1) Mandatory Annuitization
I view this as an important piece of the plan. The explicit purpose of Social Security is to provide insurance against outliving your assets in retirement. An annuity is the appropriate payout vehicle for this purpose. That's why the plan insists on full annuitization by age 68 in the form of joint and survivor annuities indexed to inflation. We allow for 10-year certain annuities. We have nothing against bequests--we just don't think they are fundamental to Social Security.
2) Our Fiscal Priorities
Several folks have commented that the costs of health care (Medicare and Medicaid, and presumably for everyone else too) and the General Fund deficit are more important than Social Security. I certainly agree with the first, and I don't want to minimize the importance of the second, even if I were to argue that it is not as critical as Social Security. So the question becomes, "Do you solve the easiest problem first, or do you solve the largest problem first?" My answer is that if I could solve the largest problem first, I would. I don't think I can do it, at least not in a way that would gain political traction. See the critique here, and some replies here and here.
3) Around the Blogosphere
Nice mentions of the plan over at Asymmetrical Information (which sent a ton of traffic), The Sacramento Bee's blog (ditto), EconLog, Macroblog, Joe's Dartblog, News and Analysis, Outside the Beltway, and Just One Minute. There were some questions raised in two places that I'd like to address:
a) PGL over at AngryBear writes:
The second comment draws from “no transfers from general revenues to achieve sustainable solvency”. Is the converse part of their plan. My main concern with the Bush Administration (beyond their brazen dishonesty enabled by the Cato crowd) is that their real agenda is to transfer funds from the Social Security Trust Fund to reduce the massive long-run General Fund insolvency issue – what I’ve dubbed a backdoor employment tax increase. I hope Dr. Samwick joins me in also saying that this type of transfer should be off the table.
It's way off of my table. It's not in the kitchen. It's not in the house. We can't even see it from the porch. For example, I have been very disappointed at the continued use of the unified budget (conditional on Social Security being in surplus) as the target for policy. I posted this a year ago. I also couldn't follow the money on the GROW accounts proposal in June. I don't share PGL's view of the "real agenda," but I do believe that we are unlikely to get much budgetary improvement until we hold the federal government to either of two fairly easy to specify targets: a balanced on-budget deficit over the business cycle, or no upward trend in the debt/GDP ratio (including anything held by Social Security).
b) Over at Economist's View, Mark Thoma wants more information. Go read his post and come back. I'll address his questions in order, with my paraphrasing:
i. Is it really a problem? Yes, I think so. The problem is mainly one of demographics. Absent a pandemic that selectively wipes out the Baby Boomers but not their children or an immediate end to contraception, I don't see how the demographic burden doesn't increase by enough to make this a problem. In fact, I share the view that the likely improvements in mortality are understated in the projections. I also believe that the actuaries are projecting too little productivity growth in the long term (which would improve the system's finances), but I don't think we can honestly project that we will grow our way out of this.
ii. Does increased life expectancy translate into increased working years? I am sympathetic to the point that the answer is "not necessarily." I think that any reform that lowers the benefits to retirees while trying to hold disabled beneficiaries harmless has to expect an increase in the number of folks applying for and receiving disability benefits. I would appreciate any links to sources that can quantify the answer to this question.
iii. Is a program for the poor destined to be a poor program? This worried Jeff to no end in our discussions. Out of respect to his concerns, the plan contains more benefits at the higher end of the earning distribution than I would have liked. The bottom line is that the changes made have to be progressive--I would have preferred more of that to be in the form of benefit reductions than tax increases. I think Jeff would have preferred the opposite. Poor Maya sometimes couldn't figure out which of us was which. That's what makes a compromise. You can see the actuaries' projections here (last 4 pages).
iv. Why not hold the investment risk centrally? Yes, the answer is perhaps in the realm of the philosophical. I'm not going to allow the federal government this much ownership of private assets. I recognize that this is an accounting cost that we have to pay. It is worth every dime, conditional on the rest of the plan.
v. How can you trust the current federal government to do this? I don't share the underlying skepticism. The main point of the exercise was to encourage a coalition to form from the center and move progressively outward in both directions. The lack of trust is, in my view, between the midpoints of the two parties, which are in fact very far apart. But we are willing to stake the success of the plan on the presumption that there are a lot of people in the center who don't distrust each other, or those who would be added to the coalition as it moves out from the center, and who want to see some judicious reform enacted. If we guessed wrong, then the plan goes nowhere.
Thanks for all of your feedback and comments.