Security by 2040. 

This past Friday, Fitch Ratings downgraded France from an AA credit rating to AA-. This downgrade took place because of weak economic growth and continued increase in the debt-to-GDP ratio due to upward expenditure pressures (including pensions and social benefits). If that were not enough to satisfy you, look at the European Commission's 2021 Aging Report. The EC found that unchanged eligibility requirements (especially age) would have a sizable impact on pension expenditures. For France, it would mean an increase of 2.2 percentage points of GDP (EC, p. 95), which is higher than the European Union average. 

The people over at the far-Left Fairness and Accuracy in Reporting (FAIR) were dismayed by the U.S. media's coverage of these protests because it did not even entertain the possibility of France increasing taxes to fund the pensions. Let's entertain the thought for argument's sake. A panel of economic experts sponsored by the University of Chicago was asked about France raising its retirement age in comparison to two other policy options. The first policy option was raising social security taxes. Out of the economists that did answer, 87.8 percent believed that raising the retirement age was a better option to preserve the financial viability of France's pension system than raising taxes. 

As OECD data indicate, France already has a high marginal tax rate for social security contributions. According to accounting firm PwC, "the contributions are shared between employer and employee; on average, the employer 's share of contribution represents 45% of the gross salary. For 2022, the employee's share of French social contributions represents approximately 20% to 23% of the remuneration." 2022 calculations from the Right-leaning Tax Foundation found that marginal tax rates in France's social security taxes are so barking mad that a pay raise could face as much as 93 percent of that raise being taken as tax revenue. Raising taxes higher would only create deadweight loss that suppresses France's economic growth. 

The second policy alternative is lowering the current benefits. As University of Minnesota economics professor Kjetil Storesletten brings up, current benefit amounts are locked into place. Future benefits take a long time to pass and take into effect. The political backlash would be higher for cutting benefits than raising the retirement age. Similarly, there has been political backlash in France (i.e., 1987, 1993, and 2010) when the French government cut spending elsewhere in its budget. 

That being said, it is not like the France cannot handle it. France did not always have such a low retirement age. Former President François Mitterrand changed the retirement age to 60 in 1983. Beforehand, the retirement age was 65. Plus, the retirement age increased from 60 to 62 in 2010. I am sure that those who are protesting (middle-aged workers in particular) are worried that they will not have the same benefits. 

I would suggest encouraging French citizens to save retirement. The sad truth is the cultural expectation set for retiring French citizens is that the government will take care of them in their later years. On top of that, you have a different work-life balance that views early retirement in a more positive. How work was viewed and valued was clear to me when I visited France and talked with French citizens a few years ago.

As much as I understand that cultural norms around work are different in France, I understand even more the fiscal reality of what happens when you consistently pay out more money into a system than you accrue. It is not sustainable and something needs to be done to contain costs. Fitch Ratings found that raising the retirement age would create annual gross savings of EUR17.7 billion by 2030, or 0.6 percent of the GDP. 

Aside from fiscal reality, there is demographic reality. People in France are living longer with an average age of 85 for women and 79 for men (see below). France has a birth rate of 1.8, which is below the replacement rate of 2.1. Without a solution of actual reform, an overburdened system will eventually become insolvent. 

Source: Institut Nationale d'Études Démographiques (INED)

If your goal is to provide a pension system for your retirees to live on, then there has to be a way for it to last in the long-run. Increasing taxes in a country that already has such high tax rates will only make it more difficult to sustain its social security program and other government services. Much like I explained in 2013 when I argued for raising the retirement age for Social Security in the United States, raising the retirement age is that compromise one has to make in order for long-term solvency. People working longer not only means retirees withdrawing payments for as long, but it also means more people contributing to the system. Since both France and the United States have pay-as-you-go systems for their retirement accounts, I would surmise that France's issues are a canary in the mine for the solvency issues facing the United States with Social Security. While it is not a politically popular move, I at least give Macron kudos for having the balls to address an important issue that so few politicians in the United States are willing to tackle. 

