Social Security Critique Misses the Point, Lacks Realistic Solutions
Robert Eisner’s recent column, “Kerrey-Simpson Package Would Destroy Social Security Benefits,” presents a seriously distorted view of our proposal to strengthen retirement security.
Eisner misrepresents and criticizes virtually every viable action for restoring long-term solvency to Social Security, preferring instead to solve the problem by increasing the country’s population. Simply increasing the population of the country and placing more demands on our resources is hardly a realistic solution.
The problem is this: Social Security has promised benefits to millions of Americans far in excess of their contributions, and far in excess of what future payroll taxes will be able to support under current law. Given that retirees are living an average of more than a dozen years after retirement, it is easy to see why the system has only proven sustainable by passing higher payroll taxes on to the next generation.
As a result, Social Security, despite the last decade’s payroll tax hikes, will begin to experience a deficit by the year 2013, forcing either substantial benefit cuts or tax increases to meet our obligations to future retirees. Benefits under current law are such that Social Security and Medicare alone will take up more than 30% of the national payroll tax base by the year 2030.
Of course, such an arrangement can work, as Mr. Eisner points out, as long as there are sufficient workers paying taxes to support benefits for each retiree receiving them. However, at the time of Social Security’s inception, there were 16 people paying in for each one collecting. Now the ratio is approaching 3 to 1. Clearly, the system must be reformed to be sustained.
Mr. Eisner, however, presents no solutions. As he points out, the problem would not exist if the economy grew fast enough, and if there were sufficient new workers to support the retirement of the baby-boom generation. But this isn’t happening. The members of Congress who have an obligation to ensure the sustained solvency of the system must operate within the boundaries of reality, not within hypothetical scenarios.
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Most of Mr. Eisner’s ideas worsen these very problems. He criticizes us for “increasing public dissaving,” but then endorses increased tax credits and repealing the Social Security earnings test. Both measures decrease federal revenues, increase deficits and “dissaving,” and would even speed the insolvency of Social Security.
Mr. Eisner also incorrectly says that we would “cut” 0.5% from the cost of living index each year. That is wrong. Most economists agree that the consumer price index overstates inflation, and our proposal would simply instruct a commission to correct that problem. The 0.5% decrease would only be in effect until the reforms were enacted. In any case, it represents a conservative estimate of the error in the CPI. It is by no measure a “cut” in core benefits, since cost of living adjustments (COLAs) were never part of the original Social Security “contract”--and in any case, our proposal would retain them but simply change the formula so that it more accurately reflects the cost of living.
It is disappointing that Mr. Eisner criticizes our proposal to gradually increase the eligibility age to 70, over the course of several decades. When Social Security was enacted, the average life span was lower than the age of eligibility, whereas now it is more than 12 years higher. Surely we can agree on some reasonable reforms that reflect this change.
Mr. Eisner also misses the most important part of our proposal: to allow American workers to acquire ownership of the wealth they will need to fund their own retirement. Our 2% “Personal Investment Plan” will generate $1 trillion in new savings, will create new wealth distributed across 137 million paychecks, will be managed by the Social Security Administration and will be available for retirement at 59.5 years of age. The Personal Investment Plan moves us in the direction of giving Americans a chance to enjoy more benefits from the 12.4% contribution they are required to make annually toward their retirement.
We prefer not to leave our children’s and grandchildren’s future to unrealistic scenarios. Future generations of retirees would be far better served if Mr. Eisner and others would join us in the challenge of getting real problems under control with realistic solutions.
