Book contents
- Frontmatter
- Contents
- List of Figures and Tables
- Acknowledgments
- PART I PROBLEM AND THEORY
- PART II PROGRAMMATIC ORIGINS: INTERTEMPORAL CHOICE IN PENSION DESIGN
- PART III PROGRAMMATIC CHANGE: INTERTEMPORAL CHOICE IN PENSION REFORM
- Introduction
- 7 Investment as Last Resort
- 8 Shifting the Long-Run Burden
- 9 Committing to Investment
- 10 Constrained by Uncertainty
- PART IV CONCLUSION
- Bibliography
- Index
7 - Investment as Last Resort
Reforming U.S. Pensions, 1977 and 1983
Published online by Cambridge University Press: 05 June 2012
- Frontmatter
- Contents
- List of Figures and Tables
- Acknowledgments
- PART I PROBLEM AND THEORY
- PART II PROGRAMMATIC ORIGINS: INTERTEMPORAL CHOICE IN PENSION DESIGN
- PART III PROGRAMMATIC CHANGE: INTERTEMPORAL CHOICE IN PENSION REFORM
- Introduction
- 7 Investment as Last Resort
- 8 Shifting the Long-Run Burden
- 9 Committing to Investment
- 10 Constrained by Uncertainty
- PART IV CONCLUSION
- Bibliography
- Index
Summary
In 1977, the U.S. Congress and President Carter enacted the largest peace-time tax increase in American history in order to rescue Social Security from both immediate and long-term insolvency. A few years later, amidst continued economic malaise, Social Security found itself again on the brink of trust fund exhaustion. In 1983, Congress and the White House stepped in once more to restore system balances for the short and long term, this time combining substantial benefit cuts with an acceleration of the existing tax schedule.
Strikingly, both of these acts of loss-imposition were enacted during periods of historically high unemployment levels and, in the case of 1977, high inflation rates – seemingly inauspicious conditions for raising labor costs or cutting into workers' take-home pay. Moreover, in both cases politicians rejected an easier option. Rather than carrying the system through bad times with a relatively painless infusion of general revenues – as President Carter initially proposed in 1977 – Congress chose both times to rescue the program through visible contribution increases and benefit cuts. Nor was the pain eased much by delay: workers would see the effects of the December 1977 reform on their January 1979 pay slips while the 1983 increases would start to pinch in 1984.
While the 1983 reforms have received far more attention in both academic and public discussions, the 1977 law was arguably the more important reform in intertemporal terms: it closed a much larger long-term financing deficit and scheduled the short-run tax increases that the 1983 amendments merely accelerated.
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- Governing for the Long TermDemocracy and the Politics of Investment, pp. 161 - 178Publisher: Cambridge University PressPrint publication year: 2011