Social Security Is Not Sustainable: Is It Time to Get Rid of Social Security?

Social Security was created in 1935 by the Franklin D. Roosevelt administration with the goal of making sure that the elderly did not drop dead in the street during the Great Depression. Social Security has been portrayed as a program synonymous with economic footing in one's old age. However, Social Security is on shaky ground. 

A recent CBO report details how Social Security is the single largest federal government program in its budget (p. 14). Yes, the U.S. government spends more than it does on Social Security than it does on Medicare, Medicaid, defense spending, and interest payments. Those outlays will be 5.3 percent of GDP in 2024 to 6.0 of GDP in 2033 (p. 18). The CBO recognizes that Social Security is a major driver of federal deficits (p. 28).   

Many are under the misimpression that your Social Security contributions go to your specific account and build value over time. That is patently untrue. This is not only because the Supreme Court ruled in Flemming v. Nestor that no one is guaranteed contractual right to Social Security. As I pointed out way back in 2011, your Social Security tax dollars are not going to a personal retirement account of yours, but to pay for current beneficiaries. While it might not have the same intent as a Ponzi scheme, even the Social Security Administration admits that Social Security uses the same pay-as-you-go payment mechanism as a Ponzi scheme. 

The issue with the pay-as-you-go payment mechanism has shown its true colors over time. It was easier to support Social Security when the worker-to-beneficiary ratio was 159.4 to 1 in 1940 (see SSA historical data here). That ratio is now at 2.8 and is expected to decline to 2.2 by 2042. 

The trajectory does not look good for Social Security, and yet one thing that both Biden and Trump agree on is that we should not decrease spending on Social Security. I have looked at payroll tax reform or raising the retirement age in the past to see if there are any viable reforms. I remember back in college when I was part of an initiative called Students for Saving Social Security that advocated for changing Social Security regulations to allow for the choice of personal savings accounts. I look back and I wonder if the option of personal savings accounts were enough. Perhaps it would be better to scrap Social Security in favor of privatization, as this video from Reason Magazine below suggests. 

It is an awfully tempting policy option. According to the Social Security Administration's 2022 Trustees Report, the Social Security trust is projected to expire in 2034. After the surplus has dried up in 2034, retirees will receive 77 percent of what they were prior to. 

As a 2016 analysis from the Tax Foundation shows, Social Security provides a much lower return on investment (ROI) on Social Security than personal retirement plans or pensions. In 2016, the average annual payout was $19,646 annually. If someone invested 10 percent of wages at 22, it meant an annuitized annual income of $57,319, or nearly three times the payout. The difference in ROI will be more pronounced once the trust fund will run out. A report from OECD also found that privatization of retirement accounts supports broader economic growth.

I am aware that increased privatization or complete privatization would not be a change that would happen overnight. There would need to be ways to phase it out while helping out current beneficiaries. Over time, I am less convinced of the merits of reforming a broken program and guiding the American people towards something that will help retirees and the American economy in the long-run. 

Social Security insolvency is not a matter of if, but when. The question is whether politicians will make some tough decisions now to help Americans retire or if they simply kick the can down the road as they always have and leave the responsibility of cleaning up this fiscal mess to future generations. I would like to be hopeful that we could find a bipartisan solution instead of making an even more painful choice in the future. But given the intransigence and nature of politicians to have a more myopic view dictated by election cycles, the more realist side of me is not going to hold its breath.

CBO Report Shows Government Spending Is Creating a Fiscal Crisis

The Congressional Budget Office (CBO), which is the agency responsible for federal budgetary and legislative analysis, released its annual Budget and Economic Outlook. Normally, this would be a normal update to a seemingly uninteresting report. What made the report intriguing is not simply updating for such economic realities as high inflation and tighter monetary policy. This report accounted for the fact that we are at the end of an unprecedentedly high amount of so-called "emergency" pandemic spending, i.e., expansionary fiscal policy. Given how critical I have been of the Federal Reserve and Congress, particularly when it came to contributing to inflation, I am not surprised that the fiscal state is not going well. However, I did not expect things to get this atrocious this quickly. The big picture is that federal debt is projected to climb to 195 percent of GDP by 2053. 

