The current lack of consensus in Congress concerning Personal Accounts should not be allowed to stand in the way of essential legislation to address Social Security's chronic solvency problem, which will only become more acute and intractable in the absence of timely action. Therefore, in an attempt to move the political process forward to start dealing today with what will be unavoidable tomorrow, Senator Bennett has announced that he will be introducing two separate pieces of legislation. He is seeking both Democratic and Republican senators to join him in all or part of this effort.His initiative met with support from the Washington Post editorial page, apart from its reliance exclusively on restoring solvency through the benefit side. In particular, the solvency part of the reform is designed to:
Specifically, Senator Bennett will introduce one bill that addresses only the solvency problem and does not increase the payroll tax rate or expand the base of earnings subject to Social Security taxes. The senator will also introduce a second bill to enhance the income security of future retirees by allowing the creation of "Carve In" Personal Accounts and revising existing pension laws to encourage higher levels of personal retirement savings in employer-sponsored pension plans.
- Implement a form of "progressive indexing" that reduces the generosity of the future benefit formula disproportionately at higher lifetime earnings levels.
- Accelerate the increase of the Normal Retirement Age to 67 and periodically have them adjusted for future increases in life expectancy.
- Protect the benefits of disabled workers during the period before they reach the Normal Retirement Age, after which their benefit reductions would be prorated by the proportion of time that they were disabled.
In separate legislation, Bennett plans to introduce personal accounts that allow workers to divert 2 percentage points of their payroll tax to personal accounts if they put in the equivalent amount out-of-pocket. The diverted revenues would offset future Social Security benefits, in the same way that other personal account contribution plans have specified. This seems like a reasonable compromise on the accounts. In particular, it recognizes that, if less money will be coming from the traditional Social Security benefits relative to current law, then workers ought to be encouraged to save more on their own and the government might facilitate that additional saving with a simple personal account option. Other areas of compromise will likely come in the form of tax increases versus benefit reductions in the restoring of solvency.
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