August 07, 2005
Social Security Reform
Mark Thoma wonders what kind of Social Securit reform is worth supporting:
Economist's View: AARP to Push for Reform Addressing Social Security Solvency: Whether for not a solvency crisis actually exists, it’s looking more and more like the ball is rolling towards reform addressing this issue. According to this report from Des Moines, the AARP has decided to push for reform that addresses long-run solvency and increases retirement savings.
AARP looks to refocus retirement debate, WhoTV, Des Moines, Iowa: The nation's largest group for older Americans wants to refocus the debate over Social Security on the need to keep the retirement system afloat. While much of the debate is over diverting tax money in private savings accounts, the A-A-R-P is using town meetings to discuss solvency. At a news conference in Des Moines today, spokesman Steve Carter says keeping Social Security solvent is essential because it's becoming an increasingly important component of retirement planning, due to some troubling trends. Carter says many private pension plans are eroding, and the overall savings rate is at its lowest point in decades...
With the AARP supporting reform involving solvency provisions, it looks to me like some sort of bill will come forward. Enhancing solvency requires increasing revenues or decreasing benefits. Is it time for the Democrats to coordinate behind a particular solvency plan? The politics of this are difficult. I'm not sure what the best strategy is going forward from here given my perception that the public believes that solvency is a problem and that a reform bill is likely.
Clearly the Democrats should get behind proposals that are good for the country--proposals that restore solvency in a balanced manner, set up automatic adjustments so that Social Security remains in balance, raise national savings, are competently implemented, and preserve the very valuable defined-benefit character of the current program.
A deal that I could easily get behind would:
- Restore expected solvency, half by cutting future benefits and half by raising Social Security taxes.
- Create automatic mechanisms--benefit cuts and tax increases--to keep Social Security in actuarial balance if forecasts deteriorate (and also include benefit increases and tax cuts if we get good news).
- Create attractive and subsidized add-on accounts.
- Restore pay-go and other institutional mechanisms that will make it next to impossible for even an administration as feckless as the Bush administration to raid the Social Security operating surplus again.
Posted by DeLong at August 7, 2005 08:11 PM