What is the reason for this major increase? Those who were critical of Trump thought it would be because of the tax reform in the Tax Cuts and Jobs Act. There was a slight dip in corporate taxes in 2018, but there was otherwise an increase in tax revenue (p. 3).

According to the CBO, it is "mainly because of increasing interest costs and the growth of spending on major health care programs and Social Security (p. 2)." Social Security and major federal health care programs account for about 60 percent of the projected growth between 2023 and 2033.

The CBO recognizes that government spending since spring 2022 exacerbated inflation (p. 39). The sad truth is that it was not simply unprecedented stimulus spending during the pandemic that made our economic situation worse. GDP growth is expected to stagnate, averaging 2.4 percent from 2024 to 2027 and 1.8 percent from 2028 to 2033 (p. 3). Unemployment and labor force participation rate do not look better (p. 44).

This does not bode well for the United States. Much of economic literature finds that by the debt-to-GDP ratio reaches 78 percent, a country starts to run into issues. We are clearly past that point. By 2028, it will reach 106 percent, which is higher than the previous record for debt-to-GDP ratio that was set during World War II. As I explained in December 2020, a high debt-to-GDP ratio matters for many reasons, including slower economic growth, more tax dollars paying interest payments, and lower investment. 

As we can see above, tax increases alone cannot cover the ballooning spending. Federal spending is out of control and will only get worse as interest rates get higher. Trying to balance a $20 trillion budgetary shortfall suddenly is going to be too much for politicians to stomach. The debt limit should be a leverage point. If we want the United States to avoid financial ruin, Congress needs a credible fiscal stabilization plan. Only with true fiscal reform that entails discipline in government spending can the United States avoid going off a fiscal cliff.

12 Reasons Why Franklin D. Roosevelt Was One of the Worst Presidents in U.S. History

As Donald Trump wraps up his presidential term, it is hard for us to not reflect on the impact Trump has had on the United States, for better or worse. There are those Americans who think that Trump is the greatest thing since sliced bread. Others opine that he was the worst president ever. I actually heard that some from of my liberal friends, and I had to think to myself: "Is Trump really the worst president ever?" Sure, I have taken issue with his policies on trade and immigration since before he got into office. His brash, infantile behavior has chipped away at the integrity of the presidency. His actions since November to undermine the legitimacy of the election process, a move used by would-be autocrats, is all the more distasteful. At the same time, I have to ask if any other president could top that. Andrew Jackson had the Trail of Tears. Warren Harding was the most corrupt president with the Teapot Dome Scandal. Richard Nixon had Watergate. There is one other president who was pretty bad, and I think it is worth highlighting because a lot of people think he is so great. That man is Franklin Delano Roosevelt, or FDR for short. 

There are certain people who have nostalgia for FDR because people remember him as the man who pulled the nation out of the Great Depression. The image many have of FDR is him helping Americans get through the Great Depression with fireside chats and provided employment with public works projects. FDR was also the man who led the American people during World War II. He was seen as a man of the people, a uniter, especially by those on the Left. The fact that he was elected four times, more than any other president, was arguably a reflection of his popularity. The truth of the matter is that FDR was a wanker. I'm not going to be able to cover everything here, but if you need a list as to why he is a contemptible president, here you go:

