The National Commission On Fiscal Responsibility And Reform: How Its Report Can Impact Marginal Tax Rates

Abstract

The United States government has a serious budget problem.  In 2010 President Barack Obama created the National Commission on Fiscal Responsibility and Reform to deal with the problem by identifying policies to improve the fiscal situation.  Among the Commission’s recommendations was a proposal to modify payments under Social Security.  For most recipients, the modifications would decrease Social Security benefits although benefits would increase for the poorest quintile of recipients.  The purpose of this paper is to construct a model for evaluating the proposed shift in Social Security payments.  From the perspective of Social Security recipients, the model shows the cutbacks as the partial loss of an annuity stream, as the loss of a lump sum that is capable of generating the partial annuity stream, and as a tax increase for the remainder of the recipients’ working years as they deposit a special tax into a retirement account designed to replace the lost benefits.