I have devoted a few posts to taking the Democratic leadership in both the Congress and the Presidential campaign to task for failing to play a constructive role in the debate on Social Security reform. In less strident language, I have also noted my disappointment that President Bush has not put more emphasis on this issue by, for example, submitting one of the plans devised by his Commission as a starting point for bipartisan legislative debate. So what do I think is the right way to reform Social Security?
Here are my objectives, in declining order of importance:
1. Restore Solvency. The pressing problem today is that the benefits promised under current law are projected to exceed the revenues collected. The present value of that excess is $10.4 trillion. We need to fill that hole.
2. Relieve Poverty. The purpose of Social Security is to provide insurance against poverty in old age. Social Security collectively refers to the Federal Old-Age, Survivors, and Disability Insurance programs. Any reform of the system should pay careful attention to these risks of elderly poverty.
3. Keep the Program Small. I do not believe that government programs should be any larger than they have to be in order to achieve their objectives. I consider myself to be a proponent of limited (though purposeful) government. If we can meet the objectives of having the program financially sound and keeping the elderly out of poverty with a small program or with a large program, then I choose the small one.
These three objectives don't make any mention of personal accounts. That's because they don't necessarily require the program to get any bigger, measured by the size of the taxes that are necessary to support it. (Solvency could be restored through progressive benefit cuts entirely.) However, most people who have proposed a specific reform have added new revenues. Once new revenues are being added to the system, then it becomes important to figure out where they should go--the Trust Fund or personal accounts.
Confronted with that choice, I opt for personal accounts. For me, an immediate and permanent contribution of 3.5 percent of taxable payroll into personal accounts for all workers, in addition to the 12.4 percent payroll tax that they and their employers already pay, is preferable to the current system. The contributions are 3.5 percent because that is the amount that the Social Security actuaries say is required to restore solvency even if invested entirely in Treasury bonds. But such a reform, though preferred to the current scenario, is also far from ideal. I'll outline a better system in the next post.