1. FDR's economic policy turned what should have been a recession into a double-dip depression. FDR implemented a series of regulations (e.g., National Industrial Recovery Act, Anti-Chain Store Act) and increased taxes to high amounts (more on that below). If you listened to my fiscally liberal friends, more taxes and regulations should have ended beautifully. How did it go? For one, employment did not prosper under FDR's administration. Quite the opposite! According to the Bureau of Labor Statistics, unemployment did not fall below 14 percent between 1931 and 1939 (see below). An econometric study from two economists from UCLA found that "real gross domestic product per adult, which was 39 percent below trend at the trough of the depression in 1933, remained 27 percent below trend in 1939." These same economists concluded that FDR's New Deal policies "reduced consumption and investment about 14 percent relative to their competitive balanced growth path levels (Cole and Ohanian, 2003)." To further the argument, a combination of federal debt reduction and the paring of New Deal programs contributed to the 1948 economic recovery (Higgs, 1997). In other words, FDR's policies slowed down the recovery. 

2. FDR's banking policy adversely impacted the finance sector. This is in reference to the Glass-Steagall Act, a bill FDR signed into law that prohibited commercial bankers from engaging in investment banking. For starters, Glass-Steagall did nothing to decrease the likelihood of banks failing during the Great Depression. The other issue, as is illustrated in a robust report from the Cato Institute on the myths behind Glass-Steagall, is that it ended up making banking more fragmented and expensive (also see Ramirez, 1999).

3. FDR's agricultural policy worsened the Great Depression. In 1933, FDR passed the Agricultural Adjustment Act [AAA]. The purpose of the AAA was to subsidize farmers to limit agricultural production in order to increase the prices of agricultural goods. Destroying tons of food is reprehensible, especially in a depression in which millions are starving. What were the economic effects of the AAA? Economists from Cambridge University (Fishback and Kachanovskaya, 2015) looked at the multiplier effects to find that they were, on average, between 0.40 and 0.96, which is economic speak for "it caused more economic harm than good." Another paper shows that the AAA had little or a somewhat negative effect on agricultural spending (Fishback et al., 2005). There is also econometric evidence showing that the AAA was responsible for the displacement of black and white sharecroppers, as well as black managing tenants (Depew et al., 2013).

4. FDR is responsible for Social Security. Social Security was created as a temporary relief system to make sure the elderly weren't dying in the streets during the Great Depression. It has since evolved into a source of supplementary retirement income. Aside from being a major driver of the federal budget, Social Security's return on investment (ROI) is mediocre in comparison to investing in stocks, bonds (either corporate or U.S. treasury), and/or real estate. The Tax Foundation compared tax-favored retirement plans to Social Security, and it's not even close (Entin, 2016). The Heritage Foundation makes a similar case (Dayaratna et al., 2018). Social Security does not allow for people to save for retirement as they see fit, even though there is evidence that private retirement investment is superior. Since the primary metric of Social Security is ROI, FDR inadvertently failed the American people, even well beyond his death.  

5. FDR's income tax reform is sadly still with us. As the American Institute for Economic Research points out, only 10 percent of earners paid the income tax in 1939. By 1946, that increased to 96 percent. This is one way of saying that "FDR forced the working class to pay the income tax to this very day." The personal exemption also dropped by half between 1939 and 1942 to contend with revenue strains. The aforementioned modifications, even if intended to be temporary, became more permanent fixtures in the U.S. tax code. FDR had also raised the top marginal tax rate to an astounding 94 percent in 1944. This sort of precedent has led certain Democratic politicians to think that a high marginal tax rate is a good idea, although there is enough evidence showing that high marginal tax rates would be a poor life choice. 

6. FDR was a power-mongering politician that eroded the balance of powers. In response to the fact that the Supreme Court ruled a number of his initiatives to be unconstitutional, FDR attempted to pack the courts to get his way. The silver lining here is that FDR failed in his attempt. As I pointed out in my September 2020 analysis, court-packing is a way that would-be or future autocrats use to concentrate power. Additionally, FDR moved the Bureau of the Budget (now the Office of Budget and Management [OBM]) under the executive branch (Executive Order 8248). A move to have greater power over the budget is significant since the Constitution grants budgetary powers to Congress. Speaking of Congress, FDR vetoed a large number of bills and set the precedent of using the executive order as a way to circumvent Congress when he didn't get his way. This illustrates further irony since the Democrats controlled Congress at the time, which shows how much FDR wanted to consolidate his own power. And let's not forget that the 22nd Amendment, the amendment creating term limits, was in response to FDR winning four elections. 

