Publications by Leonard E. Burman for Retirement Policy

This paper proposes to expand Medicare to cover comprehensive long-term care services, including home care and custodial nursing home care. These services would be financed by a surcharge on federal income taxes. Unlike the regressive payroll tax that finances Medicare’s hospitalization coverage, the proposed surcharge would not increase tax burdens for low-income people. Beneficiaries would share costs through deductibles and copayments, but the program would include stop loss coverage and special protections for low-income adults. By providing long-term care insurance that protects the assets of older adults, our proposal would eliminate the savings disincentives inherent in the means-tested Medicaid system.

This report examines the economic and distributional effects of changes made to retirement tax incentives by the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA). We augment the Tax Policy Center microsimulation tax model with information about saving from the Survey of Consumer Finances. Based on that model, we estimate that although EGTRRA provided some additional tax benefits for middle-income households, the benefits were skewed in favor of those with high incomes, and there were no benefits for those with low incomes. Better targeted policy options exist. We also estimate that when the effect on the deficit is considered, the policies are likely to reduce national saving by as much as 1 percent of GDP.

This paper incorporates retirement saving incentives into the Tax Policy Center microsimulation model and analyzes the distributional effects of current tax preferences for saving. As a share of income, tax-preferred saving incentives provide the largest benefits to households with income between $75,000 and $500,000, roughly the 80th to 99th percentile of the income distribution. In 2004, the top 20 percent of tax filing units by income will receive 70 percent of the tax benefits from new contributions to defined contribution plans and almost 60 percent of IRA tax benefits.

This paper describes the importance of defined contribution (DC) plan assets and Individual Retirement Account (IRA) assets to retirement security for older adults and examines how they dispose of these assets when they retire. The analysis is based on nationally representative data from the 1992-2002 waves of the Health and Retirement Study. Although a large and growing share of the older population has participated in DC plans and contributed to IRAs, the results show that few older adults elect to convert their balances into annuities when they retire. Careful modeling of the annuitization decision by older adults is required to understand the reasons behind the low rates of annuitization and to evaluate their implications for retirement security.

Before 1984, Social Security benefits were exempt from income tax. As part of the Greenspan Commission reforms intended to bolster Social Security's finances, up to 50 percent of Social Security benefits became subject to tax in that year, with proceeds from the income tax allocated to the Social Security Trust Fund. In 2004, we estimate that there are more then 28 million households receiving Social Security benefits.

In his FY2005 budget, released Monday, President Bush proposes a set of new tax-preferred saving accounts (which were first presented in last year's budget). Under the Administration's proposal, two new types of individual accounts—called Lifetime Saving Accounts (LSAs) and Retirement Saving Accounts (RSAs)—would be created. This note provides information to help assess these proposals.

In 2001, Congress significantly expanded the scope of Individual Retirement Accounts (IRA). This paper uses variation in IRA eligibility rules in the 1980s and 1990s to determine whether more widespread access to IRAs undermines traditional employer-sponsored pensions, especially 401(k)-type plans. This paper develops a model of the value of fringe benefits with a special focus on the valuation of pensions. The theoretical model illustrates how IRAs can reduce demand for employer-sponsored pensions. The empirical results, based on a model of compensation and job turnover, indicate that workers highly value pensions and health insurance. The findings suggest that restrictions enacted in 1986 on IRAs did not significantly increase workers' demand for employer-sponsored pensions.

Will Rogers once said, "If you find yourself in a hole, the first thing to do is stop digging." Medicare is in a deep hole. The small surpluses accruing right now will turn to deficits starting in about a decade when the baby boomers start to retire. By 2026, government actuaries estimate that the Medicare trust fund will be exhausted.

As the nation faces the growing aging population, the authors discuss numerous Social Security reform proposals that would scale back benefits, or use individual savings accounts or increased government and Social Security surpluses to try to increase national saving and, eventually, to replace lost benefits. The authors conclude that proposals should be judged according to their ability to meet various goals or principles. Among the most important are fairness, economic efficiency, and economic growth. More research is needed on the fine points of proposals to fend off a retirement crisis and put Social Security and Medicare on a secure footing. Such research should feed into a national dialogue on Americans' shared retirement future.

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