Friday, January 07, 2005

Two dimensions of Social Security reform

I think Bruce Bartlett is on to something here.
Estimates show that just keeping real benefits unchanged — they would still be indexed for inflation — would allow Social Security benefits to be paid forever with no increase in tax rates. Future retirees will get exactly what current retirees get in inflation-adjusted terms. They just won’t get more, as they will under current law.

If I were a Democrat, I would support this reform and thus get the whole issue of Social Security’s solvency off the table. This would force Republicans to justify private accounts on their own terms, rather than as a cure for Social Security’s long-term deficit. If Republicans don’t go along, it would prove that they aren’t interested in saving Social Security, but instead have another agenda.
Are private accounts justified on its own terms? I think they are. Americans would be richer in the long term if they saved more; replacing our pay-as-you-go social security system one where people save more for their retirement is a good thing. See Martin Feldstein's more detailed argument.

Will Democrats take Bartlett's advice? I think not. Too many of them think of Social Security as an entitlement. (My opinion is that people, unless they have the means and desire to retire earlier, should work as long as medically feasible, not until they reach age N.)

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