7. FDR had disdain for the freedom of press and limited it. For those who have criticized Trump's attitude towards "fake news," this should set off some alarm bells. FDR constantly complained about "poisonous propaganda." In his 1936 election, FDR bemoaned that 85 percent of the media were "out to get him." Going back to the previous point, FDR created the Federal Communications Commission [FCC] in 1934 to have better control of the media. As Reason Magazine illustrates, this gave FDR the ability to regulate content and intimidate broadcasters and newspaper publishers to not cover anything critical of the Roosevelt administration. 

8. FDR's collusion with Hugo Black almost led to a mass surveillance state. This brings me to the Black Commission, which was FDR's attempt at mass surveillance in the United States (read research from Cambridge here, as well as research from the Georgia State University here). Led by Senator Hugo Black (a move that FDR approved), who was a New Deal loyalist, this Committee initially was created to probe into opposition to the "death sentence" in the Public Utility Holding Company Bill, a bill that would have allowed for dissolution of public utility entities. This initial probe gave the administration the carte blanche to surveil thousands of telegrams to find those who were anti-New Deal and journalists who voiced their dissent. Thankfully, William Randolph Hearst fought back. This was not only good for freedom of press at the time, but it helped limit the McCarthy hearing in the 1950s. For those who think that Trump has been bad for freedom of press or freedom of speech, FDR was undoubtedly worse since his goal was to use the state to create an Orwellian society in which dissent was not tolerated. 

9. FDR's racist policy is exemplified by Japanese internment camps. In response to the Pearl Harbor attack, FDR detained 120,000 Japanese-American citizens and Japanese expatriates at internment camps, effectively stripping them of their civil liberties and deleteriously disrupting the economic way of life (Executive Order 9066).  

10. FDR failing the Jewish people highlights his inept refugee policy. Being Jewish, this one hits home for me. The MS St. Louis was an ocean liner carrying over 900 Jewish refugees fleeing Nazi Germany. Instead of allowing them asylum, FDR denied them entry to the United States. They were sent back to face the horrors of the concentration camps. FDR did not increase the refugee limits, even though there was clearly a refugee crisis looming in Europe. FDR actually added requirements that made it more difficult for Jewish refugees to enter the country. Even more appalling is that FDR held prejudices against Jews (L.A. Times). His anti-Semitism resulted in the torpedoing of Jewish rescue efforts throughout the war (Medoff et al., 2006). For those who have taken issue with Trump's so-called "Muslim ban" and want a friendlier refugee policy, you shouldn't be happy with FDR if you are to remain consistent. 

11. FDR's indifference towards violence against African-Americans. While FDR expressed opposition to violence towards African-Americans, he ended up turning away a Republican-sponsored bill to make lynching a crime on the federal level. There is no significant evidence that FDR cared about lynching specifically or violence against African-Americans generally. This is significant considering that a) FDR is venerated on the Left, and b) one of the biggest activist issues on the Left is fighting violence against African-Americans. 

12. FDR deported thousands of Mexicans. From 1929 to 1936, the U.S. government repatriated thousands of Mexicans. Although this policy was a continuation of the Hoover administration, it should say a lot that FDR, a president venerated by a number of modern-day, pro-immigration liberals, continued said policy. The University of Arizona estimates that over 92 thousand Mexicans were deported during FDR's time in office (see below). Other estimates have the figures even higher. If you think past presidents such as Trump and Obama deporting people as morally problematic, so were FDR's actions. 

