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Publications by Rudolph G. Penner for Retirement Policy

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More about Rudolph G. Penner's areas of expertise can be found on this Urban Institute expert's page.

The U.S. budget is on an unsustainable path. That is because Social Security, Medicare, and Medicaid, which together constituted almost one half of noninterest spending before the recent stimulus plan, are all growing faster than tax revenues. If these programs are not reformed, tax burdens raised, or other spending decimated, deficits and the national debt will explode. It is difficult to imagine solving the entire budget problem by slowing spending growth, because benefits would then be far below those previously promised. It is equally unlikely that tax increases could solve the whole problem because the tax burden would then be so far above any ever experienced by Americans. To the extent that tax burdens are to be increased, there are three options. Tax rates could be raised in the existing system, but that would be extremely inefficient. Tax reform might raise revenues more efficiently, but that is excruciatingly difficult politically. That leaves the possibility of a brand new tax and a VAT is a very likely candidate.

The article considers special federal tax provisions affecting the elderly. It examines the taxation of Social Security, private retirement accounts, estate taxation and other provisions of the law that mention age. It also analyzes how the elderly might be affected by tax increases necessitated by the dismal long-run budget outlook. In particular, it looks at the possibility that we shall become more reliant on consumption taxes.

This paper estimates the ratio of post- to pre-retirement consumption to explore how well boomers are prepared for retirement. I show that some of the poorest households are best prepared because they can maintain consumption by relying almost solely on Social Security while many of the most affluent households are poorly prepared because they will experience a decline in consumption upon retiring. Nonetheless, affluent households will be able to maintain a consumption level many times that of poor households. The paper discusses whether equalization of pre- and post-retirement consumption provides a useful adequacy yardstick at all income levels.

Pittsburgh Post-Gazette op-ed, September 28, 2008. The current financial crisis poses a severe threat to the economy, but it also creates a tremendous opportunity, writes Rudolph Penner in the Pittsburgh Post-Gazette. It gives politicians cover for undertaking painful actions to get the long-run deficit under control-actions that should have been taken long ago.

Official measures suggest that personal saving has been declining for the past 20 years, and even became negative in 2005. Inadequate saving threatens retirement preparations and reduces investment, which helps boost worker productivity and ultimately wages and living standards. However, neither of the two prominent measures of the saving rate, one based on the National Income and Products Account and the other on the Flow of Funds, exactly conforms to what most people think of as saving. This brief explains the measures and describes how they differ.

Older men who expect high health care costs for themselves or their spouses after age 65 retire about 13 months later than those who expect low costs. The difference for women is 12 months. For those receiving health insurance from their employers, continued work reduces the risk of high out-of-pocket health care costs. Working longer also increases retirement incomes, making health care costs more affordable.

The authors of this paper—longtime federal budget and policy experts—were drawn together by a deep concern about the nation's long-term fiscal outlook. Despite diverse philosophies and political leanings, they found solid common ground and agree that unsustainable deficits in the federal budget threaten the health and vigor of the American economy and the first step toward establishing budget responsibility is to reform the budget decision process so that the major drivers of escalating deficits—Social Security, Medicare, and Medicaid—are no longer on autopilot. The paper provides specific policy recommendations and outlines the reasons action is critical.

Government analysts portray a bleak fiscal future as the retirement of baby boomers and soaring health costs push up expenditures on Social Security, Medicare and Medicaid much faster than projected tax revenues. Some argue that the analysts' economic growth projections are too pessimistic. This analysis argues that official growth projections are quite reasonable, but even if they are too pessimistic, faster growth will accelerate Social Security costs because of the program's structure and health costs are also likely to grow more rapidly. Faster growth will, however, ease the pain associated with necessary reforms.

Rising health care costs threaten financial security at older ages and lead many older Americans to delay retirement. Continued work reduces the risk of high out-of-pocket health care costs for workers receiving health benefits from their employers. Working longer also increases retirement incomes, making health care costs more affordable. This report shows that men with very high expected health care costs after age 65 retire 11 months later than those with very low health care costs. For women, the difference is 12 months.

Fiscal policy is out of control. Programs, such as Social Security and Medicare, have design features that push up spending faster than the growth of revenues. It is time to change the course of the automatic pilot driving these programs. To do so, policymakers can develop “triggers” that automatically curb spending. Triggers will level the playing field between programs that have large automatic growth and those where growth or even maintenance of effort cannot be obtained without new legislation. The paper examines triggers employed to reform Social Security in other advanced democracies and explores design options for an optimal trigger.

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