Why Cory Booker's Affordable Housing Plan Is Mostly Deficient, But Has Some Good in It

In recent months, I have noticed that various Democratic figures are shifting the Democratic Party to the Left. The Green New Deal, introduced by freshman Congresswoman Alexia Ocasio-Cortez (D-NY), has been a  topic of discussion long after it was voted down. Congresswoman Pramila Jayapal (D-WA) introduced a version of "Medicare for All" that was even more extreme than that of Bernie Sanders (I-VT), which says something. Presidential hopeful Elizabeth Warren (D-MA) has proposed student debt forgiveness. Now Senator Cory Booker (D-NJ) has joined the fun. Booker recently released his affordable housing plan. Before getting into the particulars of his plan, Booker tells the story of the challenges his parents faced in acquiring housing. He then has a five-point plan: renters' tax credit, Baby Bonds, zoning reform, combat housing discrimination, and eliminate homelessness. For time's sake, I am only going to cover the first three in detail here today.

Tax Credit for Renters
Booker has proposed a renters' tax credit that covers the difference between the 30 percent of a beneficiary's income and their rent [capped at the neighborhood fair market rent]. The median tax credit, if enacted, would be $4,800 annually. His reason for such a tax credit is that nearly half of renters pay more than 30 percent of their pre-tax income on rent. To mitigate the burden of rental costs and ultimately allow for better savings to eventually purchase a house, Booker finds this to be part of the solution.

There are some issues with this proposal, such as administrative costs, incidence, and whether the government can deliver the credit when the rent is supposed to be due [monthly], as opposed to one annual tax credit (Tax Policy Center). The main issue with Booker's plan is that his tax credit acts similar to a demand-side subsidy. I agree that a subsidy is technically not the same as a tax break. A tax break is allowing for a taxpayer to keep more of the paycheck that they earn, whereas a subsidy is a government expenditure to directly fund something. However, my caveat with this is that 47 percent of Americans do not pay federal income tax. When looking at federal taxes by income quintile, the lowest quintile pay a net federal tax rate of 1.5 percent. With the average household income for the lowest quintile being $12,457 (Census), the federal taxes that these households pay ($187) is less than the median amount of the tax break proposed by Booker, thereby making the tax credit de facto act as an indirect government subsidy.

That being said, mainstream economic theory states that such a subsidy would artificially push the demand curve upward. While an increase in demand would increase quantity consumed, it would also increase price. This is not mere economic theory. It plays out in practice. With regards to college, government subsidies towards college tuition have caused college tuition prices to skyrocket. Single-payer healthcare has pushed the demand curve well beyond market equilibrium, thereby making healthcare more expensive. Granted, the two main issues with these analogies is that a) they do not take place in the housing market, and b) these are direct government subsidies, whereas Booker's proposal is a tax credit.

If you want me to point out something more directly related, look no further than the mortgage interest deduction (MID), a tax break that de facto subsidizes the housing market. What happened when the government tried to use the tax code to incentivize housing and make it more affordable? Not what was expected, that's for sure. The MID does not make housing cheaper. It merely incentivized people to purchase more expensive homes, thereby increasing indebtedness. The MID did not end up increasing home ownership, which was its primary goal. It actually made it more difficult for lower-income households acquire a house. As such, it would be reasonable to assume that similar unintended consequences would result in the rental housing market, as is brought up in the Tax Foundation's analysis of Booker's renters' credit proposal.

Instead of fighting fire with fire, perhaps Booker could make the tax code more neutral by repealing the MID instead of causing more complexity to the tax code and the housing market.

Baby Bonds
Booker's second proposal, which is actually the one policy idea that currently distinguishes him in the presidential race, is to implement Baby Bonds. A "Baby Bond" is a government-funded savings account that, per his proposal, would grow in a federal trust and provide enough seed capital to fund a downpayment on a house. A study from Columbia University recently found that it would help close the wealth gap between black and white people (Zewde, 2018), a wealth disparity that exists regardless of income quintile (Duke University; St. Louis Federal Reserve). The other good news is that it would cost about $80 billion annually, which would be $800 billion over a decade. This is low compared to certain government budget line items or certain tax credits. It would also be less divisive than reparations. Even if you set up the Baby Bond in a way that the money would only be withdrawn for paying towards a house, we still run into some issues.

1. The tax break acts as a subsidy towards housing. As brought up in the previous section, the mortgage interest deduction (MID) has distorted the housing market with multiple unintended consequences. It would not be surprising to see similar distortions to the housing market as a result of Baby Bonds. 
2. We already have a clear example of how the government handles asset management: Social Security. Social Security provides lower rates of return relative to alternatives (see 2018 Heritage Foundation backgrounder; 2018 OECD report showing that private pensions fare better; 2016 Tax Foundation report; Ahmed et al., 2016; and my 2013 analysis). 
3. My general skepticism surrounding the government's asset management for Social Security is compounded with Booker's plan. When Booker initially proposed the Baby Bonds idea through his "American Opportunities Account Act" in October 2018, he proposed putting them in low-risk bonds at an estimated rate of return of 3 percent. While government bonds don't have the lowest rate of return, there are other higher-yielding options that could further create wealth.  
4. The government shows a lack of political willpower to deal with the fiscal insolvency component of Social Security. Can we expect the Baby Bonds program to realistically stay solvent?
5. More broadly, there is the question of how the U.S. government is going to pay for it. This country is still dealing with burgeoning debt growth. Under the Congressional Budget Office's baseline projections, the debt-to-GDP ratio is going to reach 93 percent by 2029 (CBO, p. 2). It is going to take eighteen years before the first recipients even cash out. In the meantime, the U.S. government has added $800 billion to the debt (plus applied interest payments). Too high of a government debt dampers economic growth, which impacts quality of life, especially for those who Booker is trying to help (see Peterson Foundation; Congressional Research Service; Mercatus Center; European Commission; Dallas Federal Reserve). The Baby Bonds program isn't going to break the bank, but it doesn't mean it wouldn't exacerbate the debt issues, either.
6. Booker plans on increasing the capital gains tax and estate tax. An increase in the capital gains tax and estate tax would slow down wealth growth, which would be ironic considering that wealth is what Booker is trying to grow. 
7. One criticism of the Baby Bonds is dealing with more imminent poverty issues, such as child poverty. University of Chicago law professor David Hemmel argues that the focus should be on child poverty because the effects of poverty on a child are lifelong. Hemmel posits that it would be preferable to address these current issues, in no small part because there are many developmental needs that need to be met before the individual would cash out on the Baby Bond at age 18. Zewde, the author of the Columbia University, presents the counterargument that providing children with hope about their future has its own intangible benefits. 
8. There is an issue of political feasibility. Even if the Democrats took both Congress and the White House, a recent Rasmussen poll shows that 48 percent of Americans disapprove of Booker's proposal.
9. Much like I expressed with the child tax credit, I have a philosophical qualm as to whether childless households should have to support another household's choice to support children. A philosophical qualm is more subjective than a policy outcome, but it's still worth considering.
10. Since this is part of a housing plan, let's assume that the Baby Bond could only be cashed for housing purposes. Booker's plan comes with the paternalistic assumption that lower-income households do not know how to best spend this accumulated wealth, which is why Booker proposes that the spending goes towards housing. Forgetting that owning a house is not for everyone, I have to ask this question: If lower-income households cannot be trusted with spending the accumulated wealth on something aside from housing, how can we trust them to make the right spending decision with regards to the house for which they make the downpayment? 
• Alternatively, let's assume that the eighteen-year old could gain access and use it for whatever they would like. In this alternative, the plan would implicitly assume that the young adult is going to spend that money wisely. This individual just became an adult. There is a chance that they are going to spend it on something stupid or frivolous, especially considering that the brain doesn't fully mature until around the age of 25. There is also a high likelihood that they are going to get their college tuition bill and spend it towards college. If the Baby Bond turns into a federal subsidy for college tuition, we already know that such a subsidy is going to cause college costs to skyrocket further.

Zoning Reform
Booker points out that restrictive land use regulations have constrained affordable housing by more than 50 percent from 1964 to 2009. I wrote a piece a couple of years ago on land use regulations (also see October 2017 policy report from the Cato Institute), and this is the one area in which Booker and I are in total agreement. Land use regulations have driven up housing prices by constraining housing supply, as well as create more volatile boom-and-bust cycles in the housing market.

Bottom Line: Baby Bonds and renters' tax credits are only going to add to the issues of affordable housing. If we want to make a difference, two sound policies would be abolishing the mortgage interest deduction (MID) to make housing more affordable and to remove land use regulations in order to increase affordable housing supply.

12-13-2018 Policy Digest: Gender Wage Gap, Social Security Privatization, Occupational Licensing

There is quite a bit of policy research that has come across my attention in the past few days. The bad news is that I cannot cover it all in the depth that I would like. The good news is that I have covered these topics in the past in some way, shape, or form, which means I can cover these topics more easily. With that being said, let's begin, shall we?

Gender Wage Gap: More Evidence It Is Misleading
Late last month, the Institute for Woman's Research put out some shocking research: the wage gap has been "woefully misstated." Their conclusion is that a woman makes 49¢ for every dollar a man makes. The reason why it looks worse has to do with how they're pulling and manipulating the data. To arrive to this conclusion, the Institute for Woman's Research compared all the earnings of women to all the earnings of men over a fifteen-year period, including part-time and unemployed workers. Unsurprisingly, four out of ten women were out of the workforce for at least a year, which is twice the rate of men being out of the workforce. Beforehand, the gender wage gap figure compared all male full-time workers to all female full-time workers. Including time with no income is naturally going to distort the statistical data to paint the picture that women are very underpaid.

You can see my analysis from February 2018 and April 2013 on the gender wage gap, but my contention has been that not using an apples-to-apples comparison is a manipulation of the data to advance a certain goal. The Institute for Woman's Research is merely the latest attempt to manipulate the data a step further. When you adjust the data for educational attainment, occupational choice, hours worked, and other forms of labor force attachment, the wage gap is all but nonexistent. Fortunately, a study from Harvard University adds to evidence to support my contention (Bolotnyy and Emanuel, 2018). The Harvard study looked at data on bus and train operators from the Massachusetts Bay Train Authority. Since the Authority is unionized, men and women do the same work for the same hourly wages and conditions, and promotions are based on seniority, and yet there was still a wage gap of 89¢. The reason for the gap? Men worked longer hours, and were paid more overtime. Plus, the women took off more time due to childrearing. Much like the study on the wage gap in the ride-sharing earlier this year, it focuses on one market, but it also adds to the increasing preponderance of evidence that the wage gap is not caused by gender discrimination, but by the different choices made by men and women.

Social Security Privatization
I thank former Cato Institute fellow Daniel Mitchell for bringing this one to my attention. The Organization for Economic Development and Cooperation (OECD) released the OECD Pensions Outlook 2018. In it, the OECD stated that "funded, private pensions may be expected to support broader economic growth and accelerate the development of local capital markets by creating a pool of pension savings that must be saved." Many OECD countries have partially or completely privatized its retirement savings (see below), including Australia, Denmark, Sweden, Singapore, the Netherlands, Chile, and Switzerland. I hope that the United States can have the good sense to privatize Social Security one of these days.

Occupational Licensing: Two New Studies
I have written about how occupational licensing creates barriers of entry to many markets, which disproportionately affects the poor. It also increases prices of goods and services since it is an additional cost of labor. How much does occupational licensing cost the economy? A study from the Institute for Justice found that occupational licensing costs the U.S. economy $200 billion annually  (Kleiner and Vorotnikov, 2018). A study from the National Bureau of Economic Research also reduces the equilibrium labor supply by anywhere from 17 to 27 percent (Blair and Chung, 2018).